Fuel Cycle Week

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2012-04-26T21:55:00.001-04:00

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Please visit us there.

DOE Calls in the experts

2011-03-03T12:44:00.001-05:00

By: Andrea Jennetta, Publisher
Fuel Cycle Week, 03/03/11 V10:No.414

Is the U.S. Department of Energy gearing up to take “official action” on USEC’s (NYSE:USU) loan guarantee application on the American Centrifuge Plant?

It would appear so.

On Monday, DOE announced that it plans to award a $250,000 sole source contract to Bates White Economic Consulting (BWEC), a Washington, D.C.-based economic consulting firm, to “assist the Loan Programs Office within the DOE with a financial, business plan analysis and associated market analysis” of USEC’s American Centrifuge Project application.

“The services of BWEC is [sic] considered unique due to their expert knowledge of nuclear fuel supply chain from mining to processing of yellow cake to uranium enrichment and fabrication of fuel rods,” DOE explained in the Feb. 28 special notice on the federal government’s Business Opportunities website.

According to its website, BWEC specializes in “advanced economic, financial, and econometric analysis and excel[s] at complex matters that require sophisticated problem solving and deep empirical analysis.”

FCW Contributing Reporter Dan Yurman has observed that Glenn George, a partner at Bates White, is a possible team leader. He acted as an advisor on all four of the nuclear reactor loan guarantee applications considered by DOE. Plus he’s a nuclear engineer, served in the nuclear Navy, and seems to be an all around impressive individual with a background in nuclear and finance.

The only reason to mention his (and BWEC’s) credentials is to make the point that when it comes to USEC and the ACP loan guarantee application, the Energy Department really needs to be prepared. Regardless of the final outcome of the evaluation, everyone—EVERYONE—will be criticized.

With a “yes” decision, DOE is saying there are enough positive vectors in terms of USEC’s enrichment order book and ability to execute, despite financial weakness and questionable technology.

With a “no” decision, DOE is saying there are justifiable doubts about USEC’s finances and technology, and that granting the loan guarantee is too risky for U.S. taxpayers.

See? There is plenty to criticize either way. But the “yes” outcome has the added fun of the credit subsidy cost. If Mizohu USA is right about a tiny credit subsidy cost of 2.5%, said cost will be a proverbial drop in the $2 billion bucket (FCW #410, Feb. 3).

If it’s higher, who knows whether USEC will be able to pay it? USEC announced last week that it is close to reaching agreement on terms with the Energy Department’s Loan Guarantee Program staff. This suggests that full due diligence is essentially done, and that the LGO is readying a financial package for review by the credit committee. This is where it gets perilous.

I think the nuclear industry will have a really good idea of whether USEC is going to get the ACP loan guarantee if DOE takes that next step. The credit committee includes DOE and OMB officials, and an estimated range of credit subsidy costs will be a major topic of discussion. The official credit subsidy cost won’t be set unless and until Energy Sec. Steven Chu issues a conditional commitment.

Now, out in the real world, lenders don’t send financial packages to their investment firms’ risk committees unless they already believe the packages will be approved. FCW’s hunch is that Bates White’s role is to find areas of weakness in the draft financial package and beef them up before it goes to the credit committee.

Once under review, any questions or issues that arise will go to the economic consultant for fixing.

As with all things USEC, no doubt there will be many more plot twists. Stay tuned.

Publisher’s Note

Ah, indeed. Just as we were preparing to send FCW to layout, U.S. Energy Secretary Steven Chu issued a formal determination that the proposed transfer of approximately 2,000 MTU per year in calendar years 2011, 2012 and 2013 to Portsmouth site cleanup contractors “will not have an adverse material impact on the domestic uranium industries.”

Unless I am mistaken, conversion is one of those domestic industries. To say that Converdyn is not affected—or that a 20-cent drop in the price/kgU for conversion service is no big deal—is mind-boggling. The material that DOE is releasing is UF6, not U3O8.

Now, FCW understands that the transfer amounts, which will be limited to no more than 450 MTU of natural uranium per quarter, are within the limits set in DOE’s excess uranium inventory management plan.

Nevertheless, in our market, perception is reality. Spot price indicators dropped last week as investors worried about China’s involvement in the spot market. But this week they started to tick back up above the $70 mark—until today. You’ll see from Evo Market’s chart on page 2 that we are back below $70. Next week, FCW will cover market reaction to the latest move by DOE to formally adopt USEC as a ward of the state.

# # #

Utilities mull MOX fuel volume, reliability, cost

2011-02-24T12:35:00.010-05:00

How can NNSA meet demand?

By Dan Yurman, Contributing Reporter

Last week AREVA and the Tennessee Valley Authority signed a letter of intent to begin discussing the possible future use of mixed oxide fuel in TVA’s four reactors in Alabama and Tennessee. NNSA’s $4.6 billion MOX fuel plant, which Shaw AREVA MOX Services LLC is building at the Energy Department’s Savannah River Site, is slated to produce the fuel. The letter of intent does not oblige TVA to use the MOX fuel.

AREVA and MOX Services also signed a “preliminary, nonexclusive” agreement designating AREVA as a marketing agent for the MOX fuel that is manufactured to use AREVA components and fuel designs, AREVA said in a statement last Friday.

Utilities Hesitant

But FCW understands that uncertainties cloud the future of the MOX fuel that the plant is to start producing in the U.S. in 2016. Along with TVA, two other nuclear utilities, Duke Energy in North Carolina and Energy Northwest in Richland, Wash., have revealed that they are thinking about using MOX in their reactors. But Duke and TVA have expressed concerns to FCW about whether the fuel will be reliably delivered during reactor outages, when it is most needed.

So far the DOE plan calls for Shaw AREVA MOX Fuel Services to offer the fuel for sale to utilities. But the MOX plant produces only a small fraction of what a full-scale MOX plant can turn out. That is why, according to an NNSA official, DOE must maintain a backup inventory of 160 tU of conventional fuel, in case not enough MOX fuel is ready when a customer calls for it.

In fact, FCW has learned from NNSA that DOE has not yet determined who in the MOX fuel supply chain would be accountable to pay for the backup fuel in the event of a fuel shortfall—NNSA, Shaw AREVA MOX Services, or the fuel fabrication plant (most likely AREVA’s facility in Richland, Wash.).

It stands to reason that until the government resolves these basic issues of reliable and accountable fuel supply, utilities will be leery of signing a contract.

Rita Sipe, a spokeswoman at Duke’s Catawba 1,100-MWe Pressurized Water Reactor in South Carolina, said up to 40% of the core, or 77 of the reactor’s 193 fuel assemblies, must be replaced during an outage. If the fuel does not arrive on time, the utility is stuck with a reactor that is not generating any revenue. “We are open to new proposals from [Shaw-AREVA],” Sipe said, “but right now we have no clear path to a new contract for MOX fuel.”

Sipe was quick to point out that Duke supports the MOX fuel program, but also noted that the fuel has to be at the reactor by a date certain the meet the outage schedule. Duke sets the delivery date in every fuel contract for fuel.

“We would expect the supplier to provide alternative fuel that would operate safely in this specific reactor if the MOX fuel was not available,” she said.

TVA Ponders Obligations

TVA spokesman Terry Johnson told FCW that reliable fuel services would be part of the supply contract if the utility decides to use MOX fuel in any of the three 1,100 MW BWR reactors at Browns Ferry or the two 1,100 MW PWR reactors at the Sequoyah site. But in conversation with FCW, TVA appeared to be especially interested in the fuel cost compared to conventional fuel. TVA hopes MOX would be cheaper.

But Johnson said this would not be a deal killer, because the utility’s charter requires it to support national defense initiatives. Burning plutonium in civilian power generators is a key nonproliferation program, which is why TVA began evaluating the MOX option in the first place.

Johnson added that TVA has conducted public scoping meetings last August and is on track to have enough information to make a decision by 2012.

A source at TVA who declined to be identified told FCW that if the fuel is competitively priced, the utility could conceivably place orders for up to 80% of the output from the MOX plant. But that does not work out to be very much, as the plant will put out less fuel than its competition.

In 2008 AREVA’S Melox facility produced 126 tonnes of MOX fuel in 250 MOX assemblies. The plant serves more than 30 reactors worldwide.

The NNSA plant is slated to start hot operations in 2016. Over the first 13-15 years of operation the plant will produce 17 tonnes of MOX fuel assemblies for Pressurized Water Reactors. Another nine tonnes of surplus plutonium will be fed in after the initial batch runs out.

The initial NRC license is valid for 20 years. The plant was built to process 34 tonnes of surplus weapons-grade plutonium into MOX fuel. It now looks like it will get a second wind.

Mix of Issues in Northwest

“It’s no secret we plan to use MOX,” says Energy Northwest spokesman Michael Paoli. “We’ve been looking at MOX since the mid-1990s.”

The Department of Energy’s Pacific Northwest Laboratory will be working with Energy Northwest to help it evaluate its options for using MOX fuel. The engineers performing the evaluation think that up to 30% of the reactor’s 764 assemblies, or 229 Boiling Water Reactor fuel assemblies, can be replaced by MOX fuel.

“We have no plans to use MOX fuel until the evaluation is done,” Paoli said. “We need to assess it with regard to the unique characteristics of the Columbia reactor.”

Among the issues to be examined are technical risks, operational changes, licensing issues and fuel specifications. Energy Northwest and Shaw AREVA MOX Services will share the funding. The fuel needs to be competitively priced, too.

“We won’t use MOX fuel that costs more than what we’re paying now,” he said.

The Nitty-Gritty on MOX Fuel

_________________________________________________________

Production rate

An NNSA official told FCW that the relatively low rate of production of MOX fuel by the new facility is tied to three factors (1) the number of fuel designs specified by customers, (2) the availability of feed material at the plant, and (3) the fuel outage plans and fuel orders of customers, typically two years ahead of need.

There are two types of fuel assemblies – BWR and PWR. They have difference configurations, and a one-third change out of conventional for MOX fuel for each type involves a different number of fuel assemblies, and fuel material, for each reactor type.

NNSA declined to provide information on the mix of PWR and BWR fuel assemblies saying only that the 34 tonnes of weapons grade plutonium would result on an output of 1,700 PWR MOX fuel assemblies. Demand would be measured by the core replacement rates for each customer's reactor, though none would exceed 50% of the total number of fuel assemblies.

Fuel assembly manufacturing may take place at AREVA's plant in Richland, WA, which means the either the sintered fuel pellets, or the powder form of the two oxides, may have to be shipped from South Carolina to Washington. Another source, which asked to remain anonymous, told FCW that all fuel fabrication work for MOX fuel would take place at the South Carolina plant. An NNSA official declined to discuss technical details of the fuel fabrication process or where the work would be done.

# # #

China now reprocessing: A beginning, Not a breakthrough

2011-01-06T14:21:00.002-05:00

The country must also develop MOX fuel fabrication and fast breeder reactors to achieve its ambitious goals

By Dan Yurman, Contributing Reporter
Fuel Cycle Week (V10:N406) January 6, 2011

China announced Jan. 3 it has begun to reprocess spent nuclear fuel. The technology, tested at a plant operated by state-owned China National Nuclear Corp. (CNNC) at a remote site in the Gobi desert in Gansu province, enables the re-use of materials from irradiated fuel from light water reactors.

Wang Junfeng, CNNC project director, said the process is "effective and safe." According to China Central Television (CCTV), Junfeng said the country now had enough fuel to last up to 70 years and the new technology could yield enough to last for 3,000 years.

This statement on its face seems to border on fantasy, given what is known about China's investment in other parts of the fuel cycle, including MOX fuel fabrication and development of fast breeder reactors.

It is a fact that China has been stockpiling uranium for its hugely ambitious, 80 GWe nuclear reactor construction plan over the next decade. The country’s recent multi-million pound purchases have contributed to a steady rise in the U3O8 spot price, which stands at $62.50/pound a $22.50/pound increase from this time last year.

There are a few confirmed details about China’s reprocessing technology so far, although CCTV made a point of saying the process is a secret.

In 2006, for example, a pilot reprocessing plant (50 tonnes/year) using the Purex process was opened in 2006 at Lanzhou Nuclear Fuel Complex. It is reported to be capable of processing 100 tonne/year.

Part of AREVA Deal

Given that in 2007 CNNC inked an agreement with AREVA to begin a feasibility study to build a spent fuel reprocessing plant, Fuel Cycle Week believes this week’s announcement is not so much a breakthrough as the start of development of a commercial-sized reprocessing plant of 800- to-1,000-tonne/year that uses French technology.

Last November the two companies signed an industrial agreement for the design, construction and commissioning of the plant, the World Nuclear Association reports. The plant could be sited at Lanzhou or Jiayuguan, both in Gansu province.

An 800 tonne/year spent fuel reprocessing plant is thought by some experts to be about as large a plant as can be efficiently managed with current technology. The period needed to construct such a plant could be at least a decade. It would take a few years to plan and at least five more to build, test, and reliably process fuel in volume.

It is unlikely that a first of a kind facility would start up without problems. For instance, Japan Nuclear Fuels has experienced repeated delays at Rokkasho, with the latest occurring in October 2010 setting back the start-up date by at least two years.

Whither MOX?

Once the fuel is reprocessed, China still needs a new fuel fabrication facility to make the MOX fuel assemblies and a permanent geologic repository for the remaining highly radioactive waste products that can't be recycled. None of these types of facilities are named in China's announcement this week. As with fuel reprocessing, the time line to reliable production could easily consume a decade.

Last October Reuters reported that Tractabel, the Belgian subsidiary of French utility GDF Suez, together with Belgonucleaire and the research center SCK-CEN, signed a framework agreement with CNNC to build a pilot installation for MOX fuel manufacturing.

There was no word at the time whether the agreement would conflict with AREVA’s contractual relationships in China. Its 2007 agreement with CNNC also included a feasibility study for a MOX fuel fabrication plant.

According to CNNC official Sun Donghui, separated plutonium would initially be used in MOX fuel for an experimental 25 MWe fast breeder reactor. The MOX fuel could be burned in conventional LWRs which would serve to produce a modest, but certainly not a 3,000-year extension, in China's fuel supply.

Big Bet on Fast Reactors

The Chinese statement about expectations for an enormous extension of uranium supplies strongly suggests fast breeder reactors would have to be in the picture, as MOX fuel does not completely close the fuel cycle.

Fast breeder reactors, which produce fuel, use liquid metal-cooled systems such as sodium or a lead-bismuth combination. Both reactor types are reference designs in the international Gen IV R&D consortium,

However, scientists at the Department of Energy's Idaho National Laboratory told Fuel Cycle Week in Summer 2009 that commercial deployment of these types of fast reactors is easily two decades or more in the future.

Even if China has, as it claims, 70 years of fuel, can it develop a reliable fleet of 1,000 MW fast breeder reactors and associated fuel facilities in 20 years? Can it sustain the political will and funding to do so over such a long period of time?

What we know and don’t know

Here's what we do know about China's work on fast reactors. Last summer the Denki Shimbun, an English language Japanese news service, reported that China plans to drive the development of its fast reactor program to produce new units in the power range of 1,000-1,500 MW by 2020. This date would seem to be unrealistic given the status and timeline for development of Gen IV designs in the West.

However, last July China achieved criticality at its first prototype fast neutron reactor. The Chinese Experimental Fast Reactor is expected to reach a thermal capacity of 60 MW and produce 20 MW of electric power. It is a long way from a 20 MW prototype to a 1000 MW commercial version.

Developed by the China Institute of Atomic Energy, it is the first sodium-cooled fast reactor in the country. The reactor was built in collaboration with several Russian entities including OKBM Afrikantov, OKB Gidropress, NIKIET, and the Kurchatov Institute.

Changing plans?

It appears that China has set aside plans for a 600 MW indigenous design in favor of buying two BN-800 fast reactors from Russia for Sanming-1 and -2. The project is expected to break ground in August 2011.

A bilateral program on fuel cycles for fast reactors is part of the effort. China will build a nuclear city around the two reactors to house construction workers, reactor operators, and support services.

Nuclear industry experts tell FCW the fast reactor deal between the two countries is not yet a done deal. Perhaps reflecting this development, Bloomberg cited a statement last July from Martin Wang, an energy analyst at Guotai Junan, based in Hong Kong, who said it will take China "some time" to develop its fast reactors for commercial use.

That view was countered by one from Steve Kidd, head of strategy at the World Nuclear Association, who told Bloomberg in July 2010 the technology could be in commercial use by 2025.

"If China is doing 10 PWRs a year, there is a big economic inventive to do something better. The technology could come earlier than people think."

Fact Box: China's uranium needs in 2020

In 2010 China's uranium consumption for its 9 GWe of nuclear reactor generating capacity was just under 2,000 tonnes. China has published an estimate that by 2020 it will have built out to 80 GWe or nearly nine times the current installed based. Assuming all the reactors are light water designs, a straight linear projection would indicate China would have demand for 20,000 tonnes of uranium a year.

The caveat on the estimate is that it would be affected by how much MOX manufacturing China can produce by 2020. For instance, what would the yield be in materials suitable for new fuel from a reprocessing plant that could handle 800 tonnes/year of spent fuel? The key to China's reported "breakthrough" would be proven, or not, by this number.

According to published data on French spent fuel reprocessing and MOX manufacturing, 800 tonnes of spent fuel would produce about 8 tonnes of plutonium and 760 tonnes of uranium. The two would be combined with enriched uranium to produce MOX fuel equal to uranium fuel at 4.5% u235. These are round numbers and actual process outputs will vary according to customer requirements.

# # #

GOP Gains in Congress; Kiss Cap & Trade Goodbye

2010-11-04T21:47:00.001-04:00

By: Nancy E. Roth, Managing Editor
Fuel Cycle Week

Many nuclear industry advocates and observers expect the industry to benefit from this week’s election results, which delivered a Republican majority to the U.S House of Representatives, while significantly narrowing the Democratic majority in the Senate.

After all, constituent groups that favor nuclear energy tend to vote Republican, and it stands to reason that their representatives in Washington would reflect that in relevant energy legislation. Retired Sen. Pete Domenici (R-N.M.) was easily one of the best friends that nuclear ever had in Congress. The most outspoken nuclear advocates on the Hill, such as Sens. John McCain, Lamar Alexander and Lisa Murkowski (who at this writing has apparently managed to keep her seat in a write-in race), are almost all affiliated with the G.O.P.

Conversely, most antinuclear diatribes seem to spring from the Democrats’ side of the aisle, from figures such as Congressman Ed Markey (Mass.).

But these optimistic expectations do not bear up under scrutiny of what Republicans (apart from Domenici) have actually done to help nuclear development, as opposed to what they say they want to do. The disconnect is striking. And, judging by the boisterous antigovernment and anti-climate action platforms Republican candidates embraced this year, that disconnect is not going away anytime soon.

Nuclear Requires Government Involvement

Republicans philosophically oppose and actively campaign against activist government, which, among other things, would create financial incentives for new energy technologies and infrastructure, including nuclear plants. The Republican vision, at least as projected in political campaigns, is to create a minimalist government, leaving everything else up to the private sector.

Nuclear will need active government participation in order to thrive in the U.S., just as it has had in China, France, India, Japan, Korea and Russia. Nuclear does not magically happen by way of the free market. It requires farsighted planning and support that is beyond the purview of the private sector.

If the new Republican representatives and senators do what they have promised to do, nuclear development in the U.S. will gain no traction.

G.O.P. Foot-Dragging on Carbon Market

Republicans say they favor nuclear development but time and again have obstructed important initiatives that would help jumpstart a revival, such as a cap and trade system or other measures that would establish a market for carbon dioxide emissions.

This year it looked like Sen. John Kerry (D-Mass.) and Sen. Lindsey Graham (R-S.C.) might produce the first bipartisan climatechange legislative package—but just before introducing the carefully crafted bill on the Senate floor, Graham, under pressure from his G.O.P. colleagues, dropped his sponsorship of the bill. Sen. Joseph Lieberman (I.-Conn.), a former Democrat, took up the slack, and the bill become the Kerry-Lieberman American Power Act.

It was Lieberman’s staff that crafted the legislation’s unusually supportive provisions for nuclear development, such as measures to expedite the processing of Construction and Operation License applications for nuclear reactors. The authors of the legislation consulted frequently with Senate Republicans over a period of months so as to reflect their nuclear-energy priorities, and hoping thereby to attract their support for the bill (FCW #377, May 20).

Ultimately not one Republican senator came out in favor of it, however, due to its cap and trade program.

Nor have G.O.P. members shown interest in promoting collateral developments that would improve prospects for nuclear, such the wider use of electric cars or high-speed electric trains. These would reduce U.S. dependence on foreign oil and create a new component of demand for electricity that would energize plant planning and building. Small-government Republicans favor minimal involvement by the federal government in transportation policy.

Dems’ Surprising Emergence as Nuke Advocates

Not that the Democratic Party has been an outstanding advocate for nuclear energy. Given the vehement antinuclear rhetoric of some of its fringe groups, it is difficult to believe nuclear could fare well in any legislative environment in which Democrats constitute a majority.

Once again, however, tuning out the words of each party while watching their actions brings about the inevitable realization that in its first two years the Administration of President Barack Obama, with Steven Chu as Energy Secretary, has done more to advance nuclear development in the U.S. than the George W. Bush Administration (with Sec. Spencer Abrahams, and later, Sec. Samuel Bodman) did in its entire eight years.

The Bush Administration’s centerpiece energy legislation was the Energy Policy Act of 2005, which created the deeply flawed Title 17 Loan Guarantee Program to encourage the development of new energy technologies, including Gen III nuclear. But the Republican-dominated Congress stuck it into the Department of Energy, which had no experience running a financial program, and, under the leadership of Sec. Bodman, seemed not to want any part of it. DOE required prodding by Congress to develop the regulatory framework and hire a staff for the program. Still, it issued not a single nuclear loan guarantee during the Bush Administration.

By contrast, under the watchful eye of Sec. Chu the office and program came to life, issuing its first loan guarantee for a nuclear project (for two additional reactors at Southern’s Vogtle plant) last February. In May it also granted a loan guarantee to AREVA for its Eagle Rock centrifuge enrichment plant in Idaho Falls. The mishaps that have befallen the program over the past month spring from flaws in the original design by Congress five years ago.

The course of events in regard to nuclear over the last several years makes it difficult to escape the conclusion that it will take a strong, centrist, bipartisan push that acknowledges the need for federal involvement, to foster meaningful industry growth in the U.S. But at this juncture, the Republican Party appears to be in no mood to participate.

# # #

More to Constellation Pullout Than Fiery Letter Indicates

2010-10-15T14:09:00.001-04:00

By Nancy E. Roth, Managing Editor

Reliable industry sources have told FCW that the high credit subsidy fee Constellation Energy criticized in a scalding letter to the U.S. Department of Energy last Friday by no means represents all of the company’s motives in withdrawing from discussions of a loan guarantee in support of its Calvert Cliffs new-build project.

In the letter Constellation COO Mike Wallace blasted a proposed loan guarantee structure with a “shockingly high” 11.6% credit subsidy fee, or $880 million that UniStar, Constellation’s joint venture with Electricite de France, would have to shoulder in order to obtain the loan guarantee.

“Such a sum would clearly destroy the project’s economics … and was dramatically out of line with both our own and independent assessments of what the figure should reasonably be,” continued Wallace in the letter.

A series of meetings with DOE program officials (whom Wallace praised for their “professionalism and dedication”) failed to “meaningfully and sufficiently lower the credit subsidy cost number,” and exacerbated financial risks, he added. This he attributed to a “significant problem in the methodology” that the Office of Management and Budget used to evaluate the credit risk of loan guarantee packages.

The Administration may take steps to modify the methodology, continued Wallace, but the timing remains uncertain, which, in the absence of energy security and climate change legislation and with declining natural gas prices and rising construction costs, “Constellation Energy does not see a timely path to reaching a workable set of terms and conditions” for the project.

Although in the letter Wallace said that Constellation’s partner was “aware of our views” EDF told the Washington Post on Oct. 9 that it was “disappointed and shocked” that Constellation had “unilaterally decided” to pull out, adding, “…we were at the finish line…and were making significant progress” in the DOE negotiations.

EDF Willing to Take on Project

One source familiar with the loan guarantee process told FCW that Constellation had not accurately conveyed the status of the negotiations in the letter. “Applicants are in daily contact with the DOE manager responsible for the application,” said the individual. “Throughout the process there is a dialogue, including exchange about how a deal could be framed.”

The proposal that Constellation chose to highlight in the letter was discussed two months ago. “Everyone knew that it couldn’t be done even back then,” FCW was told. “It wasn’t made public because it was only one of many ways to structure the deal.”

In effect, Constellation was disingenuous in attacking a loan-guarantee structure that was no longer in discussion. “Constellation behaved very poorly,” an industry source told FCW. “The offer they outlined in the letter was not current, and they knew that.”

Constellation was not rejecting any offer currently on the table, added the individual. “They pointed out that the joint venture can go forward— but we [Constellation] are not going to contribute any more money to it. But UnStar is still on the application.”

Asked if EDF could take the project forward without Constellation, the source replied that the French company had the financial wherewithal to do so, although it was not clear that it would.

Bloomberg reported on Wednesday evening, however, that EDF had written a letter to Constellation declaring that it was prepared to buy its partner’s stake in the UniStar joint venture and bring in another U.S. partner later on, Bloomberg said.

Fragile Partnership Under Pressure

Another point many recent reports have overlooked is that the partnership has been under duress for some time due to demands from Constellation’s shareholders. They have been pressuring the company to drop the Calvert Cliffs project, which would ratchet up the company’s risk exposure without producing near-term profit. Since Constellation released its Oct. 8 letter its share price has risen 2.3%, from $31.97 at the end of Oct. 7, to $32.72 at close of business Oct. 12.

Shareholders have also been pushing Constellation to exercise a put option in the December 2008 agreement in which EDF acquired 49.9% of Constellation’s nuclear assets for $4.5 billion. That option allows Constellation to sell EDF its sell non-nuclear assets for an additional $2 billion.

The assets, coal-fired plants, were worth that amount in 2008, but their net value has now sunk to about $500 million after tax, an industry source told FCW. Leaning on EDF to buy them at the agreed-upon price would afford Constellation a tidy profit—at its partner’s expense.

Constellation’s shareholders have filed lawsuits to compel the company to do just that. Consequently it opened discussions with EDF in August, but the two quickly reached an impasse. One source familiar with the talks told FCW that, should Constellation force the issue, the UniStar joint venture would collapse.

In its Oct. 12 letter to Constellation EDF said the option to buy Constellation’s coal-fired plants was “not exercisable under present circumstances.”

DOE, OMB Put on Defensive

An OMB spokesman has claimed that Constellation quit just as DOE and OMB were preparing to put out a new set of loan-guarantee terms. The spokesman, Kenneth Baer, defended the financial methodology OMB uses in evaluating the loan guarantee risk in language similar to that used by DOE spokesman Ebony Meeks in an interview with FCW in early August.

“I understand the frustration of the industry, but we must be sure the projects are sound and reliable, and minimize the risk to the American taxpayers,” said Meeks at the time (FCW #388, Aug. 5).

Nevertheless, FCW found no one who endorsed the OMB’s evaluation methodology. All regarded it as flawed for nuclear projects and in need of revision. The Nuclear Energy Institute released a statement reiterating points that President and CEO Marvin Fertel delivered in a hearing before the U.S. Senate on Sept. 23.

“Clearly, the loan guarantee methodology used by the Executive Branch inflates the credit subsidy cost well beyond the level required to compensate the federal government for the risk taken in providing the loan guarantee,” Fertel said in part.

A spokesman for Sen. Jeff Bingaman (D-N.M.) who chairs the Energy and Natural Resources Committee that held the hearing, told reporters on Monday that the “entire Administration” would need to commit to improving the loan guarantee process, and that the nominee to head OMB, Jacob Lew, had promised to do so.

Still, a source familiar with the nuclear utilities told FCW that some utility officials were probably secretly pleased that “Constellation is calling out OMB.”

President Obama had been more vocally supportive of nuclear than anyone in the industry had expected, said the individual. “No one wants to offend him. They’ve all been extremely frustrated with OMB but have been afraid to say so.”

Now that the problem is out on the table, perhaps a more frank—and constructive—conversation about the program could take place, added the source.

Korean Group's UAE Victory Surprises Few Insiders

2010-01-15T18:41:00.012-05:00

Korean Group's UAE Victory

Surprises Few Nuke Insiders

By Nancy E. Roth, Managing Editor

[Note: This article originally appeared in FCW #358, January 6, 2010]

South Korea’s long pursuit of nuclear know-how paid off big in the waning days of 2009, when United Arab Emirates officials announced that a consortium of mostly Korean nuclear giants had won a plum$20.4 billion contract to build the first nuclear reactors in the Middle East.

Early news reports on the Dec. 27 announcement focused on the low bid of the consortium of Korea Electric Power Co., Doosan, Samsung, Hyundai and Westinghouse—which came in an astonishing $16 billion below that of France’s AREVA/Electricite de France-led consortium.

Apparently the EPR design’s redundant safety systems require a heavier load of steel and concrete, adding to its construction price. The French, who drastically underbid for their EPR contract at Olkiluoto, Finland, were clearly in no mood to offer any more loss leaders. The KEPCO team also beat the bid of a consortium that General Electric-Hitachi headed.

Korea: Economic Development Through Nuclear

But the story that has emerged from longtime industry observers and participants is that in effect Korea began assembling its bid package for the UAE tender 30 years ago, when it first set nuclear technology self-reliance as a national goal.

“A lot of us have seen this coming,” veteran nuclear-industry specialist Edward Kee, vice president of NERA Economic Consulting, told FCW. While the nuclear industry in the U.S. foundered in the 1980s, Korea, lacking native energy resources and fully dependent on expensive energy imports, strove “with a singularity of purpose” to master nuclear energy technology, he told FCW.

“Korea decided to make this a national effort, with a multiyear plan to develop manufacturing capacity as well as research and training programs tied in with the universities,” added Kee.

Korea Hydro & Nuclear Power Co. Senior Vice President Myung-Jae Song offered the particulars in a 2008 article he authored for Nuclear Engineering International, noting that in its early years the Korean nuclear industry relied on foreign contractors to build and operate its first nuclear plants.

But after the first three reactors, KEPCO “geared up on self-reliance in construction technology” and performed “6% in architect engineering, 40% in equipment supply and 100% in construction” for the next six units, wrote Song. Subsequently Korean companies took the lead role in all nuclear construction, hiring foreign companies only as subcontractors.

By the early 1990s, however, Korean companies introduced the Optimized Power Reactor 1000, based on the System 80+ design licensed from the American firm Combustion Engineering (later acquired by Westinghouse). As Korea’s first standard plant design concept, the OPR-1000 was a national declaration of nuclear technology independence. Six of the 1000-MWe units are now operating there.

One of the OPR1000’s offspring is the APR-1400, a 1,350-MWe Generation III evolutionary design, two of which are now under construction at Shin Kori and six more to be built by 2021. It was the APR-1000 that won the UAE nod, allowing Korea to emerge as a global nuclear technology exporter.

Supply Chain, UAE Relationships Helped

Kee also pointed out that Korea’s vast nuclear manufacturing infrastructure also would have worked to the KEPCO consortium’s advantage in the UAE tender.

In an all-day 159-slide pre-application presentation at the Nuclear Regulatory Commission last November KEPCO included a section on Doosan’s manufacturing capabilities, including the facility shown above right. That know-how was undoubtedly highlighted in the UAE proposal as well. KEPCO plans to apply for NRC certification of the APR-1400 in October 2011.

Korean companies have developed longstanding commercial relationships and a reputation as reliable, on-time, within-budget project managers in the UAE through their involvement in major infrastructure ventures over several years, according to Kee. That “greased the path” for KEPCO, he said.

Westinghouse Role: TBD

The UAE imposes strict confidentiality requirements on its contractors and bidders, making it difficult to ascertain what role Westinghouse, the only non-Korean member of the KEPCO consortium, will play in the project.

Some press accounts have hinted that UAE officials may have felt obligated to choose a team with an American participant in view of the U.S. government’s recent ratification of a 1-2-3 Agreement with the Middle Eastern nation. The Obama administration in recent months has showcased the agreement as an ideal for nuclear commerce in the region, because at the outset the UAE declared itself uninterested in enrichment and reprocessing technologies, which could feed a weapons program.

But it appears more likely that Westinghouse is involved because of the technology licensing agreements it still holds with Korean nuclear industry participants. Some have suggested that Westinghouse, with its 20% owner Shaw, would be involved in component design—but its Korean partners will undoubtedly perform all manufacturing.

The White House Wants to "Help"

2010-01-12T17:29:00.001-05:00

By Andrea Jennetta, Publisher

The top White House energy and climate adviser said the Obama administration wants to help the nuclear industry build a power plant for the first time in decades, Reuters reported on January 11.

“We have not built a nuclear plant in this country in a long time but we want to work with the industry to make that happen in the not too distant future,” Carol Browner, Assistant to the President for Energy and Climate, said yesterday in a live chat on the White House website. “We have been working with the nuclear industry to understand exactly what it is they need.”

Browner also asserted that President Obama “believes that nuclear needs to be a part of our energy future.”

If you subscribe to the axiom that actions speak louder than words, then you will agree that the current administration isn’t serious about “working with the industry” or understanding “what it is they need.” You might even be cynical about Browner’s statement.

As proof, look no further than the inexplicable delays in the nuclear reactor loan guarantee program. Congress authorized $18.5 billion for nuclear loan guarantees in 2005. But five years later, the U.S. nuclear industry is still waiting.

In mid-December, the head of Department of Energy’s nuclear energy office predicted that it would have loan guarantees “by the end of the year.”

One week later, though, DOE Deputy Secretary Daniel Poneman said the agency’s negotiations with energy companies for “first mover” reactors “still had some distance to cover.”

The foot-dragging is widely thought to be the result of a standoff between DOE and the Office of Management and Budget over the pricing of credit subsidy premiums, Reuters reported. Conventional wisdom puts that figure at 10% of the loan guarantee amount.

Poneman told the New York Times on December 24, “[W]e have worked with, and continue to work with OMB very cooperatively, on trying to get these things resolved ... . It’s obviously mission-critical to figure out if the [project] transactions will work. It’s not surprising that this would be a number that gets pretty closely scrutinized. We’re getting close, but we’re not done.”

While DOE and OMB dicker over the details, the four companies on the short list for the guarantees—NRG Energy, SCANA, Southern and Constellation—are operating in business limbo. If the goal of the loan guarantee program is to reassure investors that building new reactors is an acceptable, predictable financial risk, the government is failing spectacularly.

This is why it is difficult to take Browner’s comments seriously—or believe that the Obama administration really supports nuclear power, despite its efforts to expand the role of nuclear energy in a climate change bill currently stalled in the Senate to attract support from opposition Republicans.

(I could now launch a rant about how irresponsibly the White House has “managed” the national nuclear waste disposal program, but you’ll have to wait for a future post.)

I know I speak for the entire (hooting, laughing) U.S. nuclear industry when I say I’ll believe it when I see it.

USEC's American Centrifuge Project Lives Again

2009-08-13T16:05:00.001-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

The U.S. Department of Energy agreed to push back the final review of USEC's American Centrifuge Plant loan guarantee application by six months to allow the company to address the problems in its initial application.

The move represents a change of heart for the DOE, which told USEC in late July that the ACP application would not meet the requirements for the loan guarantee program, encouraging it to withdraw the application and resubmit over the next 18 months. This announcement was met with outrage by USEC, which accused the Obama administration of going back on its promise to support the project. Even more incendiary were the implications of job losses should the project be forced to demobilize--as many as 2,000 according to USEC--leading employees to descend on Washington, DC by the busload to protest the DOE's decision.

The Department cited the need for further testing of USEC's ACP technology as the cause for its initial rejection. In addition to extra time, the DOE outlined for the company the specifics it hoped to see in the application. "USEC's operating experience on its 'lead cascade' must demonstrate high confidence that machine reliability is commensurate with its facility operating plan," said DOE Undersecretary for Science Steven Koonin. "We have discussed with USEC specific test results that would give such confidence, and we look forward to working with them to that end."

Though the new deadline is clearly a victory for USEC, the company has still been forced to halt construction operations for the ACP. One of its contractors, Fluor, confirmed that 100 jobs had been shed at the site with more likely to come.

Nonetheless, this extension represents more than just a second chance for USEC to secure a chunk of loan guarantee money. With the exception, the additional time, and the guidance toward meeting regulations (not to mention the $45 million toward ACP research and development offered by the DOE last week) the DOE has shown a willingness to usher the project toward realization.

Nuclear Buzz Political Tug-of-War Threatens Constellation-EDF Joint Venture

2009-08-10T17:56:00.002-04:00

This article originally appeared in Fuel Cycle Week #338, 8/5/09

By Nancy E. Roth, Managing Editor, Fuel Cycle Week

Rising tensions between the Constellation Energy Group and Maryland regulatory and political authorities have generated sensational headlines in recent months. But last week the rancor quotient spiked when the Maryland Public Service Commission announced that it was extending its review of the proposed $4.5 billion nuclear joint venture with Èlectricité de France to Oct. 16, well beyond the deal’s Sept. 17 closing date. Constellation and EDF had asked that the ruling be delivered before the negotiated date, which Constellation described as “firm.”

The shouting match began on June 11, when the PSC affirmed its authority to determine whether Constellation’s plan to sell the French state-owned utility a 49.99% stake in its nuclear assets was “consistent with the public interest, convenience and necessity, including benefits and no harm to consumers.” The PSC has no jurisdiction over Baltimore-based Constellation, but it does regulate the energy group’s wholly owned subsidiary, Baltimore Gas and Electric. Since the PSC took up its review in February Constellation has disputed the commission’s claim of jurisdiction over the matter.

Constellation swiftly filed a lawsuit to overturn the regulator’s decision, but in early July a judge dismissed the case, suggesting that such steps in the PSC’s regulatory process were not subject to reversal in court. This has left the energy holding company with no recourse until the PSC delivers the final result of its review, which Constellation may then appeal.

Scoring a “Big Win” for Ratepayers

Perhaps what is most vexing from the perspective of the embattled energy group is that it had worked assiduously to avoid this very scenario last December while negotiating the terms of its joint venture with EDF (FCW #305, Dec. 17).

Specifically, the two companies crafted the deal to comport with a $2 billion comprehensive settlement package Constellation had signed with Maryland Governor Martin O’Malley (D), the Maryland Public Service Commission and the state legislature in 2008. The settlement was to resolve several points of contention in a dispute regarding the terms of the 1999 deregulation of the state’s electricity market.

The specific provisions of the settlement, as listed in documents on O’Malley’s website, are still being negotiated, including about a dozen “ring-fencing” measures to insulate BGE from potential financial pressure by its parent company.

For example, under the proposed provisions, BGE is to be protected if Constellation files for bankruptcy. Constellation may not allocate any costs of its UniStar joint venture with EDF to the utility. In addition BGE must give all Maryland residential customers a one-time 10% credit on their electric bills, and suspend all increases in delivery or distribution fees until 2011. Any rise thereafter is capped at 2.5%.

Not listed, however, is a provision amending state law to accord “safe harbor” to certain Constellation transactions. The law would specifically exempt business agreements involving less than 20% of Constellation stock and 20% of its board of directors from PSC review. The two companies clearly had the safe harbor criteria in mind when they drew up the terms of last December’s deal. It gave EDF a 9% stake in Constellation and allowed it to contribute a 9% share (one member) to Constellation’s board of directors.

In an April 24, 2008 press release O’Malley and other state officials trumpeted the settlement as a “big win” that “delivered on [the governor’s] promise to BGE ratepayers.”

“Safe Harbor” Denied

But in its June statement the PSC ruled that the safe harbor pro- vision “does not immunize the [Constellation-EDF] transaction from all public interest review.” Rather, Maryland law “directs us to determine whether EDF will have the power to exercise any substantial influence [over the policies and actions of Baltimore Gas and Electric Company].”

The primary grounds for the finding lie in “EDF’s post-closing ability to control the flow of dividends from Constellation Energy Nuclear Group to [Constellation Energy Group],” which, according to the PSC, “could affect substantially the decisions CEG and BGE make as to the financing and financial structure of the utility.”

O’Malley put it more succinctly in a June 18 videotaped speech in support of the PSC on his website. “We know that BGE is a cash cow for Constellation Energy. We know that BGE pays more than half of all dividends paid into Constellation Energy and has a huge impact on Constellation’s bottom line,” he said, adding that this was why the government “stepped in to look out for the public interest."

In response to the PSC’s announcement of the extended review deadline, Constellation pronounced itself “disappointed” in a July 30 statement, noting that since the review began in February, “Constellation Energy, BGE and EDF have produced in excess of 15,000 pages of documents, provided unprecedented access to senior corporate officers for hours of depositions and testimony, and submitted numerous briefs and expert testimony. ... We believe that the parties have all of the information reasonably necessary to review the EDF transaction.”

The PSC also acceded to five antinuclear groups’ joint request, backed by the Maryland Office of People’s Counsel, that it hold evening public hearings on the deal to take comments on the deal.

Israel Asks U.S. To Support N-Plant Without NPT Signature

2009-08-06T17:51:00.000-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

Israel is seeking American support for plans to build a civilian nuclear plant without signing the Nuclear Non-Proliferation Treaty. Prime Minister Binyamin Netanyahu's government hopes to follow the "Indian model," allowing the international community to monitor its civilian nuclear facilities without revealing the details of its other nuclear capabilities.

The request comes six months after a report commissioned by the Infrastructure Ministry suggested a nuclear plant would be the best option to meet Israel's expanding energy needs.

Israel occupies a unique position that sets it apart from the various other Middle Eastern nations pursuing nuclear energy programs. The nation's plans to develop a civilian reactor in the southern Negev region fizzled out in the 1960's. However, the Negev hosts the mysterious Dimona facility, widely believed to be a production site for nuclear warheads. Israel maintains a policy of nuclear ambiguity, refusing to confirm or deny its nuclear weapons capabilities or arsenal. The general consensus among the international community holds that Israel does in fact have nuclear weapons, a theory supported by its continuing refusal to sign the NPT.

As with India, the United States possesses the critical sway needed to secure an NPT waiver. But nuclear transparency is a big issue in the United States these days. Israel's request is complicated by America's ongoing faceoff with Iran, whose ostensible pursuit of a civilian nuclear program is feared to hide a weapons agenda. Furthermore, the Obama government is showing signs of a departure from the unwavering support for Israel's ambiguity policy upheld by previous administrations, illustrated by Assistant U.S. Secretary of State Rose Gottemoeller call for Israel to sign the NPT during an international conference in May.

The U.S. has not yet responded to the Israeli request.

DOE Nixes Loan Guarantee; USEC to Demobilize $3.5B ACP

2009-08-02T13:55:00.004-04:00

This article originally appeared in Fuel Cycle Week #337, 7/29/09

By Dan Yurman, Contributing Reporter, Fuel Cycle Week

Shocking the American nuclear industry this week, the U.S. Department of Energy turned down USEC’s (NYSE:USU) application for a $2 billion loan guarantee in support of its American Centrifuge Plant. For political and economic reasons USEC was considered the frontrunner for the loan guarantee for its uranium enrichment plant in Piketon, Ohio.

After the announcement USEC’s share price on the New York Stock Exchange dropped 33% to $4.13, with a 52-week high of $7.24, and Jefferies & Co. cut its USEC rating to “hold” from “buy” according to Dow Jones. At market close on July 27 the company’s total stock capitalization rested at $436 million. The American Centrifuge Plant will cost roughly $3.8 billion—nearly nine times the company’s current value.

But the DOE has left the door open for USEC to reapply in 18 months, after spending a government grant of $45 million to improve its American Centrifuge technology. It has, however, asked USEC to withdraw its current application.

The decision leaves AREVA as the only applicant for the loan guarantee that Congress slated for fuel-cycle facilities. The French nuclear leviathan’s planned $2.4 billion Eagle Rock enrichment plant in Idaho will use proven technology identical to that going into its nearly completed Georges Besse II plant in Tricastin, France. But the Energy Department has shown no indication that the Idaho facility would win the coveted financial support. Jarret Adams, a spokesman for AREVA, had no comment on the denial of the loan guarantee to USEC.

Technology: Not Ready?

DOE had said it would base its evaluation of loan guarantee applications on several criteria, including finances, technology and the applicant’s ability to complete the project. The department was also determined not to award a loan guarantee to an applicant that might default for technical or financial reasons.

Clearly, the ACP technology topped DOE’s shortlist of concerns about USEC. In a conference call with journalists on Tuesday, DOE executives said the department had strong reservations about whether USEC’s technology is ready for market.

Mark Rogers, a DOE official who participated in the evaluation of USEC’s application, said the company had only completed the final design of its centrifuge technology three months ago—and has only tested 38 units based on the design. The plant will require 11,000 units.

In its press statement detailing its decision the DOE said that its evaluation found that the technology required more development, and, in an unprecedented move, added that it was offering USEC $45 million to fund 12-18 months of additional R&D. This signals that the Obama administration is not quite willing to nail the funding door shut for USEC’s project.

It also may be an effort to soften the blow to the Piketon labor force that has counted on the jobs the USEC facility would offer. The department said that USEC could withdraw its application and apply again once it had spent the government’s money and proven to DOE’s satisfaction that the technology can reliably deliver product with 11,000 centrifuges.

But Elizabeth Stuckle, USEC’s vice president for corporate communications, disputed the department’s contentions. “This technology is ready,” she told FCW. “Since August 2007 we’ve clocked 235,000 hours of solid experience with it.”

Finances: Not Solid?

Rogers also noted in the press conference that DOE could not verify whether USEC had sufficient financial resources to complete the plant, plus start and sustain commercial operations. So far it has spent roughly $1.5 billion developing the project and last winter it halted work on its $1 billion engineering, procurement and construction contract with Fluor to preserve cash. Moody’s gave USEC a credit rating of B3, while Standard & Poors assigned it a B-minus rating.

Indeed, USEC has been burning through cash at a rapid rate. According to its published financials, the firm had $805 million in March 2008, but as the firm spent money on its American Centrifuge plant, its cash reserves sank: in June 2008 it had $504 million; in September 2008, $359 million; and by December 2008, $249 million. Included in these figures are the firm’s commitments to R&D spending at an average of $30M per quarter over the past 12 months.

Even more alarming, are the figures for 2009. As of March USEC had just $38 million in cash on hand. Worse, receivables increased from $154 million last December to $259 million last March. Not only has the company been bottoming out in its ability to pay its bills, but the money owed to it by other firms increased by $105 million in just three months. Also, in the past 90 days earnings per share dropped from $0.16 to -$0.02.

USEC’s proposed American Centrifuge facility, which would have an estimated capacity of 3.8 million SWU, is the largest of three centrifuge enrichment plants now being either planned or built in the U.S. At $3.5 billion, it is also the most expensive. By comparison, the National Enrichment Facility in New Mexico will produce 3.3 million SWU and cost $2 billion; AREVA’s Eagle Rock will also generate 3.3 million and is projected to cost $2.4 billion.

Stuckle told FCW that the department’s assessment of USEC’s finances was flawed. “We believe we are in a strong financial position to accept this loan guarantee,” she said.

USEC has not yet decided whether to accept DOE’s $45 million, added the spokeswoman. But in any case, she insisted, “We are not withdrawing our application.”

No Impact on Fuel Supply

The government’s decision will not affect supplies of enriched uranium in the U.S. The American Centrifuge plant was not a production facility despite a press release from USEC in May 2009 in which it listed the customers who had signed contracts for its product.

Exelon Vice President of Communications Craig Nesbitt told FCW the firm’s supplies of nuclear fuel are based on long-term contracts from a variety of vendors. Although USEC named it as a potential key customer for the American Centrifuge plant, Exelon’s Nesbitt said a decision to scrap the ACP would have “no impact” on the utility’s ability to obtain nuclear fuel for its reactors. With 11 plants that include 19 reactors, Exelon is the largest nuclear utility in the U.S.

Canadian Nuclear Focus Shifts to Saskatchewan

2009-07-29T19:41:00.000-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

Canada's Bruce Power is dropping its efforts on two projects in Ontario: the addition of a new reactor complex at the Bruce nuclear station and the construction of a new plant at Nanticoke. Bruce will now refurbish its Bruce A and B complexes, each consisting of four reactors, adding 6,300 MW of electricity to Ontario's power grid. The company cited the slowed growth in energy demand brought about by the global economic recession as the reasoning for its decision.

However, Bruce's plans are also doubtlessly influenced by a shift in thinking about nuclear in Ontario following the province's failure to secure a reasonable deal with state n-firm Atomic Energy of Canada Ltd. for a new reactor at Darlington. This failure, combined with the near simultaneous malfunction of AECL's Chalk River medical isotope producing reactor, led Canadian Prime Minister Stephen Harper to move toward a restructuring of the company. The research and development arm will be split from the commercial generation arm, with private ownership sought for the medical isotope business and major private investment desired for the commercial reactor wing.

The province's energy plan calls for the addition of 14,000 MWe of nuclear capacity to the power grid. But with work on the Darlington reactor now on indefinite hiatus and Bruce's announcement, the plan is sure to change. Where nuclear new build will stand is yet to be determined; certainly, its ground is much less solid.

As potential nuclear projects flicker out in Ontario, attention is shifting toward the neighboring province of Saskatchewan. The province is looking into the establishement of a new nuclear facility, as well as the development of a medical isotope producing research reactor. Saskatchewan's mammoth uranium resources--about a quarter of the world's known supplies--make it an intuitive choice for a nuclear plant. The province has also weathered the economic downturn better than most, even running a surplus, which makes the idea of an expensive investment like a nuclear plant less frightening.

Both AECL and Bruce Power have expressed interest in working on a Saskatchewan reactor. The emergence of this prospect provides AECL with another opportunity to create a precedent market for its next-generation ACR-1000 reactor technology, which without a high-profile project in the near future is dead in the water. The question is now whether the company can work out a deal with the province that is logisitically and economically feasible, a challenge that it has been unable to rise to in Ontario.

Constellation Vs. O'Malley: A Proxy War

2009-07-28T11:31:00.002-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

The proposed third reactor at Constellation Energy's Calvert Cliffs plant in Maryland is one of the most promising new build projects in America today. Not only has the project won the approval of the state Public Service Commission, but it has also been named as a finalist for the Department of Energy's coveted loan guarantees. However, the project has hit a snag-- or, more accurately, a tangle.

The mess revolves around Constellation's plan to sell 50% of its nuclear assets to Electricité de France for $4.5 billion, the existing and prospective Calvert Cliffs units included. Charging that the deal could have negative implications for ratepayers, Governor Martin O'Malley (D) and the PSC are reviewing the EDF-Constellation deal to make sure it is in the state's best interest. The fear is essentially that EDF would use Constellation to pump money out of energy customers through its fully owned subsidiary, the utility Baltimore Gas & Electric. Constellation contested the review, but so far courts have ruled with Maryland.

In the meantime, Constellation and O'Malley are engaged in dizzying negotiations over the terms of the EDF deal. Constellation's latest offer agrees to delay an electricity rate hike until next January, and hold that hike to 2.5%, half its intended increase. O'Malley says the offer doesn't go far enough. For his part, O'Malley is asking for a slew of other things, including a one-time credit to customers worth about 10% of their yearly bill, annual payments to a program aiding low-income Marylanders with power bills, and transparency regarding a potential payment to Constellation CEO Mayo Shattuck III that could be triggered by the EDF deal.

The issue at the heart of this is not the terms of Constellation's settlement with O'Malley, it's whether EDF investment in Constellation is harmful to ratepayers. The fact of the matter is that it is not. EDF is taking a minority stake in Constellation. EDF will have only one person on Constellation's board of directors, and this person will have no non-public information about BG&E, nor will it vote on issues relating to BG&E.

Maryland has seen steeply rising power prices since the removal of rate caps in 2006, making the issue of keeping utility costs down a politically attractive issue and occupying a central role in O'Malley's campaign. Now the governor is using the Constellation-EDF deal as an opportunity to wrangle a utility aid package out of a private company.

It's a tasteless move. A report from investment firm Jeffries & Co. predicted that Calvert Cliffs 3 will be impossible to build without EDF's investment. Furthermore, the DOE's selection for loan guarantee recipients is based to a great extent on the likelihood for a project to run smoothly, and the bickering in Maryland can't look very attractive. The real shame is that O'Malley stands to derail a reactor that could provide his state with much needed energy and jobs, and whose absence would be regrettable indeed.

Nuclear Buzz Exelon Exits Hostile NRG Takeover Bid

2009-07-25T21:06:00.002-04:00

This article originally appeared in Fuel Cycle Week #339, 7/22/09

By Dan Yurman, Contributing Reporter, Fuel Cycle Week

Exelon Corp. gave up the ghost on July 21 after a ten-month struggle to execute a hostile takeover of NRG Energy, Inc. in a $7.8 billion all stock deal. At the company’s annual meeting in Princeton, N.J., NRG’s stockholders swept the field rejecting Exelon’s slate of nominees for the board of directors. The action came after Exelon raised its offer 12.4% to 0.545 shares of Exelon stock for each share of NRG stock.

The die may have been cast for the vote months ago when NRG’s largest shareholders, each owning at least 5% of the stock, began to question the value of Exelon’s offer.

Shareholders Doubted Value of Offer

One key shareholder, New York-based Solus Alternative Asset Management, balked at the sale last February. Solus President Christopher Pucillo sent a letter to NRG Chairman Howard Cosgrove saying the Exelon offer did not maximize shareholder value. He called Exelon’s bid “highly conditional” and said it undervalued NRG. Solus at the time owned a 6% stake.

Shortly after Exelon raised its bid NRG sent a letter to its stockholders reiterating its opposition to the merger and urging them to reject the bid because it offered too low a price for the company. Wall Street analysts apparently agreed and were quoted in NRG’s letter as saying the stock is currently selling at a substantial discount, especially considering NRG’s potential for future growth.

In the run-up to NRG’s annual meeting, Exelon’s troubles intensify. On June 26 MFS Investment Management, one of NRG’s larger shareholders, said NRG’s stock has gone up since Exelon made its hostile bid for the firm last fall.

Maura Shaughnessy, manager of the MFS utility fund, told Bloomberg, “Exelon will have to pay much more or the deal won’t go through. I think Exelon is in a bind.” MFS owned 4.6% of NRG’s stock at the time. The New York Times reported July 11 that Proxy Governance, an influential voice on corporate takeovers, advised NRG and its stockholders not to accept Exelon’s offer for similar reasons.

Exelon CEO John Rowe issued a terse statement accepting defeat. According to the Wall Street Journal he said, “The NRG stockholders have spoken and Exelon will move on.”

Exelon’s M&A Growth Strategy

This was Exelon’s third failed takeover effort in the last six years. In 2006 it tried to acquire New Jersey Public Service Enterprise Group for $17.8 billion after having aborted plans to acquire Dynergy’s Illinois Power Co. in 2003. In both cases, Bloomberg reported, the deal fell through because of legislative or regulatory barriers.

An Exelon official at the Nuclear Energy Institute Nuclear Fuel Supply Forum on July 21 told FCW that the takeover attempts were consistent with Rowe’s business strategy of achieving growth through mergers and acquisitions.

In the case of Exelon’s pursuit of NRG, the stockholders flat out rejected the offer as being inadequate even after the big utility sweetened it.

Russia Eyes Brazilian Uranium in New Nuclear Accord

2009-07-22T21:55:00.001-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

Brazil and Russia signed an agreement yesterday pledging cooperation in the fields of reactor development and uranium exploration technology.

Though the nation's modern day nuclear program is still in its early stages, Brazil's ambitious new build agenda, generous uranium resources, strong economy, and positive international relations position the country to become a significant presence in the global nuclear market. As a Nuclear Non-Proliferation Treaty signatory and a member of the Nuclear Suppliers' Group, Brazil is already accepted in the global nuclear fold. "We're planning to build eight new nuclear power electric power plants," said Brazilian Deputy Foreign Minister Samuel Pinheiro Guimaraes. "We praise Russia's participation in carrying out this program."

The chances of a Russian-built commercial nuclear reactor in Brazil, however, look pretty slim. The nation has already tapped AREVA to complete the third unit at its existing Angra station, and rumor is that Westinghouse's AP-1000 model is a favored choice for other prospective plants. French firm GDF-Suez also announced its interest in Brazil's nuclear sector. Where Atomstroyexport's VVER-1000 model has competed against French and American-made reactors in foreign markets, the Western models have usually been the winners.

Cooperation on research reactors, also discussed in the accord, is more likely.

More probable is a Russian influence in the development of Brazil's uranium industry. Though Brazil boast's the world's sixth largest reserves, the country has kept most of its resources to itself. Producing uranium mines are largely controlled by state-firm Industrias Nucleares de Brazil, which has opted for private Brazilian companies over bigger-name international firms to serve as project partners. Current regulations allow only 20% of uranium production to be exported. However, Brazil's plans to enrich uranium for commercial use by 2012 mean this policy is soon bound to change. Only eight other countries can enrich uranium, and this capability, coupled with Brazil's reserves, promise serious profits.

The Russian interest is nothing new. In October, Rosatom offered exploration assistance to Brazil, promising that its cutting-edge mining methods and technology could increase Brazil's resources several-fold. In Brazil's uranium sector, Russia sees not only the chance for involvement in a profitable new market, but the opportunity to increase and consolidate its already enormous power in the global supply of enriched uranium.

Visiginas Parties Courted By Budding Nuclear Powers

2009-07-22T03:08:00.000-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

A region in the earliest stages of its 21st century nuclear plans, the Baltics, like the Middle East, is getting attention from foreign firms hoping to penetrate a market where nuclear business relationships are not yet well established.

A case in point is the situation of Lithuania's planned Visaginas plant. Conceived as a replacement for the Soviet-era Ignalina station, ordered shuttered by the European Union as a term of Lithuania's accession, Visaginas is to be a cooperative project between Lithuania, Poland, Latvia, and Estonia. However, progress on the project has been slowed by bickering among the parties, who have yet to reach an agreement on the split of Visaginas' output. The facility's initial planned capacity of two 1,600-MWe reactors would be too small for each nation to get its desired share. With Lithuanian state-utility LEO's newest plans calling for only one unit, someone is sure to be cut out.

Recent signs indicate that the states are looking elsewhere for their nuclear needs. Estonia is investigating the prospects for a nuclear plant of its own, including a reported interest in Westinghouse's still in-development IRIS reactor. Poland is also looking into its own nuclear station, conducting talks with both established European nuclear power France and South Korea, an up and coming 21st century nuclear provider.

Changes are also underway in Lithuania. Top executives of Mitsubishi Heavy Industries visited Vilnius this week to talk with Prime Minister Andrius Kubilius about participation in the Visaginas plant. MHI's presence signals a reconsideration of the project plan, which had previously identified European heavyweights EDF, E.On, RWE, and Vattenfall as potential builders.

"We have discussed the possibilities of Mitsubishi to participate in the realization of various projects in Lithuania. This is one of the largest companies producing nuclear reactors in the world. We think that this is an occasion for the development of stronger business connections," Kubilius said.

The open environment of the Baltic nuclear market is exactly the sort MHI is looking for. The company has a large presence in the international nuclear sector, though often as a partner or manufacturer, and is searching for opportunities to ascend to the next tier of nuclear vendor. Interest from countries outside the region may also have a certain appeal to the Baltics, providing a neutral path amidst the power pulls of Russia and the European Union.

Medvedev’s Whirlwind Tour of Africa Carefully Planned, Assembled

2009-07-18T20:58:00.002-04:00

This article originally appeared in Fuel Cycle Week #338, 7/15/09

By Roger Murray, Special Correspondent, Fuel Cycle Week

Russian President Dmitry Medvedev’s four-day, four-country trip to Africa in late June produced a plethora of bilateral agreements on nuclear cooperation, energy, infrastructure and trade with Egypt, Nigeria, Angola and Namibia. It was Medvedev’s first visit to the continent, and he brought with him a 300-person trade delegation.

Analysts widely viewed Medvedev’s primary intention as beefing up Russia’s position as a major bilateral partner on the continent, as well as catching Russian firms up with Western and Chinese firms in securing access to African natural resources—especially uranium, oil and gas. China has stakes in uranium ventures in Niger and Namibia (via investment in AREVA’s Trekkopje mine), while mainly Australian and Canadian juniors have spearheaded yellowcake exploration.

Medvedev carefully selected African countries with which Russia already has close political, or economic and trade links. The BBC commented that Medvedev’s African safari came “at a time when Russia is trying to strengthen its global strategic role.”

Egypt is Russia’s top trading partner in Africa, and political and military ties have been strong since the 1960s presidency of Gamel Abdul Nasser. Although Russia trades little with Nigeria—nor does it need the country’s crude oil exports—Nigerian authorities regard Russia warmly because it supplied the Nigerian federal government with armaments during the civil war of the 1960s, enabling the government to prevail during the Biafra secession.

Similarly, Russia enjoys close political ties with the ruling parties of both Angola and Namibia, which both received political and financial backing, along with weapons, when engaged in their armed liberation struggles against Portugal and South Africa, respectively. Those ties have endured over the decades.

Namibia: Accords Many, U-Deals None

In Namibia Russia sought deals on oil and gas as well as uranium. The official joint communiqué issued after Mevedev’s meeting with President Hifikepunye Pohamba on June 26 noted that the development of natural resources, infrastructure and energy were among the “priority areas of bilateral cooperation.”

The communiqué added that the two countries had reached agreement “on the expansion of Russian investments to develop and introduce new large-scale projects in the Namibian economy, in particular in mining, oil exploration and energy.”

Mevedev’s visit has apparently paved the way for a significant increase in economic and financial links between Namibia and Russia.

Andrei Sharonov, managing director of the Troika Dialog Group, Russia’s largest independent investment bank, was a participant in Medvedev’s delegation. “My trip to Namibia is meant to introduce members of the Russian delegation to [Namibia’s] Standard Bank and to explore opportunities for financing Russian companies’ projects in the country,” he told reporters. Sharonov emphasised the interest expressed by Russian businesses in partnership opportunities in Namibia, “both in terms of mineral resources as well as participating in power and infrastructure projects”.

Standard Bank, which is one of Namibia’s four commercial banks (all South African-owned), announced at the end of June that it would join with Troika to “create an international platform to connect Russian clients to Africa and other emerging markets.” The Namibian bank recently announced plans to become a 33% stakeholder in Troika, in one of several proposed business partnership.

But no new uranium agreements were reported during Medvedev’s brief visit. Local media only had limited access to the official events, and the joint communiqué was vague on specifics. Russia’s previous offer of a floating nuclear power plant, which Kirienko offered during a 2007 visit, was not on the agenda for this trip, Russian ambassador in Namibia Nikolai Gribkov confirmed to the local media.

Russia’s only current involvement in the Namibian uranium sector is via the locally registered SWA Uranium Mines, which holds two exploration licenses in the Erongo region. Both are due to expire next year. The majority owner of SWA Uranium Mines is now the Moscow-based private mining investment group Arlan, which holds a 75% equity interest.

The other two shareholders, each with 12.5%, are Vneshtorgbank (VTB) and Atomredmetzoloto (ARMZ); ARMZ and Arlan have acquired the shares previously held by Techsnabexport (Tenex) and Renova respectively, which were part of the original joint venture established to mine uranium in Namibia three years ago, according to The Namibian daily newspaper. However, there have been no reports of exploration work.

In addition the Namibian government now requires mineral exploration license holders to form partnerships with local black economic empowerment partners as a condition of relicensing. This happened recently in the case of license extensions granted to Australia’s Deep Yellow (FCW #333, June 24). It remains to be seen whether the government enforces the rule when Arlan’s current licenses expire.

Westerners Generate Economic Benefits

While for political reasons the Namibian government is keen to diversify involvement in uranium mining and exploration beyond Western-owned firms, Russia can offer little in terms of finance and technical expertise that is not already available.

For example, Rössing Uranium recently published its 2008 Report to Stakeholders, which disclosed that out of N$2.8 billion ($339 million) net income last year, the government had received N$935 million ($113 million) in income tax and payments for services to state-owned utilities. Employees gained N$455 million ($55 million); shareholders N$342 million ($41 million); and N1.1 billion ($133 million) were reinvested in the company.

In addition, Rössing payments for goods and services amounted to N$2.3 billion ($278 million) in 2008, of which N$1.45 billion ($176 million) or 62% went to Namibian suppliers.

The report added that Rössing remained committed to expanding annual output to nameplate capacity of 4,500 tonnes U3O8 by 2012 and that under its strategic production planning process the current focus is on evaluating the feasibility of a heap leach processing plant to treat currently uneconomic ore, to sustain operations until 2021.

Egypt: Inside Track for Nuke Tender?

Russia appeared to score a success in Egypt, where it has been invited to participate in the tender for the construction of Egypt’s first nuclear power plant at El-Dabaa. Accompanying Medvedev was Rosatom Director General Sergei Kirienko, who told Russian news agency Itar-Tass that the tender would “most likely” be called for in late 2010.

The planned 1,000-MWe El-Dabaa plant, a combined nuclear reactor and desalination plant on the coast, is slated for construction by 2015 at an estimated $1.5-2 billion cost and is open to foreign participation. Egypt recently awarded a contract to Australian engineering consultants Worley Parsons to select the reactor technology, choose a plant site, organize training and provide technical services.

Egypt had announced plans to develop nuclear energy in 2006 and Egyptian President Hosni Mubarak signed a bilateral accord on the use of nuclear power for peaceful purposes during his 2008 visit to Russia.

Last month Russian and Egyptian officials signed a bilateral uranium exploration and mining agreement. Kiriyenko told the press that Egypt had “very promising uranium deposits” and would cooperate in uranium prospecting and development.

Belene Suspended While New Bulgarian Government Cleans House

2009-07-15T17:23:00.001-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

Soon-to-be Bulgarian Prime Minister Boiko Borisov announced the temporary suspension of the Belene nuclear plant project shortly after the victory of his Citizens for European Development of Bulgaria (GERB) party defeated the sitting Socialist government on July 5 . Borisov was quick to clarify that the suspension did not indicate a lack of commitment to Belene. "We have the permission of the EU and to miss the opportunity of having a [nuclear] plant would be what I would call a crime against the state," Borisov said during an interview on Nova TV.

Rather, all major investment projects will be frozen while the new government assesses the country's financial standing and decides which projects to continue and which to postpone. The South Stream gas pipeline project was also frozen.

Borisov accused the previous government and its Economy and Energy Minister Petar Dimitrov of failing to take Bulgaria's economic crisis into account as it signed on to new, investment-intensive projects. Suspicions of corruption were not infrequent, including the apparent disappearance of BGN500 million (US$361 million) in the preparation of the site for Belene. "The last government managed the energy sector without any transparency. According to GERB, this sector has not been reformed and the new government will pay special attention on it," said GERB Economic Advisor Biser Boev.

As to Belene in particular, the new government was clear that Bulgaria could not guarantee the price of the project and that funding would have to come from private sources. With international banks shying away from Belene, this means Russia, who have promised Bulgaria the €3.8 billion (US$5.5 billion) loan it needs to build the reactors. However, the Russian Ministry of Finance said the loan would not be granted for at least six months while the conditions of credit are sorted out. RWE, the 49% partner in Belene, has been waiting for Bulgarian utility NEK to sort out its financing arrangements before coming up with its own money. Boev said negotions with RWE would be accelerated.

The suspension of Belene may feel like yet another weight sinking the project toward eternal limbo, but in the long run, this may be good news for the plant. Bureaucratic entanglement and poor planning has stalled Belene again and again. A house cleaning may be the crucial step to move the plant off the drawing board and into real life.

African Projects Update: Rossing South Resource Raised to 145M Pounds

2009-07-11T22:01:00.010-04:00

This article originally appeared in Fuel Cycle Week #337, 7/8/09

By Roger Murray, Special Correspondent, Fuel Cycle Week

On July 2 Australia’s Extract Resources announced a 34% increase in the resource estimate for Zone 1 of its Rossing South deposit in Namibia.

Based on drilling and chemical assay data completed to June 2009 and compliant with Australia’s JORC code, the overall resource is now estimated at 145 million pounds (65,770 tonnes) U3O8 at a 100 ppm cutoff, up from the initial resource estimate of 108 million pounds (48,988 tonnes) published in January (FCW
#312, Jan. 28).

Extract noted that the overall resource grade had increased to 449 ppm (0.045%), compared to 430 ppm (0.043%) previously, and that 20% of the contained uranium metal—24 million pounds (10,886 tonnes)—is now classified as indicated.

The company added that it expected Zone 2’s initial resource estimate to “propel Rossing South into the top 10 global uranium deposits” by contained metal, with both Zone 1 and Zone 2 mineralization still open along-strike and down-dip “with extensive exploration potential still to be tested.”

Extract’s Managing Director Peter McIntyre confirmed that the Zone 2 initial resource was on track for August 2009, predicting that the company would “establish an even larger resource base over the next two months and position Rossing South amongst the best of the world’s uranium deposits.”

He added: “This resource base is expected to support a long-life, large-scale open-pit mining operation and a feasibility study is in progress to quantify this potential.”

An equally enthusiastic response to the Rossing South resource update came from Extract’s largest shareholder, AIM-listed Kalahari Minerals, also on July 2. Its Chairman Mark Hohnen said: “The 34% increase in resource for Zone 1 to 145 million lbs of U3O8 in line with our estimates. Additionally we were hugely excited about the increase in grade which makes Rossing South the highest grade granite hosted uranium deposit in Namibia.”

Hohnen Warns Off Rio Tinto

The latest resource update for Rossing South, coupled with a likely further substantial boost to the deposit’s overall size in August to above 200 million pounds (90,720 tonnes), make it likely that Rio Tinto will continue stalking both Extract and Kalahari.

The Anglo-Australian resources group already holds substantial minority stakes in both firms, but Hohnen is determined that any purchase of either company would only be on terms that reflect the commercial potential of a Rossing South mine.

In the July 3 Mining Journal, Hohnen was quoted as saying: “If Rio wants to be in a joint venture to develop Rossing South, or wants to take over Extract, it must be only on a commercial basis.”

Hohnen also explained the decision to call off the planned merger between Kalahari and Extract late last year. “We were very worried that they (Rio Tinto) could go to 30% of the merged group under the UK (takeover) rules,” he told the London-based weekly. We asked Rio to enter into a voluntary handcuff agreement where they would not increase their holding until we were able to talk through these issues; Rio was not prepared to do that. On the back of that, some of our shareholders just said they were not prepared to vote for the merger because there was just too much of a risk of Kalahari getting into a bear hug.”

Polo Chairman Agrees

Polo Resources executive chairman Stephen Dattels has made similar comments. Dattels joined Extract’s board last month, as the South African-based concern holds a 10% direct equity interest in the firm. Other companies that he is connected to, namely AIM-listed Niger Uranium and Emerging Metals, also own a combined 25% interest in Kalahari, equivalent to a further 10% indirect interest in Extract (FCW #330, June 3).

Mining Journal reported that in a recent interview (with another publication) Dattels said: “Why should Rio Tinto be able to muscle the shareholders of Extract and Kalahari around to suit its own benefit? In my view there is a much better alternative, which is to have both companies sold to the highest bidder.”

Vattenfall's Kreummel Blunder Strikes a Blow for Germany's Anti-Nuke Camp

2009-07-10T23:02:00.002-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

Traffic lights blinked out and shopping malls went dark in northern Germany this weekend as a transformer malfunction caused an emergency shutdown at Vattenfall's 25-year old Kruemmel nuclear plant. The incident occurred just one week after Kruemmel's reopening, after two years of repairs following a 2007 transformer fire. The company revealed this week that a device that monitors partial discharges of power at the transformer had not been installed.

Both of Kruemmel's transformers must now be replaced. It will take the new transformers until next spring to arrive, Vattenfall said, and even longer to obtain proper permissions and install the new gear. In the meantime, the company will conduct a full inspection of the Kruemmel reactor. This week, the reactor vessel will be opened for an inspection of the 80,000 fuel rods, one or more of which the company believes may have been damaged during the incident.

"We are aware that we have lost trust again," said Vattenfall Chief Tuomo Hatakka. "We'll have to earn it anew." Indeed, Kruemmel's failed restart not only interrupts the utility's operations--Vattenfall loses about €1 million (US$1.4 million) in operating income each day that Kruemmel and its other halted plant, Brunsbuettel, is not running--but also tarnishes the company's reputation.

In Vattenfall's home country of Sweden, the government demanded an account of its work to improve safety, and the nuclear safety agency contemplated more intense supervision of the utility's operations. On Wednesday, the government ordered Vattenfall to improve safety at the Ringhals plant, which has chalked more than 60 safety incidents.

In Germany, anti-nuclear advocates seized on the Kruemmel shutdown as a reason to close Germany's fleet of reactors. "It's time to switch off the Kruemmel plant," said Vice-Chancellor Frank-Walter Steinmeier, a member of the Social Democratic Party. The incident even drew frustration from nuclear supporters such as Peter Harry Carstensen, State Premier of Schleswig Holstein, where Kruemmel is located. "If there is one more incident like this, I will see to it that this power station is shut down."

Clamor over Kruemmel plays out against the background of a larger nuclear debate within Germany. Under the leadership of former prime minister Gerhard Shroeder, Germany decided in 2000 to close its 17 reactors by 2020. Current Chancellor Angela Merkel is warmer to nuclear power, and encourages continuing its use. As national elections at the end of September draw closer, Merkel's Christian Democratic Union has backed away from the prospect of building new plants, but continues to advocate extending the lifespan of existing reactors. Nuclear is not popular in Germany, but high power prices have lately started to soften the resistance of the populace.

In this light, the Kruemmel debacle speaks not only to Vattenfall's irresponsibility and ineptitude, but harms the case of nuclear in general. It is almost certain that Germany will find a reason to continue operating its nuclear plants, as there is at this time no apparent replacement for the generation they provide.The damage is really dealt in the case for nuclear as an enduring option, distancing its chance to play a role in the next generation of German power.

AREVA Seeks Capital With Offering of 15%, T&D Arm

2009-07-07T22:04:00.002-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

AREVA announced plans to sell a 15% share in the company last week, citing need "to pursue an ambitious investment program to take advantage of its growth." The sale will lower the French government's stake from its current 93% down to 78%. In addition to seeking investment from other businesses, the company is starting an employee shareholder program.

AREVA is also looking into selling off some of its other holdings, most importantly its Transmission and Distribution division. A call for bids is expected, with a final decision regarding if and when to sell the T&D wing to follow. The firm's 72% share in AREVA T&D India Ltd., the division's Indian arm, will also be offered for sale. Its stakes in French miner Eramet and Swiss electronics firm ST Microelectronics will also be offered up.

The sale will generate about €14 billion (US$19.6 billion) in capital, steeling AREVA to maintain its prominent status in the ever more vital nuclear market. Much of the money will no doubt be directed toward the continued development of the firm's third generation EPR reactor. The company's maiden EPR project, Olkiluoto 3 in Finland, has encountered problem after problem, leading to a three-year delay in the target start-up date. Cost overruns from the Finnish project contributed to the 21% decline in AREVA's profits during 2008.

Speculation as to who might grab this stake is wide. Mitsubishi Heavy Industries confirmed its interest. The company seems a likely contender, given its ties to AREVA in nuclear fuel and the development of the medium-sized Atmea reactor. Strengthening ties to the French giant would prove advantageous to MHI, likely boosting its competitive power as a reactor supplier.

Other French energy firms like EDF, GDF Suez, Total, and Alstom are also likely contenders. Germany's Siemens has been raised by some sources, but we think this is unlikely. AREVA previously blocked Siemens' attempt to raise its 34% holding in reactor division AREVA NP, and now hopes to buy back this stake. According to The Financial Times, the French government has also talked to certain Middle East-based sovereign wealth funds about an investment deal.

AREVA stocks rose 8% following the announcement of the offering.

Darlington On Hold: Leveraging a Hard Bargain?

2009-07-04T19:20:00.003-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

The government of Ontario promised a decision in June regarding plans for the proposed Darlington nuclear power plant. True to its word, on June 29 the province announced it: the Darlington project has been put on hold.

Of the three firms vying for the Darlington contract, only state-owned Atomic Energy of Canada Ltd.'s bid met the specifications for the project, Ontario's government said. However, Energy Minister George Smitherman said AECL's price tag was "billions" above what the province was willing to pay. The sum remains undisclosed, but estimates place the minimum price for the twin reactor plant at $15 billion.

What were the bid criteria? Prime Minister Stephen Harper told AECL that its bid must provide a commercial rate of return and a price that recovers all costs. The ever present expectation cost overruns-- a chronic problem in AECL's history-- looms over Harper's order, and accounting for such explosive project costs no doubt led to the high figure presented to Ontario.

The specter of budget busts future figures strong in the province's picture as well. According to Smitherman, the inclusion a liability framework for cost overruns in AECL's bid was the factor that gave it an edge over bids from Westinghouse and AREVA. Here the picture starts to get fuzzy. The record of cost overruns for Ontario nuclear projects is no secret, and its hard to believe that AREVA and Westinghouse did not provide guidelines for such an occasion in their offers.

For those of us watching from the sidelines, it evidence points to the unspoken term that seems to hover over the whole deal: that AECL get the contract. Facing a lack of industry interest in AECL's new ACR-1000 reactor model, Darlington stands as a possible redemption for the company, able to set a precedent for future Canadian and international plants, and protect the 30,000 jobs tied into AECL's business. Without Darlington, the ACR-1000 stands little chance of getting off the ground, and the company would most likely be relegated to the role of global repairman for the 48 operating plants using CANDU technology.

After the most recent malfunction at AECL's Chalk River research reactor in mid-May led to the reactor's shutdown and a shortfall in medical isotopes, a line seemed to have been crossed. Quickly, the lingering option of privatizing AECL switched onto a fast-track toward reality. Now Harper is splitting the company's commercial and research arms, seeking a minority or majority partner for the commercial CANDU business, and casting its net for private companies to take over Canada's medical isotope business.

Uncertainty about AECL's future, particularly how private ownership would effect a cost overrun framework, contributes equally to Ontario's decision to suspend Darlington. However, Premier Dalton McGuinty still seems hopeful to negotiate a price that will allow the project to go forward. "There is going to be a continuing dialogue with the feds," McGuinty said. "We want to know whether they are going to backstop AECL, that they believe it has a promising future for all Canadians. If they do, then we want to be part of that. The way we see it right now is, the ball is in their court."

Our guess is that McGuinty is still banking on the appeal of Darlington as a buoy for the sinking AECL, and is holding off the project in hope of a better deal once the company reorganizes.

Discussion of alternative plans to meet Ontario's growing power demand has been sparse.

NRG Defeat: Minor Setback In Week of Good News

2009-06-29T06:33:00.002-04:00

This article originally appeared in Fuel Cycle Week #333, 6/24/09

Nancy E. Roth, Managing Editor, Fuel Cycle Week

NRG Energy has failed to convince a U.S. District Court that Exelon misled NRG stockowners about its intentions in its $6.2 billion takeover offer. So said N.Y. District Judge John Koeltl on Friday in a decision dismissing the NRG lawsuit, which the independent merchant generator had filed last March.

But last week the ruling seemed little more than a piece of paper for NRG. The lawsuit has served what in retrospect appears to be one of its key purposes: to stall Exelon’s hostile takeover attempt and push back the crucial NRG shareholder vote on it. Whatever the judge’s decision, the credit freeze meanwhile has begun to thaw—and the Department of Energy has named NRG as one of four finalists slated to receive its coveted nuclear-project loan guarantees. NRG in 2007 was the first of a wave of U.S. energy companies that applied to the Nuclear Regulatory Commission for a license to build and operate advanced new-generation reactors.

Delay Strengthens Hand of NRG

But 2008 was a tough year for the Princeton, N.J.-based power generator. It spent much of the time beating the bushes for joint-venture partners with deep pockets, in the U.S. and abroad, to shore up the financing of two planned GE- Hitachi ABWR reactors at its South Texas site. As the financial market soured NRG could not seal any deals. By October, in the global economic freefall, NRG found itself stranded with $8 billion in debt and murky prospects.

On Oct. 19 Exelon unveiled an offer to exchange 0.485 per share of common stock for each of NRG’s 233 million shares outstanding, valuing NRG shares at $26.10. At the time that represented a 37% premium over NRG’s share price of $19.33, but the NRG board summarily rejected it as inadequate.

Exelon, the 900-pound gorilla of American nuclear utilities, then launched a three-pronged attack on the smaller company. It threatened to sue the NRG board of directors for neglecting its fiduciary obligations to shareholders,while making a direct appeal to stockowners to tender their shares for purchase by Exelon. It also announced a plan to force the company to expand its board to accommodate a set of candidates it planned to nominate at NRG’s annual meeting on May 14.

By the time the offer expired on Feb. 26, Exelon issued a statement that it had won the support of 51% of NRG’s shareholders, and would extend its offer to June 26.

NRG fought back by suing Exelon in federal court in March. The NRG legal team apparently calculated the timing to allow the company to postpone its shareholder meeting, which is now set for July 21—and, hopefully, to realize some gains in an improving economy.

The delay seems to have strengthened NRG’s hand. Its share price now almost matches the Exelon offer, reducing the stockowners’ premium to 3.6%. That allows the company to press its earlier warning to shareholders that Exelon showed signs of financial weakness (FCW #319, March 18). Exelon’s announcement last week of a 500-job cut by the end of August did nothing to dispel NRG’s claims.

Exelon: Pressure to Raise or Retract Bid

On June 17 NRG issued a statement noting that as of June 16 only 12% of its shareholders still supported the Exelon bid—meaning that roughly three-quarters of those that Exelon recruited had now withdrawn their tenders. “NRG believes the low number of shares tendered reflects [shareholders’ understanding] that the value NRG has created over the past eight months greatly outweighs the value of Exelon’s proposal,” the company said.

Analysts cited by Dow Jones linked NRG’s gains to the acquisition of Reliant Energy’s retail business—and “progress” in its nuclear projects, undoubtedly referring to the DOE loan guarantees. Although the Energy Department will not award any guarantees until 2011, when the Nuclear Regulatory Commission is expected to start issuing Construction and Operating Licenses, the federal government’s promised backing undoubted enhances investor confidence in NRG (FCW #316, Feb. 25).

Credit also seems to becoming more available for nuclear projects. Last Friday, for example, Entergy announced that it was reactivating its long-delayed spinoff of Enexus Energy, due to the availability of more credit for the project.

This does not mean NRG and others seeking to build new reactors will suddenly find it easy to attract support, given the cost uncertainties that still dog the industry. But NRG’s turn of fortune may force Exelon to up its offer, after all. Exelon’s board of directors will meet on June 30 to discuss the bid.

For its part, Exelon shows no sign of giving up or sweetening its offer. Analysts at Wachovia Capital Markets wrote last week that Exelon’s bid amount “is likely limited by the potential need to issue new equity to placate rating agencies,” according to the Dow Jones report. Exelon shareholders were not particularly enamored of the deal either, the analysts added.

On June 17 Exelon sent another letter to NRG shareholders urging them to vote in favor of the merger and extending its offer deadline to Aug. 2. In a statement about Exelon’s recent court success, Executive Vice President, Finance and Legal, William Von Hoene said on Monday that the company was now focusing “on the election of nine new, independent and experienced NRG directors who will act in the best interests on NRG stockholders” at the July 21 meeting. The company on June 17 also filed a new definitive proxy statement with the Security and Exchange Commission in connection with the solicitation of proxies for the meeting.

South Korea Looks to Middle East as Portal to West

2009-06-24T21:02:00.001-04:00

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

South Korea signed a nuclear pact with the United Arab Emirates this week, vowing to aid the Middle Eastern country in the development of its nuclear energy program over the next two decades. The agreement allows South Korean companies to bid on contracts for the UAE's maiden nuclear plant, which is slated to start operation by 2015.

The United Arab Emirates is one of several Middle Eastern nations who have sought cooperation with the international community and recognized nuclear authorities in the development of their program, a counterpoint to the defiant, rogue tendencies of neighbor Iran. The list also includes Jordan (who has signed a nuclear cooperation agreement with South Korea and just about every other nation with a global nuclear presence) and Kuwait.

Though its presence in the foreign nuclear industry has been focused on heavy component fabrication and supply, South Korea has the makings to become a much bigger player. The country has a strong domestic nuclear presence, generating about 40% of its electricity from its twenty reactors, with plans to expand this figure to 60% over the next twenty years. South Korea also has a strong reactor design in its APR-1400 model, and with the recent purchase of 19.9% of Denison Mines by state utility Korea Electric Power Corp., now possesses a significant uranium connection.

Thus far, South Korea's overseas nuclear ventures have been focused in Southeast Asia, competing with Japan for presence in the region' budding nuclear markets. KEPCO is in the midst of conducting a feasibility study of the abandoned Bataan Nuclear Plant in the Philippines, and has discussed building reactors in Indonesia and Vietnam. In the world outside its home region, South Korea's involvement has been largely limited to parts supply and, recently, a 2.5% stake in AREVA's Georges Besse II plant.

The Middle East, however, presents wider possibilities; namely, the expansion from a regional power into an international presence. The Middle East is largely virgin territory for the industry, free of the histories and existing alliances that make Europe and the Americas less hospitable to South Korea's ambitions. However, it is not the only one to recognize the potential of the region. KEPCO is definitely the underdog in the competition for UAE and Jordanian nuclear projects, pitted against far bigger companies like AREVA, GE-Hitachi, Toshiba-Westinghouse, and Rosatom. But a victory here for South Korea could mean stepping up to the next plateau.