Two More Utilities Tell GE "No Thanks" on the ESBWR

Entergy and Dominion Resources have announced that they have been unable to reach an agreement with GE Hitachi Nuclear Energy on the details of building Economic Simplified Boiling Water Reactors (ESBWR) as their next new nuclear power plants. Entergy had started the process of obtaining a Combined Construction and Operating License (COL) for an ESBWR at two different sites, Grand Gulf in Mississippi as part of the NuStart coalition and at River Bend in Louisiana. Dominion Resources has been pursing a COL for an ESBWR at their North Anna site in Virginia.

These two announcements by the nation’s second and fourth largest nuclear utilities to choose another plant design come just 6 weeks after the country’s largest nuclear utility, Exelon, announced a similar decision to stop pursing a license for an ESBWR. The only utility company in the US that has not yet announced a decision to shift their current interest in new nuclear power away from the ESBWR design is Detroit Edison, part of DTE Energy, which still has an active application for a new plant at its Fermi Nuclear Station site.

According to the Reuter’s article titled UPDATE 2-Two US firms’ reactor deals with GE Hitachi fail, both Entergy and Dominion were careful in their announcements to claim that their decision should not be viewed as a criticism of the ESBWR design concept. Dominion’s spokesman, Jim Norvelle stated, “We believe the ESBWR offers some technological advances that keep it a very attractive design.” Paul Hinnekamp, a VP at Entergy, said that he was not criticizing the ESBWR, “This action simply reflects the fact that we have not been able to come to mutually agreeable terms and conditions with GEH for the potential deployment of an ESBWR.”

Though worded differently by each company, the basic reason for the decision seems to have been uncertainty in the schedule for obtaining a design certification for the ESBWR. Unlike GE’s ABWR or Westinghouse’s AP1000, which are already certified designs, the ESBWR has a long way to go before it achieves that milestone.

When planning any kind of production project, schedule uncertainty represents enormous cost and revenue risk. If planners cannot predict how long a project will take to complete, they cannot predict how much it will cost because many of the costs are based on time. Cost components like interest on the already incurred expenses, rent on temporary equipment like cranes and office trailers, salaries for the design and management team, and services at the work site all keep growing even if there is no real progress being made because of design or permission delays.

On the other side of an income and expense statement, planners also do not know when revenue will start coming in from product sales. Those will not start until the project is fully completed and operating. (Trust me on this one – understanding the financial effects of schedule uncertainty is a big part of what I do for a living.)

Even the US DOE recognized the uncertainty costs when it ranked the potential viability of various projects to determine which ones would be the best investment for the 18.5 billion dollar loan guarantee program. The ESBWR based projects fell into the lower tier because their regulatory status contained a much greater degree of uncertainty and could potentially lead to large payouts under the loan guarantee program provision of insuring the recipient against schedule delays that could be blamed on the government.

There are a couple of ways to interpret the recent decisions. There is, of course, the anti-nuclear movement way – which is to point to these announcements as evidence that the nuclear renaissance is doomed to fail or is built on a shaky foundation that desperately needs government assistance.

There is also a positive way to look at the decisions – the large and successful nuclear operating companies have learned many lessons from the past, including the importance of cost and schedule. They are not willing to commit to endless projects with open ended cost projections. They have learned that electric power customers care greatly about how much their power costs and that their regulators will not allow them to roll any and all construction costs into the “rate base”.

I can also add a little personal flavor to the interpretation of the decision based on a number of discussions, some careful listening to speeches, and some creative reading of the tea leaves. Some of the customers’ concerns about the schedule risk for the ESBWR has nothing to do with the fact that the ESBWR does not already have a certification. The Areva EPR is also not yet certified in the US, but there has been increasing momentum with its sales, not a dramatic fall off of interest.

The ESBWR is on shaky ground because GE Hitachi is not completely committed to completing the project. GE has many other product lines outside of nuclear, even within the energy business. When it came out with its EcoMagination program, it took more than a year before it even decided to include the ESBWR as part of that major company focus. If you visit the GE Energy – New Reactors web page, and read between the following lines with a critical eye, you can see where the company’s current priority is:

ABWR
The Advanced Boiling Water Reactor (ABWR) is the foundation of GE’s nuclear reactor portfolio. The design is available today (emphasis added) for immediate generation needs of about 1500 MW, providing technology and schedule certainty, along with competitive economics.
ESBWR
GE’s next (emphasis added) evolution of advanced BWR technology is the ESBWR. It utilizes a number of new features to provide better plant security; improved safety; more location options; excellent economics; and operational flexibility that ultimately increases plant availability.

I am certain that GE’s top management is not fully committed to the important, but extremely challenging task of actually completing new nuclear power plants in the United States. The way that they have treated NRG with regard to its ABWR project provides some hint of its priorities. (An old friend told me that GE actions to prevent use of certain design features had delayed the project by more than a year. I did not fully understand the legal details, but the source is an excellent one.)

The company leaders are not genuinely interested in encouraging the successful development of nuclear fission as a fundamental part of an environmentally friendly electrical power grid. They are very interested in making money quarter by quarter, even if it means selling combustion gas turbines that produce plenty of polluting emissions and run on a fuel with unpredictable price and availability or massive wind turbines that destroy mountain top forests and provide unreliable electricity.

Of course, many will tell me that is the right attitude for a company that is organized to make a profit, but I believe that long term thinking needs greater respect from our country’s business thought leaders. It is silly for a company that has been around for more than 100 years to live quarter by quarter and to look past its enormous opportunity for growth as the last large American owned nuclear plant manufactu
rer.

When I attended the American Nuclear Winter Meeting in November of 2007, a meeting titled Making the Renaissance Real, Jeff Immelt, the CEO of GE, spoke at the plenary session. He began his presentation with the following quote:

“This conference, I never thought that I would ever be speaking to, presenting to. In 2001, shortly after I became chairman of GE, one of the first proposals I looked at was a proposal from our energy chief actually to sell our nuclear business. They said gas turbines are in. Now is the time. It’s been a difficult business for the last 20 years. 911 happened, I was too busy and never got to it. Now it looks brilliant to be in the nuclear business.”

In other words, the company only remained in the nuclear business because it got distracted from the task of selling its remaining small interest in the industry.

It is also important to understand just how marginal the ESBWR development is in the eyes of GE top management. Immelt told the assembled group that GE was a $170 billion (sales) company and that GE Energy was a business with annual revenue of $30 billion dollars and that GE Capital financed another $20 billion per year in energy related projects. GE Nuclear represents less than 10 percent of those GE Energy numbers and probably less than 2% of the whole conglomerate number. It was probably considered a pretty good coup for the nuclear advocates within the company to have convinced the CEO to spend a little time with the ANS.

When Immelt discussed the company’s energy related priorities, he first talked about efficiency related products like natural gas and palm oil fired combined cycle gas turbines. Then he talked about demand side management, hybrid technology, CFL’s, green appliances that use less energy. Next he talked about making renewables commercial, stating that the company had already reached $7 billion in annual revenues in renewables and expected to reach $10 billion within 2 years. He described how wind, solar, biofuels and coal gasification are all “big bet technology investments” for GE. At the end of his list, he finally got around to mentioning nuclear with the following quote: “And next generation nuclear technology whether it is the ABWR or ESBWR”.

I have a recording of that speech. Maybe someday I will get around to putting together an Atomic Show where I add some detailed commentary to Immelt’s talk.

The big utility customers have obviously heard the message that GE is only sort of interested in new nuclear plants and that it is not sure whether it should be pushing the ABWR or the ESBWR. They also recognize that the top company management believes that it has plenty of other ways to make money. In this difficult industry, with tremendous competitive and political pressures, that is not the kind of partner that the utilities need if they are going to succeed in actually building cost effective new plants.

Successful nuclear projects need sharp focus and must include partners that are willing to spend some political capital to move forward with due haste. From my point of view those important attributes are more readily available from Areva, Toshiba (Westinghouse) and perhaps Mitsubishi. I remain sad and disappointed that the leadership is coming from places outside of America.