Dean Barber

So Who is Paying for This Renaissance?

In Uncategorized on October 2, 2011 at 10:15 am

No power company has received a license to build a nuclear plant in the United States since 1978.

So when the U.S. Nuclear Regulatory Commission held two days of hearings this past week on whether to allow the Atlanta-based Southern Co. to build a $14 billion nuclear power plant in eastern Georgia, industry insiders and observers knew the significance.

“This is an important and historic day at the NRC,” NRC Chairman Gregory Jaczko said on Tuesday.

The two-day hearing at the agency’s headquarters in Maryland allowed NRC commissioners the opportunity to quiz their staff, which asserts that Southern Co.’s plan meets federal safety requirments, and Southern Co. officials on the construction and operation of Plant Vogtle’s two new proposed reactors. This is the first time the NRC has considered approving both licenses at the same time.

Previously, a utility would receive construction permits during the project’s initial phase. Then, only after construction was complete, would it seek an operating license as evidence of the reactor’s safety. But the process has been streamlined in hopes of reducing the costs and time associated with building nuclear reactors.

Time and Money Will Tell

And cost and timelines are what is going to make or break this project, which has all the makings of a test case. If Southern Co. can show that nuclear reactors can be built on time and on budget, no easy task, then boy howdy watch out. We could see a nuclear revival in this country.

“We’ve got to be successful,” Southern CEO Thomas Fanning told Bloomberg. “This is the first, best shot for the nuclear renaissance in America.”

But if Southern drops the ball, the time for massive nuclear reactors could go the way of the battleship, moving the nation toward smaller modular reactors or away from nuclear power altogether.

“If the new projects are fumbled — over-budget, behind-schedule — then utilities will be much more hesitant to start new nuclear construction,” said Chris Gadomski, lead nuclear analyst for Bloomberg New Energy Finance.

And the industry has a history of being over budget and behind schedule. Witness Comanche Peak nuclear power plant in Glen Rose, Texas, about an hour from my home. Proponents said 1972 it would cost about $200 million to build and would be operating by 1979. By 1984, it was not built, but cost estimates had jumped to $779 million. When the second unit was finally completed in 1993, the price tag was between $11 billion and $12 billion.

Makings of a Done Deal

The Southern Co. has already spent more than $3 billion at the Vogtle site since 2009, on cooling towers and other structures not deemed essential to nuclear safety while the company awaits final approval to build the reactors, which is expected in January.

With the NRC staff behind it on the safety issues, Southern Co. is banking on the belief that it will get the green light from the commission to go forward with its plans or it would not have spent billions at the site already. So this has all the makings of a done deal.

In a Sept. 20 filing with Georgia regulators, Southern says that Vogtle’s new reactors remain under budget and on schedule to begin producing power in 2016 and 2017. Georgia consumers will pay $6.1 billion of the project’s costs through rate hikes, while the Obama administration has pledged loan guarantees for another $8.3 billion.

And here is where ol’ Dean has a problem. Actually, I have several problems with this deal, none of which center on safety, although that should always be primary concern.

My first problem is one of philosophy. This whole notion of a federal loan guarantee of $8.3 billion on a single project bothers me. Mind you, I am not on an anti-government rant.

If you recall my earlier blog of two weeks ago entitled, “Solar, It’s Been Good to Know You,” I said that I was all in favor of the Energy Department spreading the love in terms of providing small and modest sized grants to universities and research labs delving into new technologies, knowing full well that there will be missteps along the way. That’s government promoting innovation, which I think is essential to our future viability as a
nation.

I can even go so far as to agree with the American Energy Innovation Council, which urges Congress to provide loan guarantees for certain startup manufacturers of new technologies, realizing that we cannot rely solely on the private sector to do that.

But here is where I start to choke — nuclear power is not a new technology and $8.3 billion is a lot of money for the government to be betting on a single project, even if it is with an established company. If you recall, I was miffed that taxpayers were on the hook for a half-billion dollar federal guaranteed loan for solar-power manufacturer Solyndra.

Mind you, I don’t see the Southern Co. – parent company to Georgia Power, Alabama Power, Gulf Power and Mississippi Power – ever going the route of Solyndra with bankruptcy and shutdown. Even if Southern Co. were to fumble the Vogtle project, this is a blue-chip company that is going to be around for a long time.

The Game was Changed

But hear me out on this. The rules of the game were changed in late 2009 so that taxpayers’ interests are now subordinated to those of private investors. That’s because the nuclear industry complained that these DOE loans, created under the Bush administration, were trickling out too slowly.

Apparently, Marv Fertel, president and chief executive of the Nuclear Energy Institute, told the Senate Committee on Energy and Natural Resources in March 2009 that DOE’s interpretation of just who should be repaid when was flawed and slowing things down. He said private investors were less likely to join the government in financing nuclear power plant projects if they felt their capital was being subjected to greater risk. Oh really?

So let me get this straight. Private investors refuse to go it alone on Southern Co.’s $14 billion Vogtle project until or unless the government ponies up most of the money, with guarantees that private investors are to be paid off first. Is it just me or does that not seem quite right?

My second concern is of a lesser nature, but it’s still worth pointing out. There are experts saying that natural gas prices have fallen sharply, making it more difficult for nuclear reactors to economically compete against gas-fired power plants. They would contend that we are sitting on a massive sea of natural gas, reserves that should last 100 years or more. This is the basis for the Pickens plan, which asserts that our country should make a structural shift to this energy resource.

But Does it Make Cents?

Even before the accident at the Fukushima nuclear plant in Japan, nuclear power was a losing investment, said Peter Bradford, a former member of the US Nuclear Regulatory Commission turned industry critic.

“Industry spokespeople will use Fukushima to obscure the fact that new nuclear has been priced out of the market in the US for many years,” Bradford told Gloria Gonzalez with Environmental Finance. “Under these circumstances, adding additional exposure to American taxpayers in the form of nuclear loan guarantees now being proposed in Congress can’t be justified.”

Nuclear has the highest construction costs of any power plant — $4,500 to $6,350 per kilowatt. Natural gas is the cheapest at $950 per kilowatt. Conversely, nuclear enjoys the lowest continuing fuel costs. Fuel costs a nuclear plant $5 to $10 for every megawatt hour, while natural gas costs more than $30 per megawatt hour. Equating those numbers, gas is probably still the better deal over the 40-year life of a plant.

Analyst Paul Fremont at Jeffries & Co. said in a recent conference call that low natural gas prices in coming years will force utilities to choose natural gas over nuclear as a fuel source.

“The biggest obstacle today would be cost and being able to cost-justify the decisions (to build nuclear) relative to other economic alternatives,” Fremont said. “Based on where gas prices are today, it’s unlikely that you will see new investment in nuclear beyond projects that are currently on the drawing board.”

Now I am not so quick as to predict a demise of nuclear power in this country, nor am I necessarily an opponent of it. I realize that utilities build for the long term and they are hesitant to rely too much on any one fuel, where prices can be unstable. That is a smart strategy in terms of business and national security.  Natural gas prices will probably rise as demand increases when this hellish funk we’re in ends and as more coal-fired plants convert to natural gas.

Still, it is clear that the Vogtle project is moving forward largely because of the undergirding of federal loan guarantees. And that give me great pause. Maybe people smarter than me can show me that this is the right approach. I’m open to listen.

I would just feel a lot better if the taxpayers, who are on the hook for $8.3 billion, were not the subordinated investors. Truly, I would.

Need a partner in results-oriented site selection? Contact me, Dean Barber, at 972-890-3733 or at dbarber@barberadvisors.com Barber Business Advisors, LLC is a site selection and economic development consulting firm in Plano, Texas. Please visit our website at www.barberadvisors.com

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  1. Just think of how much natural gas we could get out of the ground for $8.3B.

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