Similar Posts

Recent Comments from our Readers

  1. Avatar
  2. Avatar
  3. Avatar
  4. Avatar
  5. Avatar

10 Comments

  1. It’s not just the States. This is why we are being treated to the spectacle of AECL looking at astonishingly large estimates for a reacter built in Canada, while setting world records for on-time, on-budget, builds on off-shore projects.
    Unfortunately there is no easy work-around – it will have to be done by legislative fiat, and for that to happen, enough politicians have to have the backing of their constituencies, that supporting such a law would not be career suicide.
    Again, we have to take the fight out into the street, that is where our opponents draw their strength, and that is where we must make inroads if there is going to be change.

  2. DV82XL, I’d say that the lack of attention to building needed future power infrastructure is not special. The same lack of attention is applied economy-wide to all infrastructure, in Canada and the United States. We’ve been half-assing it building some things with Public Private Partnerships, in order to hide debts (debt=bad, apparently, to politicians and newspaper editorialists). (I don’t think P3’s are necessarily bad … it is just that they are used as a con game to avoid discussing the neccessity of taking on debt.)
    The effects of not wishing to take on debt in certain sectors are very clear. The reduce economic activity, and make the activity that remains less efficient. The nuclear industry in Canada is but one example of this phenomenon. Building some reactors takes a huge investment is training, equipment, etc. So the money is invested, and we build them. Then this activity stops, due to lack of customers (really, a lack of capital for the customers, and due to short-term thinking government). You strand your physical assets. You strand your workforce, which chaffs. Then you want to start up again. And you spend a huge amount of money again. The cycle repeats. What a plan!
    I live in Vancouver, and another example of this mentality is with SkyTrain rapid transit. We built one train line, and then waited a decade, build another, waited 5 years, and built another. Start, stop, wait, stop. What are the workers and machines and factories that build the trains doing? Idling. But still paying their bank loans. How do they pay those loans: by charging more when, in the next decade, a little more work comes around, and by scrimping on training and wages and investment.
    It is the mania of less debt that strangling the west. It will kill it, as surely as devotion to dogma killed the communist economies. Governments taking on debt is not bad. if it is service to ensuring the economy and society grows in directions the public wants. There is such a thing as good debt and bad. If the private sector is unwilling to finance provably needed power infrastructure (or transport structure), the government must step in.
    How did our grandparents do it?

  3. Rod — Great article, but you’re missing the elephant in the room.
    In the 2005 EPAct, Congress set aside $2B for “front-end fuel cycle” technologies. See here:
    http://nuclear.gov/np2010/neScorecard/neScorecard_financial.html
    I’ve heard arguments that the $2B was specifically put in for USEC, which may or may not be true. The only other possible users of that money would be AREVA and, as a long shot, GE’s GLE. GE decided its technology wasn’t mature enough, so they backed out.
    AREVA’s not stupid. They’re trying to eat USEC’s lunch.
    As further proof, National Enrichment Facility in NM (built by Louisiana Energy Services, which is mostly a front-end shop for URENCO) was already out the door, and didn’t need the loan guarantee funding. So, building a uranium enrichment facility CAN be done on private funding.

    1. @thermopile – Are you implying that the reason that Areva is insisting that they need the loan guarantee is that they are trying to ensure that the loan guarantee authority is not available for later award to USEC when their American Centrifuge Enrichment is judged to be mature enough?
      That is an interesting thought, though Sam Shakir was insistent during the call that there is plenty of market demand for both Areva and USEC. He even indicated that there was enough demand for enrichment services to accommodate any production that becomes available from GE’s Silex, though he did have a somewhat snide qualifier on that particular comment – something about “if they ever get it working”.

      1. Yep, that’s what I was implying.
        I could have my numbers wrong, but AREVA applied for the DOE loan guarantee on the first process building — capable of 3.3M SWU. There’s a whole second process building available to them, to increase the total output to 6.6M SWU, once the first building gets up and running. Their NRC license application has been amended for 6.6M SWU.
        AREVA would be happy to fill the vacuum left by USEC. GE has a tough road ahead.

  4. Rod, you raise a lot of great questions. While you and most of your loyal readers know that these projects are long-term money-makers, in the everyday realm of construction project risk management, their exposure is viewed as too high, too long-tailed and subject to a volatile regulatory environment. These risks simply exceed the expected profit for the typical financial institution.
    Even the largest of conventional projects, e.g., Bank of America Tower at One Bryant Park ($1b) or the new Yankee Stadium ($1.5b) seem simple to justify compared to the newly designed first-of-a-kind (FOAKs) being considered at $6b or more. NYC cubicles will always cost and rent at some probability of a calculable square foot rate range, no matter what. Beer, hot dogs, a bobblehead and a hat can be easily sensitivity analyzed along with thousands of costs and variables to the nickle and dime over the last and next forty years. Investors can look at an infinite variety of ROI scenarios to almost any degree of certainty they wish.
    Now, about that FOAK in a swamp somewhere? How much did you say it was going to cost?
    Sam makes a good point about the n-word, “nuclear.” It is indeed “radioactive.” Potential investors will want to see “skin in the game” from others, especially risk-spreading insurance and goalpost-moving government entitiies. Since the government ordered TMI design changes mid-construction and the cost of money related thereto drove the huge cost increases last time, it’s all tied together in the collective mindset. Insurance companies were caught off guard, too. Imagine if the Chesapeake Basin had been contaminated. Hence, there are now nuclear exclusions in each and every insurance policy everywhere at all times now. Check your rental car agreement or pet’s health care plan. It’s in there, and it’s in every policy needed to drive a nail or move a ladder, too. No insurance, no dough.
    Roy’s point about lawsuits is also strong. Don’t dismiss the intervenors struggling to get traction of today, like SACE, remember the ones that shut down Shoreham causing a $5b loss (in 1980s dollars.) Consider the effect that has on decisionmaking to this day. Although unlikely, there is always the possiblity of another TMI. The banks are not as confident as those closer to the safety record. Out of sight, out of mind. Recently, the government has put skin in the game with financial protection for regulatory changes, and now loan guarantees. That leadership was needed, so the ball is moving out of their court albeit slowly.
    As such, when it becomes clearer that money can be made in these endeavors with a little creativity and foresight, see e.g., Surety Bonds for Nuclear Energy Facility Construction Cost-Savings, I expect we’ll see some piecemeal movement in the direction you’d like. The NuScales and B&Ws might even be able to make a quick quantum hop, skip or jump in that direction with easily financed packages. We’ll see.
    Some of the conservative reactions to Obama’s recent announcement about tripling loan guarantees seemed a bit knee-jerk and troubling. They need to understand that this effort is closer to certain NASA programs than ACORN in regard to government spending.* Some seem to have forgotten how in the last breath they were calling for energy independence. I like the more balanced approach from Conditions and Policy Reforms Must Accompany Nuclear Loan Guarantee Boost.
    There is a great opportunity here and now is the time for the industry to double down on the discipline.
    * As you’ve previously stated, a loan guarantee is not even “spending” per se, and only a fraction is likely set aside (reserved) in case of a loss.

    1. Brian: Excellent comment. Just a couple of small clarifications. The facility in question is NOT a $6 billion power plant, it is a $3 billion enrichment facility and Areva has already committed more than $1 billion of its own equity. They also have $4 billion in signed long term contracts from very credit worthy electric power producers for enrichment services to be provided by the facility.
      Secondly, I reviewed the President’s budget submission. The numbers next to the entry for “loan guarantee programs” were negatives for the next four years. That means that not only is the program NOT a spending program, it is a revenue program where the Treasury actually gets income from the loan applicants when they pay the fees for the guarantees!

      1. When the right people wake up to the fact that even the government can make money on this, I want to be there. From what I’ve seen people seem to enjoy electricity.

  5. Brian:
    My enjoyment of electricity is never far from my mind, but it has been even more apparent during the past few days. We have been hit with a lot of snow and unable to leave our house for several days at a time. All is good as long as the electric heat pump, the electric well water pump, the electric stove, the electric refrigerator and the electric entertainment devices are up and running. If that tiny little wire coming into the house stops carrying juice, however, just existing gets quite challenging very quickly. There are a lot of vulnerabilities along that wire that are threatened by stormy weather and heavy snow, but so far, so good.

  6. I think the reasons for difficulties in obtaining financing are rather obvious. The banks have been less willing to loan money for any sort of projects since this financial mess blew up in September of 2008.
    If you look at the macro picture of demand for electricity, the realities of slowing increases in demand have to be noted. Why the slowing increase in demand? Well, the very things that I used to write about at _We Support Lee_ i.e. offshoring of manufacturing and stagnant wages. These are the same things that caused the housing bubble to burst.
    If the upper income people can’t afford McMansions anymore and are moving to smaller homes, and if lower income people are moving in with friends/relatives, what does that do to projected electricity demand five or seven years out?
    The answer is that the demand curve is flattened dramatically.
    Thus, the CEO’s and CFO’s of utilities don’t see the positive return in making the huge capital investment needed to build a new nuclear plant. They might have seen this potential return as positive back in 2005 when the housing market was being very heavily built, but that picture has changed greatly in the intervening five years.
    Thus, plant order cancellations.
    It’s a real shame, and it is quite a setback for long-term carbon-free energy planning. But, this is the reality.
    I hate to sound like an anti-nuke, but until we get some of the economic picture straightened out, we just won’t have the demand for electricity that justifies a lot of new plant build.
    The key here is to GET WORKING PEOPLE’S INCOMES BACK IN LINE WITH THE INCREASED COST OF LIVING. When people can afford to, they will stop doubling up with their beleaguered relatives and friends and they will move into their own place. When people in 1700-sf homes can afford a 2500-sf home, they will trade up. But as long as college tuition and medical costs gallop up at 30% per year, while wages remain stagnant or go down, that upscaling in lifestyle isn’t going to happen. And neither is demand associated with domestic goods production going to come into the picture until we get some of our jobs to come back to our shores.

Comments are closed.