U.S. Pushes, but Reactors Are Lagging

By MATTHEW L. WALD
Erik S. Lesser/European Pressphoto Agency

Construction vehicles clearing the site for a nuclear reactor at the Southern Company’s Vogtle plant near Augusta, Ga.

Of four reactor projects identified by the Energy Department in 2009 as the most likely candidates for federal loan guarantees, only two are moving forward. At a third, in Calvert Cliffs, Md., there has been no public sign of progress since the lead partner withdrew in October and the other partner said it would seek a replacement.

And at the fourth, in Texas, a would-be builder has been driven to try something never done before in nuclear construction: finding a buyer for the electricity before the concrete is even poured. Customers are not rushing forward, given that the market is awash in generating capacity and an alternative fuel, natural gas, is currently cheap.

“The short answer is, there has to be a market for the power,” said John Reed, an investment banker who specializes in nuclear projects. “That’s the most immediate hurdle these projects have to get over.”

Yet there is a fairly sturdy political consensus in favor of building more reactors. By including nuclear power in a proposed “clean energy standard” shifting the electric system away from conventional coal and gas, whose emissions contribute to global warming, the Obama administration is seeking to stoke such support.

Many Democrats and most Republicans in Congress back nuclear construction, as do local officials in most places where reactors have been proposed.

Senator Lamar Alexander, Republican of Tennessee and one of the Senate’s strongest proponents of nuclear power, suggests that Mr. Obama should make building 100 reactors in the next 20 years a national priority, both for energy security and to limit climate-changing emissions.

But for now, he acknowledges, the economics are not in place. “Right now, it’s stuck,” he said of the planned nuclear revival.

Some challenges are not peculiar to the nuclear sector. All forms of clean energy, including solar and wind power, are undercut to some extent by the cheap price of natural gas and the surplus in generating capacity, which is linked partly to the recession. And federal caps on carbon dioxide emissions from coal- and gas-burning plants, which would benefit clean energy sources, are not expected until 2012.

But some obstacles are specific to the nuclear industry, like the ballooning cost estimates for construction of reactors, which are massive in scale. Even when projects are identified as prime candidates for federal loan guarantees, some investment partners turn wary.

“All that uncertainty creates an incentive for you to wait,” said Joseph E. Aldy, who was a special assistant to President Obama until December.

To counter the uncertainties, Senator Alexander and others have arranged substantial help for the industry. The Nuclear Regulatory Commission has been working for more than 15 years to streamline reactor licensing to cut construction time and to reduce risk. And the 2005 Energy Policy Act provided money for loan guarantees, subsidies for production from the first few reactors and insurance against regulatory delays.

Industry executives say that with those changes and the financial help, they had what they needed to build after a gap of three decades. By 2008, the Nuclear Regulatory Commission had 15 applications for new nuclear plants in hand and expected 15 more, and it asked Congress for budget increases for personnel to handle the flood.

Across from commission headquarters, in Rockville, Md., workers are now digging a foundation for a $131 million, 14-story office tower for 1,500 employees to handle an anticipated flood of applications. But many of the proposed reactors are fading.

The four projects identified by the Energy Department after the 2005 act as the strongest candidates to share an $18.5 billion pool of loan guarantee money underline the difficulties.

At the Southern Company’s Vogtle 3 & 4 reactors, near Augusta, Ga., two holes that are each as big as five football fields have been dug for the foundations, and the Nuclear Regulatory Commission is expected to grant a license to build and operate the plants this year.

But negotiations on the Calvert Cliffs 3 project in Maryland broke down over what fee the builders should pay to the federal government to compensate the Treasury for the risk it was underwriting. One partner, Constellation Energy of Baltimore, gave up, and the other, Électricité de France, has not found a new investor.

Preliminary work has begun at another site, the Virgil C. Summer 2 and 3 project of South Carolina Electric and Gas, although one of the municipal partners, Santee Cooper, is looking for another company to take over some of its share.

The fate of the fourth, the South Texas Project 3 and 4, has been uncertain since CPS Energy, the municipal utility that serves San Antonio, was spooked by rising cost estimates and decided to bail out. CPS settled with the other partner, NRG of Princeton, for 7.6 percent ownership in exchange for the money it had already invested; for months, NRG has been shopping for partners to replace CPS.

The Tokyo Electric Power Company has agreed to take on 10 percent if the project gets a loan guarantee from the Energy Department, but before the project can move forward it needs either more investors or utilities that will sign contracts to accept the power for 20 years or more.

David Crane, NRG’s chief executive, said in a telephone interview that he was “cautiously optimistic” that he would eventually find customers that would agree to take power for 10 or 20 years, beginning in 2017. “I don’t find many people willing to believe that gas is going to be almost free forever,” he said.

In the 1960s and 1970s, when utilities decided to build the 104 plants now operating, they did not sell the output with power purchase agreements before the plants came online, because in that era, companies simply built to supply their own customers, who did not have a choice of suppliers. But if the South Texas Project expansion is built, it would be the first in a state using a restructured electric system with open bidding, a system that now covers more than half the country.

South Texas 3 and 4 and Calvert Cliffs 3 were supposed to help break a 30-year drought and get the ball rolling for construction of dozens of new reactors.

But prospects for weaker ones are fading. In Florida, Progress Energy and Florida Power and Light each wanted to build twin-unit reactors but backed off after the state Public Service Commission ruled last year that the companies could not bill ratepayers for the plants while they were being built.

AmerenUE proposed a reactor adjacent to its existing Wolf Creek plant in Missouri that would have been an identical twin to Constellation Energy’s Calvert Cliffs 3 in Maryland, but that fizzled after the Missouri legislature refused to let the company collect money from ratepayers before the plant was finished. The new governor of Missouri has expressed interest, though.

Michael J. Wallace, who led Constellation’s five-year effort to build Calvert Cliffs 3, said that more help would have to come for the industry to bounce back. “We need to take stock again,” he said. “If we don’t sort this out in some way, there isn’t going to be a nuclear revival.”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: