As the United States continues to look for clean, reliable energy to cut emissions while providing enough power for the growing country, the nuclear power industry is making plans to expand. On Feb. 16, President Obama awarded the first loan guarantee for a nuclear plant under the provisions of the Energy Policy Act of 2005. The award of $8.3 billion for two additional reactors at the Vogtle plant in Georgia is conditional until the plant receives a combined construction and operating license from the NRC, which is expected in 2011.
Southern Co. is not the only energy provider looking to build the first nuclear reactors in the U.S. Along with modular design and the financial battle of building new nuclear, nuclear power has been grabbing headlines across the globe.
In a series of interviews, Power Engineering magazine Associate Editor Brian Wheeler moderated this year’s Nuclear Power Executive Roundtable.
Participants included John Herron, president, CEO & chief nuclear officer of Entergy Nuclear; Mark Marano, Areva senior vice president of U.S. new build operations; Danny Roderick, GE Hitachi Nuclear Energy's senior vice president for new plant projects; Christofer Mowry, president & CEO, B&W Modular Nuclear Energy, LLC; and Deva Chari, Westinghouse senior vice president of Nuclear Power Plants.
There has been a lot of talk about the possibility of a nuclear renaissance globally. What is the outlook for new nuclear projects over the next couple of years, especially given the global recession?
Christofer Mowry: Well, I guess it really depends on what market you are looking at. I think you have the emerging economies markets: the India and China type. They are really moving forward quite aggressively with new nuclear build out because fundamentally they have a need for power and they are not going to get it all from coal even if they wanted to. India and China are growing 8 to 10 to 12 percent. So there is no recession impacting those economies. Then you have the developing countries and there are a couple of dynamics there. I think the best one is if you look at Eastern Europe where they are really focused in on energy security which has nothing to do with growth either. Countries like Ukraine and the Baltic States are really looking to try and get independent of Russian gas because they have been held hostage politically on that supply for several years. I think you will see the developing countries, for a number of reasons including energy security, really moving forward. But there I think the question really is ‘what technology are they going to use?’ Then you have what I will call the developed countries: the U.S. and Europe. And there I think what is interesting is that you have a bifurcation. And this is something from a nuclear perspective that is really important. Where nuclear energy is seen as a national security and a national agenda item, and good examples of that is France and Japan; whether it’s big or small they are moving ahead because it is basically a government sponsored type of activity. That is what is going on there and I think that is somewhat insulated, if you will, from the recession in total. And then you have the more market driven energy industries and the U.S. and the U.K. are prototypes of that. And that is where we really see the impact of the recession and the strain in the financial markets having a big toll on the path forward that was charted around 2000 that was really centered on mega projects. Because the fact is that in a recessionary environment and in an area where you have the constrained capital markets, you just can’t get these projects off the ground in market driven economy and that’s why you see this whole issue with loan guarantees in the U.S. and everything kind of stalled out on the big reactor side.
Mark Marano: I think the global nuclear renaissance is much more than talk as there are more than 50 plants that are currently under construction in China, Russia, India and Europe. Those countries are leading the way. The outlook for new nuclear in these regions is very promising over the next couple of years as the demand for baseload power generation increases in developing countries, while most developed countries recognize the need to battle climate change. Here in the United States we tend to suffer from a lack of definitive action on energy policy, climate change, and job creation. New nuclear plants can significantly help address these major issues facing our country. Building a new plant not only creates thousands of jobs during construction and hundreds of jobs during the life of the plant it also produces clean energy without greenhouse gases and reduce our dependence on fossil fuel. The key point here is there is dichotomy. Countries with smaller economies than the U.S. adopt long term energy policies and find ways to build new nuclear plants while we continue to look short term in the U.S., focus on upfront capital costs and act tactically, rather than strategically. Now is the time to take advantage of the great opportunity to create thousands of jobs and generate affordable, clean energy.
Danny Roderick: We are still very optimistic about the renaissance. We don’t think it has quite happened everywhere and what we are seeing right now is a great build out in a lot of closed markets. For the renaissance to really take place, what we are looking for are the countries that have open markets where competition is there and where all the companies can compete. That is really going to be the sign of the renaissance. I still see us right now in the U.S. as not having all the real things in place that we need to make an aggressive new build program. We are still working a lot with our government trying to find ways to kick off and help the utility industry to want to invest this kind of money into new nuclear as well as all of us are improving our processes and fine tuning our pricing and supply chain so that we can accomplish this new build out when it happens. Around the world we are seeing some real promising signs in Europe and in the Asia market, but a lot of those are tied up on government agreements and tied up in closed markets. So we are still very bullish about it, but I still think we are still sitting in a two to five year slump here unless we find a way to somehow help the utilities to want to kick off projects here in the U.S.
John Herron: I think the key area to discuss here is what our ultimate energy policy is going to be for the United States. With the new congress coming on and with President Obama, the question is ‘where is the president going to want to go with nuclear as a clean energy source for our nation?’ Ultimately, nuclear energy is going to become a key policy agenda item. How serious are we about greenhouse gases and whether or not our country is going to take this seriously and look at what options we have in order to be able to deal with that issue? Now with that being said, natural gas prices are anywhere from $4 to $4.50 per mm/Btu and the significant reserves of shale gas have come up to the point that we are even talking about LNG maybe being an export of instead an import – and issue that we talked about years ago. So when you look at LNG and you look at the economics, I can’t get the numbers to run for Entergy with respect to taking on a new nuclear build right now. It’s all going to boil down to carbon reduction and whether or not energy policy is going to want our country to get ahead and reduce GHG. I know nuclear power is the right way to go. It’s clean energy. It is safe and reliable. It is just the way to go. But you can’t get the new nuclear build numbers to work with natural gas and long-term natural gas looking like it is going to stay at the pricing levels where it is currently.
In respect to energy sources, you always want to have a diverse portfolio across all businesses because you don’t know what is going to happen to natural gas; you don’t know what is going to happen to coal prices; and we don’t know what is going to happen to carbon tax. In regard to the outlook for nuclear over the coming years, I will tell you that there are going to be new builds in the U.S. and it all comes down to demand, load and a diverse portfolio at the utilities. Longer term, we have to watch the direction of policy to see how the nuclear economics are made more favorable by clean energy legislation.
Deva Chari: The main drivers for nuclear expansion, both globally and in North America, have not changed. The global need for energy, and particularly for electricity, will continue to grow, environmental issues and greenhouse gas emissions will continue to be a concern and countries and regions will continue to be concerned about the security of their energy supplies. These factors will continue to make nuclear a viable and critical component of our long-term energy needs. In the near term, however, we expect to see continued slow growth as the world economies continue to recover. This is a global issue, but less of an issue in Asia than in North America and Europe.
How are the dynamics for new nuclear in North America different than they were a couple of years ago?
Herron: The dynamics haven’t changed. You still have to justify any new build or any acquisition based on the financial aspect. At Entergy, we have to be prudent with respect to how we invest our capital. With natural gas prices being where they are and the long-term outlook of natural gas prices, it looks pretty bearish. And not having a really strong U.S. energy policy, even though the President has increased the loan guarantees, means that there are still a lot of issues up in the air. Another area where dynamic haven’t changed but must be resolved is with this long-term issue of used fuel. That is something that has become more of a political issue than it is a science issue. So I think until such time as we get all these things ironed out, the outlook is probably a bit bearish for us on new nuclear.
Chari: While the long-term prospects continue to look positive, there have been some changes in North America market dynamics over the past two years. The first change is the slower-than-expected economic recovery. Whereas two years ago we were anticipating a two-year recovery period, we are now recognizing that the economic recovery in this region will take longer and this means that the demand for electricity will take longer to recover. At the same time, shale gas is becoming recognized as a new source of natural gas that could significantly increase gas reserves and keep prices lower than expected in North America for some period. That doesn't mean that nuclear will not continue to play a significant role in our long-term energy future, but it could delay decisions by power generators for the time being. Ultimately, we still expect a robust market for new nuclear generating capacity both in North America and the rest of the world.
Mowry: Well I guess I would say a couple of things. One is that, and its kind of ironic, what you are seeing in some areas is an acceleration of the transformation of the power generation industry. The recession has for better or for worse afforded the opportunity for large companies like TVA and First Energy to announce and move forward with the retirement of a lot of old, baseload coal plants. Plants that were built in the 50s and 60s; subcritical units that are marginal at best and when you think about having to retrofit new emission control equipment on them, forget about carbon, just NOX and SOX, scrubbers etc., they are just not going to do it. Today there is not a need, but the landscape is shifting and again with the addition of a lot of intermittent power such as solar and wind, I think everyone recognizes that by the end of the decade the U.S. is going to need significant additions of baseload dispatchable power generation. There is a sense of urgency to do something about this that is not just purely gas, but the gigawatt class plants are wrapped up in the financing and federal loan guarantees and I think that is why you are seeing this major refocus around small modular reactor as something that is a path forward in this economy that meets the emerging demands that the industry is creating for itself for the end of the decade.
Roderick: Well I think a few years back what we saw was all of our utility customers had a growing load base, the capital markets were flush and there was money available with and without loan guarantees. We saw a lot of utilities who weren’t even interested in loan guarantees because the premiums that were associated with them. Those same utilities today are fighting to get a loan even with loan guarantees and being able to get it on their balance sheet. I think that the economic crisis that hit the U.S., hit the utility industry in the U.S. very hard and it really drew them back away from being in a very aggressive market into a very bearish market until they clearly understand what carbon text tax is going to look like in the U.S., whether this load growth will come back and whether the markets will punish us if we lever a significant portion of our company to start construction.
Marano: I think the only thing that I would add to all Danny’s points, which I agree with and some I mentioned earlier, is that the other phenomena of all this is that we had a great economic storm and everything occurred that you wouldn’t want to occur to create growth. And add on top of that this phenomenon around gas, which is one that no one has foreseen - that gas would go to where it is. There are projections every six months now that say gas will stay lower, longer and there is a threshold that creates that resistance to building new nuclear versus gas plants. And I think the phenomena there, as mentioned, is that load growth in a lot of utilities is down and if there is small industrial growth coming back, like there is in one of my former utilities I worked at, it is very slow and it is not one that the utility is anxious to bank on to make large capital decisions. So everybody is kind of hoarding their cash or capital where-with-all in a way that creates their ability to recoup their earnings, monitor their own expenses and focus really on a short term view. We have also had issues with banks unwilling to loan money they could loan. The government has tried to create an easing situation because there is such a general fear of where we were beyond where anyone thought we were going to be two years ago, as Danny mentioned, and it just spiraled. So saving rates are up for people and individuals are being very, very cautious. And this is very much a tactical view and my concern is because of this two to five year slump, or whatever it ends up being, five to ten years from now the United States will be sitting back saying ‘I wish we could have realized that eventually we would have come out of this and gas prices won’t be $4.’ But that’s the gamble you take when you take a short term view.
The Department of Energy approved a federal loan guarantee last February for Southern’s proposed units, but nothing has happened since then. Constellation Energy and NRG Energy have both said they will cut back on the amount they are spending to develop proposed units while they wait for federal action. How large of a problem is the delay in federal loan guarantees?
Marano: It is a major concern for the first movers that plan to build any plant. The additional where-with-all to issue a loan on a merchant nuclear plant, which is what UniStar and NRG represent; unless customers have assurance through initial loan guarantee you just can’t really move forward other than long lead procurement and advancing detailed design to keep the original schedule. Both UniStar and NRG have been forced to scale back due to delays in receiving the conditional loan guarantees. The delay will clearly slow any efforts to spur any growth and any investment and any creation of jobs. And the result sadly enough - we won’t be just be talking about stimulating and adding jobs - the lack of action on loan guarantees could inherently cause the reverse reaction which is just the opposite of its intent. We urge from the Areva view, and I know UniStar is doing the same along with EDF, for the DOE to move forward with a decision on a loan guarantee for Calvert Cliffs. It is very obvious how important it is just to get through this unknown period and start to create some regional economics and job creation. But this is clearly a stressful time that we need to get resolution on as soon as possible with the right outcome to move these projects forward.
Roderick: I think all the vendors right now are finalizing their certifications and we kind of were a little late getting all that done for the first push. But what you are going to see is that all of that is done and we are ready to build and there are a wide variety of vendors that are capable to build in the U.S. and I think that this issue of the loan guarantees has to get solved soon. We have to understand what the government’s role is going to be in that. One way or the other, because there are a lot of people that are spending a lot of money right now waiting on these loan guarantees and that is how cost overruns happen. That is what drives the cost of the projects up when you sit in suspense. And so I think all the reactor vendors are hoping that we understand what that road map is going to look like and how Secretary Chu and others are going to move forward with loan guarantees.
Mowry: Except for a couple of special places I don’t think we will see large reactor programs moving forward without loan guarantees. You might argue that some places such as Southern Co. might get a new reactor built even without the loan guarantee, but not too many places.
Herron: Well I don’t want to speak for those utilities but I would say that it is a pretty big challenge for them. When they look at their total financial picture, loan guarantees are a significant issue that they are going to have to work through in order to be able to go forward with their new builds. Simply, loan guarantees are a “must” in order to be able to get the good financing that is needed to go ahead and build new nuclear plants.
Chari: The loan guarantee program is a critical element of resuming construction of nuclear power plants in the United States, and construction of new nuclear plants is vital to having a stable, long-term energy supply in the U.S. The program is not intended to be a long-term subsidy of the nuclear power industry, but is a means of facilitating construction of new plants until the initial projects have demonstrated the ability of the industry to deliver these new plants on schedule and at expected costs. Under current economic conditions, federal loan guarantees are considered essential for new nuclear plant projects in deregulated power markets. While loan guarantees are not necessarily essential in regulated power markets, they clearly provide benefits to ratepayers since they reduce financing costs and thus the price of electricity. Financing for nuclear projects in regulated markets can be obtained without loan guarantees because projects are rate-based assets whose costs are approved by a utility’s public service commission.
New reports made a big deal over the summer regarding a report North Carolina suggesting that solar is now less expensive to build than nuclear. In the face of that kind of press, what’s the economic argument in favor of new nuclear?
Roderick: I think that is important to note that you can almost find a study that will show anything you really care to. I still believe that as we look around the world at countries that are far more aggressive than the U.S. on solar and on wind, they do that for a while but I would say 99 percent of them are still coming back to the fact that it is important to have a balanced portfolio. You need renewables of wind and you need renewables of solar, but you also have to put nuclear in that mix to have a sustainable generation of carbon-free generation. I never view it as it is either nuclear or it is solar and I don’t know that the actual facts of the numbers are going to work everywhere. It may work in some parts in the United States. But everyday we are finding ways to reduce our costs of nuclear power and at the end of the day, just like the world is realizing, that you need that core base load of nuclear power because the sun doesn’t shine everyday as bright as it does on some days and the wind doesn’t blow the same either. So I see the renewables as not a battle with nuclear, but I see nuclear being an integral part of the renewable strategy.
Marano: I think the point that I will echo much of what Danny said is that many articles always seem to contradict one another on all sorts of information and data especially around capital costs and all that for nuclear. Whether you have all the right components in the cost you are quoting such as with owners cost or without owners cost and things like that. But first of all nuclear is a baseload source of electricity with the capacity factor of greater than 90 percent. When you look at solar, it is an intermittent source with theoretically no greater than 50 percent capacity factor and a practical limit around 30 percent. So seeing it not as a direct competitor but as more of a compliment to nuclear as part of a renewable package is probably a more realistic way to look at it and I think that is very similar to what Danny was getting across. I think that is the big difference. I don’t think they are directly comparable. I think the key thing is that nuclear is a baseload source and it is a mix depending on the portfolio, depending on the capital where-with-all of the utility and it’s a footprint; the amount of customers and the amount of baseload megawatts needed versus peaking versus intermittent. So I don’t think one size fits all but if you look at all of the other important ingredients that are out there that will eventually come into play in the form of a carbon tax etc. I think nuclear is in your base load future as coal continues to struggle.
Chari: Westinghouse acknowledges that all energy sources, including renewables like solar and wind, play a vital role in an overall energy strategy and energy mix. However, we believe that nuclear energy in general, and the AP1000 specifically, represent the best way to achieve inherently safe, secure, and economically responsible base load electricity generation. Recently, there have been reports indicating that solar power is now less expensive than nuclear, however, it’s important to note that these reports include temporary and substantial federal and state subsidies when calculating generation costs. Therefore, the numbers reported are much less than actual costs. In fact, nuclear energy remains one of the most economical and environmentally friendly sources of electricity generation available today. Nuclear fuel is extremely abundant, cost effective, and efficient relative to other generation sources. Further, nuclear fuel generally does not originate in volatile areas of the world, thereby providing greater price stability. Perhaps most importantly, nuclear energy’s capacity factor (as high as 90 percent) is significantly better than other renewable sources. All of these factors result in lower generation costs over the entire operating life of a plant. It’s also important to take into account the footprint needed for solar and wind to effectively provide electricity. The Nuclear Energy Institute estimates that you would need an area roughly the size of New Jersey to produces equivalent electricity output using solar, and an area about the size of West Virginia for wind.
Herron: Well first of all I did read that report and it is very one-sided. It does not compare apples to apples whatsoever. That report talks about providing tax credits both at the federal and state level for solar and wind sources of power. If you take the credits out of the cost equation for solar then solar is not competitive with nuclear. But the bottom line is the one thing that this report doesn’t get into: We need 24/7 base load electricity that is clean. Solar has 25, maybe 28 percent capability and wind is in that same capability range. You cannot operate a grid, a utility system, throughout the nation with those kinds of capability factors. You have to have base load power in order to be able to maintain our very integrated grid system. If the U.S. is serious about greenhouse gas reduction, then nuclear is absolutely the right answer for maintaining that base load.
Mowry: Solar is roughly 24 cents a kWh. It is at best three times as expensive as the power that comes out of nuclear and I think you really have to look at the marginal cost because of the kind of power that it is which case may be its five to 10 times more expensive. So that is absolutely not the case. If it wasn’t for major subsidies, tax credits and things like this solar would not be being installed.
Are you hearing concerns from Wall Street regarding the three years or so of exposure that the capital will face during new plant construction?
Mowry: I think the concern from Wall Street, certainly on the large capital projects, is not even so much within reason and you can argue whether 10 to 15 billion dollars is within reason. But I would say that projects within reasonable size, which my view is less than $3 billion or so where you are not really betting a significant fraction of the market capitalization of the utility on the project. Once you are within the reasonable size the main issue on Wall Street has to do with cost and schedule certainty. In other words, if you says its three years and its really going to be three years, no problem. The problem is that if you say it’s going to take three years and there is no confidence in it becoming six or seven years, that’s where you have the issues.
Marano: The biggest concerns with building a nuclear plant first of all are building it safely, on schedule and efficiently on budget. And I think Wall Street’s concern is that our industry built up pretty much an unfavorable record the first go-around. We had schedule delays and we had overruns. But so many lessons learned from that have been incorporated as we go forward that we simply cannot afford another round of that type of performance. So you internalize, create lessons learned and demonstrate your predictability in construction and there is a lot to be learned from what was done the first time through the U.S. I think all of that is noteworthy and making improvements from that is pretty clear. And I think those improvements are so clear that the U.S. utilities know them very, very well and thus they are very cautious around cost capital, how much engineering is done and as a result that has created a very push and pull relationship with the vendors. Within Areva we have been gaining valuable experience and it is well notarized in Europe and China as our first construction of Gen III+ reactors. And it is very clear that our first two projects have not met cost and schedule targets and we are continuously improving as we deploy these reactors. Our last two projects at Taishan in China are on track with significant improvements on schedule performance. So we are doing our part of internally processing lessons learned and I think we are seeing improvements in our subsequent projects. When a new series of reactors were deployed, the 900 MW, 1,300 MW and the 1,500 MW when you go Gen II through, they had similar lessons learned and construction lengths until improvements were made. So we believe we are making the improvements and we are learning from it but we do understand as a first mover that we do have vulnerability and we have to show that we made improvements. I think Danny would echo this too, that we look for Vogtle as they appear to be the first unit and hopefully Calvert Cliffs soon behind it, for that project to be successful because all technology providers benefit from that and that creates a positive environment for nuclear energy in the United States.
Roderick: I still see that Wall Street is going to be support nuclear new build. It is just a function of this point in time in really getting the utilities the vehicles they need to know that they are going to be able to recover their investments. Wall Street is going to be there for them. The fact is that there is plenty of money available but it is just hard getting it channeled to the right spot right now as you look at it. As the market comes back I think you will see that the things we have done with having the certified plant designs, the things that we are doing with advanced construction techniques and the things that we are doing to improve quality by our modular construction are producing results around the world. We just finished our fourth plant in 39 months from first concrete to fuel load on budget with our ABWRs. I just would say that we are all working to have that predictability of construction. If you compare to where we were in the 70s versus to what we are doing today, we are going to earn the right where we are going to get Wall Street’s confidence as they look at our projects. And unfortunately everyone likes to pick out one or two and point at them and say that’s demonstrative of how all projects will be going forward and that’s just not the case. If you look at the improvements that everyone has been able to generate I think we are going to be able to fear Wall Street’s fears as an industry through performance.
Herron: In my Entergy interactions with Wall Street I hear the questions on how you get the numbers to work for new nuclear and the questions relating to being really the right investment for a utility. Certainly on the merchant business nobody is going to approach it right now. On the rate-regulated side, if you have good regulatory recovery capability and understandings that you do have to have a diverse portfolio - and that nuclear needs to be a part of that portfolio – then their may be willingness to support the recoveries not only during construction but after the plant has been put in service. I only see the possibility of new nuclear happening on the rate-regulated side of the business - that is where it is going to happen.
Chari: The short answer to that is that there is always concern when you go into a major project, any kind of construction project. So the short answer is yes. But I think that most of those concerns are overcome without too much difficulty.
What are your biggest concerns (other than capital exposure) when it comes to new construction?
Herron: Making the numbers work is the biggest concern. I really have no bigger concerns. As a nation we can do anything that we put our mind to. I have all the confidence in our ability to build on budget, on schedule and that we will do a very good job at that. But I think it’s the numbers that ultimately make you question whether this is the right time to move forward. Some people argue that knowing where our increasing demand is going to be in our nation over the next 25 to 50 years now is the time to go. There are arguments for both sides of this equation. We just don’t see it for Entergy right now.
Mowry: The big concern is to take risk off of the table. At the end of the day that’s what the whole financing thing and rates has to do with. But also the project execution which is really cost and schedule. So when I look at the path that B&W is taking with the small modular reactor it is not really about new technology it is about taking risk off of the table by reformulating how proven technology is translated into a real power plant. So that is basically a lot of it is taking work out of a field, job site environment and putting it into a factory where you have much better control over project cost and schedule.
Chari: Two main concerns are creating and maintaining a robust supply chain and work force. From the earliest stages of development, the successful construction of new plants depends on a robust supply chain to support nuclear manufacturing. Nuclear plants are comprised of hundreds of components and subcomponents, whose construction will require a deep and diverse supplier base. Nuclear manufacturers supply the concrete, pumps, wires, instruments and many other components necessary to support current and future nuclear power projects. The nuclear supply chain is very different today than it was years ago when the current fleet of nuclear power plants operating in the United States was built. Three-quarters of the world’s reactors operating today are of U.S. origin, in either construction or design, and the U.S. was once the primary supplier of nuclear components. So, when the current fleet of U.S. reactors was built, parts and components could be purchased almost entirely from domestic vendors. Today, nearly the opposite is true: technological progress and manufacturing innovation has moved abroad and, along with them, most of the links in the global supply chain. But while maintaining a strong and robust nuclear supply chain is a concern, it also presents the opportunity for many manufacturers to either re-enter or join the nuclear industry supply chain, sustaining or even creating employment for many people. Thus, educating and or training a new workforce is another challenge. About half of the nuclear industry's current work force will be eligible to retire during the next 10 years. Additionally, new Generation III and Generation III+ plant designs feature updated technologies, such as digital instrumentation and control systems, which are not present in the operating plants and require additional training. The nuclear energy industry must invest heavily in education, training, and workforce development for the nuclear renaissance to be successful.
Roderick: It’s one thing when we build two to three plants every two years and that’s been kind of an average that we have been building them. When there are 130 new reactors on order in the U.S. and 150 on order in Europe etc., I worry that the U.S. is going to be caught in this rut and the worldwide supply chain that you have to use for nuclear is going to be consumed in other countries. And I really would like to see the U.S. find that it needs to be able to lock in that supply chain now and not have to push our nuclear builds out another 10 to 15 years just because the global market on commodities. And eventually this supply chain will come back but the last time we built these 104 reactors that are operating today in the U.S. we had a significant portion of that manufacturing here in the U.S. and today we have less than 25 percent of what we had 30 years ago. So while all of us are trying to build manufacturing back up in the U.S., like some initiatives we have in Michigan where we are re-tooling some factories that were auto workers to help make nuclear components, its still a slow process when you don’t have 30 or 40 orders going on because of these other issues that we talked about, like lack of confidence by the utilities right now. Probably the biggest thing is that I worry when the U.S. market comes back it will come back very rapidly and we will taxed in a global supply chain and we are working on that everyday.
Marano: I think what I would add to that is that I totally agree with the on the face of it that the suppliers are very anxious. We have held two supplier days that I think were well received and were very well attended by suppliers who have moved away from nuclear when it became unpopular and moved over to the environmental programs and FGDs and scrubbers and other opportunities are now either coming back or folks want to become a nuclear supplier. They want to be re-engaged and they are willing to make the investment to be qualified again, or get qualified. But to that point, they are hedging too because they want to see projects go. And as they see projects move, like Southern or Calvert Cliffs or NRG or others, I think they will make the investment and go. But my concern is that if you look at what is going on overseas between China and Asia and the expectations that those projects will move, even in Poland or Switzerland, although they are out there they are not that far out beyond what we are talking about now and the supply chain may robustly grow as it should overseas. If we do move soon in the U.S. and try to make up for years of lack of decisions and go rapidly, we will find ourselves in a little bit of a quandary where we will not have the supplier base. Suppliers are concerned that they won’t be ready when it happens and that creates stress and strain on certainty of schedule and cost and that is not what we want to happen. That is a reality of the situation and is the result of the delay in the renaissance or revival, whatever word you want to use to call it, that is one of the outcomes.
The power generation industry has always championed economies of scale and scope. But given the expense of large scale reactors, are modular reactors going to be a more viable option with new construction in the future?
Roderick: As we went through the last 15 years we were building big reactors and then we got a report from the Department of Energy saying we needed smaller reactors so we all went and designed 600 MW and smaller units. And then we got a report that said we need big units and so we all went out and built 1,600 MW units. And now we are back to we need little units. But I think the important thing is that there are markets for every size reactor. What isn’t clear right now with the small modulars is that when you get into things like fire brigades and operators and emergency preparedness and security; most of those things don’t care whether the reactor is 100 MW or 1,500 MW. When you get into it the construction capital might be lower but the MW are also lower and so when you try to figure out how to pay for electricity and at the end of the day the customer may like nuclear but what they like even more is for that bill to be as low as it can possibly be. And that comes from what the operating and maintenance costs will be on the unit. I think it’s too early to call right now on what those operation and maintenance costs are and some have made a lot of assumptions about what they are going to be and I don’t know that all of those have been really vetted yet. I think almost every company has a small modular reactor and there are certainly places in the world that they fit and that may be their only option because of location or they may not have a grid big enough to handle a big unit. So again, I think there is a place for them I just think that if you believe you are having any kind of load growth at all I think the economics will be difficult against a large reactor in those kinds of markets. In markets where you can’t put a big reactor then obviously there is a good market for them. Right now, unless there is some significant government funding put in to pay for small reactors, I think everyone will stay back from them. If they see that the government is willing to pay for them then you will see a lot of interest by people. And I just think that right now it is just too early to tell.
Marano: I have a similar view. There are some applications where a small reactor may make sense assuming there is some significant change in regulatory framework that can be made. Just for an example, an area where there isn’t a large transmission grid as mentioned may benefit from the smaller initial capacity addition. But the main challenges for the small modular reactor technology will be their ability to be competitive in this regulatory environment as mentioned with operators, security forces etc. They don’t particularly care about the size of the unit. Efficiencies around manufacturing must be made to mitigate the economy of scale that the large reactors have. So I think there may be a place and time and it appears to be coming in vogue now with maybe some funding to support the development. I think their design certification process is to be sorted out and it will take longer. Who knows what the market will be then and if we are deploying larger reactors by then. So I think it is a wait and see process and I think that the economics are challenged. Those who are moving in that direction are making an investment based on what they see as market capability and it may be geographic and grid restrictions that they are looking at. But time will tell and they will face some challenges.
Mowry: When you talk about expense of large scale reactors the issue there is not the relative cost in terms of dollars per kW. The issue is the absolute magnitude of the expense. The challenge for the small reactor is to make the absolute dollar get smaller, make it more palatable bite sized chunks if you will, without dramatically changing the relative cost. That’s really what we have been focused on is what is the innovation necessary to maintain the line on relative costs so that you don’t give anything up when as you pursue this more incremental overall absolute cost to increment.
Herron: I certainly like the fact that the government has basically supported one to two designs that we need to move forward with. We are getting some real, honest understanding of what the capabilities of modular reactors are and what the cost is going to be. What I still struggle with is ultimately you have to be able to compete on the finance side. You are still going to have 24 hours a day, seven days a week coverage for both operations and for maintenance for modular reactors. I need to have a better feel for the O&M expense along with the capital expense to make the determination as to whether or not this is really doable. It is pretty hard for a 680 MW plant to compete sometimes, never mind a 50 MW plant. It would all depend on the staffing numbers; the training requirements, the security requirements and the regulatory requirements which are all still up in the air. I don’t have the amount of accurate information to make that call. The modular reactor concept is a great concept to be able to land these in areas where we can eliminate some of the really old fossil fuel plants. We need to know is what the cents per kilowatt cost to producing electricity is for this approach.
Chari: Construction of new nuclear projects is clearly more capital intense and requires a longer time span than other forms of power generation. Even so, the lifetime generating costs for nuclear power make it very competitive against other forms of generation, particularly against other renewables, despite the high capital costs and the longer schedules. The capital requirements, however, do make it difficult for some utilities and other power generators to undertake these large and lengthy projects. Smaller reactors, with smaller capital requirements, can help address this concern, but as you point out, reducing the size of the plant usually results in higher capital costs on a per kilowatt basis and thus higher lifetime generating costs for the plant, making the choice of nuclear less attractive compared to other options. We don’t yet know if the small modular reactors currently being developed will be economically viable and attractive to investors or not, but we do think there the option needs to be considered and further explored. If small reactors are to be economically viable, reactor suppliers need to find ways to shift to a new "economy-of-scale" curve and maintain the dollar per kilowatt of electricity capital costs near that of current large plants. That's the challenge, and we'll have to wait awhile to see the results of the outcome of development programs currently underway. However, even if small modular reactors can be shown to be economically viable, there will continue to be a market for the larger plants as well. We see small reactors possibly having advantages in some markets and with some investors, but not displacing the larger reactors currently being utilized in centralized electrical generating schemes.
Having navigated the regulatory design review process, what further reforms or changes would you like to see from the NRC to streamline the regulatory process?
Chari: The 10 CFR Part 52 process has many advantages and Westinghouse is a strong proponent of the new process; however, like any new process, there are a few associated growing pains that we need to work through with the NRC to make the process better. The key area that Westinghouse is focusing on with NEI is in the area of “change process” during construction, and includes: Part 52 regulation being vague and leaving to interpretation as to whether or not a licensee can install changes during construction prior to having the license formally amended; Currently, operating plants during an outage being able to install plant modifications without formal NRC approval, but not being able to implement the change without formal NRC approval, and wanting the same flexibility for new plants as currently operating plants. Such flexibility will ensure that the regulatory review process does not impede construction schedules, which is one of the hallmarks of the 10 CFR 52 process. A need for such flexibility may arise as a result of construction lessons learned in China for the AP1000, and we want to be able to bring those best practices to our sites in the U.S. as quickly and as efficiently as possible, while also ensuring that changes requiring NRC approval are thoroughly reviewed by the NRC staff and approved prior to plant operation. NEI, with the support of Westinghouse, is championing for this clarification and working very closely with the NRC. Fortunately, the NRC is actively listening to the industry on this point and actively considering these viewpoints.
Roderick: We are at the very final throws of our certified design that we have been working on for several years and have went through well over 6,000 questions and dozens of reviews and audits and things like that. What I am really hoping for is once the certified design is done and the reference COLA is written that truly from when a utility wants to build a nuclear power plant, within two years we could start construction on that site. And if we can’t get to that point in time then all of this process that we have all been through is going to have not been for the value. I think we are all going to weather through the design certification process. It has been a very rigorous and very thorough process and now it is time to get the reference colas approved and then it is going to be time to be able to get the subsequent colas approved so that we can actually get into a build out more rapidly. Today if these are the models, these first plants, we can’t sit for five to eight years trying to get a license on a plant. And I am very optimistic that the new process is set-up to be able to accomplish this. I just think regulatory wise we just need to keep an eye on that and insure that the subsequent COLAs that get issued really could be turned around within a couple of years.
Marano: To echo that, obviously the NRC has created a very rigid regulatory process, similar to what Danny said, and everyone counts the questions they get on their design certification and we see our certification occurring in mid-2012. The reality is that we need to be going forward more efficiently. Because there are significant investments made in these design certifications and this is justified based on the likelihood that you will build not just one but that you will build several plants. It is an economic game and it is an investment. I think the process allows for a lot of give and take between the technology provider and the regulator. But I think the COLA process and the likelihood of moving through the COLA process and being able to dispatch and create more opportunities off of your design is a reality that has to happen and it has to happen as efficiently as possible. Because we need to be able to do everything else you say you are going to do, regarding building and planning for these plants, and you need to be able to do it over a reasonable horizon where you can maintain the needs you have from resources from suppliers in your own engineering workforce to keep them engaged as you move forward. It has been a very rigorous process and one that I think we all have all learned from. I think all of the technology providers have a good working relationship with the NRC and we all have different technology that creates different questions. As we have gotten into this we have developed a check and balance mentality to sure we have our staff ready to respond and to be as quick and efficient in answering the questions and actually deploying our technology.
Mowry: Well for the basic deployment scenarios for our reactor we don’t need any basic change in regulation. That’s more for what I will call fourth generation designs, liquid metal and high temperature gas cooled reactors and reactors like that. But if you are talking about your basic light water reactor the regulation is generally fine. The NRC is undergoing a massive overturn of their organization; something like half of their staff is retiring in the next five years. So it’s more about the efficiency and the knowledge base of the staff to implement the policies, regulations and the review processes that are already on the books. If you advertise that it is going to take 30 to 40 months to do a review then do it in that period of time. So they need to figure how to do that and also stay focused on the relative matters at hand.
Herron: Having a full commission is always a good thing for us and we need to always have a full commission. Any industry, especially an industry like ours where we are highly regulated, needs predictability and stability in regulation. For anybody to want to go and invest in nuclear, and bet your company on the size of an investment that may be the market cap of the company, you have to have regulatory predictability and stability. I would tell you that we have a long way to go in that area. Entergy has license renewal applications that have been on the books in excess of 60 months when the regulation requires them to give us the license and make a decision in 22 months or 30 months depending on whether it goes through the ASLB process. That kind of environment is not going to work for anyone who wants to build new nuclear. Can you imagine the cost of building new nuclear if it is delayed because uncertainty in regulation? I would tell you that predictability and stability in regulation and having a full commission is definitely going to help. But one needs to look at the way the license renewal process is working and then ask why the industry won’t have the same concerns over new nuclear licensing?
The U.S. EPA wants to reduce the amount of CO2 released by power plants. Is nuclear the best available option for achieving these goals with emissions but still producing power?
Mowry: For baseload, yes. I don’t think in the future you will have a single monolithic technology but, nuclear is the only reliable baseload option that has no carbon emissions. I think you will see some deployment of coal with carbon capture and sequestration and there are some promising options that involve the public and the private sectors. I think clean coal will indeed be a part of the energy mix in the future once they demonstrate the technology “at scale.” And certainly wind and solar have a part to play, but again being the intermittent power producers that they are really limits the total amount that they can contribute to the power generation portfolio. I would say certainly less than 10 percent.
Marano: If you look at it almost three quarters of U.S. emission free electricity today is nuclear. We believe nuclear energy is the only source of emission-free base load generation in the U.S. When we do have a growing demand that comes back nuclear is the answer. An energy policy that combines conservation, some renewable and expands the use of nuclear energy is the practical path forward in meeting international greenhouse gas emission limits and maintaining a high quality of electric output. We do believe it will be a mix but we do believe that nuclear is the obvious choice. It does require that you take a long-term view and I think the facts speak for themselves on this one.
Roderick: I agree with all that. We think strategically this is where, with the DOE and the entire U.S. government, we have to re-value our nuclear infrastructure and assets that we have here in the U.S. While there will always be a mix, like I talked earlier of renewables and other energy sources, keeping nuclear in that anywhere from 20 to 50 percent worldwide is viewed as the right number. Currently, most of the plants in the U.S. are coming up on 30 to 40 years-of-age so if you think about the next 20 years not only do we have to replace that group of plants, but in order to get from 20 percent up to 50 percent you have to build at least another 130 plants. So the need to get started on this is now and we can’t wait and then snap our fingers one day and get 250 plants started. This is really where the national asset of the nuclear industry in being the most significant way to knock greenhouse gases down has got to be in the mix and we are very committed to delivering that.
Chari: Yes. While other renewable energy sources generally do not produce carbon dioxide, nuclear still is the most attractive option for providing baseload power since it provides dependable, consistent power without producing any greenhouse gases during operation. However, this is not to say that wind, solar and other renewable energy sources are not needed; indeed, we must use and take advantage of all forms of energy to meet the future energy demands of a growing world population.
Herron: Absolutely. It is the only option. Natural gas is a good choice, but it is still putting out CO2. I believe that solar and wind power has a purpose that we need to look at with respect to having a diverse portfolio for our nation. Is clean coal really an option? I would like to see the technology and the research and the development to be able to support that. With respect to clean, baseload energy, nuclear is the only way to go. For example, Sweden and Switzerland have 40 percent nuclear power and France is at 75 almost 80 percent nuclear power. Those countries have put priorities on clean, affordable nuclear. People should start comparing nuclear power accurately. We need to get together and really put the facts on the table so our policy makers can make good decisions and not be swayed by emotions of individuals. Let’s put the facts on the table, let them speak for themselves and I guarantee that clean nuclear energy will win out every time.
