Chicago Boyz

                 
 
 
What Are Chicago Boyz Readers Reading?
 

 
  •   Enter your email to be notified of new posts:
  •   Problem? Question?
  •   Contact Authors:

  • CB Twitter Feed
  • Blog Posts (RSS 2.0)
  • Blog Posts (Atom 0.3)
  • Incoming Links
  • Recent Comments

    • Loading...
  • Authors

  • Notable Discussions

  • Recent Posts

  • Blogroll

  • Categories

  • Archives

  • Another Blow Against Nuclear Power in the US – History

    Posted by Carl from Chicago on December 5th, 2009 (All posts by )


    For the last couple of years there has been talk of a “renaissance” in nuclear power in the United States. The government has issued some loan guarantees to various parties and the greens are starting to come around to nuclear power because of greenhouse emissions. While I am a supporter of nuclear power and of investing in generating capacity in general, from the moment that this false hope started I have been steadfast in maintaining that virtually no new nuclear plants will be built in the US in the near term, meaning the next 5 or so years.

    One other block against any sort of nuclear power investment is HISTORY. This article in today’s Wall Street Journal titled “Costs Cloud Texas Nuclear Plan” discusses the South Texas Project, a nuclear site in Texas that is owned today by municipal utilities in Austin and San Antonio, Texas and NRG, a public company that owns various generating assets around the USA.

    The South Texas Project (STP) has 2 nuclear units today. NRG applied for federal financing to build 2 additional nuclear units at the site, as part of this “renaissance” of nuclear power.

    The original STP project was subject to massive cost overruns. Per the article:

    “skittishness about the cost of nuclear energy is understandable. The first two units at STP were supposed to cost less than $1 billion but ended up costing more than $5 billion. With that memory seared into its memory, San Antonio officials have been sensitive to anything suggesting that they could, again, get blindsided by escalating costs”

    Note that the costs escalated by a FACTOR OF FIVE from the original estimate – $4B cost overrun in 1982 dollars translates into over $8B based on this “inflation calculator” I found on the web.

    Now the initial estimates, which I said were ridiculously low in previous posts, are going up BEFORE THEY EVEN BREAK GROUND. This is a new form of escalation – they haven’t even dug in a shovel and already they are giving up on their original estimates, in a big way.

    “Cost estimates for two-reactor project ballooned to $12.1 billion last summer from a preliminary estimates of $8.6 billion in 2007, catching them off guard. Utility documents say that the (San Antonio) Board was working with a figure of $10 billion”

    It is important to realize that government- or municipal-owned utilities like San Antonio, Austin, the State of Tennessee (TVA), and many others were builders of a significant percentage of all the original nuclear fleet. As these cash-strapped entities balk at throwing money into the incredibly risky nuclear power business, one of the last cards in the deck for new nuclear plants goes away.

    NRG, a public company that is has been a takeover target by Exelon as recently as the summer of 2009, still plans to go forward with this project on their own if necessary.

    “NRG hopes to win permission to begin construction in 2012, and to put units in service in 2016 and 2017. “The project will go forward regardless of CPS’ decision”… adding that he did not believe the matter would affect NRG’s ability to garner important Federal loan guarantees for the project.

    Really… I have better odds of being president in 2017 than this project has of being completed by that date, especially with the fact that NRG has been a habitual takeover candidate and most of the likely acquirers are financially savvy enough not to throw 100% of their capital down a black hole of nuclear construction beset by NIMBY’s and continually-shifting government regulations. In a sick way maybe NRG is plowing forward with this project alone just to be so toxic that no one would think of acquiring them, because then they’d have to face the ballooning costs of this venture.

    Once again, this is a sad post because I am a big fan of nuclear energy, but it is important to be realistic in what can be done in the current legal and financial climate. In addition, the fact that the media were cheerleaders in this impossible fantasy just shows that they have no idea what they are talking about. The WSJ was a bit less sanguine than the rest, but frankly they should put up an editorial piece bemoaning the sad state of power generation capacity in the US and our lack of plans to set it right.

    Cross posted at LITGM

     

    21 Responses to “Another Blow Against Nuclear Power in the US – History”

    1. Alan K. Henderson Says:

      Maybe the answer is for private investors to build offshore nuclear plants outside of territorial waters and thus outside the US regulatory jurisdiction. Build them underwater, kinda like the “Looking Glass” DHARMA facility in “Lost,” so that hurricanes will not be a factor.

      Waste disposal has its own set of issues.

      http://comics.com/lil_abner_classics/2009-12-05/

    2. Joseph Somsel Says:

      I’ve been involved in the STP 3 and 4 project since its first month at the original reactor vendor and now with the current project lead company so let me set some things straight.

      First, the US government has NOT issued any loan guarantees YET. If they come about, they will only cover government licensing actions and changes. In other words, it is in effect a posted bond by government to NOT change their mind after the project physically gets underway.

      Right now, we are using a pre-approved, certified plant design and building on a site that has had 20 years of operational experience with nuclear power. Three reactors of this design are operational in Japan and two are nearing completion in Taiwan.

      One would think that approving two additional units would be a slam dunk since no new design or environmental issues would be expected. However, NRC approval will still take 4 years! (It took 18 months to prepare the application and environment study!)

      http://www.nrc.gov/reactors/new-reactors/new-licensing-files/new-rx-licensing-app-legend.pdf

      Why or why does it take so long for a certified design on an existing site????? These things should be shovel-ready.

      Figure a burn rate of half a billion $ a year before you even turn dirt.

      Adding in, that all the owners for all the projects expect fixed price contracts for construction. That means one has to predict commodity and labor costs up to ten years in advance AND add in expected variances to ensure the suppliers don’t go bankrupt before completion.

      What will be the price of concrete in 2016? What will be your salary 10 years from now? What will be your credit card interest rate?

      Wanna bet?

      Yes, these are expensive pieces of infrastructure but the price risk is external to the organizations building them. If US society CAN’T add certainty to the process of building vital infrastructure than we are crippling ourselves and are on the way to becoming a Third World country.

      Speaking of which, Viet Nam is planning four reactors.

    3. Carl from Chicago Says:

      Thanks for posting Joseph. You are correct about the loan guarantees. I didn’t go into that much detail about them.

      As far as WHY it takes forever for a pre-approved reactor design on a site that already contains 2 nuclear reactors, it is pretty much just a symptom of our useless regulatory, legal and financial oversight process for energy. I have never been in the WHY business just in the WHAT business, which means that these projects simply won’t come to pass for a variety of reasons that I go through in other posts on energy and nuclear energy in particular (I have a bunch more posts under “energy & power generation” if you look in that category).

      The biggest problem with a company like NRG is that it is very difficult for them to finance these plants, especially without the support of the municipally owned utilities down there in Texas.

      And yes, we are on our way to third world status, except that you can actually build things in the third world, so maybe that isn’t a fair comparison.

      I was in the energy business as a consultant for a decade or so and worked at pretty much every major utility investor owned or public during that period. I didn’t do much at STP but lots of other people I worked with did. They said it was HOT down there at the site, for sure.

      I still stand by my statement that I have a better chance of being president in 2017 than those reactors have of being on-line by then.

    4. Michael Kennedy Says:

      What about this approach? I think there is an issue about weapons using the fast reactors but it seems to solve the waste problem.

    5. Joseph Somsel Says:

      NRG is not going it alone, no matter what the CPS decision. CPS is co-owner of the South Texas Project SITE and so has the right of first refusal on participation on any additional generation there. The City of Austin is also a co-owner but has not been interested in additional participation in nuclear.

      If neither party takes an ownership role, they will wind up paying market rates for the power when STP 3 and 4 come on line. Austin’s existing participation in Units 1 and 2 provides them their cheapest source of power now.

      Also note that the Japanese government has an equity stake in 3 and 4 project through the project lead company.

      NRG has stated that they intend to proceed no matter the CPS decision. I suspect that they have the financial wherewithall to do so. They fought back Exelon’s hostile takeover based on NRG’s superior credit rating. I haven’t done an evaluation of NRG financials but I know that they are very good.

      Finally, what do you think Governor Rick Perry will do if this project is placed at risk? It is the firmest of current proposed plants in Texas and farthest along. STP 1 and 2 are arguably the best run reactors in the world based on total output and lowest cost. Nuclear reactor regulation in Texas can clearly be performed by the State of Texas. The US NRC only regulates based on agreements with individual states. The output of the STP reactors can not cross state lines given the isolation of the ERCOT grid from other states.

      I will agree that the opponents of nuclear power have long used economic warfare to reduce their numbers and stunt its growth.

      One also has to look at this current dustup as a way to beat down the suppliers in negotiations – “Lower your prices or we walk away!”

    6. Carl from Chicago Says:

      I don’t have any specific information on this particular project other than what is readily available from public sources. NRG is a well run company, and did fight off Exelon. Exelon has a larger market capitalization and better access to debt markets than NRG, this was one of the key attributes of Exelon’s “pitch” to NRG shareholders, which failed overall.

      NRG’s market capitalization is under $10B, and they already have a reasonable amount of long term debt. If they don’t get significant contributions from other parties on financing, this will be hard to float on their capital structure. In addition, as you well know, you need to finance the construction costs up front but you don’t start earning money until the plant comes online, so any sort of delay becomes very costly. Part of the reason that the original STP cost so much is that it was initiated during a high interest rate environment, so that a lot of the total cost was capitalized interest. Interest rates today are much lower if financing is available but it still does add up over the years.

      I don’t know what Texas will do. The former TXU Energy Futures Holding went private. Their debt is trading at distressed levels. They need to refinance significant amounts of debt coming due in 2014. The governor may have much bigger problems on his hands than STP if EFH starts having major financial difficulties.

      Also there is some noise at interconnecting ERCOT with the rest of the grid. That probably is a bigger long shot than even getting this plant done, but it is out there.

      Along with these items a major challenge is a reduction in the price of natural gas. If natural gas stays at this level for a while due to the new drilling technologies and LNG access this dims the hopes for nuclear since natural gas is readily available today and so easy to site.

      Once again I wish you the best and firmly HOPE that you can make this happen.

    7. malthus Says:

      I find it dead simple for government to overcome the NIBMY problem. All it has to do is auction the right to entertain the construction of a nuclear reactor in the center of a particular county. The money would be used to lower county property taxes. Basta–every county, at least here in Central Texas, would then want a nuclear reactor.

    8. Carl from Chicago Says:

      Actually the locals are usually quite supportive of nuclear power. It isn’t the locals that hold up nuclear power, especially since they are siting it adjacent to additional, older units (so they really aren’t taking on any additional “risk”, if there was a risk in the first place). It is all of the Federal government red tape and all of the lawsuits and other ways NIMBY tactics make it impossible to construct anything in the USA. Most of those NIMBY folks are outside of Texas, although probably quite a few would be from Austin.

    9. Jay Manifold Says:

      Alan might be able to dig something up on this: when I lived in D/FW, I recall hearing that the Comanche Peak facility was 90% complete when a bunch of regulatory stuff kicked in and it had to be virtually started over from scratch. The result, for Somervell County, was quite striking — over the course of the entire project, said the rumor I heard, it went from being one of the 10 poorest counties (out of 254) in Texas to one of the 10 richest.

    10. Dan from Madison Says:

      Joseph Somsel – interesting comments, thanks for sharing. I simply cannot believe that the contractors/suppliers have to fix their costs up to ten years in advance on these projects. I am in the HVAC business and I don’t even have the stones to hold quotes on raw materials (copper, sheet metal, steel pipe, brass fittings, silver solder, etc.) for more than one DAY when quoting large jobs – and that is quite common in my industry. Some gigantic companies can hold quotes due to hedging but still, there isn’t that much wiggle room. But ten years? Talk about gambling.

    11. Joseph Somsel Says:

      Dan,

      You are correct that no contract is being signed committing to prices 10 years in advance. However, the current press reports are about cost estimates being assailed that predict total price 8 to 10 years from now. It is those prices that are being negotiated and are being used to raise doubts about the wisdom of new nuclear power plants.

      My understanding is that the final contracts with fixed priced commitments will be signed upon NRC issuance of the license.

      That still requires financial commitments 5 years or more into the future.

      Note that the major piece of equipment, the reactor pressure vessel, is paid for in advance, in cash, at the time the order is placed. However expensive that component is, the bulk of the costs are in materials like concrete, steel, and copper, labor for construction, and the interest on moneys spent before operation.

    12. Anonymous Says:

      This post has been linked for the HOT5 Daily 12/6/2009, at The Unreligious Right

    13. david foster Says:

      I wonder how the Mexican government feels about nuclear power.

      With EHV transmission, nuclear plants near the border should be able to serve substantial population centers in the U.S.

    14. Joseph Somsel Says:

      Mr. Foster,

      The Mexicans are served by a two unit plant near Vera Cruz called Laguna Verde.

      Generally, power is exported from the US into Mexico but not in great quantities. It might be feasible to build in Mexico and import into the US but not without US federal government authorization. Further, most of Texas is isolated from the Mexican and US grids and the California Energy Commission could prohibit California utilities from importing nuclear power, as they did in blocking a proposal for coal plants in Wyoming from supplying California citizens.

      Hence, your only realistic markets are New Mexico and Arizona.

    15. Bill Befort Says:

      All you have to do is read the Wiki article on “Nuclear Power in France” to know that the thing not only can be done, it has been done. The French now make 90 percent of their electricity by nuclear means. Nuclear has successfully replaced fossil fuel in power generation on the scale of an entire G7 country, with no more than minor and manageable problems. Yet this conclusive demonstration receives only perfunctory notice, while we debate punitive reductions in First-World living standards in the name of reducing CO2 emissions. If the global-warmists are even half right, frivolously aborting nuclear energy was the worst mistake the U.S. ever made.

    16. Ellen K Says:

      Just FYI, when Glen Rose nuclear facility was built south of Dallas, it was one of the last ones built anywhere in the country for quite awhile. The occurrence at Three Mile Island along with debut of the movie “The China Syndrome” stampeded people into thinking that nuclear power would destroy us all. The building of the facility was greatly delayed by a series of nuisance lawsuits that escalated the costs as it dragged out the finishing date. Ironically, these same people are the ones who are supporting catastrophic cap and trade measures with little regard for the overall economic outcome down the line. But then environmental types don’t really care about people.

      If you knew Austin like I know Austin, you would realize that every environmental nutjob is out there daily ranting and railing against the unholy advent of nuclear power. The irony is that many of the graduates of University of Texas adhere to this narrow and liberal mindset love Austin and never want to leave it for anything. This means that despite a ridiculous growth rate Austin’s highway and water infrastructure is grossly overused. Just try to get out of Austin after three on any Friday afternoon. I35 is bumper to bumper and twenty mph from outside of Roundrock to past San Marcos. These very same folks oppose any and all things they see as “development” for the sake of a type of elitist environmentalism. If the building of this plant goes far over budget, you can look to the courts for the reason.

    17. Carl from Chicago Says:

      The courts are definitely a huge part of the problem, along with unclear governmental guidelines that subject everything to lawsuits.

      Probably the best way would be to have people who oppose building new generation unplugged from the grid. Then the hipsters would all be treated the way they like.

      I used to live in Houston for a bit and my brother lived in Austin so I visited there a lot. Nice place.

    18. Joseph Somsel Says:

      Licensing risk is definitely a factor in the projected cost estimates. For example, we, the reactor designers, offered to increase the power by 10% in the original construction for a very low marginal cost per kW of capacity. The owner’s management said no because they judged that power increase to put the whole licensing process at risk of delays and intervenors.

      The New York Times had already published a hit piece on the project when the license was submitted noting a handful of departures we wanted from the original certified design.

      http://www.nytimes.com/2007/12/05/business/05nuke.html?scp=5&sq=nuclear+application+Texas&st=nyt

      Some were trivial and just paperwork, some were required by the new rules from the government. Some were improvements we were morally obligated to request since they improved safety and reliability. The one major change was in the digital control system. The design that had been approved was obsolete and no longer offered by any vendor or manufacturer.

      One of the problems with the original plants (units 1 and 2) was corruption. The constructor was corrupt and even the employees. There was a major scam going on where an employee could claim some construction or design defect and threaten to “blow the whistle” to the Nuclear Regulatory Commission (NRC). The NRC in turn was compelled to investigate and “adjudicate” which was extremely expensive and time-consuming for both the owner and the government. The NRC turned a blind eye as the owner paid off the extortionist employees for cash settlement. It was a game that spread throughout the industry.

      I argued for my utility to industry groups that the best way to stop this practice was for the NRC to forbid cash payouts for the extortion and to take the resolution off-line for the license approval. If a blackmailer has to wait 10 years for his money, he might not bother.

    19. Carl from Chicago Says:

      Joseph, we are glad that there are people like you out there fighting for nuclear power in America. All your points make a lot of sense. You are just facing long odds… and we wish you luck.

    20. david foster Says:

      Joseph…”The one major change was in the digital control system. The design that had been approved was obsolete and no longer offered by any vendor or manufacturer”…interesting story. It seems likely that once a project is delayed by a number of years, the mere passage of time will likely cause further slips because of problems like this.

      Carl/anyone…Any insights on Constellation Energy? (nuclear operator which is selling a part interest to French nuclear company)….just bought some preferred & thinking about getting some more.

    21. Joseph Somsel Says:

      Dave,

      The digital control system issue is not restricted to just my plant. Our regulators and our designers are struggling to reach consensus on just what the design philosopy should be and how to write regulations to implement that philosophy. Part of the problem is that digital controls are so flexible and developing so rapidly that many options are available to designers and the regulations need to avoid boxing the advancing art into a stagnant practice. Yet, some bounding rules need to be put in place.

      I’ve already shipped equipment where the installed and tested digital components were obsolete upon delivery. Spare parts were no longer available – I even searched eBay! We had to rip out some guts and rebuild parts as part of the installation process.

      Constellation seems to be moving forward with the new Calvert Cliffs nuke. The Maryland PSC has decided to support the project. I was talking with Areva this morning and EdF people have already arrived to support the new plant. I would caution that foreign companies starting to do nuclear business within the US can have difficulties with the cultural and regulatory differences. I’ve seen this within my own company but maybe the French are more flexible than the Japanese.