A late scramble to fund 'nuclear renaissance' kick-start

Constellation Energy Co. says that "time is running out" on its plan to build a 1,600 megawatt nuclear power plant in southern Maryland, as it presses the Energy Department to award an essential federal construction loan guarantee for the project.

The statement Wednesday by Constellation Chairman and CEO Mayo Shattuck III was followed yesterday by reports of more scrambling within Congress and the Obama administration to secure funding to cover loan guarantees for two new nuclear projects -- Constellation's Calvert Cliffs III reactor in Lusby, Md., and NRG's South Texas Project near Houston.

DOE has about $10 billion in guaranteed authority remaining -- enough for one new project -- after providing a conditional guarantee for a new reactor at Southern Co.'s Vogtle plant in Georgia early this year. DOE has delayed choosing between the Texas and Maryland projects in hopes that Congress would increase funding levels. House and Senate supporters of the nuclear loan guarantee program have tried a series of legislative maneuvers to do that, so far without success.

House Democratic Majority Leader Steny Hoyer (D-Md). said yesterday he has been closely tracking the progress of the Maryland project. "I believe that we will see progress in the coming days," he said.

According to a source close to the issue, the Obama administration and the Energy Department had been considering diverting funding pledged to four planned research projects on coal plant carbon sequestration to cover both the Maryland and Texas projects, although that idea may have been scrapped after complaints from Congress. DOE would not comment on that report. "If they cancel those programs, they will buy political problems," said one coal industry lobbyist.

Shattuck began his prepared remarks to securities analysts Tuesday with a pointed complaint about the company's wait for DOE action.

'Time is running out'

"While our application is still moving through the DOE approval process, it is taking longer than expected and, as a result of this delay and uncertainty, we have begun reducing our spending on the project, impacting jobs," Shattuck said.

Constellation said it has spent $600 million in project planning, licensing requirements and preliminary site work, but Constellation and EDF, its French partner, have not received approval from the Nuclear Regulatory Commission to build the reactor.


"My message today is a mixed one," Shattuck said. "We remain interested and focused on pursuing this project. However, time is running out. We definitely can't keep spending without a near term commitment in the form of a loan guarantee. If that were to be resolved this summer, we will be working to finalize the projected cost estimates and determine whether the plant meets our investment profile and risk criteria."

Other questions about the project arose this week following the release of a government report in France concerning overruns with the Areva Evolutionary Power Reactor (EPR), France's standard bearer in global nuclear project competition. Constellation and EDF, through their Unistar venture, have chosen the EPR for Calvert Cliffs.

Areva, the French-controlled construction firm, has been plagued by cost overruns on EPR reactors under construction in Olkiluoto, Finland, and Flamanville, France. Areva said it will book a $516 million charge to cover rising costs at the Finnish project, adding to earlier overruns that now approach the original $3.5 billion cost estimate for the plant.

NRC raises computer questions

According to published accounts, the report presented to President Nicolas Sarkozy and France's Nuclear Policy Council by François Roussely, the former head of EDF, focused on design issues that have inflated the cost of the EDF reactor. France was humbled last year when its bid for a $20 billion nuclear project in Abu Dhabi lost out to a lower-priced reactor from a South Korean consortium.

Roussely's analysis raised the issue of design changes that could make the EPR more competitive in global markets. The existing design should be "optimized" to simplify construction, Roussely's report concluded and an Areva spokesperson confirmed.

Areva's EPR reactor is under design review by NRC staff, which last week sent a letter to Areva documenting design issues that still trouble the commission, including the complexity of the computer systems linking safety and nonsafety components. The letter, from David Matthews, director of the Division of New Reactor Licensing, refers to a June 25 meeting in which Areva proposed design changes "intended to reduce the level of complexity" and other operational questions.

NRC's staff concluded that part of the EPR's planned digital instrumentation and control system is not going to meet NRC requirements. Areva agreed in part but said it would go forward with other parts of its original approach. "The staff said that is not a path to success," said NRC spokesman Scott Burnell. NRC's technical review of the EPR resign is currently scheduled to be completed by the end of 2011.

Gas prices down, carbon prices falter

Ellen Vancko, nuclear energy and climate change project manager for the Union of Concerned Scientists in Washington, said if there are major changes to the EPR design following the Roussely report, those changes would have to be made in the U.S. version, or else the Areva reactor would not be standardized. "What's the point of building a reactor [for Constellation and EDF in Maryland] that will never be built again? That will do nothing to further standardizing" of U.S. reactor designs, a goal of industry policy, she said. She added that any changes to "optimize" the EPR involving safety must be closely scrutinized.

Michael Wallace, Constellation vice chairman and chief operating officer, told the securities analysts that its project would benefit from lessons learned with EPR projects in France, Finland and China. The Calvert Cliffs project has now reached DOE's Credit Review Board, a final critical step, he said.

Meanwhile, Constellation says the clock is ticking on its plan, and market conditions are going the wrong way.

Shattuck told analysts, "the conditional loan guarantee is a necessary hurdle, but not the only one which must be addressed before any shovel goes into the ground. ... The market signals to build a baseload plant of any kind -- let along nuclear -- have suffered significantly since we started the project four years ago.

"Natural gas is now under $5 [per thousand cubic feet] not at $8, and the expectations for carbon pricing in the marketplace keep getting pushed back. Demand destruction has been pronounced while interest in demand response has increased. At the same time, due to the global push for new nuclear, construction costs have not fallen at the same pace as fuel and power prices," he said.

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