Repurposing of DOE Loans Could Give Nuclear Power Industry a Needed Boost

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Written by Brock Ramey, North American Research Manager for the Power Industry, for Industrial Info Resources (Sugar Land, Texas)--The U.S. Nuclear Regulatory Commission (NRC) decided this fall on a new rule regarding the handling of spent fuel at nuclear power plant sites. As a result, some in the industry expected to see movement on projects like upgrades and uprates. These projects are moving forward, and there is a possibility they might pick up some speed, but there are still many unknown factors.

Many guidelines need to be reviewed, but the U.S. Department of Energy (DOE) is preparing to repurpose the $18.5 billion in loan guarantees that it offered several years ago for new-build units and grassroot projects. About one-fourth of the loan guarantees are earmarked for Southern Company's (NYSE:SO) (Atlanta, Georgia) Vogtle 3 & 4 Project, which is located near Waynesboro, in eastern Georgia. The rest of the loan guarantees is being eyed for other uses. Here are the reasons why.

Nuclear Power Economics
With the current price of natural gas, and power purchase agreements with renewable energy projects, and now even challenges on the open market from renewables, governing boards at power companies must pause before they approve nuclear units that will cost hundreds of millions of dollars.

Companies cautiously reviewing these nuclear plant proposals include Exelon Generation Company, a subsidiary of Exelon Corporation (NYSE:EXE) (Chicago Illinois); American Electric Power (NYSE:AEP) (Columbus, Ohio); Duke Energy (NYSE:DUK) (Charlotte, North Carolina) and others. Industrial Info does not believe all these projects will be kept from moving forward, although some are being delayed a bit due to past and current economics. But with DOE funding, companies like Exelon will continue to develop uprate projects--like those under way at the Peach Bottom Nuclear Generating Station, located at Peach Bottom Township, Pennsylvania, and those being proposed at the Limerick Generating Station, located in Limerick Township, Pennsylvania, which was just approved by the NRC.

The loan guarantees would subsidize generation increases being proposed, such as one from the Tennessee Power Authority (TVA). The TVA recently told the NRC it would withdraw its application for an uprate of Brown's Ferry Nuclear Station, located near Decatur, Alabama. The Browns Ferry uprate would increase the facility's power generation by 500 megawatts. TVA withdrew the project for review and resubmittal in October 2015, due to its cost and technical questions.

Federal dollars also could be used to offset the cost of the Spent Fuel Storage Project, as well as Fukushima safety projects. There is still strong movement in the sector. Companies like Day & Zimmerman (Philadelphia, Pennsylvania), Chicago Bridge & Iron Company (NYSE:CB) (The Hague, Netherlands), Zachry Construction Corporation (San Antonio, Texas) and Williams Industrial Services Group LLC (Tucker, Georgia), which is a subsidiary of Global Power Equipment Incorporated (NYSE:GLPW) (Irving, Texas), do in-plant capital projects and day-to-day maintenance and engineering, are still working on all these types of projects. Companies like Holtec International (Marlton, New Jersey) just do their licensing for dry-cask storage technology.

The funding would help keep the wheels turning on operational units in the nuclear sector. This is good news, especially in light of timetable slips on unit operational start-ups, as well as billions of dollars of cost overruns that are plaguing the two construction projects under way.

The DOE also has offered these loan guarantees to the new small modular reactor projects that are being developed in several regions of the country. Projects like those being developed by Generation mPower LLC, a joint company formed by Babcock & Wilcox Company (NYSE:BWC) (B&W) (Charlotte, North Carolina) and Bechtel Corporation (San Francisco, California), might be able to keep up development pace with additional funds from this stipend.

Another consideration is the way these reactors deal with spent nuclear fuel, generation and waste-handling, and in some cases the additional coupling of different technologies with these reactors, like a combined-cycle unit configuration, for district heating and power.

Unless nuclear units are made smaller and more efficient, and meet certain criteria surrounding the DOE Light Water Reactor Sustainability (LWRS) Program and the NRC's safety protocols, the industry will see only limited movement on any new grassroot project or unit additions in the next six to seven years, or possibly longer.

With a cost of $4 billion to $6 billion, a proposed unit must clear many hurdles before it is licensed, or even considered for financing.

In the near term, the industry will continue to maintain the existing fleet and explore new technologies for efficiency and safety.

Units and plants will be decommissioned because they are inefficient, or fail to meet other challenges--so something new, such as the reallocation of the DOE loan guarantees, is needed to help sustain the health of the industry. While $18 billion is only a drop in the bucket when it comes to capital spending, when used correctly, it could give plant owners a much-needed boost.

There is a potential downside to the situation. The NRC's announcement in September that it would pass a new rule on the handling and storage of spent fuel was followed immediately by petitions by 18 special interest groups for the NRC to suspend relicensing of plants and units. The NRC said all of the petitioners' comments were due on November 7. Groups like the Nuclear Information and Resource Service (an anti-nuclear organization) said they would challenge the rule in court.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, 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.