2007 03 08 Euci Nuclear Renaissance

Nuclear Renaissance

Edward KeeWashington DC

2 EUCI - Who will build generating baseload capacity? - 8 Mar 07

These slides do not provide a complete record of the accompanying oral presentation and discussion.

This presentation represents the views of the speaker only and does not necessarily represent the views of

others at CRA International or the views of our clients.


Agenda

• Why nuclear?• Who?• At what cost?• How many MW?• When?• Where?• What next?


Why nuclear?


Excellent safety & performance record

• The result of decades of hard work• Longer periods between ever-shorter refueling outages• Pervasive culture of safety• Consistent record across plant designs, NSSS vendors and

vintages• Consolidation of nuclear plant ownership – best operators

and practices at more plants• Safety and performance linked to market value• Lessons, practices, culture, and staff will carry over to new

plants


Global warming

• Growing consensus about potential impacts• CO2 emissions from human activity seen as cause• Electricity sector accounts for about 1/3 of CO2 emissions• Nuclear power viewed as real, even dominant, way to

reduce electricity sector CO2 emissions– Proven technology– Low life-cycle carbon impact; comparable to green options– Base load operation rather than intermittent

• Programs or markets aimed at CO2 reduction will likely provide financial benefits to nuclear power plants


EPAct of 2005

• Significant US government commitment• Significant benefits to first wave of new nuclear plants• “Kick start” for next generation of nuclear power plants• Combines financial and risk management mechanisms

– Loan guarantees, Standby Support, Production tax credits, etc.• Major benefits only available to the first few plants• The first-come, first-served aspects of these benefits are

driving the current spate of announcements• Implementation and funding issues remain


Electricity industry changes

• Shift to electricity markets in many regions, with associated marginal cost pricing

• High gas prices have big impact on electricity prices• Industry restructuring – large national corporations have

replaced local vertically-integrated utilities• Purchase and sale of existing nuclear plants• Need for new baseload generation in many regions• Existing nuclear power plants have enhanced value

– As merchant unit in an electricity market– As a part of a regulated utility’s generating portfolio


NRC license process

• Changed to remove past problems– COL (combined construction and operation license) process– Operating license issued before start of construction– One-time design certification (DC) process– ESP allows early review and approval of sites that can be banked– Comprehensive DC and ESP will mean shorter COL process– Process encourages standardized plant design approach

• Final rules, final hearing/ITAAC, and other details not yet completed

• NRC funding


New nuclear power plant designs and approach

• Significant experience since the design of existing commercial nuclear power plants

• New designs are aimed at– Safer operation– Lower cost– Higher efficiency

• Standardized power plants– Allows NRC-certified design at multiple sites– Replicate success in France and US nuclear navy

• Several vendors competing to be the standard


Nuclear power outside the US

• Asia– Japan – 16 plants on line since 1990; 3 units under construction– Korea – 10 units on line since 1990; 8 units under construction– Big plans for nuclear power in China and India– Interest elsewhere (e.g., Thailand, Indonesia, Vietnam)

• Russia– By 2030, plans for 42 new units inside Russia and 40-50 units abroad

• Europe– New plants in Finland and France– Re-think of nuclear phase-out in several countries– EU report on nuclear power in January 2007– UK moving toward nuclear power option

• Other countries interested– Includes Canada, Argentina, Australia, Egypt, Persian Gulf states


There are still some concerns

• Timing to meet baseload needs, compared to coal• Uncertain electricity industry structure and markets• Infrastructure and staffing to support surge in nuclear• Potential for terrorist attacks

– Diablo Canyon spent fuel case – does a new facility increase threat?– NRC design basis threat and 9/11 type attacks

• Spent nuclear fuel disposition– Long-term storage - Yucca Mountain or PFS or on-site– Re-processing of used fuel – GNEP, MOX fuel

• Weapons proliferation - linked to re-processing


Uranium prices – a market indicator?

Source: The Ux Consulting Company, LLC http://www.uxc.com/

http://www.uxc.com/


Who?


Company Site Design (# of Units) COL

Constellation (UniStar) MD, NY, plus 3 TBD EPR (5) First submittal 4Q - 2007

Duke SC AP1000 (2) October 2007

TVA (NuStart ) Bellefonte, AL AP1000 (2) October 2007

Alternate Energy Holdings Bruneau, ID TBD 2008

DTE Michigan TBD Late 2008

Duke NC & SC TBD TBD

Toshiba Galena, AK Toshiba 4S (1) TBD

SCE&G Summer, SC AP1000 (2) October 2007

NRG Energy / STPNOC Bay City, TX ABWR (2) Latter part of 2007

Progress Energy NC and FL AP1000 (2), TBD (2) NC - Oct 2007; FL - Jul 2008

Southern Company Vogtle, GA AP1000 (2) March 2008

Amarillo Power Amarillo, TX ABWR (2) As soon as practicable after 2007

Texas Utilities TX, TBD TBD (2 – 5) 2008

Florida Power & Light FL, TBD TBD 2009

Exelon Clinton, IL TBD TBD

Dominion North Anna, VA ESBWR (1) November 2007

Entergy (NuStart ) Grand Gulf, MS ESBWR (1) November 2007

Entergy River Bend, LA ESBWR (1) May 2008

Exelon TX TBD 2008

New US nuclear plant announcements


Nuclear Plant Designs

Areva Nuclear Power US EPRGE/Hitachi ABWR, ESBWRToshiba/Westinghouse AP600, AP1000, System 80+, IRIS

AECL Advanced CANDU ACR-700General Atomics Gas Turbine-Modular Helium ReactorMitsubishi Heavy Industries US APWRPBMR, Pty Ltd (South Africa) Pebble Bed Modular Reactor (PBMR)Toshiba 4S (10 MWe sodium-cooled)

Blue = Certified NSSS designGreen = DC under review


At what cost?


Nuclear is competitive – without CO2 impacts

42424346

5057

69125

0 50 100 150

$/MWh

Solar PVWindGas CC ($6/mmBTU)Gas CC ($5/mmBTU)Nuclear ($1,400/kW)Coal IGCCCoal PCNuclear ($1,200/kW)

Source: NEI; “Investment Stimulus for new nuclear plant construction – frequently asked questions” September, 2006


EPAct of 2005 - Production Tax Credit

• Enhances financial performance after a new plant is built• Applies to new nuclear plants that

– File a COL application by the end of 2008– Start construction before 2014

• 6,000 MW of new nuclear capacity• First eight years of operation• DOE allocates credits if more than 6,000 MW of new plants• Allocated PTC = MW allocated / nameplate MW * 1.8¢

– e.g., 750 MW allowance / 1000 MW plant -- 1.35¢ PTC• Limited to $125 million per year per 1,000 MW allocated


EPAct of 2005 - Standby Support / Delay Insurance

• Safety net for investors to help manage risk of delays• Focused on mitigating impact of licensing/litigation delays

seen in earlier generation of nuclear plant development• Covers debt service and power market costs related to off-

take agreements– Regulatory failures (e.g., NRC licensing delays)– Litigation (e.g., intervention)

• Covers up to 6 reactors from no more than 3 designs– 100% delay costs up to $500 million for first two plants– 50% of delay costs up to $250 million for plants 3-6

• Significant progress on developing rules


EPAct of 2005 - Loan Guarantee / Title XVII

• Most important part of the EPAct of 2005 incentives• Loan guarantee up to 80% of project cost:

– Permits highly leveraged capital structure (e.g., 80% Debt)– Facilitates off-balance sheet, project-financed entities– Reduces cost of debt

• Offsets higher cost of initial plants due to FOAK issues• Allows access to capital and helps ensure financing• Slow progress on DOE implementation

– Initial draft solicitation for small projects oversubscribed– NOPR for nuclear loan guarantees delayed– Debate over details of DOE approach– Questions about funding and need for appropriations


Risk over timeDesign Certification & ESP COL ITAAC

Design & engineering

Construction contracts & procurement

Construction Comm’l Ops

Reg

ulat

ory

risk

Pla

nt-s

peci

fic ri

sk


• Qualified suppliers of nuclear equipment, components, materials and commodities

• Fabrication capability and capacity for forging large components such as reactor vessels

• Long lead times for major components• Adequate supplies of commodities (e.g., SS pipe,

specialty metals)• Transportation of large components• Competition for scarce resources should worldwide

demand for reactors surge• Political and economic risks of offshore production

Other risks related to infrastructure constraints


Risk mitigation

• Regulatory/licensing risk– DC, ESP processes; minimize issues in COL and NRC final hearing

• Construction risk – risk-sharing with vendors, contracts– Delays– Cost overruns

• Market risk – during financing & after completion– Market prices, offtake agreements (merchant plants)– Regulatory treatments, prudence reviews (regulated plants)– Upside from global warming actions

• Infrastructure constraints– Early procurement of critical components– Invest in critical suppliers– Establish cross-border partnerships


How many MW?


Existing US nuclear power capacity

Source: DOE/EIA

0

20

40

60

80

100

12019

5719

59

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

GW


0%

5%

10%

15%

20%

25%19

5719

5919

6119

6319

6519

6719

6919

7119

7319

7519

7719

7919

8119

8319

8519

8719

8919

9119

9319

9519

9719

9920

0120

0320

05

Source: DOE/EIA

Nuclear share of U.S. net electricity generation


Nuclear capacity additions - EIA forecast

0

2

4

6

8

10

12

14

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

GW

Net cumulative additionsSource: EIA; includes 2.7 gigawatts of uprates through 2030


Nuclear capacity to maintain 20% share of US generation

05

101520253035404550

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

GW

Net cumulative additionsSource: EIA forecast; CRA analysis


EIA forecast of steam coal additions

020406080

100120140160

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

GW

Net cumulative additionsSource: EIA forecast


When?


Design and engineering / NRC Design Certification; ESP

COL application and approval3-4 year process, $50-90 million

Long-lead procurement of major components and commodities

Construction and procurement

Getting to commercial operation

Final NRC hearing; fuel load, startup and testing; commercial operation

0 1 2 3 4 5 6 7 8 9


Why schedule might slip

• Potential sponsor commitment delays– State regulatory proceedings/prudence reviews for regulated units– Arranging financing and off-take arrangements for merchant units

• Utilities shift attention away from nuclear– Coal projects become first priority– Priority on reliability and near-term need for baseload

• NRC licensing process takes longer– Funding slows pace of NRC activity in critical period– Intervention in COL process or final hearing/ITAAC process

• Construction delays


Where?


Locations of new U.S. nuclear plants

• Announced units (see earlier list)• Near existing units

– Initial site permit for more units than were actually built– Local acceptance or even embrace of new nuclear– Positive utility, state and community experience

• Where state laws permit• Where markets (or regulation) provide incentives


Company Site Design (# of Units) COL

Constellation (UniStar) MD, NY, plus 3 TBD EPR (5) First submittal 4Q - 2007

Duke SC? AP1000 (2) October 2007

TVA (NuStart ) Bellefonte, AL AP1000 (2) October 2007

Alternate Energy Holdings Bruneau, ID TBD 2008

DTE Michigan TBD Late 2008

Duke NC & SC? TBD TBD

Toshiba Galena, AK Toshiba 4S (1) TBD

SCE&G Summer, SC AP1000 (2) October 2007

NRG Energy / STPNOC Bay City, TX ABWR (2) Latter part of 2007

Progress Energy NC and FL? AP1000 (2), TBD (2) NC - Oct 2007; FL - Jul 2008

Southern Company Vogtle, GA AP1000 (2) March 2008

Amarillo Power Amarillo, TX ABWR (2) As soon as practicable after 2007

Texas Utilities TX, TBD TBD (2 – 5) 2008

Florida Power & Light TBD TBD 2009

Exelon Clinton, IL TBD TBD

Dominion North Anna, VA ESBWR (1) November 2007

Entergy (NuStart ) Grand Gulf, MS ESBWR (1) November 2007

Entergy River Bend, LA ESBWR (1) May 2008

Exelon TX? TBD 2008

Some new locations; others TBD


Existing nuclear units


State laws

Source: Nuclear News, November 2006


Electricity markets and RTOs

Source: FERC


Conclusions


Conclusions

• US nuclear renaissance is inevitable• A lot of hard work to do; some hurdles to overcome• COL applicants racing to obtain limited EPAct benefits• Vendors competing to become standard

• What happens after the first wave?• Not a panacea for global warming• May be too late to meet need for new baseload


Edward KeeCRA International1201 F Street, NW

Washington, DC 20004(202) 662-3953

[email protected]

Mr. Kee leads CRA’s work in nuclear matters and is a specialist in the electricity industry. He has experience in industry restructuring, electricity markets, nuclear generation, private power, and related issues. He has testified as an expert witness on a range of electricity industry issues.

Prior to re- joining CRA in mid-2006, Mr. Kee was a consultant at PA Consulting Group and Putnam, Hayes & Bartlett. Prior to joining Charles River Associates the first time, Mr. Kee was a consultant at McKinsey & Company and a merchant power plant developer.

During service as a naval officer, Mr. Kee was engaged in construction, start-up and testing of the nuclear power plants on the aircraft carrier USS Carl Vinson (CVN-70). During this time he qualified as a watch office and as Chief Engineering Officer.

Mr. Kee received an MBA from Harvard University and a BS in Systems Engineering, with honors, from the United States Naval Academy.

2007 03 08 Euci Nuclear Renaissance

Technology

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