The Power Industry's Latest Encore: Third Act of Generation Set to Infuse a New Vitality to Nuclear

By Russell J. Stepp, R. W. Beck, Inc.

It has been decades since the U.S. has seen such a robust market regarding nuclear generation opportunities. While it's true that these opportunities are numerous, there are also hurdles including cost, technical design, and regulatory delays, that may impact project fruition.

EVEN THOUGH THERE HAS NOT BEEN A NEW nuclear plant permitted in the U.S. since 1973, or any new orders since 1977, the nuclear industry is poised to make a comeback.

The nuclear power industry has come full circle. Nearly 50 years ago, in 1959, the first private commercial reactor entered service. Nuclear was on its way to becoming the future "solution" in power generation. Today there are 104 operating nuclear reactors in the U.S., with most of the facilities constructed between 1965 and 1979. However, since the accidents at Three Mile Island in March of 1979 and Chernobyl in 1986, the possnibility of building a new nuclear facility in the U.S. has been remote—until now.

Recent trends, such as volatile natural gas prices, high oil prices coupled with national security issues, and environmental concerns about greenhouse gas emissions, may pave the way for nuclear power's renaissance in the near future.

The major risks involve: cost, associated with the potential for construction delays; technical issues, focused on next-generation design safety; regulatory issues; interveners; schedule delays; and spent fuel storage issues. Managing these factors will require a new approach to risk management and a more long-term perspective on project development and financing.

Market Conditions Overview

The most recent national nuclear outlook, published by the Energy Information Administration (EIA), has turned 360 degrees. By 2030, the majority of the existing 104 nuclear units in 31 states—all needed—will be beyond their original license expiration dates and renewals will increase (Figure 1). In fact, by September 2005, license renewals for 35 nuclear units had been approved by the Nuclear Regulatory Commission (NRC) and 14 other applications were being reviewed. As many as 28 additional applicants have since announced intentions to pursue license renewals in the next seven years—indicating a strong interest in maintaining the existing nuclear fleet of power plants.

Figure 1. Power Reactor Sites (104). Source R.W. Beck, Inc. based on U.S. Nuclear Regulatory Commission

The next generation of nuclear project development is expected to be more efficient than the last generation, which was plagued by cost overruns, schedule delays and regulatory issues. The current question: How will the efficiencies be achieved? Industry experts agree that the developers, regulators and manufacturers are collaborating to develop a more streamlined approach.

The key players on the manufacturing side are General Electric (GE) and Westinghouse Electric Co. Toshiba Corp., which has acquired Westinghouse's nuclear division from British Nuclear Fuels plc, plans to market in Asia and Europe, as well as in the U.S. Also, AREVA, a French utility, has entered into a joint venture with Constellation Energy (forming UniStar Nuclear), to market its advanced pressurized water reactor, Evolutionary Power Reactor (EPR), in the U.S.

NuStart Energy, a consortium of 9 nuclear operating utilities (plus GE and Westinghouse), was formed in 2004 to complete the design engineering for two selected advanced reactor technologies and demonstrate the NRC process for obtaining a combined Construction and Operating License (COL). In 2005, NuStart announced plans to develop COLs for two Southeast utilities to be filed with the NRC in late 2007 or early 2008. Assuming NRC approval by 2010, the units are planned to be built and commercially operable by 2015.

Major Risks Associated with Nuclear

The major construction risks that must be considered regarding nuclear generation revolve around three major issues: capital cost, technical and design issues, and regulatory issues—all of which can create delays.

Capital Cost: Unknown. Capital cost is a difficult area to quantify because it has been decades since any nuclear facility has been constructed in this country. Consequently, even though the vendors have all spent considerable time and money putting together cost and schedule estimates, there are no demonstrated construction or overall project cost estimates. On the positive side, nuclear power generation is base loaded, resulting in a more cost-effective generation after the initial capital costs are invested; these base-loaded costs compare very favorably to the other competing types of generation. In addition, the Energy Policy Act of 2005 (EPAct) included billions of dollars worth of incentives for nuclear generation, which will help to revitalize the use of nuclear power and make it more attractive to pursue.

There are also environmental and cost advantages to nuclear. Since 1988, the cost of producing electricity from nuclear resources has decreased 50%, and the nuclear reaction emits essentially zero carbon dioxide.

The nuclear fuel source, uranium, is plentiful. The U.S. has 3% of the world's known recoverable supply of uranium, which is as common as zinc or tin. More than half of the world's supply of uranium from mines is located in Canada and Australia. Experts estimate there is enough uranium used in conventional reactors to last 75 years. Further exploration and higher prices will certainly lead to significant increases in recoverable uranium—a doubling of price from present levels could be expected to create about a 10-fold increase in measured resources over time.

There are additional economics that also provide benefits. Construction jobs will provide a boost to local economies where the proposed nuclear projects are located. The impact of one project being proposed by NuStart estimated that 2,000 construction jobs will be needed for a four-year period and 200 to 400 professional jobs will be required to maintain the new plant.

Technical Issues Abound. Before any technical issues can even be addressed, it is important to note the public stigma around nuclear power has diminished. In recent history, protesters were a fixture at any proposed nuclear facility. Current surveys show that the majority of Americans, in some cases 70%, favor nuclear as part of the power mix—perhaps that's a testament to the nuclear industry's environmentally-friendlier image and safety record. Today's nuclear power plants are fortresses of security, with integrated redundancies to address all types of variances—including terrorism threats.

Advanced reactor designs, of course, also play a part in the technical and design successes. The standardization of U.S. technologies, Boiling Water Reactor (BWR) and Pressurized Water Reactor (PWR), have contributed to a strong record of safety in the U.S., in recent decades.

In the future, there may be more nuclear reactors as part of the generation mix but an added challenge will be staffing the facilities. The nuclear designs were completed during the late 1970s and many of the domestic experts are retired. In addition, it is projected that there will be a huge shortage of technicians and engineers; this does not even take into consideration that current engineering curriculums are very limited regarding their training in nuclear power generation. The resulting aging workforce, and the lack of new technical and engineering expertise, will most likely require the need for recruiting the nuclear design capability outside the U.S.

Finally, there is the issue of what to do with the spent fuel. The Nuclear Waste Repository at Yucca Mountain, N.M., has been mired in controversy and delayed for years. Today, the future is still uncertain around the Yucca Mountain development, and there has not been sufficient research around alternatives, such as reprocessing spent nuclear fuel. It's estimated that 95% of the already used uranium can be reprocessed to meet future needs, but currently spent fuel cannot be reprocessed in the U.S. due to anti-proliferation laws that were established during the Carter administration.

Fewer Regulatory Issues and Delays. The next generation of nuclear development in the U.S. could get a boost as NRC and DOE are instituting an approval with fewer regulatory hurdles.

In fact, the NRC has overhauled its approval process with the goal of easing some of the hurdles that were once considered roadblocks to nuclear development projects. Today, the NRC is home to three such examples: certified and approved standardized plant designs, Early Site Permit (ESP) and a combined COL.

As an example of this newfound goodwill, in mid-August, just before the one-year deadline established by the 2005 EPAct, the DOE announced its latest incentives for new reactors. The new incentives will allow companies to participate in multiple federal programs when they are pursuing new reactor development. At the same time, the DOE effectively eliminated the need for loan guarantees from the menu of options for nuclear power plants—at least for the first round of government financial backings provided for in the EPAct.

The DOE also finalized a rule that established a $2 billion risk insurance program, known as "standby support," for qualifying investors for the first six nuclear reactors under construction; a further breakdown of this rule shows that six reactors are the maximum that will be allowed. The first two would each be eligible for indemnification of up to $500 million for losses due to certain litigation over regulatory-related delays; the final four reactor projects could receive 50% of covered costs, up to $250 million each. At press time, the requirements for these loan guarantees had not been publicly announced; however, earlier statements have been issued intimating that the money being contributed by the company would be taken into consideration.

While it would appear that the DOE and NRC are cutting through the "red tape" and making the processes more painless, there are always interveners that will strive to introduce roadblocks. Among those groups could be advocacy groups, lobbying organizations or even competing utilities. The race to be first offers cash incentives as well as notoriety, but may also elevate the level of competitiveness among utilities.

In conclusion, efforts to expand nuclear generation will increase in the U.S.—that much is certain—and the magnitude of the market impact is still an unfolding opportunity. When growth is calculated in, the EIA estimates nuclear will be 15% of the generation mix by 2030—if plans move forward. These reactor projects are scheduled to take shape in the Southeast and the West regions (Figure 2). In the U.S., we are on the cusp of this possible renaissance of nuclear generation, which could mean the Third Generation will open doors for future opportunities as well.

Figure 2. Generation III Nuclear Plants Planned (as of July 2006). Source R.W. Beck, Inc.