First wave or second wave?

Some reactor projects at the front of the line might be better off moving to the back

If you add up the number of new reactors with license applications submitted to the NRC, what you get are way too many projects chasing not nearly enough capital much less sufficient manufacturing capability to build the plants. A quick look the numbers tells us success for the U.S. nuclear industry can’t be a case of “free swim, everyone into the pool.”

Here’s what the line looks like . . .

• 18 combined construction operating license applications (COL) are pending at the NRC; 5 more expected by the end of 2010.
• The agency can’t review all of them in 42 months thanks to a lack of funds and staff.
• 28 reactors are proposed to be built, but two of the major reactor designs are still under design review

Some projects are already dropping out.

• Ameren gave up earlier this year after losing a bruising battle with the Missouri state legislature over recovery of construction costs.
• Unistar put all its eggs in the Constellation basket putting Nine Mile in upstate New York on hold.
• Exelon switched reactor types and stopped work on its COL and will instead tread water, perhaps for years, with an Early Site Permit for Victoria, TX.
• Entergy also dropped plans to the GE-Hitachi ESBWR for its Grand Gulf, MS, and River Bend, LA, projects and may postpone them both by at least a decade.
• Congress and the Obama Administration have shown little interest in expanding the federal loan guarantee program to bring down the cost of and ease of access to capital for new plants.
• Yet, 15 power companies representing 10 sites and 16 reactors worth $98 billion in new construction filed paperwork for the guarantees in December. There is only $18.5 billion in loan guarantees available. These are long odds.

What’s an industry to do?

The answer, according to Edward Kee, VP at NERA Economic Consulting, (right) is for some plants which are pursuing the first wave of construction of new nuclear power plants to consider waiting for the second wave. In a paper published in July, Kee says that a “second wave” could aim for a later construction start. His timeframe is as early as 2014 and as late as 2020.

Kee’s bottom line advice is that, “if a nuclear project has little hope of being in the first wave, cutting costs and risks by adopting a viable second-wave strategy now might be an attractive option.”

A second wave project Kee says will reap substantial benefits assuming the first wave achieves even modest levels of success. There would be lower risks of cost over-runs, some of the uncertainties about carbon taxes and trading schemes would be resolved, engineering challenges associated with first-of-a-kind reactors would also be a thing of the past. Nuclear financing would be more readily available as Wall Street gets used to raising capital for these kinds of projects.

Kee suggests that some projects might benefit from taking the off-ramp now. This would mean waiting for the traffic jams to subside at the NRC, Japan Steel Works, and with manufacturing capabilities and having confidence in a trained work force with the experience of the first wave of new plants under its belt.

Another benefit Kee says is that by 2014 all four reactor designs will be certified and by 2020 all four will have completed projects and operational experience. Second wave projects will have a much easier time writing and executing EPC contracts as a result.

Utilities that are on the fence about staying with the first wave will need to take a look at Kee’s observation that “the decision analysis framework for a second-wave project . . . will have more options and . . . more time to gather information.”

For firms with the prudent investor paradigm on their minds, this is advice worth a second look.

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Idaho Samizdat ~ http://djysrv.blogspot.com