Monday, September 3, 2012

Power projects seek investors on a global scale

China's huge sovereign wealth fund is a frequent target of power proposals

The Peoples Republic of China is sitting on huge cash reserves available for investment, domestic or foreign.  According to some estimates, the amount is about $4 trillion.

If every dollar of hard currency China holds was translated into a second of travel at the speed of light, it would be about two-thirds of a light year in space ship travel to the nearest star which is Alpha Centauri at a distance of 4.37 light years. Anyway you count it, that's a lot of money and a lot of people have their eyes on it.

The China Investment Corporation has a reported $482 billion to work with and specifically seeks out global rates of return in large capital intensive projects.

No one believes that the Chinese are in it solely for the money. China sees entry into the U.K. nuclear market as a way to build a showcase for its technical know how and ability to compete successfully in the West.

Take for instance French state-owned nuclear utility EDF which is courting China to invest up to $10 billion new power stations in the U.K.

The Horizon project is on the auction block so to speak. Two German utilities, E.on and RWE pulled out earlier this year as their cash flow dried up when the German government ordered the nation's eight oldest reactors to be shut down following the Fukushima nuclear disaster. These eight units, their costs long since recovered, were cash cows for the German utilities and the hunt for energy-related investments brought them to the U.K.

EDF has declined to comment on its discussion with China due to the sensitivity of the topic. While the U.K. does not have limits on foreign ownership of nuclear power plants, U.K. government officials are still reportedly nervous about having China as a major equity partner in the projects. The government may limit Chinese firms to minority equity positions.

In the U.S. the NRC just last week stopped progress on a license for the Calvert Cliffs III reactor in Maryland because of foreign ownership rules. Paradoxically, EDF was the foreign investor with Unistar. The NRC gave the firm 60 days to come up with a U.S. investor.

To have or have not

Another U.K. venture already has strong ties to China. Areva is partnered with the China Guangdong Nuclear Power Corp to built two EPRs in China. The two firms are also bidders for the Horizon project.

An underlying issue in the U.K. is the rate of return the government will set for electricity sold from any new nuclear reactors. The rate has to be high enough, regardless of market factors, to attract investors. Political opposition calls this a "subsidy" but proponents point out even more financial support has been tossed to the winds for renewable energy projects.

Tens of thousands of jobs ride on the future of the U.K. nuclear new build which will result in 17-19 Gwe of new power generating capacity.  Some political leaders in the U.K. may not be happy about having the Chinese at the table, but if they are the only game in town, then they'd rather have it than nothing at all.

South Africa takes stock of costs

A plan in South Africa to issue a tender for 9.6 Gwe of new nuclear power plants, the second in the past five years, is on hold. The government is trying to get a bead on the costs of the project and whether they country can afford it.

Electricity rates for consumers are a huge political issue though the nation's heavy industry is more interested in reliable power. The country has a huge class of people trapped in poverty and unemployment as it is officially measured runs about 25% of the workforce. Rates will have to go up to pay for the reactors. About 90% of the electricity used in South Africa comes from coal.

Bidders that have lined up to present their case for the $36 billion program include  the China Guangdong Nuclear Power Corp, Areva, Westinghouse, Korea Electric Power, and Rosatom.

Five years ago South Africa cancelled a tender for 12 GWe of new power plants because Eskom, the state-owned electric utility, did not have the funds to pay for it.

The government had been starving the utility for capital funds for years to keep rates down. This led to brownouts and a drop in the nation's GDP as mining and manufacturing plants had to shut down.

Now the government is hoping the reactor vendors will self-finance the projects to be paid back by the sales of electric power. So far the government has not publicly come to grips with the issue of rate guarantees.  Areva is already on record saying that this route is not a sustainable strategy for the company.  If it partners with a Chinese firm, that position could change.

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Sunday, September 2, 2012

Hopes dim for restart of San Onofre Unit 3

Layoffs equal to the staff of a nuclear reactor and removal of fuel from Unit 3 are troubling signposts for the future of the power station

Steam generator problems that have kept both Units 2 & 3 offline since last January played a role in two new sets of consequences in August. Southern California Edison (SCE), which owns and operates the twin 1,100 MW nuclear reactors, said it was eliminating 730 jobs by the end of 2012.

Also, the utility said it was removing the fuel from Unit 3 which indicates it may be some time before it restarts if ever.

In a statement, SCE said, "The steam generator issues at the plant require that SCE be prudent with its future spending while SCE and regulators review the long term viability of the plant."

The layoffs may have been coming for some time as SCE previously address plans for staff reductions in its rate case processes with state regulators. The size of the layoffs amount, in terms of numbers, if not skill mix, amount to the staffing needed to run a reactor the size of Unit 3. Steam generator problems there are much more serious that at Unit 2.

SCE said it would address skill mix issues, and a new organizational structure, by October. The utility also claims that the layoffs are needed to align the power station's costs with other dual reactor power stations. The layoffs will reduce staffing to a workforce of about 1,500 people.

The anticipated loss of the payroll earnings associated with over 700 high wage earners got a lot of attention in southern California. The biggest impact will be in the San Diego area.

SONGS pulls fuel from Unit 3

In late August SCE said it would begin to remove the fuel from Unit 3, a clear sign that restart of the plant is a more distant prospect. The utility said it is working on repairs to Unit 2 but that "Unit 3 will not be operating for some time."

NRC's senior resident inspector Gregory Warnick told the Associated Press Aug 27 that "Unit 3 is going to take more work."

A technical analysis of the steam generator problems revealed that computerized design errors by Mitsubishi, which manufactured the units, was a leading contributing factor in the early failure of hundreds of steam tubes. It's not clear how much steam can be pushed through the units without the risk of further premature damage. SCE has plugged hundreds of tubes which have excessive wear, but the total number is still below the level which would degrade the overall performance of the units.

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Exelon wins one, loses two

It signs on to manage Ft. Calhoun and signs off on plans for a new build in Texas

fort-calhoun-power-plantExelon (NYSE:EXE) took over the management of the Ft. Calhoun Station which is owned by the Omaha Public Power District (OPPD). The troubled plant hasn’t generated electricity since last Spring when it was safely shut down in response to flooding along the Missouri River. (right)

OPPD has been working through a long list of safety issues raised by enhanced inspections carried out the by the NRC. John Green, a member of the OPPD Board of Directors, told the Omaha news media he is convinced the NRC had lost confidence in the utility’s ability address the safety issues raised by the agency. He said that the NRC was looking for a solution in the form of an outside management effort and that Exelon fits the bill.

It didn't help that Ft. Calhoun was the subject of a bizarre Internet conspiracy theory that it has blown up and that the U.S. government was covering up the alleged disaster. OPPD was slow to address the need to spike the conspiracy theory perhaps on the grounds it was too fantastic to take seriously. Then NRC Chairman Gregory Jaczko personally inspected the plant in June 2011.

Exelon’s ability to matrix in subject matter experts from its huge U.S. fleet of reactors will help address the technical and safety issues. OPPD has hopes of restarting the reactor late this year. Last winter OPPD also cancelled a planned power uprate tell the NRC there were too many technical and safety issues to see the plan through to completion.

OPPD executives have said they are pretty happy about the operational management change. Exelon began working with the utility earlier this year. The new operating services agreement was signed in August.

Bye Bye Victoria

texasSeparately, Exelon told the NRC it is withdrawing its application for an Early Site Permit for up to two new nuclear reactors. The site for the proposed twin 1,350 MW GE-Hitachi ABWRs is near Victoria, TX. Exelon said cheap natural gas and market conditions made the project “uneconomical for the foreseeable future.”

Exelon originally tossed its hat into the Texas market in 2007 with plans to build two 1,500 MW GE-Hitachi ESBWR reactors. However, the Department of Energy (DOE) told the utility, at the time, that the time to market for the uncertified reactor design was too indefinite to qualify it for a federal loan guarantee. Exelon switched horses in November 2008 referencing the ABWR, but by then DOE had already named four other firms to its short list including expansion of NRG’s South Texas Project which included plans for two ABWRs as well.

Exelon isn’t alone in being thrown from its horse in less than eight seconds. The South Texas Project expansion bit the dust in April 2011 when TEPCO, a pre-license investor, pulled out due to the Fukushima crisis taking with it Japanese government export credits. Exelon tried to acquire NRG with an all stock hostile takeover, but NRG’s major investors said the deal was under-valued and rejected it in July 2009.

Luminant’s open-ended future

comanche peakElsewhere in Texas, the NRC has scheduled completion of the design certification of the giant 1700 MW Mitsubishi USAPR for 2016, and along with it the combined construction and operating licenses for two of them to be built at Luminant’s Comanche Peak Station.

For Luminant to proceed with the project two things must happen. The first is that natural gas prices move north of $6-8/MBtu and show evidence they will stay there for quite some time, e.g., long enough to finance and build two new nuclear reactors. Second, Luminant’s financial condition, especially its debt load, needs to change for the better. One scenario, possibly akin to a wildcatter’s pipe dream, is that a new group of investors interested in building the Mitsubishi reactors would buy Comanche Peak from the privately-held holding company.

In 2007 Texas was the leading light of the U.S. nuclear renaissance. Now the state is back to its fossil fuel roots with natural gas riding high as the king of the road.

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