A Free-Market Energy Blog

Nuclear’s Latest: Project, Company, Consumer Troubles

By Kennedy Maize -- February 20, 2017

“Toshiba’s nuclear business has been hemorrhaging money at its U.S. construction projects in Georgia and South Carolina…. The four units are in states with regulated markets and provisions for nuclear projects to receive a return on their capital investments during construction, through consumer electric rate increases.”

The social value of nuclear power may provoke wide debate. But as a business proposition, in countries with market-based economies, nuclear is failing. New construction is particularly disappointing: a new generation of technology widely expected to get costs and construction times down simply has not done so.

Problems at Toshiba

The latest evidence comes Toshiba, a giant Japanese conglomerate and parent of the U.S. nuclear reactor designer and vendor, Westinghouse Electric. Westinghouse’s ruinous investment in nuclear construction behemoth CB&I Stone & Webster has crippled Toshiba’s finances. CB&I S&W is the product of a problematic merger of two struggling U.S. nuclear engineering and construction companies.

Toshiba’s nuclear business has been hemorrhaging money at its U.S. construction projects in Georgia and South Carolina. Westinghouse is years behind schedule and billions of dollars over budget at its two U.S. construction projects: Southern’s Vogtle station in Georgia and Scana Corp.’s Summer units in South Carolina, a total of four Westinghouse AP1000 reactors under construction. The four units are in states with regulated markets and provisions for nuclear projects to receive a return on their capital investments during construction, through consumer electric rate increases.

In late January, rumors started flowing that Toshiba would get out of the nuclear construction business entirely, focusing instead on reactor design and plant decommissioning. The Japanese company indicated that its bet on new nuclear construction had cost the company some $6 billion in losses. Westinghouse will finish its four U.S. reactors under construction, but will likely lose money on those projects. Toshiba faces the possibility that its nuclear troubles will lead the company to a negative net worth.

Westinghouse threatens to bring Toshiba to its financial knees, although the firm is too large to fail entirely. It may well require a Japanese government bailout.

Problems at Areva …

Then there is France’s Areva, which has been bleeding red ink for more than a decade and would have expired but for its French government owners, and a recent bailout. The company is far behind schedule and vastly over budget on construction projects in Finland and France.

Late last year, discovery of quality control problems in carbon steel forgings from Areva’s Le Creusot Forge shocked the company. The allegations closed 20 of France’s 58 operating reactors, which also could jeopardize regulatory approval for extended operation at the aging plants.

In late December reports surfaced that Areva employees hid problems in reactor parts it manufactured at Le Creusot Forge for decades. Inspectors from the U.S., France, China, and the U.K. descended on Areva to examine records and investigate the allegations. “I’m concerned that there keep being more and more problems unveiled,” Kerri Kavanagh, who leads the U.S. Nuclear Regulatory Commission’s unit inspecting Le Creusot, told the Wall Street Journal.

… and France Otherwise

France’s nuclear quality assurance questions led to an interesting irony. The country that has made the biggest bet on nuclear in the world has found itself short of power in the coldest winter since 2012, Reuters reported, because of the plants that have been shut down during the QA investigation. France has coped by buying power from Germany, Europe’s default provider because of its large inventory of coal, gas, and oil-fired capacity.

Also, Electricity de France, the giant 86% state-owned electric monopoly, said in late January it will shut down the 39-year-old Fessinheim nuclear plant, the country’s oldest. The Guardian reported, “France’s energy transition law caps the amount of nuclear power at 63.2 gigawatts, meaning the Fessenheim plant needs to close in 2018 to pave the way for a new one at Flamanville.” The Flamanville project, being run by Areva, is vastly over budget and behind schedule.

Other US Problems

The business case for existing nukes in the U.S. is also ominous. Nuclear units in Illinois and New York that have been unable to win in competitive bidding in regional wholesale markets have been bailed out by state government subsidies. Other market participants have challenged the bail-outs as distorting competitive market prices. The Federal Energy Regulatory Commission rules the wholesale markets.

In Ohio, Akron-based FirstEnergy says it will close or sell its long-troubled, 900-MW Davis-Besse nuclear unit this year or next, without counting on a state bailout. “We have made our decision that over the next 12 to 18 months we’re going to exit competitive generation and become a fully regulated company,” CEO Chuck Jones said. “We are not going to wait on those states to decide what they are going to do there.”

This comes on top of multiple closings of U.S. nukes unable to compete in competitive markets in recent years, state subsidies in Illinois and New York to keep uneconomic plants open, and threats of even more shutdowns.

In New York, while Gov. Andrew Cuomo brokered the deal to save three upstate nuclear plants, with some $7.6 billion in subsidies, he also brokered an arrangement with New Orleans-based Entergy to close the two Indian Point nuclear units in Westchester County, some 35 miles north of New York City. Cuomo has long pushed to shutter Indian Point because of safety concerns for a plant so close to the city.

Environmental Progress, a pro-nuclear group, released an analysis finding that a quarter to two-thirds of operating U.S. nuclear plants could face premature closure. If it weren’t for the actions by state governments in Illinois and New York, the picture would look worse.

The Environmental Progress analysis sees 35 GW of nuclear capacity at “triple risk” because “they are in deregulated markets, uneconomical (according to Bloomberg New Energy Finance) and up for relicensing before the end of 2030.” Facing greatest jeopardy for early closure? D.C. Cook in Michigan, Seabrook in New Hampshire, Millstone in Connecticut, and Davis-Besse in Ohio.

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