Friday, April 22, 2011

Ontario pension fund backs out of AECL deal

Is AECL worth anything more than its parts?

A fluid and confused political environment clouds the future

AECL SymbolThis is an update to my coverage in Fuel Cycle Week V10:N414; March 3, 2011 by International Nuclear Associates, Washington, DC.

More than a year after the Canadian government offered its crown corporation Atomic Energy of Canada Ltd (AECL) for sale, some commercial interest has appeared on the scene. However, early hopes of a deal have been dashed to bits.

An agreement is in peril though because construction giant SNC Lavalin's proposed partner has backed out.

The Ontario Municipal Employees Retirement System said April 22 that it feels SNC-Lavalin "does not have a long-term vision of the nuclear business."

That business-speak can be translated to mean that SNC-Lavalin simply wants AECL for its maintenance and refurbishment business, but has no plans to develop new reactor technologies nor seek export earnings with the new design.

According to the Toronto Globe & Mail for April 21, Ontario Energy Minister Brad Duguid said in an interview, “The feds have really made a mess of this process."

“Our expectation and our hope is that the federal government will get their act together on this sooner rather than later. And that this restructuring will be complete soon so that we can have a partner at the other side of the table.”

Neither OMERS nor SNC would not comment to the newspaper on the pension fund’s about-face. Montreal-based construction giant SNC-Lavalin reportedly remains in protracted negotiations with the government though the company will not say anything about them.

And even if SNC-Lavalin did want to develop the new ACR1000 reactor and seek international deals, the pension fund is not convinced the market is as robust as it might have been prior to the Fukushima crisis that began March 11 with a record earthquake and tsunami.

The twin geophysical events wrecked four nuclear reactors in Japan resulting in radiation releases that have since forced the evacuation of over 115,000 people from a 13 mile radius around the plants. Worldwide developers of new nuclear power stations are taking a second look at their plans.

Did the government make promises to OMERS?

The pension fund came into the deal expecting the federal government in Ottawa to backstop AECL on cost over runs and to support R&D for completion of the new reactor design. So far, only the sound of crickets can be heard Canada's capital city leading the pension fund to believe any hallways conversations about financial guarantees are not being echoed in written policy.

The government has refused to pay New Brunswick province for cost over runs on the Point Lepreau reactor and it has refused to pay for costly purchases of replacement power while the reactor is out of service well beyond its original outage schedule.

Where does this leave Ottawa in its quest to rid the government of what it sees as AECL's financial burdens and long-shot revenue opportunities?

Jacinthe Perras, a spokesperson for the government's Natural Resources Agency, which manages AECL, told FCW the official line on the sale of the crown corporation is to restructure the firm's commercial division.

"A key objective has been to establish a more competitive CANDU Inc under private ownership and to protect the interests of Canadian taxpayers. The goal of a restructured, more competitive CANDU Inc is to position Canada's nuclear industry and its workforce to seize domestic and global opportunities."

Reasons early elation turned to gloom

Brad Duguid, the Ontario Provincial Government's Energy Minister, told the Toronto Globe and Mail last winter he is "elated" that AECL's future might no longer be up in the air. AECL employs thousands of people in Ontario and that in turn generates a lot of jobs and tax base revenue. Duguid said sale of AECL might revive the dual reactor new build at Darlington, but there may be little chance of that given the circumstances surrounding the sale.

An interesting insight into why SNC Lavalin wants to buy AECL is the financial partner it sought to bring to the table. Not only does the Ontario Municipal Employees Retirement Systems (OMERS) fund bring deep pockets, it also sends a signal about the inherently conservative business strategy behind SNC Lavalin's acquisition plan.

While AECL has been pushing the new 1,100 MW ACR1000 reactor design, SNC Lavalin, according to industry sources, apparently wants no part of it. The reasons are no one has ever built one and therefore the costs are an unknown. Given the Ottawa government's resistance to covering cost over runs at other AECL projects, taking on the risk of a first-of-a-kind new nuclear build seems to be outside the boundary of risks OMERS would accept in an investment.

Refurbishment market looms large

Instead, the construction giant and its partner are looking at AECL in terms of the Canadian and global markets for refurbishment of the existing fleet of Candu reactors. This is a tried and true business with well-know reactor designs and a skilled workforce that is still on the job. Plus, SNC Lavalin has a lot of experience itself working on Candu reactor sites.

There are 43 Candu reactors worldwide. Of that number, 17 Candu reactors are in Canada, 4 in South Korea, 2 in China, 1 in Argentina, and two in Romania. India has 13 Candu type reactors with three more under construction.

In Canada, according to the Ontario provincial government's energy plan published in November 2010, there are 10,000 MW of nuclear reactor generating capacity, all Candu units, that will need refurbishment over the next decade. Overseas, Candu reactors in Argentina and South Korea will require AECL's services.

AECL's future is beginning to look like Studebaker, a famous car maker which moved from the South Bend, Indiana to Ontario, Canada, but which failed to capture market share for its new designs. Instead, the factory lingered for years as a supplier of replacement parts for the cars that were still on the road.

When asked about this business case, Leslie Quinton, a spoksperson for SNC Lavalin, told FCW the firm has no comment on press reports about the negotiations.

"We are bound by a confidentiality agreement and cannot disclose any information."

No road ahead for Darlington?

The business strategy inherent in SNC Lavalin's investment partner raises questions about who will supply two new reactors for Ontario's Darlington project and for a proposed new reactor at the New Brunswick Point Lepreau power station.

Anne Smith, a spokesperson for Ontario Power Generation, told FCW there are no scheduled milestones for the selection of a contractor to build two new reactors at the Darlington, Ontario site. This project had been a subject of hot competitive efforts by AECL, Westinghouse, and Areva, but the provincial government cancelled the offering in 2009 without making choosing a winning bid.

Steve Aplin, Vice President of HDP Group, an energy consultancy in Toronto, says he knows why the Ontario Provincial Government (OPG) got cold feet on Darlington.

"Darlington is the lynchpin of the entire conversation about the future of AECL. OPG would have gone with the ACR1000 reactor if the federal government in Ottawa had backstopped AECL on any cost over runs for construction of a first of a kind project. They refused, but AECL did not offer OPG a Candu 6 which would have been a cost effective choice with the benefit of lots of experience to bring one in within the budget and on schedule."

AECL has invested a lot of money and time in the ACR1000 design. The Canadian Nuclear Safety Commission (CNSC) said Jan 28, "there are no fundamental barriers to licensing the reactor design in Canada."

There is a second reason why OPG is not moving forward with two new reactors at Darlington. Aplin points out it is swimming in cheap natural gas from Alberta at $4 mbtu and has 6,000 MW of coal-fired plants with many years of service left in them.

Any path for a new reactor at Point Lepreau?

Another competitive landscape is a proposal for a clean energy park at the Point Lepreau power station in New Brunswick province. There AREVA, the French state-owned nuclear giant, is proposing to build a new reactor, an 1,100 MW design trade named the 'ATMEA-1."

To prove the effort is serious, on Feb 22, AREVA submitted the ATMEA-1 design to the Canadian Nuclear Safety Commission for a pre-project design review. Significantly, the AREVA ATMEA-1 at 1,100 MW is the same size as the AECL ACR1000.

Asked about the status of efforts to build a new reactor at Point Lepreau, Jim Hennessy, a spokesman for the New Brunswick Department of Energy, told FCW there are informal discussions taking place with Areva, but no new milestones in terms of work to prepare a contract for bids.

Instead, the government is punting any decision into the future under the auspices of an energy plan.

"We have a new government in place [following elections in Sept 2010] in New Brunswick, and they have established an Energy Commission to renew the Province’s energy policy, as well as shape a 10 year energy plan. The province’s future electricity generation requirements and options are being reviewed as part of the Commission’s work. The Energy Commission is planning to release its recommendations by May of this year," Hennessy said.

Kathleen Duguay, a spokesperson for New Brunswick Power, echoed Hennessy's comment. She said, "there is no discussion ongoing regarding the business case for a new reactor."

AREVA's vision for Point Lepreau is for a new reactor, plus a biomass energy plant, that would supply electricity to the province and export it to U.S. New England states.

Despite the lack of any official interest in a new reactor, AREVA is pressing forward with a marketing push. Jarret Adams, a spokesman for the firm based in Bethesda, MD, told FCW:

"We continue to have discussions with NB Power and the province of New Brunswick regarding the possibility of a Clean Energy Park at the Point Lepreau site. This is a long-range project, but it is moving forward. The announcement last week of pre-design review of the ATMEA-1 reactor is a significant step forward."

Cost over runs leave bitter legacy

One of the sore points about AECL in New Brunswick is that the refurbishment of the existing Point Lepreau reactor is way behind schedule and $400 million over budget not counting the cost of buying replacement power. Utility and provincial government officials are livid about being rebuffed by the Natural Resources Department in Ottawa which has refused to reimburse the utility for AECL's cost overruns.

Last January New Brunswick Premier Shawn Graham threatened to take legal action against the federal government if it didn't cover the cost overruns on the $1.4 billion project. He said the cost of buying replacement power for the out of service reactor was $1 million/day.

For its part, the government in Ottawa has twice stiff armed Graham telling him it will only pay for what is in the original contract and not for any new costs. This state of affairs has left the folks in New Brunswick with a bad taste in their mouths which is why they may be talking to AREVA instead of AECL about a new reactor.

Provincial politics will play a role in any new energy decisions. The problem for AREVA and AECL is that the time horizon for politicians is often the next election, but for reactor vendors, it is the more along the lines of the next two-to-four decades.

New Brunswick may be moving its plans regarding new baseload power ahead more quickly following a report in February that a $200 million wind farm in the northern end of the province froze solid shutting down completely due to a buildup of ice on the blades.

GDF Suez, the firm that owns the 33 turbine wind farm said that in a dry winter the project runs at about 35% of its 99 MW capacity. A wet winter has played havoc with the turbines forcing the utility to buy replacement power from other sources.

Export potential missed?

How's this for government support of its own crown corporation? In 2009 Lisa Raitt, then the Natural Resources Minister in the federal government, told reporters "the Candu division is too small to establish a strong presence globally in the high growth markets that are the key to its success."

But Bruce Power CEO Duncan Hawthore, who declined to bid on AECL, told a business group in Toronto in January "you cannot be schizophrenic about the nuclear power industry." He went on to criticize the government for failing to uphold its commitment to long term sponsorship of Canada's nuclear industry.

Hawthore said the government can't seem to make up its mind what it wants to do with AECL. He says the options run from killing it to selling it. He said Ottawa needs to make up its mind.

Consultant Steve Aplin says the export paradigm might work if AECL could build confidence with potential customers about its future. He points to a plan to build two new reactors in Romania.

The country has two Candu 6 units completed in 1996 and 2007. This gives the country a "predisposition to consider more," Aplin says, but they won't sign up for new reactors from AECL until the firm gets control of cost over runs like the one at Point Lepreau.

Another opening is for Canada to re-establish commercial ties to India which built Candu reactors in the 1950s. Nuclear exports to India stopped in 1974 after India used one of the Canadian reactors to produce material for a nuclear weapons test.

However, with the re-establishment of India's ability to buy fuel for its civilian reactors through the Nuclear Suppliers Group, Canada is exploring export opportunities again. A delegation from the Nuclear Power Corporation of India Ltd. (NPCIL) attended a nuclear energy trade meeting in Ottawa Feb 26.

India is now building an indigenous 700 MW heavy water reactor based on the Candu design. It plans to increase its installed base on reactors from 5 GWe to 20 GWe by 2020. Much of this construction will be done by Russia's Atomstroyexport and France's AREVA. American firms are locked out of the Indian market for now because of India's draconian supplier liability law.

Canada could take some market share in the Indian nuclear market, but only if the government backstops the construction projects for costs. Given its reluctance to do that with domestic projects, it may have also doomed the possibility of export earnings as well.

With OMERS now pulling out of the deal, the Canadian government is once more at square one in terms of crafting a financially viable future for AECL.

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International Isotopes on track for NRC license in 2012

The firm has applied for a DOE loan of $97 million for a $125 million plant

This is my coverage of International Isotopes in Fuel Cycle Week. April 14, 2011, V10:N420; published by International Nuclear Associates, Washington, DC.

Fluorine.svgEfforts to secure equity funding to build a $125 million uranium deconversion plant in Hobbs, New Mexico are gaining momentum even though the company (OTC:INIS) announced on March 17 that it would pull a $31 million public stock offering. CEO Steve Laflin told FCW in an exclusive interview that debt financing would take the company most of the way toward its fundraising goal.

Laflin said the firm has applied for a $97 million loan from the U.S. Department of Energy, which approved the first of a two-part application last June. The loan comes from the department’s renewable-energy technology development program, which counts as a key factor for loan approval whether the technology reduces in greenhouse gas emissions.

“Our patented fluorine extraction process uses seven times less energy than conventional industrial processes for making hydrofluoric acid,” Laflin said. “This means we can show reductions of six million pounds of carbon dioxide a year over the life of the plant.”

Laflin expects the agency to issue a conditional commitment for the loan that will require that the firm secure an NRC license. The draft Safety Evaluation Report is to be done by late summer, and a final Environmental Impact Statement could be ready by yearend, depending on the outcome of the public comment process. Laflin would not say when he expected action on the second part of the loan-application process.

Making a Useful Product out of DUF6

International Isotopes was poised to enter the equity markets just weeks before the ruinous earthquake and tsunami in Japan. Last year the company raised $9 million in private offerings.

laflin_photo “Our investment advisors pointed out that uranium prices were going up and there was growing interest in new nuclear reactor projects worldwide.” Yet despite the sudden chill on equity financing in the nuclear world, the future of the uranium deconversion plant is secure, said Laflin (left). “It simply is more attractive to uranium enrichment plants to get the UF6 off their sites and be processed by us.”

And to International Isotopes the tails assay is of the depleted uranium matters not at all. Laflin is after the fluorine gas in UF6, in order to produce high-purity product for customers in the electronics and pharmaceutical industries. The company already has signed an agreement with Louisiana Energy Services in nearby Eunice to deconvert tails from Urenco’s centrifuge enrichment plant, which opened last June.

Another advantage, Laflin says, is that domestic production of hydrofluoric acid will curb U.S. dependence on China for fluorspar, the mineral that contains fluorine. In 2009 the U.S. imported 460,000 tons, having exhausted its strategic stockpile in a 2007 sale, according to the U.S. Geological Survey.

In June 2009 the U.S. Trade Representative filed a complaint with the World Trade Organization alleging that China had withheld exports of critical materials, including fluorspar.

“China’s measures appear to be part of a troubling industrial policy aimed at providing substantial competitive advantages for the Chinese industries using these inputs,” the complaint said.

Viable Regardless of Pace of New Build

If Laflin lands the $97 million DOE loan at an attractive rate, he will need only $30 million in equity financing to leverage the completion of the plant. Meanwhile, he has the capital to complete its engineering and licensing activities, he said.

The company’s balance sheet for December 2010 reports $12.6 million in cash and investments, and $6.6 million in liabilities. What would it take for International Isotopes to get back into equity markets? Laflin said the firm cancelled the public offering because of the worldwide effect on nuclear energy markets from the crisis at the Fukushima site.

“Investors are reconsidering putting money into businesses operating within the nuclear fuel cycle,” he noted. But this will be temporary because the events do not reduce the need for his firm’s service, which is to make useful products out of depleted uranium.

“Our business plan does not require a single new reactor to be built in order for us to be successful,” said Laflin. “We expect a modest turnaround in the investment climate by the time we get our NRC license in January 2012.”

He is also open to licensing the patented fluorine extraction technology for use worldwide.

“Japan is a possibility,” he said, despite the devastation at Fukushima. The Japanese will continue to use nuclear technologies to attain its energy independence goals.

That means there is a lot of UF6 there now, with a lot more to come.

About the $97 Million Loan

Among other things the U.S. Energy Policy Act of 2005 authorizes the Department of Energy to support innovative clean energy technologies that typically cannot attract conventional private financing. The technologies must avoid, reduce or sequester air pollutants or manmade greenhouse gas emissions.

Industrial energy-efficiency projects like fluorine extraction fit the bill, as do biomass, hydrogen, solar, wind, hydropower, nuclear, advanced fossil energy coal and carbon sequestration practices and technologies.

Loan applicants must use a new or significantly improved technology that has not been commercialized \and that avoids, reduces or sequesters air pollutants or greenhouse gass emissions.

Supporting the application of International Isotopes are the twin pillars of industrial energy efficiency and reduction of greenhouse gases. Its technology is unique in the U.S.—and the government funding is undersubscribed. The Energy Department is therefore anxious to show progress in this area.

A DOE spokesman declined to comment in response to an inquiry from FCW due to confidentiality requirements regarding the release of any information about applicants prior to final award.

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Thursday, April 21, 2011

Why is there irrational fear of radiation?

Four perspectives on the need to change the way the significance of radiation numbers are explained to the public

Fukushima beforeThe crisis at the Fukushima nuclear reactor complex in Japan (right), caused by a record earthquake and equally record shattering tsunami, has created a maelstrom of fear, uncertainty, and doubt (FUD) when it comes to radiation measurements.

At a private online discussion forum on nuclear energy, there has been considerable debate about the cause of FUD over radiation and what to do about irrational public fears over radiation. 

I asked four members of the list to offer their perspectives on the issue.  You can read their public comments now online at the ANS Nuclear Cafe.  Here’s a preview.

It’s more complicated than just counting

For instance, the importance of distinctions between fast and slow decaying isotopes of iodine and cesium are sometimes lost on media and the public.

Worse, the differences between accounting for the sheer amount of radiation and giving an assessment of the potential health effects of uncontrolled releases takes place using different sets of measurement units. Is it any wonder that mainstream news media editors get headaches when their reporters file stories about radiation?

It hasn’t helped that Japanese and American nuclear experts have called for different distances for evacuation zones around the plant site. Can we fault the public for concluding that any report about radiation at a nuclear reactor is bad news?

Organizations with agendas that call for removing nuclear reactors from the energy mix have been known to exploit public fears of radiation. In doing so, they’ve sometimes failed to understand the scientific basis for the measurements.

Use of radiation statistics colored by perspective

In one case, a critic of a reactor relicensing application, writing in a political news magazine, said that a tritium release was 500 times more than expected, which was none. What he failed to realize is that the measured quantity was still 500 times less than the EPA drinking water standard.

Calling this type of mistake “junk science” misses an important point. What the public thinks is that regardless of how much radiation you are talking about, it is colorless, odorless, and tasteless. FUD fosters fear.

On the other hand, people in the nuclear energy field, who routinely work with some of the most dangerous radioactive materials in the universe, are quite calm about it, citing and practicing the principles of time, distance, and shielding. In fact, some can’t understand what all the panic is about because they know, by the numbers, that the risk isn’t commensurate with the noise level.

What we have here is a failure to communicate

failure-to-communicateIs it time for a change in the way radiation measurements are communicated and explained to the public? At the discussion list, I asked four contributors to share their views on this question.

These four people have deep insights into the world of nuclear energy, but they also have very different takes on the current systems of radiation measurement and how they are used to explain risk to the public and the press. 

In this multi-author guest blog post, an ecologist, a chemist, an energy expert, and a public affairs consultant offer ideas about what to do about making radiation numbers more understandable and, in doing so, foster better public understanding about what they mean.

All four contributors, coming at the problem from very different perspectives, nevertheless find fault with the way current radiation measurement systems explain their results. The fault finding is not with the internationally accepted scientific measurement units, but rather in communication of the numbers to a skeptical and fearful public.

Until risk communication practice by nuclear regulatory agencies catches up with the public’s needs for understanding, the nuclear industry may paradoxically continue to find itself sliced and diced in the news media by its own measurement precision.

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Wednesday, April 20, 2011

NRG calls it quits for South Texas Project

Key financing from Japan unlikely due to Fukushima crisis

NRG LogoNRG Energy (NYSE:NRG) pulled the plug on its development of twin 1,350 MW ABWR  reactors for the South Texas Project on April 19th.  The firm said in a statement that “multiple uncertainties” regarding investment funding from TEPCO and the Japan Export Bank make it impossible to go move forward.

The firm is writing off $481 million of which $331 million is from NRG and another $150 million is the net investment contributed by Toshiba which was to supply the reactors.

NRG CEO David Crane said in a investor conference call that the firm will stop all engineering and sit preparation work and layoff most of the project workforce. 

Crane told the New York Times, “We have concluded that financially this is the end of the line for us.”

Crane held out the hope that the Department of Energy would issue a loan guarantee for the project and that Toshiba would complete the application for a combined construction and operating license from the NRC.  Both outcomes are long shots. 

DOE has a rigorous due diligence process which could result in a rejection of a loan guarantee for a project where the principal developer has walked away from the table.  Also, the NRC is unlikely to give priority to a project that doesn’t have a customer.

In addition to a lack of investors, NRG also has not been able to sign up customers to buy electricity from the reactors.  The reason is Texas is swimming in a huge surplus of natural gas which sets the price for electricity.  It is cheaper, and faster, to build new natural gas fired electrical generation plants than to build new nuclear reactors.

At one time the firm has been the first mover of the nuclear renaissance in the U.S. filing its application for a license with the NRC in September 2007. 

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Monday, April 18, 2011

Impact of Fukushima on new U.S. reactor projects?

It's less than you think

coolhandnukeThe Nuclear Energy Institute, the trade association for the utilities that own and operate the nation's 104 nuclear reactors, has some thoughts on how Fukushima might affect the nuclear renaissance on this country.

In an updated briefing paper posted on its website April 15, 2011, NEI says it has an optimistic view of the future.

"New nuclear power plant construction in the United States is in the early stages and proceeding in a deliberate fashion. There is ample time to incorporate lessons learned from these events during the construction period.

Financing rules

The critical success factor for new nuclear reactor construction in the U.S., after safety, is financing. President Barack Obama, after a slow start in dealing with the issue, now has a 2012 budget request that calls for a increase of three times the current level in federal loan guarantees for nuclear power plant construction.

Read the complete story at CoolHandNuke online now.

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