Cloud still hangs over nuclear industry

The Australian Financial Review, Page: 12
Monday, 3 July 2006

Nuclear power is hot
Sixteen utilities have expressed intentions to build up to 25 new reactors across the United States. Just last month, NRG Energy in Princeton, New Jersey, unveiled plans to invest SUS5.2 billion ($7 billion) in two new reactors at an existing atomic plant near Houston. Is it a nuclear renaissance? Not yet.

While smart money is placing multibillion-dollar bets on ethanol, wind power and solar, it's not throwing cash at nuclear power. Memories of the delays, titanic cost overruns, and bankruptcies that ended America's love affair with nuclear power hi the mid-20th century are the most daunting obstacle the industry faces. And regulators could balk if proposed designs did not meet construction and safety standards. "Investors remain wary of construction risks," said Paul Ho, a director at Credit Suisse First Boston's (CSR) energy group.

That's why, five or so years from now, when the first construction and operating licences are likely to be granted, only the most creditworthy diversified players, such as Duke Energy and Southern Company, would be likely to dip a toe in these waters, explained Denise Furey, senior director of global power with Fitch Ratings. Such companies could finance projects for a decade or so using some combination of debt and equity. But that is a far cry from a new nuclear age. Historically, energy utilities did an "abysmal" job controlling building schedules and costs, said David A. Schlissel, an economist at Synapse Energy Economics in Cambridge, Massachusetts. Between 1975 and 1989, the average period required to complete a plant soared from five years to 12. The bill for a group of 75 first-generation plants totalled $US224.1 billion (in current dollars), 219 per cent more than estimated, according to a 1986 Energy Department study.

In time, many utilities collapsed under debts even as customers' bills soared. Power companies say they can bring costs down, thanks to new, standardised plant designs and a streamlined, one-step licensing process. "People forget that the construction problems happened 30 years ago. There's been great progress since then," said NRG Energy chief David Crane.

The company plans to use reactors from General Electric and Hitachi that have been installed in Japan. This time around, the industry is aiming to build new plants for SUS1500 to $US2000 per kilowatt of capacity, compared with a peak, inflation-adjusted cost of about $US4000 in the 1970s. But the cheapest plants built recently, all outside the US, have cost more than $US2000 per kilowatt. And the advanced designs now on US drawing boards have never been built here.

"A first-of-its-kind facility always costs more," said John Kennedy, a director at Standard & Poor's. "Nukes ought to be part of the [energy] mix," said Southern chief David M. Ratcliffe, but nobody wants to be first to build. "Everyone would actually like to be No. 10," he said. Last year's Energy Act dangled SUS13 billion worth of extra treats before the nuclear industry, according to Public Citizen, a consumer interest group. These are focused on the first six plants and range from some $US2 billion set aside to cover construction overruns due to legal challenges to a production tax credit worth up to $US5.7 billion.

Yet all that still may not be enough. Energy Secretary Samuel Bodman offered couched assurances on nukes. "I'm convinced we'll get the first six reactors, with construction starting by 2010," he said. "But we don't need six reactors. We need 16, or 26." Ms Furey said:"Wall Street isvery shortsighted." Or maybe it justcan't forget what it has already seen.