The Associated Press is reporting that Exelon will be delaying its proposed two unit nuclear reactor development near Victoria, Texas. The company attributed the decision to the difficult financial markets and its failure to make the cut for the first round of US Department of Energy loan guarantees. People who have been following this project for some time will remember that Exelon initially proposed building GE ESBWR’s on the site, but then changed its plans after a failure to come to agreement with GE on project price and schedule.
That initial selection and later change in plans had to have played a large role in the DOE’s evaluation of project maturity and likelihood of success.
What is not stated in the AP article is that the electricity market in Texas has changed considerably in the past year. The dramatic drop in the price of natural gas has resulted in a 40% drop in the retail price of electricity. When you are making a capital investment in a commodity production facility like a large power generating plant, the selling price for the commodity is a big factor in the economic computation. Remember, Texas is a competitive electricity market, not one that is governed by cost of service regulation.
In another bit of nuclear market news, the government of Ontario has rejected the only bid that managed to comply with the 1000 pages of specifications issued. AECL (Atomic Energy of Canada Limited) submitted that bid, but the Ontario government spokesman stated that the price came in as “many billions” too high. Ontario Energy Minister George Smitherman reiterated his support for nuclear power as a future power source, but also stated that price is an object in the negotiation.
“Our government continues to believe that it is prudent to renew our nuclear fleet, but not at any cost,” he told a hastily called news conference yesterday at Queen’s Park.
If I was a large company with a newly announced reactor power system that was not available at the time that Ontario initially requested bids, and I had a long established presence in Canada, I would be sending my salesman to visit with Mr. Smitherman to find out just what kind of price schedule would work to land the business.
It is never a good idea to overpay for a project, but it is also not a good idea to underbid the work. It would be interesting to find out just what the market will bear when it comes to building new nuclear plants and whether that price is sufficient to provide a reasonable expectation of solid profits.
There is a more positive news story in the nuclear industry. One of the winners picked for some financial support by the US government for the first round of new nuclear plant construction is the NRG/CPS expansion of the South Texas project. CPS Energy, owned by the city of San Antonio has determined that its ownership in the project will require 5% rate increases every two years as long as it is successful in finding a buyer for a portion of the plant output. If it cannot sell that excess power, the investment in the plant would require a 7-8% rate increase every 2 years. (Those sound pretty modest to me considering the normal effects of inflation.)
(Disclosure: A small portion of my personal investment portfolio is invested in McDermott International, the parent company of the “large company with a newly announced reactor power system” mentioned above. I just might add to that investment in the future depending on how successfully they take my advice.)
