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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The partial meltdown of the Fukushima Daiichi nuclear plant has claimed its first American victim: The proposed expansion of the South Texas Project Nuclear Generating Station (STP).
On April 19, citing a dramatically different post-Fukushima environment for grassroot nuclear power in the U.S., NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey) terminated its participation in the proposed 2,700-megawatt (MW) two-unit expansion of STP. NRG's first-quarter financial results will show a $481 million write-down in the value of that asset. The expansion project had a total investment value (TIV) of $16 billion.
In a Tuesday conference call with investors, NRG CEO David Crane said that NRG does not have the unilateral right to terminate the proposed project. However, NRG, the majority owner of Nuclear Innovation North America (NINA), the project developer for STP Units 3 and 4, will invest no more capital in the project. "STP 3 and 4 is not dead, but it equally cannot be effectively advanced," Crane told investors. "Under the current circumstances, the reality of it moving forward in the foreseeable future is not high."
"Six week ago the country of Japan and the Japanese people were hit by a natural calamity of epic proportion," Crane said in the investor call. "The Fukushima incident has raised many questions about our nuclear development project STP Units 3 and 4."
When the STP expansion project began in early 2006, Crane said that NRG and other participants recognized that building new nuclear generators as a merchant plant posed high risks because no one was obligated to purchase the power from the plant. But the development team felt the potential rewards outweighed the risks, Crane said: Energy prices at the time were high and projected to continue rising, and there was a "very real prospect" that federal limits on carbon dioxide would be forthcoming, which would improve the financial viability of the project.
Based on those factors, the team developing the STP expansion "concluded that the substantial risk was more than compensated by the extraordinarily high potential for reward," Crane said during the Tuesday conference call. The team sought to minimize financial risks by using non-resource project financing. "However," he continued, "there was one risk, a risk that's virtually unique to the nuclear industry that we knew from the beginning we could not mitigate. That was the risk of an exogenous nuclear incident. And by that I mean, of course, a nuclear incident, not at the STP site itself, but one at any of the approximately 450 operating nuclear reactors around the world."
That risk materialized on March 11, when a tsunami and earthquake rocked northern Japan, causing a partial meltdown of four units at the Fukushima Daiichi nuclear generating station.
The Fukushima disaster altered a series of carefully orchestrated sequence of events at STP that needed to take place in the coming weeks and months, including final negotiations on a federal construction loan guarantee, if the project was to continue moving forward, Crane said. "Fukushima has rendered STP 3 and 4 immeasurably more difficult to progress in the short- to medium-term. Most notably, as a result of Fukushima we have shifted dramatically and overnight from a period of relatively high regulatory certainty around new nuclear in the United States to a period of almost total regulatory uncertainty for an unknown and potentially indefinite period of time."
Under normal circumstances, Crane said that bringing STP Units 3 and 4 online would require extraordinary efforts by NRG, its NINA partner Toshiba Corporation (TYO:6502) (Tokyo), the Japanese government and Tokyo Electric Power Company Incorporated (TYO:9501) (TEPCO) (Tokyo). TEPCO made a conditional $285 million investment in the plant, contingent on the project's receiving a federal construction loan guarantee. But the Japanese utility recently backed away from its contingent investment in STP Units 3 and 4, citing the need to focus on efforts to control and remediate the Fukushima plant.
"Right now and for the foreseeable future, TEPCO must be 110% occupied with containing and bringing to an end the tragedy of Fukushima," Crane said. "It is this "clear eyed assessment of the substantially decreased probability of success" that drove NRG's decision to terminate its investment in STP units 3 and 4.
In a March 21 press release, NRG and its partners announced that they had decided to dramatically reduce NINA's activity at STP units 3 and 4. Once that decision was made, generally accepted accounting principles (GAAP) required an "impairment review" to assess the financial impact of the decision on NRG's business. The results of the review led to writing off the entire net book value of the project.
"NRG's decision will set back the prospects for new-build nuclear power in the U.S., but it does clear the way for the U.S. Department of Energy (DoE) to make a decision on a federal construction loan guarantee for the expansion of the Virgil Summer Nuclear Project," said Brock Ramey, IIR's research manager for North American Power. That two-unit expansion, with a TIV of $15 billion, recently received a boost when Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina) agreed to make an equity investment in it. For more information on that issue, see April 20, 2011, Industrial Info article - EPA Draft Rules, Low Natural Gas Prices, Slow New U.S. Power Development.
"New-build nuclear remains a 'bet-the-company' proposition under the best of circumstances, and the nuclear tragedy in Japan completely changed the outlook for financing and building a new nuclear generator in the U.S.," Ramey continued. He said NRG's decision, plus the decision last year by Constellation Energy Group (NYSE:CEG) (Baltimore, Maryland) to pull out of the proposed one-unit, 1,600-MW Calvert Cliffs Unit 3 expansion project, which has a TIV of $10 billion, leaves Summer as the only viable new-build nuclear project in line to receive federal construction loan guarantees.
Last year, the DoE awarded $8.3 billion in construction loan guarantees to the two-unit, 2,200-MW Vogtle nuclear expansion project in Georgia. This project has a TIV of $16 billion. For more on that issue, see February 17, 2010, Industrial Info article - Obama Administration Commits $8 Billion in Loan Guarantees to Georgia Power's Vogtle Units 3 and 4.
View Plant Profile - 1000057 1011884 1013466 1011962
View Project Report - 1010959 16001637 26000956 17001442
Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR'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.
On April 19, citing a dramatically different post-Fukushima environment for grassroot nuclear power in the U.S., NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey) terminated its participation in the proposed 2,700-megawatt (MW) two-unit expansion of STP. NRG's first-quarter financial results will show a $481 million write-down in the value of that asset. The expansion project had a total investment value (TIV) of $16 billion.
In a Tuesday conference call with investors, NRG CEO David Crane said that NRG does not have the unilateral right to terminate the proposed project. However, NRG, the majority owner of Nuclear Innovation North America (NINA), the project developer for STP Units 3 and 4, will invest no more capital in the project. "STP 3 and 4 is not dead, but it equally cannot be effectively advanced," Crane told investors. "Under the current circumstances, the reality of it moving forward in the foreseeable future is not high."
"Six week ago the country of Japan and the Japanese people were hit by a natural calamity of epic proportion," Crane said in the investor call. "The Fukushima incident has raised many questions about our nuclear development project STP Units 3 and 4."
When the STP expansion project began in early 2006, Crane said that NRG and other participants recognized that building new nuclear generators as a merchant plant posed high risks because no one was obligated to purchase the power from the plant. But the development team felt the potential rewards outweighed the risks, Crane said: Energy prices at the time were high and projected to continue rising, and there was a "very real prospect" that federal limits on carbon dioxide would be forthcoming, which would improve the financial viability of the project.
Based on those factors, the team developing the STP expansion "concluded that the substantial risk was more than compensated by the extraordinarily high potential for reward," Crane said during the Tuesday conference call. The team sought to minimize financial risks by using non-resource project financing. "However," he continued, "there was one risk, a risk that's virtually unique to the nuclear industry that we knew from the beginning we could not mitigate. That was the risk of an exogenous nuclear incident. And by that I mean, of course, a nuclear incident, not at the STP site itself, but one at any of the approximately 450 operating nuclear reactors around the world."
That risk materialized on March 11, when a tsunami and earthquake rocked northern Japan, causing a partial meltdown of four units at the Fukushima Daiichi nuclear generating station.
The Fukushima disaster altered a series of carefully orchestrated sequence of events at STP that needed to take place in the coming weeks and months, including final negotiations on a federal construction loan guarantee, if the project was to continue moving forward, Crane said. "Fukushima has rendered STP 3 and 4 immeasurably more difficult to progress in the short- to medium-term. Most notably, as a result of Fukushima we have shifted dramatically and overnight from a period of relatively high regulatory certainty around new nuclear in the United States to a period of almost total regulatory uncertainty for an unknown and potentially indefinite period of time."
Under normal circumstances, Crane said that bringing STP Units 3 and 4 online would require extraordinary efforts by NRG, its NINA partner Toshiba Corporation (TYO:6502) (Tokyo), the Japanese government and Tokyo Electric Power Company Incorporated (TYO:9501) (TEPCO) (Tokyo). TEPCO made a conditional $285 million investment in the plant, contingent on the project's receiving a federal construction loan guarantee. But the Japanese utility recently backed away from its contingent investment in STP Units 3 and 4, citing the need to focus on efforts to control and remediate the Fukushima plant.
"Right now and for the foreseeable future, TEPCO must be 110% occupied with containing and bringing to an end the tragedy of Fukushima," Crane said. "It is this "clear eyed assessment of the substantially decreased probability of success" that drove NRG's decision to terminate its investment in STP units 3 and 4.
In a March 21 press release, NRG and its partners announced that they had decided to dramatically reduce NINA's activity at STP units 3 and 4. Once that decision was made, generally accepted accounting principles (GAAP) required an "impairment review" to assess the financial impact of the decision on NRG's business. The results of the review led to writing off the entire net book value of the project.
"NRG's decision will set back the prospects for new-build nuclear power in the U.S., but it does clear the way for the U.S. Department of Energy (DoE) to make a decision on a federal construction loan guarantee for the expansion of the Virgil Summer Nuclear Project," said Brock Ramey, IIR's research manager for North American Power. That two-unit expansion, with a TIV of $15 billion, recently received a boost when Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina) agreed to make an equity investment in it. For more information on that issue, see April 20, 2011, Industrial Info article - EPA Draft Rules, Low Natural Gas Prices, Slow New U.S. Power Development.
"New-build nuclear remains a 'bet-the-company' proposition under the best of circumstances, and the nuclear tragedy in Japan completely changed the outlook for financing and building a new nuclear generator in the U.S.," Ramey continued. He said NRG's decision, plus the decision last year by Constellation Energy Group (NYSE:CEG) (Baltimore, Maryland) to pull out of the proposed one-unit, 1,600-MW Calvert Cliffs Unit 3 expansion project, which has a TIV of $10 billion, leaves Summer as the only viable new-build nuclear project in line to receive federal construction loan guarantees.
Last year, the DoE awarded $8.3 billion in construction loan guarantees to the two-unit, 2,200-MW Vogtle nuclear expansion project in Georgia. This project has a TIV of $16 billion. For more on that issue, see February 17, 2010, Industrial Info article - Obama Administration Commits $8 Billion in Loan Guarantees to Georgia Power's Vogtle Units 3 and 4.
View Plant Profile - 1000057 1011884 1013466 1011962
View Project Report - 1010959 16001637 26000956 17001442
Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR'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.
