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Released August 05, 2013 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina) last week cancelled the proposed $24 billion grassroot Levy County Nuclear Power Station in Florida. Duke also began a process to terminate the project's engineering, procurement and construction (EPC) contract with Westinghouse (Monroeville, Pennsylvania) and Chicago Bridge & Iron Company (NYSE:CBI) (Chicago, Illinois).
The cancellation of Levy, a two-unit, 2,200-megawatt (MW) nuclear plant for which estimated costs had ballooned in recent years, follows a decision by Duke earlier this summer to delay by several years plans to add two new units at the existing Shearon Harris Nuclear Power Station in Wake County, North Carolina. Building those two new units would cost an estimated $22 billion.
The Harris expansion project has been under development since 2005, when it was originally proposed as a one-unit, 1,100-MW project costing an estimated $2 billion. In 2009, Duke expanded the Harris addition to two units, which were expected to cost about $14 billion. In its May announcement delaying the Harris additions, Duke said slow electric load growth pushed back the date when the new generating capacity would be needed. Duke doesn't foresee the need for new nuclear capacity in its Carolinas service area until the mid-2020s, a company spokesman said.
Duke inherited the Levy project from its merger with Progress Energy (Raleigh, North Carolina), which was completed last summer. Progress began developing the Levy project in 2006 as a one-unit, 1,100-MW generator expected to cost about $2.5 billion. In 2008, Levy was expanded to a two-unit project costing an estimated $15.4 billion. Since then, the estimated cost to build a two-unit Levy plant increased more than 50% to the current level of $24 billion.
"The Levy and Harris announcements are another demonstration that nuclear power, despite its hoped-for renaissance, remains a 'bet the company' proposition, even for a utility as large as Duke," said Brock Ramey, Industrial Info's manager of North American Power Research. "We would expect that natural gas prices would have to more than double from today's level of about $3.50 per million British thermal units (MMBtu) before new-build nuclear would be economically competitive. We don't see construction beginning on another nuclear plant for at least three or four years, possibly longer." For more on the outlook for U.S. nuclear power, see July 9, 2013, article - U.S. Nuclear Renaissance Now Further Away and More Expensive.
In announcing that it was terminating the EPC contract for Levy and cancelling the project altogether, Duke said the contract was premised on Levy receiving a construction and operating licensing (COL) from the NRC by January 1, 2014. The COL application was filed in July 2008, but in an interview with Industrial Info last week, a Duke spokesman was unable to estimate whether or when the NRC might issue the COL. Although Duke was cancelling the Levy project, Duke said it would continue efforts to obtain a COL from the NRC for that site, to preserve the option to someday build a nuclear plant on that site.
Levy was scheduled to begin construction in mid-2016 and come online in early 2024, according to Industrial Info's North American Power Database. In an interview with Industrial Info last year, before the merger with Duke was completed, Progress Energy officials emphasized they were committed to building the Levy plant despite low natural gas prices, years of delay and an escalating price tag. For more on that issue, see April 6, 2012, article - Progress Energy Sticks with Levy Nuclear Plant, Despite Low Gas Prices and Rising Construction Costs.
"As a result of delays by the NRC in issuing COLs for new nuclear plants, as well as increased uncertainty in cost recovery caused by recent legislative changes in Florida, Duke Energy will be terminating the EPC agreement for the proposed Levy nuclear project," Duke said in a statement August 1.
"Although the proposed Levy nuclear project is no longer an option for meeting energy needs within the originally scheduled timeframe, Duke Energy Florida continues to regard the Levy site as a viable option for future nuclear generation and understands the importance of fuel diversity in creating a sustainable energy future," the utility continued. "Because of this, the company will continue to pursue the COL."
In that August 1 statement, Alex Glenn, Duke Energy state president for Florida, added: "We continue to believe that a balanced energy portfolio, including renewable energy, energy efficiency, and state-of-the-art cleaner power plants are critical to securing Florida's energy future, and nuclear energy should remain an option to meet Florida's future energy needs."
The "legislative changes" Duke referenced were revisions to Florida law this summer changing the terms under which utilities could begin collecting nuclear pre-construction costs from customers before those plants were operating. Most states require a power plant to be completed and deemed "used and useful" before regulators allow utilities to begin recovering the plant's costs in rates. But in 2006, Florida enacted a so-called "nuclear tax" to allow utilities to begin collecting in rates the pre-construction costs of nuclear plants that were not yet built.
Back in 2006, when Florida utilities supported that legislation, they argued that early recovery of pre-construction costs would lower a project's overall risks and impact to electric rates. The law was seen as a way to speed construction of nuclear generators. But in recent years the "nuclear tax" proved to be controversial. Utilities in the state, including Progress/Duke and Florida Power & Light (June Beach, Florida), a unit of NextEra Energy Incorporated (NYSE:NEE) (Juno Beach, Florida), have collected several hundred million dollars in nuclear pre-construction costs from customers. The limitation on cost collection became effective earlier this summer after Florida Governor Rick Scott signed the bill into law.
In announcing the cancellation of the Levy project last week, Duke officials stressed they were still committed to another proposed nuclear project, the William States Lee Nuclear Power Station, a two-unit grassroot project with an estimated price tag of $20 billion. The project is scheduled to be built in Cherokee County, South Carolina. But construction will be delayed by several years due to Duke's decision to relocate the plant's nuclear islands and delays in the licensing process at the U.S. Nuclear Regulatory Commission (NRC) (Bethesda, Maryland) created by Fukushima-related safety reviews and budget cuts triggered by the federal budget sequester.
In a July 22 letter to Duke, the NRC said: "The decision to relocate the nuclear islands (at the Lee project) will require rework and affect the staff's completion of the review. In addition, the timing of the seismic analysis submittal creates additional delays. The staff's revised schedule reflects the availability of NRC resources and recently imposed budgetary constraints resulting in substantial impacts on licensing activities associated with combined licensing reviews and early site permit applications."
Earlier this year, separate from the Levy and Harris announcements, Duke decided to close its 838-MW Crystal River Nuclear Power Station, another nuclear project inherited from Progress Energy. Cracks in that plant's concrete containment vessel were discovered during a refueling outage in 2009. The plant was idled while Progress Energy officials considered repairs. After merging with Progress, Duke officials considered a first-of-its-kind repair to the containment vessel, but eventually concluded the costs were not justified for the 36-year-old generator. For more on Crystal River, see June 24, 2013, article - Crystal River Nuclear Decommissioning Project Takes First Steps.
Duke is still seeking to acquire a 5% to 10% stake in the two-unit addition being constructed at the Virgil C. Summer Nuclear Power Station in South Carolina. "The negotiations have been going on for a while. We don't know what a decision may be made, but if they're interested in selling us a share in the plant, we're interested in buying it," Duke spokesman Rick Rhodes told Industrial Info last week. The Summer unit additions, now under construction, will cost an estimated $15 billion. The operator and lead owner is South Carolina Electric & Gas Company (SCE&G) (Cayce, South Carolina), a unit of SCANA Corporation (NYSE:SCG) (Cayce). The first new unit is scheduled to become operational in mid-2016, while the second unit will begin generating electricity in 2019.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
The cancellation of Levy, a two-unit, 2,200-megawatt (MW) nuclear plant for which estimated costs had ballooned in recent years, follows a decision by Duke earlier this summer to delay by several years plans to add two new units at the existing Shearon Harris Nuclear Power Station in Wake County, North Carolina. Building those two new units would cost an estimated $22 billion.
The Harris expansion project has been under development since 2005, when it was originally proposed as a one-unit, 1,100-MW project costing an estimated $2 billion. In 2009, Duke expanded the Harris addition to two units, which were expected to cost about $14 billion. In its May announcement delaying the Harris additions, Duke said slow electric load growth pushed back the date when the new generating capacity would be needed. Duke doesn't foresee the need for new nuclear capacity in its Carolinas service area until the mid-2020s, a company spokesman said.
Duke inherited the Levy project from its merger with Progress Energy (Raleigh, North Carolina), which was completed last summer. Progress began developing the Levy project in 2006 as a one-unit, 1,100-MW generator expected to cost about $2.5 billion. In 2008, Levy was expanded to a two-unit project costing an estimated $15.4 billion. Since then, the estimated cost to build a two-unit Levy plant increased more than 50% to the current level of $24 billion.
"The Levy and Harris announcements are another demonstration that nuclear power, despite its hoped-for renaissance, remains a 'bet the company' proposition, even for a utility as large as Duke," said Brock Ramey, Industrial Info's manager of North American Power Research. "We would expect that natural gas prices would have to more than double from today's level of about $3.50 per million British thermal units (MMBtu) before new-build nuclear would be economically competitive. We don't see construction beginning on another nuclear plant for at least three or four years, possibly longer." For more on the outlook for U.S. nuclear power, see July 9, 2013, article - U.S. Nuclear Renaissance Now Further Away and More Expensive.
In announcing that it was terminating the EPC contract for Levy and cancelling the project altogether, Duke said the contract was premised on Levy receiving a construction and operating licensing (COL) from the NRC by January 1, 2014. The COL application was filed in July 2008, but in an interview with Industrial Info last week, a Duke spokesman was unable to estimate whether or when the NRC might issue the COL. Although Duke was cancelling the Levy project, Duke said it would continue efforts to obtain a COL from the NRC for that site, to preserve the option to someday build a nuclear plant on that site.
Levy was scheduled to begin construction in mid-2016 and come online in early 2024, according to Industrial Info's North American Power Database. In an interview with Industrial Info last year, before the merger with Duke was completed, Progress Energy officials emphasized they were committed to building the Levy plant despite low natural gas prices, years of delay and an escalating price tag. For more on that issue, see April 6, 2012, article - Progress Energy Sticks with Levy Nuclear Plant, Despite Low Gas Prices and Rising Construction Costs.
"As a result of delays by the NRC in issuing COLs for new nuclear plants, as well as increased uncertainty in cost recovery caused by recent legislative changes in Florida, Duke Energy will be terminating the EPC agreement for the proposed Levy nuclear project," Duke said in a statement August 1.
"Although the proposed Levy nuclear project is no longer an option for meeting energy needs within the originally scheduled timeframe, Duke Energy Florida continues to regard the Levy site as a viable option for future nuclear generation and understands the importance of fuel diversity in creating a sustainable energy future," the utility continued. "Because of this, the company will continue to pursue the COL."
In that August 1 statement, Alex Glenn, Duke Energy state president for Florida, added: "We continue to believe that a balanced energy portfolio, including renewable energy, energy efficiency, and state-of-the-art cleaner power plants are critical to securing Florida's energy future, and nuclear energy should remain an option to meet Florida's future energy needs."
The "legislative changes" Duke referenced were revisions to Florida law this summer changing the terms under which utilities could begin collecting nuclear pre-construction costs from customers before those plants were operating. Most states require a power plant to be completed and deemed "used and useful" before regulators allow utilities to begin recovering the plant's costs in rates. But in 2006, Florida enacted a so-called "nuclear tax" to allow utilities to begin collecting in rates the pre-construction costs of nuclear plants that were not yet built.
Back in 2006, when Florida utilities supported that legislation, they argued that early recovery of pre-construction costs would lower a project's overall risks and impact to electric rates. The law was seen as a way to speed construction of nuclear generators. But in recent years the "nuclear tax" proved to be controversial. Utilities in the state, including Progress/Duke and Florida Power & Light (June Beach, Florida), a unit of NextEra Energy Incorporated (NYSE:NEE) (Juno Beach, Florida), have collected several hundred million dollars in nuclear pre-construction costs from customers. The limitation on cost collection became effective earlier this summer after Florida Governor Rick Scott signed the bill into law.
In announcing the cancellation of the Levy project last week, Duke officials stressed they were still committed to another proposed nuclear project, the William States Lee Nuclear Power Station, a two-unit grassroot project with an estimated price tag of $20 billion. The project is scheduled to be built in Cherokee County, South Carolina. But construction will be delayed by several years due to Duke's decision to relocate the plant's nuclear islands and delays in the licensing process at the U.S. Nuclear Regulatory Commission (NRC) (Bethesda, Maryland) created by Fukushima-related safety reviews and budget cuts triggered by the federal budget sequester.
In a July 22 letter to Duke, the NRC said: "The decision to relocate the nuclear islands (at the Lee project) will require rework and affect the staff's completion of the review. In addition, the timing of the seismic analysis submittal creates additional delays. The staff's revised schedule reflects the availability of NRC resources and recently imposed budgetary constraints resulting in substantial impacts on licensing activities associated with combined licensing reviews and early site permit applications."
Earlier this year, separate from the Levy and Harris announcements, Duke decided to close its 838-MW Crystal River Nuclear Power Station, another nuclear project inherited from Progress Energy. Cracks in that plant's concrete containment vessel were discovered during a refueling outage in 2009. The plant was idled while Progress Energy officials considered repairs. After merging with Progress, Duke officials considered a first-of-its-kind repair to the containment vessel, but eventually concluded the costs were not justified for the 36-year-old generator. For more on Crystal River, see June 24, 2013, article - Crystal River Nuclear Decommissioning Project Takes First Steps.
Duke is still seeking to acquire a 5% to 10% stake in the two-unit addition being constructed at the Virgil C. Summer Nuclear Power Station in South Carolina. "The negotiations have been going on for a while. We don't know what a decision may be made, but if they're interested in selling us a share in the plant, we're interested in buying it," Duke spokesman Rick Rhodes told Industrial Info last week. The Summer unit additions, now under construction, will cost an estimated $15 billion. The operator and lead owner is South Carolina Electric & Gas Company (SCE&G) (Cayce, South Carolina), a unit of SCANA Corporation (NYSE:SCG) (Cayce). The first new unit is scheduled to become operational in mid-2016, while the second unit will begin generating electricity in 2019.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
