Thursday, May 31, 2012

Temelin tender seeks strategic partners

Czech Republic said to plan to generate 50% of electricity with nuclear energy by 2030

Russia's Gazprom has been an erratic
supplier of energy to eastern Europe
Note to Russian natural gas giant Gazprom, you are losing a customer. The Czech Republic, which has long labored under the shadow of Russia's political influence, and the ball and chain of its energy markets, said May 28 that it now plans to make a renewed push for nuclear energy.

The Ministry of Industry and Trade released a report earlier this month saying the country is committed to generating 50% of its electricity by nuclear energy by 2030. A key reason is to boost the energy security of electricity supplies for the Czech nation.

The plan is based on efforts to build three new nuclear power stations. Two would be built at Temelin and one at Dukovany. The national energy plan also said that renewable energy sources would likely account for less than 5% of electrical power. There have been some doubts in recent months about how far into nuclear the country was willing to go.

State owned utility CEZ says it will seek strategic partners to finance, build, and operate the new reactors.  CEZ told Reuters May 9 it has identified at least 10 potential partners.  While CEZ is state owned, the government's equity stake is about 70% leaving 30% open for new investors.

It isn't clear whether the government would offer some of its shares to attract minority equity stakes in the utility. CEZ could be taking a page from Areva's playbook. Last year the French state-owned nuclear giant pursued equity stakes from strategic partners by diluting the government's interest.

CEZ is currently running a tender to build the two new reactors at Temelin. The short list of bidders include Rosatom, Areva, and Westinghouse.  The new units are expected to cost about $10 billion.  Bids are due in July 2012.  A contract with the winner is expected in early 2013.  Construction is expected to set off a manufacturing boom for Czech -based suppliers of components to the plants.

CEZ says that once it has a commitment to a reactor vendor, it will seek equity financing from other European energy companies some of which are likely to also be its customers.

One of the issues that could affect the customer side of these relationships is a Czech government plan to set minimum prices for power to insure the financial viability of the reactor project.

RWE, a German utility, said it would not consider being an equity partner in the project, but not because of rate issues. The firm has cash flow issues due to the closure of eight reactors in Germany. Also, RWE recently withdrew from the UK Horizon nuclear consortium for the same reason.

Industry & Trade Minister Martin Kuba told financial wire services in early May that CEZ feels that while it could fund both Temelin reactors with its own resources, it wants to leverage them by laying off some of the costs with outside investors. CEZ CEO Daniel Benes has previously said much the same thing.

It is expected that with the Czeck Republic sharing a long western border with Germany, and that country closing its 17 nuclear reactors, that power companies there would be eager to line up to take equity stakes in the Temelin project.  Germany's plan to shift to renewables is running up against some stiff challenges including an estimated cost of $20 billion euro for new transmission grids.

CEZ's plans to build a new reactor at Dukovany isn't as firm as the one to build two new units at Temelin, but the utility feels that a consulting firm's negative analysis of its prospects does not hold water.  CEO Daniel Benes said the utility has a feasibility study and a commitment to complete the reactor by 2030. He said the two new reactors at Temelin would be done by 2025.

Further out CEZ may revive a plan to build another new reactor in Solvenia.  At one time it was part of a $28 billion plan to build five new reactors.  The utility scaled back its plans earlier this year to focus for now on the two at Temelin and a third at Dokovany.  Watching the difficulties emerging in Germany over its abandonment of nuclear energy is likley a factor in the Czech republic's revisiting its larger expansion plans.

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Japan close to restarting reactors

The country's economy has taken a beating in terms of exports and the cost of importing fossil fuels cannot be sustained much longer

Japan PM Yoshihiko Noda
Japan's prime minister Yoshihiko Noda got some wind in his sails in efforts to restart the nation's shut down nuclear reactors this week.

Osaka Mayor Toru Hashimoto, a high profile opponent of the the government's efforts to plug the reactors back into the grid, reversed his position.

The populist mayor said that with the onset of summer heat, and the likelihood of rolling blackouts, keeping the reactors shut down no longer makes any sense.

What also might have helped him change his mind is the government's velvet glove / iron fist message that cities that had running reactors would be spared rolling blackouts. July and August temperatures average in the upper 80s. A vision of the city's sealed window apartment towers sweltering in summer heat must have looked like a sure path to a recall election or even social unrest.  Chalk up access to air conditioning as a key factor in urban politics.

PM Noda also has had some success convincing provincial government officials to support restarting reactors by promising to place high level METI agency managers at the restarted reactor sites. Frankly, the message here from Noda seems to be, "if my guys will go to the reactors, what is your problem with restarting them?"

Another step Noda is taking is to kick start the stalled negotiations in the Diet, the Japanese parliament, to yank the compromised Nuclear Industrial Safety Agency out of its conflicted home at METI and make it an independent nuclear safety organization.

Goshi Hoshono, PM Noda's point man on all things nuclear, has reportedly been making progress with this message in his meetings with local governments that have de-facto veto power over restart of the reactors.

One of the ironies of the campaign to restart the reactors is that METI chief Yukio Edano, who was a spokesman for the previous PM Naoto Kan, is now tasked with getting the reactors going again and coming up with a plausible energy policy.  Kan has been making the rounds trying to justify his micro managing meddling with TEPCO in the early days of the crisis and his subsequent calls for permanent closure of all of Japan's reactors.

Edano has waffled on his personal commitment to restart and maintain the fleet long term. Yet, in his role as METI chief which significant government responsibilities for the nation's economy, has pushed reactor restarts at least for the short-term.

Perhaps the best illustration of how progress is being made is a report that the governor of Fukui Province, Issei Nishikawa, convened a panel of nuclear experts to "advise" him on whether the Ohi plant reactors should be restarted.

This is a patent search for political air cover from technocrats and a face saving maneuver if ever there was one.  He needs it because the Fukushima crisis severely eroded public trust in the government at all levels on the issue of nuclear energy.

You can blame former PM Kan and TEPCO for that, and history may show that current PM Noda will earn points for leadership in fixing the problem.

Japanese Energy Committee Proposes Four Policy Options

30 May (NucNet): A Japanese government committee studying the country’s long-term energy alternatives following the Fukushima-Daiichi nuclear accident has listed four options in its final recommendations – from a total phase-out of nuclear energy to maintaining a reliance on nuclear for the foreseeable future, the Japan Atomic Industrial Forum (JAIF) has confirmed.

JAIF said the committee is expected to submit its report to an umbrella panel soon.   The four options are:

• A complete phase-out of nuclear power while raising renewable energy sources to 35 percent of energy supply by 2030;

• Significantly reducing nuclear power to 15 percent of the total supply by 2030, while increasing renewable energy to 30 percent, then deciding what the future energy mix should be;

• Agreeing on a lower level of nuclear power generation capacity of about 20-25 percent of total energy supply;

• Letting the free market determine what the appropriate energy mix should be.

The panel dropped a fifth option of maintaining nuclear power at its previous level of around 35 percent of all output estimated for 2030.

The 25-member panel cautioned that there are potentially serious consequences for the economy with some of the options.

It said that under the most drastic scenario – phasing out all nuclear by 2030 – real gross domestic product would be cut by as much as five percent compared with a full restoration of nuclear energy.

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Wednesday, May 30, 2012

SMR Alliances go for $452M In DOE gold

Four consortiums line up but only two can win
This is an updated version of my coverage in Fuel Cycle Week, V11, N474 May 24, 2012, published by International Nuclear Associates, Washington, DC
An overflow crowd at the Platts Third Annual Small Modular Reactor conference held last week in suburban Washington, D.C., got an up-close and personal look at three of the consortia.

They are vying for a piece of the U.S. Department of Energy’s $452 million cost-shared funding program for licensing and engineering support to develop small modular reactors, e.g., less than 300 MW.

DOE Deputy Assistant Secretary John Kelly told the conference that it was taking place on the day the proposals were due.

“Your work is ending,” he said. “Ours is just beginning.”

Kelly committed to making an award to one or two firms by the end of September and having the funds in the hands of the winner(s) by the end of the year.

The role of the government, he said, is take some of the uncertainties out of the process of deploying the first commercial SMR on the grid by 2022.

“If there were no uncertainties, there would be no role for government.”

The $452 million must be matched by equal spending by firms receiving the government money. It cannot be used for construction.

And Kelly made a sweeping promise to the group about how the DOE money would impact market acceptance of SMR technology.  “We’re looking at a fleet of SMRs. We have no interest in building a few and walking away.”

Cost Savings in Fleets?
A panel of energy economists who spoke at the conference thinks a fleet is feasible. Stanford University’s Geoffrey Rothwell said that the cumulative effect of jumpstarting the industry now is that the U.S. could be building the equivalent of as many as 14 100-MW SMRs every year by 2030 for domestic energy production and export.

While several of the SMR developers said they planned on delivering the “Nth” of a kind SMR at less than $5,000/Kw, Rothwell said, “cost targets are easy. Delivering on cost estimates to customers is hard.”

The Stanford official said the price of a factory-built unit will be closer to $6,000/Kw. To get to that price, an SMR vendor may have to invest as much as $300 million in a factory, which will only be built with a fat order book.

As far as raising investment capital, he said that financial markets remain “confused” by SMRs. Instead, Wall Street sees another nuclear reactor with cost overrun baggage from the 1970s-80s, and the more recent issues with TVA’s Watts Bar 2.

Ionnis Kessides of the World Bank agreed that a fleet is what’s needed because of the cost penalties of building just one unit. He said that by the time four units are built, enough learning has taken place that “scaling factors and cost savings kick in.”

He estimated the cost difference between the first-of-a-kind and the fourth unit, for conventional LWR technology in an SMR, is as much as 22%.

Christopher Kerr, a senior manager with Exelon, said in a separate session that staffing for reactors doesn’t scale with size due to current Nuclear Regulatory Commission regulations. Cost savings won’t be available in terms of labor costs unless there is change.

Kerr sugested that a “fleet approach” where subject matter experts support multiple reactors might be a place to start.

In another session on developing design specific regulatory standards, Stephanie Coffin, a senior manager at the NRC, presented a long list of agency SMR issue papers that address topics of multi-module reactor facilities. She said the agency is working toward exemptions for SMRs that would eventually be formulated into regulatory changes.

Three Alliances in the Running
The three alliances seeking the DOE money—led by vendors Babcock & Wilcox, Westinghouse, and NuScale, respectively— have several things in common, but also enough differences that will make it a challenge for the government to pick winners. This was recognized by many at the conference and reflected in the fact that Kelly was asked while on the podium to reconsider limiting the decision to just two awards.

The common factors are that each vendor-driven alliance has at last one utility partner, plus support from engineering firms.

For instance, for its 180-MW LWR mPower SMR, Babcock & Wilcox has an agreement with the Tennessee Valley Authority for a Part 50 licensing process and a separate construction license also under Part 50. Bechtel is B&W’s engineering partner. If the SMR is built at Clinch River, TVA would be the owner/operator, but TVA has not yet committed to supporting construction.

Ali Azad, Chief Business Development Officer for mPower, told FCW that future projects would be pursued under the newer Part 52 process. He added that the basic configuration to be offered to customers would be dual 180-MW mPower reactors in a single facility, along with turbines and balance-of-plant equipment.

Westinghouse has an agreement with a complex consortium called NexStart to build and operate a 225-MW LWR SMR at partner utility Ameren’s Callaway reactor site. The consortium includes several engineering firms and utilities in Missouri, and Burns & McDonnell as the EPC.

Michael Anness, SMR Product Manager for Westinghouse, told FCW the company’s reactor will be built as a complete package with turbine and other balance-of-plant equipment.
It isn’t intended to be “modular” in the sense that additional units would be harnessed to work in the same physical infrastructure, said Anness. Instead, the approach “a step change in design for the entire nuclear island using modular construction.”

Like the other SMR vendors, NuScale has a multi-party agreement with DOE’s Savannah River Site; NuHub, a regional economic development group; and Scana, the utility that is building twin Westinghouse AP1000s at its Summer plant near Columbia, S.C.

Bruce Landry, who heads up marketing for NuScale, told FCW Fluor is both an equity partner with a majority interest and the EPC for the first unit. Flour put $30 million into the firm to recapitalize it after another investment collapsed due to unrelated events.

Landry said NuScale is proposing twin six packs, or 540 MW, of its 45-MW unit with turbines and balance-of-plant set ups scaled for six reactors at a time. Landry also noted that as a vendor, NuScale has no interest in being a utility owner/operator. That’s where Scana comes in as part of the NuScale plan.

Where Are the Markets?
All three firms vying for the $452 million in DOE gold told FCW that SMRs will not be built in unregulated markets as long as natural gas remains at or near its current price of less than $3/ Mbtu. That said the vendors are looking to the day when gas prices rise to above $6-8/Mbtu.

Key among the possible applications for SMRs is replacing old coal-fired plants and providing district heating (steam) as well as process heat for industrial processes.

Others include areas without a national grid or grids large enough to accommodate 1,000-MW reactors. Desalination is another application that shows up on everyone’s short list of customer applications for SMRs.

These uses point to developing nations. Habid Subki, the IAEA’s Technical Lead on SMRs, told the conference vendors should not underestimate the need for strong, independent regulatory nuclear safety agencies. “There are substantial gaps in some countries that profess to want these reactors.”

In the U.S. SMR developers are keen to put their first units inside the emergency planning zones of existing nuclear reactors or at nuclear sites. That’s one of the reasons B&W chose the Clinch River reactor site and Westinghouse wants to co-locate its SMR at Ameren’s Callaway reactor.

The lineup of firms headed to DOE’s Savannah River site will be inside a large federal reservation.

One of the potential prizes being sought in Missouri, Tennessee, and South Carolina is the location of the factories that will build the SMRs once the fleet orders start to flow. That vision is what brought NuHub into the picture with Savannah River.

The reality is that B&W already has manufacturing plants in Ohio, Indiana, Tennessee, and Virginia. B&W will make its own fuel at an existing plant and so will Westinghouse. While Westinghouse has sufficient vertical integration to be its own EPC, like B&W it went with an outside firm to handle these tasks.

All of the prospective vendors said their reactors would be "modular" in the sense they could be delivered to customer sites by a truck, rail, or if available, by barge.  The current price of natural gas at less than $3/MBtu is a worry, but the vendors think it won't stay at that price forever.

Time to market is a key competitive factor and each of the vendors is pushing as hard as possible to line up a book of orders to justify investing in manufacturing capacity.  The US NRC license is a "gold standard" that the vendors hope will open doors to export sales. They note there are large opportunities overseas in Europe and Asia where natural gas runs $8-10/MBtu.

Holtec offers money back guarantee
Holtec International, which did not present at the Platts Conference, said in a press release late last week that it is offering the Department of Energy a money back guarantee if it fails to obtain an NRC license for its 160 MW LWR design.  The promise is included in its proposal to the government as part of the firm's application for the SMR funding.

Like several of the other SMR developers, Holtec is working on a plan to build a first of a kind unit at DOE's Savannah River site.  The firm may partner with The Shaw Group and Areva as part of that effort.  Holtec will also partner with NuHub an economic development organization which is interested in attracting SMR manufacturing to South Carolina.

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