 Energy Bill Boosts Nuclear Energy - By Patti Harper-Slaboszewicz Daily IssueAlert 8/1/2005 Free In an effort to stimulate new nuclear plant construction, the Domenici-Barton Energy Policy Act of 2005 awaiting President Bush's signature provides significant incentives to would-be nuclear power plant developers. One of the major incentives provides a 1.8 cent/kWh production tax credit for up to 6,000 MW of new nuclear facilities constructed which supporters hope will entice the licensing of the first nuclear reactor in over 30 years. Effect on Nuclear Reactor Markets The last round of nuclear plants constructed in the United States suffered from long delays where borrowing costs on the construction sometimes amounted to 50 percent of final costs. Costs were also driven up by changing design requirements in response to notable accidents such as Three Mile Island. Without these delays and redesign issues the industry feels that it can construct a new nuclear facility at a fraction of the cost of their most recent predecessor. Because nuclear plants are enormously capital intensive and we've yet to find an acceptable solution for permanent storage of radioactive waste, raising the financing for a new facility in the United States has been impossible. Although the U.S. has not approved a new reactor license application for over 30 years, the world market for reactors is rapidly growing, primarily in Asia. The U.S. companies General Electric Nuclear Energy and Westinghouse Electric are leading players in this international market. The energy bill is clearly structured to favor first movers in the advanced reactor market. Westinghouse is well-positioned, because its AP1000 design has completed the certification review, while GE's ESBWR is planned to enter the certification process in the near future. Both are members of consortia preparing new reactor license applications, and both are likely to benefit from the provisions of the energy bill. Incentives The bill includes a production tax credit, research support for an advanced technology reactor, and compensation if full power operation is delayed by litigation or by the Nuclear Regulatory Commission (NRC). These incentives are restricted to advanced nuclear facilities, which are defined in sections 638 and 1306 of the energy bill as reactors whose design was approved by the NRC after Dec. 31, 1993. If the design or a substantially similar design of the same capacity was approved before that date, the reactor is not considered an advanced nuclear facility. Specific incentives include what is termed "standby support for certain power plant delays" and an electricity production tax credit. The standby support is limited to six reactors of not more than three different designs. The first two reactors are eligible for 100 percent coverage of eligible costs up to $500 million. The next four reactors are eligible for 50 percent coverage up to $250 million for delays in excess of 180 days. The coverage starts when a combined license for construction and operation has been received and construction has started. Delays in full power operation caused either by litigation or by the failure of the NRC to meet schedules for review and approval of inspections, tests, analyses, and acceptance criteria established under combined license, or for the conduct of preoperational hearings are eligible for reimbursement. Covered costs include principal and interest on construction debt and the difference between the contract cost of the nuclear facility power and the fair market value of replacement power purchased. The production tax credit is 1.8 cents per kilowatt hour for eight years after the facility is place in service for power produced and sold to an unrelated entity. The credit is subject to a national limit of 6,000 megawatts, to be allocated by the Secretary of Energy among qualifying plants. Licensing process The NRC licensing process may delay the effect of these incentives substantially. The Nuclear Energy Institute, the nuclear industry policy organization, expects that an application for a combined license that could support construction of an advanced reactor will be submitted to the NRC in 2008. Although a number of initiatives to streamline the licensing process have been submitted, it appears that a process substantially identical to the current process will be in place for some time to come. In this regulatory environment, companies that have already started the permitting process will have a significant advantage. Based on information from the NRC, the only advanced reactor design that has completed the design certification review process is the Westinghouse AP1000 advanced pressurized water reactor. Rulemaking for a final design certification for this reactor is expected in December, 2005. The General Electric ESBWR simplified boiling water reactor is in the pre-application review process. GE intends to submit a design certification application in mid-2005, and the NRC expects the review process to take 3 ˝ to 5 years. The Atomic Energy of Canada Limited (AECL) ACR-700 heavy water moderated reactor, the Framatone EPR pressurized water reactor, the Westinghouse IRIS advanced light water reactor, and the PBMR pebble bed modular reactor are in the pre-application review process, and have not established a schedule for submitting a design certification application. Three consortia have received Department of Energy awards for demonstration projects for new nuclear power plant licensing applications.
Based on these plans and the regulatory time scale, it seems unlikely that ground will be broken for a new nuclear power plant to take advantage of the provisions in the new energy bill before about 2010 at the earliest. Advanced Reactors The energy bill also authorizes funds to develop and build a prototype next generation nuclear reactor, which is intended to be economically more competitive, higher efficiency, lower cost, safer, use more proliferation-resistant fuel (fuel that is more difficult to use for building nuclear bombs), result in substantially reduced production of high level waste, and improved instrumentation compared to current reactors. According to the bill's schedule, technology selection will be complete by 2011 and the prototype will begin operation by 2021. Although this provision provides a long-term program for the Idaho National Laboratory, and may eventually lead to substantial improvements in proliferation resistant fuel and reduced waste production, these features will not be incorporated into commercial power reactors for at least 25 years. The energy bill goes a long way to providing enough financial incentives for the construction of new and advanced nuclear reactor designs. On the current schedule, Yucca Mountain should open before construction begins and most certainly before they begin construction of new nuclear plants. With reports of numerous utilities scouring the landscape for siting a new nuclear facility, we wouldn't be surprised if the numbers of applications for new nuclear plants exceed the 6,000 MW cap of production credits provided in the bill. We should, therefore, see several new facilities constructed in the next ten years, giving the industry sufficient opportunity to prove its claims that it can construct these facilities at a fraction of the cost of the last nuclear plants put into service. UtiliPoint's IssueAlerts are compiled based on the independent analysis of UtiliPoint consultants. The opinions expressed in UtiliPoint's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. UtiliPoint's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2005. UtiliPoint International, Inc. All rights reserved. |
