By Joshua Boak, Tribune staff reporter, January 6, 2008
Firms jostle to be 1st in line for scarce reactor components - The latest nuclear race involves something other than warheads.
American utilities are moving forward on the next generation of nuclear reactors -- even before they receive government approval to build them.
They know only one company in the world that forges specialized steel containers for a reactor's core. Japan Steel Works already has a three-year backlog, and buyers include Chicago-based Exelon Corp.
Another company in line is NRG Energy Inc., which typically waits for a permit before constructing a new coal plant or gas plant. But with as many as 32 new nuclear reactors on the country's horizon, the New Jersey-based utility decided to lock in major parts orders so it would be able to build nuclear power plants in Texas.
"The risk we take by being first is less than the risk we take by being 10th," said Steve Winn, NRG's executive vice president for strategy.
In a partnership with the South Texas Nuclear Operating Co., NRG contracted with Toshiba in July to guarantee it has two new steel containers, known as reactor pressure vessels. Those vessels, which Japan Steel makes, would be used in nuclear plants that would supply electricity to about 2 million homes in Austin, Corpus Christi, Houston and San Antonio. The contracts attest to fears of an approaching bottleneck caused by a stressed global supply chain, possibly doubling the estimated cost of building a nuclear plant to $9 billion.
No new nuclear facilities have broken ground domestically since 1977, exposing America's nuclear renaissance to the whims of worldwide competition and a shallow domestic labor pool. Exelon, the parent company of Commonwealth Edison, and Richmond, Va.-based Dominion Resources Inc. and New Orleans-based Entergy Corp. each have similar orders for steel forgings through GE-Hitachi Nuclear Energy, an alliance of two energy industry giants.
Rising electricity demand coupled with worries about climate change have led the U.S. government to promote energy resources it deems friendlier to the environment. Comforted by the fact that nuclear energy produces none of the greenhouse gases that may be involved in global warming, the Bush administration signed an appropriations bill last month that establishes $20.5 billion in loan guarantees for constructing nuclear reactors and enriching uranium. The guarantees allow utilities to borrow funds at lower interest rates.
Global traffic jam
They also thrust American interests into an international traffic jam. The International Atomic Energy Agency lists 31 ongoing reactor construction projects outside the U.S., including five in China, six in India, seven in Russia, two in Bulgaria and one each in Iran and Pakistan. All of these countries rely on an overlapping network of engineers, manufacturers and businesses.
"The world has changed quite a bit since the first generation of plants was built," said David Christian, Dominion's chief nuclear officer. "Almost any large power project is a global undertaking these days."
The Department of Energy concluded in a 2005 report that enough manufacturing capacity existed to build eight new reactors domestically between 2010 and 2017. But utilities have plans for 17 plants, the Nuclear Energy Institute warned in an April study that identified ultralarge forgings such as the Japanese-made pressure vessel as "the first major pinch point that the industry will encounter before 2010."
"In addition, no U.S. company has the capability to produce large forgings necessary for manufacturing steam generators and large turbine generators for nuclear plants," said the study by the trade association.
GE-Hitachi will begin readying the pressure vessel and other steel forgings this year so that Exelon can have its two reactors proposed for Victoria County, Texas, running by 2015.
To put the forgings backlog in perspective, the Nuclear Regulatory Commission anticipates spending 31/2 years on the review and hearing process for approving each plant application.
An October analysis by Moody's Investors Service, a credit rating agency, argues that utilities are underestimating the costs of building a nuclear facility. The utilities predict expenses will run $3,000 to $4,000 for each kilowatt of electricity generated, while Moody's pegs it at $5,000 to $6,000 per kilowatt. That higher ratio increases the price tag of a 1,500-megawatt nuclear reactor to $9 billion.
Moody's likened the utilities' estimate to listing a new house's purchase price without factoring in the appliances, furnishings and landscaping. It noted that any added costs might be passed along to consumers, potentially triggering government intervention on electricity rates.
High electricity costs
"Eventually, end use customers may find it very difficult to balance their family budgets if the average electric bill continues to go up by roughly 10 percent a year over the next five years," the rating agency said.
America's first era of nuclear plant construction stalled in 1979, when a reactor core at the Three Mile Island facility in Pennsylvania overheated and undermined public confidence in nuclear energy. During the next two decades the country's nuclear facilities overcame the construction moratorium by expanding their capacity to 90 percent from 58 percent.
With the domestic market essentially non-existent, Westinghouse Electric Co. sent executives such as Dan Lipman to growing markets in Asia. The 52-year-old senior vice president for the Pennsylvania firm said China now has the greatest concentration of expertise in nuclear construction. China also bought four AP1000 reactors from Westinghouse last year for roughly $5 billion.
According to the application schedule at the U.S. Nuclear Regulatory Commission, American firms will buy 14 AP1000 reactors, with designs by General Electric, France's Areva and Japan's Mitsubishi rounding out the rest of the market.
Unlike past reactors that were individualized for each plant, Westinghouse standardized its reactor down to the windows and carpets in the control room. The company figures it can limit building costs by using prefabricated parts and a smaller community of suppliers to assemble the reactors.
"It's a bit like your Lego sets," Lipman said.
But even if a nuclear plant locks together cleanly during the construction phase it may be short of educated workers who can also clear mandatory security checks. The Bureau of Labor Statistics last year projected that utility companies would need just nine additional nuclear engineers by 2016. That projection now seems alarmingly modest. Texas alone expects to have four new reactors within that period.
It appears the industry is entering a hiring feast after a decadeslong famine.
A single reactor employs about 500 people. That includes 350 technicians for operations and maintenance, 110 chemical, mechanical, and civil engineers, and 40 nuclear engineers.
Texas A&M University founded an institute last month to train 2,000 employees for the nuclear plants slated to open during the next decade.
"Some of the utilities say they need them now, but that's primarily because of the graying of the nuclear industry," said John W. Poston, a Texas A&M engineering professor. "There haven't been a lot of opportunities, so they haven't been hiring from the bottom."