Going Nuclear: Establishing First Mover...
Transcript of Going Nuclear: Establishing First Mover...
David Crane President and Chief Executive Officer
Going Nuclear: Establishing First Mover Advantage
Merrill Lynch Power & Gas Leaders ConferenceSeptember 26, 2007
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Safe Harbor Statement
This Investor Presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to certain risks, uncertainties and assumptions and typically can be identified by the use of words such as “expect,” “estimate,” “should,” “anticipate,” “forecast,” “plan,”“guidance,” “believe” and similar terms. Such forward-looking statements include the proposed timing and NRG’s expectations regarding the South Texas Project and nuclear power plant expansion, as well as the Company’s carbon emissions and the projected carbon intensity of NRG’s fleet. Although NRG believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others, general economic conditions, hazards customary in the power industry, weather conditions, changes in government regulation of markets and of environmental emissions, the inability to implement value enhancing improvements to plant operations and companywide processes, permitting and regulatory obstacles, construction delays and our ability to realize the impact of Repowering NRG on the Company’s carbon emissions and the projected carbon intensity of NRG’s fleet.
NRG undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause NRG’s actual results to differ materially from those contemplated in the forward-looking statements included in this Investor Presentation should be considered in connection with information regarding risks and uncertainties that may affect NRG's future results included in NRG's filings with the Securities and Exchange Commission at www.sec.gov.
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Company Overview
NRG: The center of the power industry value chain.
3rd Fastest Growing Co. in Fortune 500
Listed: NYSE (NRG)
Market Cap.: ~$10 billion
Employees: ~3,200
Generating Assets: ~23,000 MW, primarily in four domestic regions
NRG: Leading the Competitive Power Generation Business
Makes our Portfolio younger, bigger, greener and more
efficient
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Trends in Power Generation: Top 10 Industry Dynamics
Twelve months ago at Merrill Lynch...
1. Consolidation – no more utility mega-mergers
2. Credit – comfortable at Junk
3. Locational Capacity Markets – get implemented
4. Reserve Margins – ever tighter
5. Summer Gas – withdrawals
6. TXU/NRG New Builds – avoiding the Seven Sins
7. PPAs – Not whether but how
8. Carbon
9. Backend Controls – the rising cost of remediation
10.Shareholder Activism in Power Sector
1. Carbon
2. Carbon
3. Carbon
4. Carbon
5. Carbon
6. Carbon
7. Carbon
8. Carbon
9. Carbon
10.Carbon
Today
A Once-in-a-Generation Paradigm Shift
5A Comprehensive Development Program Crafted to Meet
the Specific Energy Needs of our Domestic Markets
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
# ofProjects
MW MWh InvestedCapital
AvoidedCO
Nuclear Clean Coal Wind Gas Coal
% Contribution by Technology
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First Mover Advantage to Value Creating Investments
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NRG’s Low Carb Line-up
New Nuclear Plays Center
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Environmental Air Emission Displaced1
Energy Independence1
Nuclear power is the most efficient “zero carbon” power generation available
Why Nuclear Power?
NRG Projected CO2 Emission Rates
Avoids 37.6 million barrels of oil/p.a.
Avoids 177 bcf of gas/p.a.
Avoids 13.1 million tons of coal/p.a.
Avoids 8,100 MW or 202,500 acres of land for wind
Avoids SO2 emissions of 40,918 tons/p.a. (3.46 lb/MWh)
Avoids NOx emissions of 11,353 tons/p.a. (0.96 lb/MWh)
Avoids mercury emissions of 828 lbs (0.56 oz/GWh)
Avoids CO2 emissions of 18.4 million tons (1,560 lb/MWh)0.8
0.70.9
0.00.10.20.30.40.50.60.70.80.91.0
NRG 2005 NRG w/ New Build NRG w/New Build w/oSTP 3&4
tons/
MW
h
South Texas Project
1 Assumes 100% capacity factor for nuclear, ERCOT average (2005) and Assumes representative technology by fuel type
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4 unit site (2 currently operating)7,000 acre reservoir
South Texas Project (STP) - “Today”Key Operating Data for Current Units
Unit 1 2
Commenced Operations 8/1988 6/1989
License Expiration 2027 2028
Net Capacity1 (MW) 1,342 1,331
Technology Westinghouse PWR
Last Outage Cycle 10/2006 4/2007
Net Capacity Factor (3 year rolling avg.) 96.1% 94.7%
Key Site Characteristics
Existing STP Facility is Young and Robust
Owners include NRG (44%), City of San Antonio (40%) and City of Austin (16%)Operator and Fuel Manager is South Texas Project Nuclear Operating Company or STPNOCFuel Storage is adequate for current life of the units Fuel Contract Coverage is 100% through 2011 and 25% through 2021 for uranium, 100% through license life for enrichment, and 100% through license life for fabrication
Other STP Facts
12,200 acre siteLow populationMinimal site preparation required
Barge & rail accessRobust transmission system
1 Total MW capacity includes recently completed uprates
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South Texas Project Nuclear Operating Company or STPNOC: Industry Leading
STPNOC is a top nuclear power operator with a performance record equal to top fleet operators
ProductivityLow Fuel cost One of the lowest reported production cost (1.35¢/kwh)Highest producing two-unit nuclear plant (out of 33) three years in a row Highest producing single unit in 2006 (unit 2)
SafetyThe Only U.S. plant with three safety trains per unitStrenuous and continuous training programExposure limits twice as strict as required
SecurityDesign, strength of structures Multiple layers, types of defenses Upgrades since 9/11
InnovationIn cooperation with NRC, piloted risk analysis of plant components Piloted post-9/11 security requirements Two Best of The Best Awards—Only repeat-winner plant Six Top Industry Practice Awards—Most for any plant
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Why ERCOT Market?
1 Source: NRG Estimates and ERCOT Capacity, Demand and Resourced report dated 05/17/07, public announcements of new generation; Assumes all announced coal (~ 5200MW) and nuclear (~12,000MW) are completed, and ERCOT estimates for retirement of 50-year old units
Texas Is The Best Market for New Nuclear, Bar None
201220112010200920082007Year
5.9%6.7%8.3%10.1%12.6%14.6%Reserve Margin:
72,939
68,331
71,960
65,383
71,812
62,669
72,048
64,010
72,394
66,830
73,703Total Resources (MW):
69,608Firm Load Forecast (MW):
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
ERCOT Estimate of Generation Shortfall Announced generation 60% Hit Rate
Strong Baseload growth
Big purchasers with long-term contract appetite
Gas on the margin
Regulatory stability
Political and popular support
Existing space and infrastructure
Skilled labor force
STP – people and assets
NRG has 11GW local backup
Why is Texas Best for Nuclear?
Rapidly Declining Reserve Margins1
Generation Shortfall vs. Announced Baseload Build1
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STP 3&4 – The Site
Gulf of Mexico
Cooling Pond
Unit 1
Unit 2
SwitchyardUnit 3&4 Site
STP: The Best Site in Texas
Advantages of the STP Site
One of only two existing nuclear facilities in state
Enormous footprint
Common facilities (particularly reservoir) already designed for four units
Ready access by barge and rail
Widespread public support
Open space and access to local Houston load center
Top quality operations
The $500 Million Advantage
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STP 3&4 – The Design
ABWR technology has been commercially deployed for 10 years in Japan with plants built “on time and on budget.”
ABWR technology has been commercially deployed for 10 years in Japan with plants built “on time and on budget.”
Proven Design: Timely Construction, Flawless Operation
Already certified by NRC Four units successfully commissioned
Advantages of ABWR design
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Completed except for site specific
changes
Yes
Boiling Water Reactor
1,350
GE, Hitachi, Toshiba
ABWR
0
In Progress
No
Boiling Water Reactor
1,600
GE
ESBWR
0
In Progress
Yes
Pressurized Water Reactor
1,000
Westinghouse
AP1000
0
In Progress
No
Pressurized Water Reactor
1,600
AREVA
EPR
Units Commissioned / In Operation
Status of Design Engineering
NRC Certified Design
Reactor Design
Unit Size
Manufacturers
Design is complete Dependable construction schedule & supply chain
Our Choice
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20,000 plus page document outlining all technical specifications for developing the ABWR Design for 2 units (STP 3&4) totaling 2,700MW for COD 2014/2015
Joint development with CPS Energy, subject to their final board approval anticipated Q407Identify development consortium including Toshiba/Fluor as EPC contractor and GE-Hitachi for important licensing, design and equipment supply, subject to final agreementsReassurance regarding premier safety and security features, environmental benefits and future operations
The Combined Construction and Operating License Application (COLA)
2008 2009 2010- 20112007
NRC Acceptance
Review:Oct. 1
License Issuance
Complete Acceptance
Review Target: Dec. 1
NRC Detail ReviewApplicant Response
Hearings
What is the Anticipated Timeline and Process for COLA Filing?
License Submittal:Sept. 25
NRG & STPNOC will work with NRC to move through permitting process as expeditiously as possible
What is in the COLA Filing?
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General STP Development Timeline
Key for timeline is securing long lead items, some in excess of 60 months to fabricate (e.g., forgings)
Com
ple
tion
Fuel Lo
ad
Set R
eacto
r
Unit 3
Unit 4
COL Final ApprovalExecute PPAs
EPC Contract FinalizedProject FinancingBegin Simulator Training (commences 2007)Start Safety Related Construction
…to be constructed with an optimal 12 month
stagger
2011 2012 2013 2014 20152010
2011 2012 2013 2014 20152010
Set Reactor Pressure Vessel
Fuel Load/Commercial Operations
Two units developed and permitted together…
Mobilize Licensing ContractorsExecute Interim ContractsDevelop Conceptual PlanIndependent Evaluation/FeasibilityDevelop and Submit COLAState Environmental ApprovalsSecure Forging Slots for Project
Owner ApprovalsExecute Vendor/Contractor AgreementsDevelop project financing planComplete power marketing plan
Support NRC ReviewEngineering and ModularizationEPC Open Book Process Executed
2007
2008 2009 2010
Order Long Lead Components
Begin Non-Safety Related Construction
2007
Complete
In Progress
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1.
2.
5.
Risks Mitigants Progress to Date
New Nuclear: Mitigating Risks
3. Political
4. Financing
Completion/Performance
Merchant
Regulatory1. COLA filing process at NRC2. US Standby Support
1. Partners2. Long Term Offtake Agreements3. Production Tax Credits
1. State Action2. Local Coordination
1. Loan Guarantee Program2. US/Japan Cooperation
1. Turnkey contract with experienced EPC provider
1. On track to sell down to 40% (1,080MW net)2. Progress towards 80% of targeted net3. In queue to secure due to COLA filing
1. Submitted first filing in over 25 years2. In queue to access due to COLA filing
1. Passed Decommissioning Funding and Tax Abatement Laws
2. Developing training programs for construction and staffing
1. Vendors committed to project success and financeable contract terms
1. In queue for benefits due to filing and working closely with DOE, Treasury, Office of Management and Budget (OMB)
2. Japan/US framework developed for potential Japanese guarantees and traditional US project financing
Counter Conventional Wisdom: Application of classic project finance techniques mitigates new nuclear risks better than expecting ratepayers to bear all of the risks
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COLASupport NRC review process
Five Key Next Steps
Next Strategic Steps Approximate Timing
Not “out of the woods,” but path ahead is clear and open
Ongoing through late 2010
In advance of financing in 2010
In two stages: in 2007 and remainder advance of financing in 2009
Arrangements between 2008-2010
Finalize strategy in 2008; Execute non-recourse financing plan, supported by government guarantees, by 2010
EPC ContractFinalize EPC contract, vendor roles and costs
PartnersSell down additional equity interests
PPA/OfftakeComplete binding agreements for initial 80%Keep a portion of available capacity open for higher value sales and/or carbon hedge
FinancingDevelopment of optimal financing plan incorporating U.S. and Japanese government credit support
1.
2.
5.
3.
4.
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STP Development: Meeting The Challenges
A Strong Track Record in Nuclear Development already
Completed first application for a new operating nuclear unit to be received by the NRC in over 29 years
Established STP as a credible project in the eyes of the NRCCreated potential to access Energy Policy Act of 2005 benefitsCredible voice/seat at the table in Washington
Negotiated EPC terms that are consistent with project finance market requirements Developed a valuable supplement to the U.S. loan guarantee program
Developed U.S./ Japan framework for international cooperation toallow Japan guarantees to work in concert with U.S. loan programs Established strong relationships within White House, Treasury, OMB and DOE
Negotiated agreement with CPS Energy (subject to final approval) to:Jointly develop STP 3 & 4Begin recovery of NRG’s investment
Texas legislature acts to support nuclear developmentPassed Decommissioning lawPassed Tax Abatement law
Developing labor training programs in concert with the State of Texas to support STP construction and permanent staffing
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Benefits of Nuclear to NRG
Key areas coming together to make “merchant” new nuclear a reality for the next decade of generation
Increase baseload profile
Hedge carbon meaningfully
Contract portions at market
Capitalize on STP site development value
Maintain equity sell down optionality
Lead ABWR development in U.S.
Partner with premier nuclear experts
Provides for Texas generation needs
Questions and Answers
Appendix:
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Loan Guarantee ProgramLoan guarantee for 80% of project cost30 years termEnables financing and lowers cost of fundsSpecific implementation rules being drafted by DOE now
Production Tax Credits (PTCs)$18/MWhr or $125mm per year per 1000 MW maximumDeclines pro-rata based on number of units in operationSTP 3&4 well positioned to receive the maximum PTCs permitted by the Energy Policy Act
Energy Policy Act of 2005
Final guidelines are anticipated this fallInitial draft guidelines had flaws
Limited flexibility for borrowers and lendersCreated capital inefficiencies by binding diverse borrowers
Industry provided comments on initial draft to improve financing potential
Significant flexibility for project developersAccess to the deepest portions of the government backed markets
There are still issues that create uncertainty for potential borrowers
No defined size to the programIssuer pays government “subsidy”cost which is a number that is not yet defined
Being a first mover has significant financial benefit for NRG
Highlights Loan Guarantee Program Timeline
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Reactor Pressure Vessel
Steam Turbine
Nuclear Island
Turbine Island,Balance of Plant
The Advanced Boiler Water Reactor Design (ABWR)
The ABWR design is a mature, well quantified design that EPC contractors understand well
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ABWR Technology Evolution
Source: Toshiba
The ABWR is not a new design; it’s a proven technology that has evolved over the last three decades
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ABWR History: Engineering, Procurement and Construction
Source: Toshiba
The first ABWR, Kashiwazaki-Kariwa 6, completed construction in 37 months
Base Mat Base Mat completecomplete
Crane Crane AvailableAvailable
RCCV RCCV completecomplete1st ABWR
KK-6experienced
37M 3 16.5M 9.5M 8M 11M
T.O.T.O.F.L.F.L.
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Plant CompletedMonths of
ConstructionKashiwazakiKariwa - 6 Jan-96 37KashiwazakiKariwa - 7 Dec-96 40
Hamaoka - 5 Apr-05 45
Shika 2 Jul-05 46
0
25
50
75
100
125
150
Jun-68 Dec-73 May-79 Nov-84 May-90 Oct-95 Apr-01 Oct-06
Mon
ths
USJapanJapan ABWR
Constructing: 5 ABWRsOperating: 4 ABWRs
* Construction Months is from first safety concrete to complete first fuel load
*
ABWR Construction Duration
Source: Toshiba
Tennessee Valley Authority (TVA) ABWR construction study (BellafonteStudy completed in 2004 by Toshiba, GE, Bechtel) shows that Japanese
40 months construction schedule can be applied in the US
Construction Duration US and Japan
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In the past 15 years:Construction period has been reduced by nearly 20 %Construction man-hours have been reduced by nearly 40%
100%
76% 72%61%
100%93%
86%83%
0%
20%
40%
60%
80%
100%
1990 1994 1997 2006
Fieldwork Cost (man-hours)Construction Period
Start of modularization
Applicationof large crane
crawler
Mass Production
IntegratedDesign
BWR (1,100 MW) BWR (1,100 MW) ABWR (1,356 MW) ABWR (1,358 MW)
Existing units completed in 38-46 months
Source: Hitachi
Construction and Manufacturing Methods Have Been Constantly Refined
Source: Hitachi
Advanced construction technology will enable a shorter construction schedule and cost reductions
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Fukushima Daiichi 1
Hamaoka 1Fukushima Daiichi 5
Fukushima Daiichi 6Hamaoka 2
Onagawa 1
Hamaoka 3Kashiwazaki Kariwa 2
Hamaoka 4Onagawa 2
Onagawa 3
Hamaoka 5
Fukushima Daiichi 2
Tsuruga 1
Fukushima Daini 1Kashiwazaki Kariwa 1
Fukushima Daini 3
Kashiwazaki Kariwa 3
Kashiwazaki Kariwa 6Kashiwazaki Kariwa 7
Fukushima Daiichi 3
Lungmen 2Ohma 1
Lungmen 1
Higashidori 1
Entered business in 1966
Constructed 22 plants
17 as prime contractor
1970 1975 1980 1985 1990 1995 2000 2005 201019651960
Toshiba’s BWR and ABWR Experience
Plants in OperationUnder Construction
Planning
TEPCO Higashidori 1Fukushima Daiichi 7TEPCO Higashidori 2
Namie Odaka 1Fukushima Daiichi 8
Higashidori 2
Toshiba, as prime contractor on 17 BWRs, including 2 ABWRs, has built the most BWR plants in the world and built the ABWRs
in the shortest period of time
Toshiba BWR Experience
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New Reactor Licensing Applications at NRC (Site and Technology Selected)
Source: NRC
ABWR had been certified by the NRC in 1997
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New Reactor Licensing Applications (Site and Technology Selected)
Source: NRC
ABWR had been certified by the NRC in 1997
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