Power industry: New nuclear plants to be safer

Nuclear plants are under design but are still seven years off.

NEW YORK (AP) — The current turmoil in credit markets is unlikely to derail plans by power companies to begin ordering the first new nuclear plants since cost overruns and public opposition virtually killed the industry three decades ago.

Nearly 30 years after Three Mile Island, Entergy Corp., Dominion Resources Inc., Exelon Corp. and the Tennessee Valley Authority are expected to be among the first to seek regulatory approval to build new plants. Constellation Energy Group has already filed a partial application with the Nuclear Regulatory Commission, which expects up to seven requests this year and 28 by 2009. The first plants could be online by 2014 or 2015.

“I think investors are relatively positive on companies that are ... planning the next round of nuclear plants,” said Barry Abramson, analyst and portfolio manager at GAMCO Investors Inc., in Rye, N.Y. “The numbers seem to work.”

Utilities see in nuclear plants an opportunity to affordably meet demand for electricity, which the Energy Information Administration is forecasting will grow by 42 percent by 2030. High natural gas prices and the prospect of taxes or constraints on greenhouse gases are making gas- or coal-fired plants less attractive. New modular designs and a streamlined regulatory process further strengthen the argument for nuclear power.

“At the end of the day, we believe ... nuclear will be cost-competitive,” said Randy Hutchinson, senior vice president of nuclear business development at New Orleans-based Entergy.

There are challenges

But this nuclear renaissance faces challenges. No company has lined up financing, and their ability to borrow affordably will depend on federal loan guarantees and state rules about when utilities can hike rates to pay for construction. Construction costs are rising due to growing global demand for raw materials. And activism, an accident or terrorist attack could stoke public opposition.

Still, reactor vendors such as General Electric Co., Monroeville, Pa.-based Westinghouse Electric Co. and France’s Areva Group, in a new joint venture with Constellation, are positioning themselves to profit. GE, in joint venture with Japan’s Hitachi Ltd., sees its annual reactor business growing from $1.1 billion to $8 billion over the next decade.

To strengthen its hand, the industry is pushing legislation to expand federal loan guarantees, available for 80 percent of plant costs. Utilities are also lobbying state lawmakers to let them raise rates to recover construction costs. Florida and Louisiana, for example, have passed such measures.

State officials are reluctant. “I just don’t want to ... give them a blank check and say, build a plant and we can talk about the cost later,” said Nielsen Cochran, chairman of the Mississippi Public Service Commission.

Some states are allowing such rules subject to “prudence reviews,” said Diane Munns, executive director of the Edison Electric Institute’s retail energy services group.

The Energy Department is also helping, paying half the cost of three early applications, including $5.5 million of the $11 million Entergy has spent so far preparing an application for a new reactor in Port Gibson, Miss., site of its existing Grand Gulf plant. GE has received $46 million in incentives since 2004, and expects a total of $250 million by 2010.

Experts’ view

Experts doubt the current credit market dislocations will affect nuclear plant financing. Lenders will view reactors as safe and desirable investments because of the federal guarantees and state cost recovery rules, and because they’ll be built by established utilities with long track records of operating power plants.

Most utilities will invest some of their own equity in the projects, and many will finance the plants on their balance sheets — paying for them out of cash flows and borrowings not tied directly to any one project.

“I would argue that you’re investing in an entire company,” said Standard & Poor’s analyst Dimitri Nikas. “The issue will not be tied to a specific asset.”

Nuclear plants still use low-grade nuclear reactions to generate heat and create steam or pressurized water to spin turbines. But instead of the one-of-a-kind designs the new plants will use interchangeable modular designs.

Gravity, instead of pumps, will move water in an emergency and new alloys and digital controls will also improve operations and safety. The 1979 accident at Pennsylvania’s Three Mile Island plant began when cooling system pumps and valves failed.

The NRC has already approved two Westinghouse designs. One GE-Hitachi design has been approved, another is pending. Areva plans to submit a design for approval soon.

Nuclear plants cost more than conventional plants, but are cheaper to operate. A new 1,000-megawatt reactor would cost $2.1 billion in 2006 dollars, compared to $1.3 billion and $600 million, respectively, for comparable coal and natural-gas plants, according to EIA estimates.

But the average cost of nuclear-produced electricity was 1.72 cents per kilowatt hour in 2005, versus 2.21 cents for coal-fired plants and 7.51 cents for natural gas plants, says the Nuclear Energy Institute, a trade group.