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December
2010, Vol. 2Electricity CurrentsA survey of trends and insights in electricity restructuring
t Time to Abandon Talk of a Nuclear ‘Renaissance’?
In Electricity Currents This Month:
Is It Time to Abandon Talk of a Nuclear
‘Renaissance’? . . . . . . . . . . . . . . . . . . . . . . . 1
Congressional Inaction on Warming
May Not Be Good News for Coal . . . . . . . . . . 1
Scotland Sets Ambitious Target
of 80% Renewables by 2020. . . . . . . . . . . . . . 3
Apples and Oranges: Don’t Compare
Levelized Cost Of Renewables: Joskow. . . . . . . 3
Electricity Currents is compiled from the
monthly newsletter EEnergy Informer pub-
lished by Fereidoon P. Sioshansi, President
The U.S. nuclear power industry has been awaiting a
much anticipated renaissance ever since the passage of the
Energy Policy Act in 2005, which offered a range of
generous concessions and loan guarantees to utilities
brave, or reckless, enough to build new nuclear reactors.
One can argue which term better reflects the challenges
facing private investors attempting to build new nukes
after three decades, against escalating costs and investor
skepticism.
With persistent prompting from the Bush
administration, some 28 applications to build new reactors
have been submitted to the Nuclear Regulatory
Commission (NRC). President Obama tripled the nuclear
loan guarantee to $54 billion, yet the Nuclear Energy
Institute (NEI), a U.S. industry trade group, claims this is
3, Issue 10
of Menlo Energy Economics, a consultancy
based in San Francisco. He can be reached
ongressional Inactionn Warming May Not Be
ood News for Coal
The U.S. Congress has been unable and
nwilling to pass a comprehensive energy and
limate bill – which the President has
cknowledged is even less likely after the mid-
erm November elections. Ironically, that is not
ood news for coal.
As much as a fifth of the existing U.S. coal-
red generation could close within a decade
hile few new conventional coal plants are
xpected to be built. And that is without any
xplicit price on carbon or a cap-and-trade
Continued on page 5
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1040-6190/$–see front matter 1
scheme, according to Wood Mackenzie, a
on-peak hours as illustrated in column 5, resulting in a
$86,520 profit.
‘‘The key message from these examples is that
when the electricity is produced by an intermittent
generating technology, the level of output and the
value of the electricity at the times when the output is
produced are key variables that should be taken into
account,’’ according to Joskow.
This explains the growing interest in concentrated
solar power (CSP) by summer-peaking utilities in
sunny regions of the Southwest. CSP plants generate
most of their energy during peak demand hours,
where it has a premium value. Adding a few hours of
thermal storage, will allow CSP plants to extend their
operation into late afternoon hours when peak
demand often occurs, further boosting their
economic value.& doi:/10.1016/j.tej.2010.11.009
CORRECTION:
An article on Canadian coal policy in the October 2010 editionof Electricity Currents erroneously stated that, ‘‘British Colum-bia and California are the only other major North Americanjurisdictions with . . . power plant emissions restrictions – wherefuture use of coal is not specifically banned, but merely (made)impossible without the CCS option.’’ As it happens, both Oregonand Washington have similar restrictions. The State ofWashington, for example, adopted legislation in 2007 thatrequires all new plants and any long-term contracts for powerto meet an emissions performance standard of 1,100 poundsof GHG per MWh. Electricity Currents regrets the error.
Is It Time to Abandon Talk of a Nuclear ‘Renaissance’?
Continued from page 1
D
insufficient – and there is ample evidence to support
its contention.
In February 2010, amidst great fanfare, the first
loan guarantee of $8.3 billion was awarded to
Southern Company to build two new reactors at the
Vogtle plant in Georgia, still conditional on receiving
a combined construction and operating license from
the NRC, expected in 2011. Southern Company, it
must be noted, enjoys a particular advantage
operating as a vertically integrated utility under
Georgia state regulations, which allow it to recover
costs during construction. Consequently, Southern
has a reasonable assurance that it can collect its
investment as it builds two new reactors – not
accumulating capital and financing expenses during
the long and highly uncertain construction period.
Most other applicants operate in competitive
markets were no such cost recovery is allowed,
making it so much more difficult to make a
convincing case for investing in nuclear reactors.
Interested to enter the potentially lucrative U.S.
market – currently the biggest in the world with 104
ecember 2010, Vol. 23, Issue 10
operating reactors – the partially state-owned giant
Electricite de France (EdF) needed to find a majority
partner because of restrictions on foreign ownership
of nuclear reactors in the U.S. In 2008, EDF
paid $4.5 billion for a 49.9 percent stake of
Constellation Energy after energy trading losses had
put the company in financial distress. The two
companies subsequently formed UniStar, a joint
venture to build a fleet of nuclear power plants using
Areva’s advanced European Pressurized Reactor
(EPR) design starting with the 1,650 MW Calvert
Cliffs Unit 3 in Maryland.
UniStar applied for a license and for government
loan guarantees, and for a while its prospects seemed
stellar. But the relationship between the two partners
began to sour. On Oct. 8, 2010, apparently without
much consultation, Constellation abruptly pulled out
of the project, leaving EdF, and the entire nuclear
industry, in a state of shock. One EdF executive told
the Financial Times, ‘‘We don’t know what is
happening,’’ adding, ‘‘They (Constellation) did not
tell us they were going to do this.’’
1040-6190/$–see front matter 5
6
While it’s hard to speculate on exactly what
caused the rift, one sign of trouble may be the sheer
size and complexity of Areva’s EPR design, a
sophisticated piece of machinery. The two units
currently under construction in Finland and France
have both experienced construction delays and
serious cost overruns. The second, but less
persuasive reason – perhaps a convenient excuse for
Constellation to cancel the project – may be
disagreements on the terms of the $7.5 billion federal
loan guarantee.
In a letter addressed to Dan Poneman, deputy
secretary of the U.S. Department of Energy (DOE),
Constellation Energy COO Michael Wallace said his
company did not see a ‘‘timely path to reaching a set
of workable terms and conditions’’ to build a third
reactor in an ‘‘economically reasonable and
statutorily justifiable manner,’’ adding that the high
estimate of the credit subsidy would force
Constellation and its partners to pay the U.S.
Treasury 11.6 percent, or $880 million, to obtain the
loan guarantee. ‘‘Such a sum would clearly destroy
the project’s economics, or the economics for any
nuclear project for that matter, and was dramatically
out of line with both our own and independent
assessments of what the figure should reasonably
be.’’
The Associated Press reported that EdF has offered
to purchase Constellation Energy’s stake in
UniStar but it would still need a U.S.-based majority
owner. Perhaps this is not the end of the story,
but it certainly puts a big dent in EdF’s grand design
for a piece of the U.S. nuclear business when and if it
ever materializes.
Shortly after this rancorous episode EdF agreed to
buy the half of the nuclear venture it did not own
from its disgruntled partner for $249 million in cash
and stock. Under the agreement reached,
Constellation agreed to forgo its right under a
previous contract to sell $2 billion of plants to
EdF. In exchange, it will get $140 million in cash and
3.5 million of its own shares for its stake in UniStar. In
addition to the site for Calvert Cliffs 3 in Maryland,
EdF acquired the site for a potential fourth reactor
near Calvert Cliffs and two other sites at Nine Mile
Point and R.E. Ginna in New York.
1040-6190/$–see front matter
Among other nuclear contenders, NRG is
proceeding with plans to build two new 1,350 MW
Advanced Boiling Water Reactors (ABWR) at the
South Texas Project (STP) Electric Generating Station
90 miles southwest of Houston, costing some $10
billion. Like UniStar’s Calvert Cliff station, these
units would operate as merchant generators in the
Texas market, the Electric Reliability Council of Texas
(ERCOT), and will not be allowed to recover their
construction costs during construction – a major
disadvantage.
Even though the two projects are competing
for the same federal funds, NRG does not see
Constellation’s decision to back out as good
news for its own prospects or the moribund
industry. ‘‘These new projects would be the
foundation that would help the nuclear renaissance
get started and get to the point where the financial
industry has confidence in nuclear and that we can
build new nuclear on time and on budget and we
would not need to (seek) loan guarantees,’’ according
to NRG spokesmanDavid Knox. Clearly, nuclear
proponents want to see quite a number of new
projects breaking ground and successfully
completed. Only then would investors gain the
confidence to put money in a new fleet of nuclear
plants.
NRG is hoping for a $4 billion loan from the Japan
Bank for International Cooperation (JBIC) to help
fund the South Texas Project. Knox said NRG is
‘‘very confident’’ it will receive a loan guarantee from
the Office of Management and Budget ‘‘soon’’ and
expects to receive a license from the NRC as early as
2012. Scana Corp., the other major nuclear contender,
also is planning to build two new 1,100 MW AP1000
pressurized water reactors in South Carolina and is
in the loan application process.
In a prepared statement, Marvin S. Fertel, CEO of
the Nuclear Energy Institute, said that
Constellation’s rejection of the federal loan guarantee
is ‘‘further recognition that the federal government’s
loan guarantee program for clean energy sources is in
serious need of reform.’’
While that may or may not be true, the reality is
that nuclear power plants built in states with
organized markets, such as those in Texas or
The Electricity Journal
D
Maryland, have to operate as merchant generators,
bidding their output into the market in competition
with everyone else. In these markets, state regulators
will only allow recovery of construction costs after
the plant is commercially operable, which exposes
investors to absorb significant sums before any
revenues can be had. Federal loan guarantees help,
but apparently not enough.
For now, Southern Company’s 2 new reactors
appear likea reasonablebet but the fateofseveral other
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ecember 2010, Vol. 23, Issue 10
projects is not entirely clear. The UniStar’s setback
cannot possibly be seen as a positive development,
even by nuclear energy’s most ardent supporters.
In this context, it is debatable how many new
reactors will be built in the U.S. and when – four to
eight are likely, perhaps in the 2020 s at the current
rate of progress. That is better than nothing, but will
not qualify as a nuclear renaissance.&
doi:/10.1016/j.tej.2010.11.006
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