Wall Street Journal - 17 Jun 09

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305

(Copied 22 Aug 09)

U.S. Chooses Four Utilities to Revive Nuclear Industry

By Rebecca Smith
June 17, 2009

The reactors likely to be built in the U.S. are similar in design to ones built elsewhere, such as this nuclear plant in Oililuoto, Finland. - Reuters

Four power companies are expected to split $18.5 billion in federal financing to build the next generation of nuclear reactors -- the biggest step in three decades to revive the U.S. nuclear industry and one that could vault the utilities ahead of some of the sector's strongest players.

UniStar Nuclear Energy, NRG Energy Inc., Scana Corp and Southern Co. are expected to share a set of loan guarantees to be awarded by the Energy Department. The guarantees would enable the companies to start building the reactors as early as 2011, with the plants likely to come online by 2015 or 2016.

The four companies have already selected sites for their reactors and are at the front of the pack to receive licenses to build and operate them from the Nuclear Regulatory Commission. The government has yet to formally announce its picks, but interviews with Energy Department and NRC staff members, as well as officials at energy companies and reactor vendors, have identified the likely winners.

Seventeen companies applied for $122 billion of federal loan guarantees for 21 proposed reactors. In creating their short list, federal officials sought companies with strong development teams and plans that could be implemented quickly. They also wanted a mix of traditional utilities (Scana and Southern) and newer "merchant" generators (NRG, UniStar) that sell electricity at unregulated prices. Merchant operators have reaped big productivity gains in nuclear power in recent years. Foreign partners that might be able to contribute loans or equity were also considered a plus.

The likely launch of the next generation of nuclear reactors -- a move in the making for at least a decade -- has big implications for the economy and the environment. Expanding the use of nuclear power has the potential to make a significant dent in emissions of carbon dioxide, the most commonly produced greenhouse gas. And Energy Secretary Stephen Chu has made nuclear power an agency priority.

The first round of building would add about seven new reactors to the U.S.'s existing fleet of 104 at a likely cost of more than $40 billion. But the new plants cost so much -- estimates range from $5 billion to $12 billion -- that power companies could have trouble coming up with the equity they must put into the projects, typically 20% to 50% of the total. In addition, technical or regulatory problems could arise, and it isn't certain the plants can be run profitably.

Strong political opposition is also possible. Nuclear-power development in the U.S. ground to a halt shortly after a severe core meltdown at the Three Mile Island nuclear plant in Pennsylvania in 1979. Facing community resistance, ballooning costs and complaints about a looming radioactive-waste problem, power companies didn't file applications for new plants for more than 25 years.

Meanwhile, France and Japan, among others, pushed forward with newer designs, eclipsing the U.S. in an industry it had pioneered. Currently, about a fifth of the electricity in the U.S. is generated by nuclear power, compared with more than three-quarters in France and one-quarter in Japan. The reactors likely to be built in the U.S. are similar to ones built elsewhere, including in Finland, Japan and China.

The federal government's choice of these four companies could upend the hierarchy of the electricity industry. The first companies that can build new nuclear reactors will have a big leg up in delivering electricity with low carbon emissions. That could give them a major financial advantage if Congress passes legislation that caps emissions of carbon dioxide.

Absent from the government's list are two of the current leaders in nuclear power, Exelon Corp. and Entergy Corp., which have bought up nuclear plants in recent years and now run a quarter of the nation's nuclear reactors. "We can't build without loan guarantees," said Craig Nesbit, an Exelon spokesman. Entergy's nuclear spokesman, Mike Bowling, conceded the company may sit out the first round. "We don't want to be left behind, but we think this first wave will pave the way for others," he said.

Some believe a nuclear revival would provide an opportunity to retool the nation's beleaguered manufacturing sector. The new reactors will require thousands of specialized parts and a skilled labor pool to make them, but few U.S. companies are still in the nuclear supply business. "We're going to bootstrap the U.S. nuclear industry," said Steve Winn, head of NRG's nuclear development company.

The government's selection also determines which nuclear-design companies will win lucrative contracts to build the plants. Scana and Southern want to use a design by Westinghouse Electric Co., now controlled by Japan's Toshiba Corp., at sites in South Carolina and Georgia. The Westinghouse design has emerged as the most popular and is one of the few already certified for U.S. use by the NRC.

NRG hopes to build two Toshiba reactors in Texas, using a design first developed by General Electric Co. UniStar, which is jointly owned by Constellation Energy Group and EDF SA, plans to use a reactor from France's Areva SA at its site in Maryland.

The reactor makers unlikely to be in the first round include GE-Hitachi Nuclear Energy, a joint venture of the U.S. and Japanese companies, and Mitsubishi Heavy Industries Ltd. Jack Fuller, chief executive of GE-Hitachi, said the company has been "in this business for 50 years. We're not overly concerned not to be in this first wave." The NRC has also said it will continue to work toward certification of other reactor designs.

George Vanderheyden, CEO of UniStar Nuclear Energy in Baltimore, said UniStar is involved in "complicated negotiations" with the French government to secure export credit agency financing for at least 15% to 20% of project costs, which could approach $10 billion.

Some on the short list said they don't intend to seek the maximum amount of aid. Scana said it will seek support for half the cost because it wants to limit its debt load. NRG intends to finance the project with 80% debt but hopes about a third would come from the Japanese government and half from the U.S. government.