NUCLEAR POWER:

Can potential incentives in climate bill spur U.S. industry?

A possible nuclear energy title in the climate bill with strong financial and regulatory incentives has been touted as one of the top negotiable items to obtain the necessary 60-votes needed to pass the Senate climate legislation.

But how much would strong incentives for nuclear power help spur U.S. industry and quicken the pace of a "nuclear renaissance"?

There are currently 17 applications for 26 reactors before the Nuclear Regulatory Commission, for which the expected review time is about four years and construction time an additional four to five years. Furthermore, the industry faces several significant hurdles including a bottleneck in the global supply chain for nuclear components -- some of which have only one manufacturing facility, a looming shortage of qualified workers and a recalcitrant Wall Street that is hesitant to invest in projects, even with loan guarantees from the U.S. government.

"If someone were to wave a magic wand and give loan guarantees to every single plant, you still wouldn't expect anywhere near all of them to be built all at once," said an industry source.

"There are real constraints on the supply chain and there is a real sense of caution in the industry and especially on Wall Street as to when and for what price new nuclear plants can be built here," the source added.

The Nuclear Energy Institute yesterday unveiled legislative priorities it says are necessary to build 45 reactors by 2030. NEI wants $100 billion in additional loan guarantees for clean energy technology, additional production and manufacturing tax incentives, improving regulation review efficiency and increased funding for nuclear technology research and development (E&ENews PM, Oct. 26).

"What we are trying to do is optimize the opportunity for building new nuclear plants," said Alex Flint, NEI's senior vice president for governmental affairs. "What needs to be put in place is a regulatory and financial framework for new plant construction" so companies and investors can move forward, Flint said.

The NEI proposal echoes nuclear energy language and provisions laid out over the past year by several key moderate Republicans -- including Sens. Lindsey Graham of South Carolina, Lisa Murkowski of Alaska and John McCain of Arizona -- for whom a "robust" nuclear title is necessary, if not sufficient, to vote for a climate bill.

"The only way we get there ... is if we really ramp up nuclear," Murkowski said in a C-SPAN interview last week.

Graham recently reinvigorated negotiations between Republicans and Democrats over cap-and-trade legislation with a commitment to work with Sen. John Kerry (D-Mass.) to include robust nuclear and domestic oil and gas drilling titles in the bill.

The Kerry-Graham op-ed and President Obama's remarks two weeks ago in New Orleans that "it would be stupid" not to use nuclear energy effectively to cut greenhouse gas emissions have increased expectations that nuclear energy will play a larger role in climate bill negotiations.

Even Environment and Public Works Chairwoman Barbara Boxer (D-Calif.), who is anti-nuclear and is one of the main authors of the Senate climate bill, conceded earlier this month that nuclear incentives have "a sea change of support" that negate her vote as a deciding factor.

"We think a consensus is beginning to develop in Washington that nuclear incentives must be in climate legislation," Flint said. "These are the things that are necessary to build new plants on schedule for what is needed for the climate change space," he said.

Getting from here to there

But a lot remains in the balance in "ramping up" nuclear and getting from the current zero new nuclear reactors to 45 or more. Though financing remains a top issue for the nuclear industry, it appears that pinning down a price point for the new plants is also a major issue.

"I think the biggest impediment of aggressive nuclear technology is its cost," said Ralph Izzo, chairman, president and CEO of the New Jersey-based utility Public Service Enterprise Group Inc. PSEG is waiting for the first new reactors to be licensed and built before making any decision about new nuclear plants, he said. "The cost is not within my comfort level right now," he said.

A June report by Moody's Investor Services maintained that the credit agency "is considering taking a more negative view for those issuers seeking to build new nuclear power plants," as most utilities are not adjusting their balance sheets to commence on such an endeavor and as a reflection of the high risk involved in a possible $6 billion to $8 billion investment.

The report notes federal loan guarantees will "only modestly mitigate increasing business and operating risk profile."

Flint said the report took a "snapshot" of companies that submitted license applications and a specific company-by-company analysis would provide more pertinent data. Additional loan guarantees will help the financial situation, he said.

Those companies that are the reported finalists for the $18.5 billion are also the projects that Moody's lists as having a "high" activity level. The finalists are: UniStar Nuclear Energy/Constellation Energy Group's proposed Calvert Cliffs plant in Maryland; NRG Energy Inc.'s South Texas Project; Southern Co.'s Vogtle plant in Georgia; and Scana Corp.'s Summer plant in South Carolina.

Energy Secretary Steven Chu indicated last month that he would push for additional loan guarantee authority for nuclear power to provide more certainty to restart the U.S. nuclear industry.

"If you really want to restart the American nuclear energy industry in a serious way ... we [need to] send signals to the industry that the U.S. is serious about investing in nuclear power plants," Chu told Dow Jones Newswire.

The second wave

But there is more to building a plant than financing. Until those first reactors receive a construction and operating license from NRC and can build within a reasonable budget, most shareholders, board of directors and regulators will not commit to building a reactor. Without that commitment, the manufacturing companies, labor and other supporting industries will remain conservative in increasing their own capacity -- an additional delay to achieving a revival of the nuclear industry.

The industry needs specialized components and engineers and labor to build the new reactors, all of which are in short supply and have their own funding issues and construction lead times.

Japan Steel Works produces 80 percent of the market for large forged components, such as reactor pressure vessels, steam generators and turbine shafts, and the waiting period to obtain these is several years, as it produces only about four sets of these large components a year. China and Russia also have large forging capabilities and new capacity is being built in those countries as well as France and South Korea. But it will take time to construct these new facilities and there is likely going to be less certainty with products from some of these untested manufacturers.

The labor force to construct and operate new nuclear reactors is also in short supply. The median age for the nuclear industry is more than 48 years old and as much as 35 percent of the work force could retire by 2013, according to NEI. Over the next five years, the industry may need to hire up to 25,000 more workers, many of which will lack the on-the-job skills and knowledge the previous workers experienced with building new reactors in the previous cycle.

Flint said the additional loan guarantees, tax incentives and regulatory streamlining in the legislative proposal for the climate bill will largely affect this "second wave" of nuclear reactors, likely to be determined in the 2012 to 2013 timeframe.

"What is going to be tremendously important is the second wave, particularly for the manufacturing issue," Flint said. "As that becomes clear the domestic companies will ramp up production."

But that second wave largely relies on the success of the first wave. Flint says the first reactors will likely come on-line between 2016 to 2020 and are "well down the path" toward construction.

But others put a significant second wave of reactors farther down the road -- at least a decade from now -- anticipating companies will wait until the first reactors are licensed and constructed.

The possibility of more delay increased last week as NRC rejected one of the primary reactor designs, Westinghouse's AP 1000, which two applications of the four finalists for the loan guarantee rely upon (Greenwire, Oct. 16).