Saturday, October 21, 2006

Episode 31

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  1. The Toshiba/Westinghouse Deal is Complete
  2. Do NRC Fines Really Work?
  3. UK Anti-Nukes To Eat Cold Breakfast
  4. Apex, NC Benefits from Nuclear Emergency Planning
  5. British Energy's Financial Woes
  6. Areva & Mitsubishi Form Alliance
  7. Russia's Nuclear Expansion
  8. Germany's Energy Crises

Toshiba completes purchase of Westinghouse on October 17

Toshiba's 5.4 billion USD purchase of Westinghouse Nuclear is virtually complete.

Toshiba is buying 77% of Westinghouse nuclear from British Nuclear Fuels. The remaining 23% will be owned by Shaw Group with 20 % and Ishikawajima-Harima Heavy Industries Co., Ltd, with 3 %. This deal follows more than $8 billion USD investment in their semiconductor business over the last three years!

The European Commission cleared the deal on September 19, and the US federal trade commission approved the deal 10 days later in Sept 29th.

It's time we took a look at the company that is positioned to provide a large percentage of the world's nuclear plants in the coming decade.

Toshiba is an diversified manufacturing conglomerate that produces everything from semi-conductors, computers and televisions, and home appliances, and now nuclear plants. Their computer chips business accounts for more than half the Toshiba's operating profit.

Toshiba's nuclear power business currently generates about 1.7 billion USD in annual revenue, said they expect it to grow to about 7.6 billion USD by 2020. With that increase in earning, Toshiba expects to recoup their investment in 17 years.

Just this week, they announced they're considering issuing 3.4 billion USD in bonds to fund the purchase. That's a bit risky in the eyes of some analysts because it will raise their debt-to-equity ratio to more than twice that of thier competitors. That is, unless you believe the demand for nuclear plants and services will rise faster then the financial bean counters predict. If it does, their purchase will turn out to be the deal of the century!

Toshiba posted better than expected earning this week for the mot recent quarter, and timing couldn't be better because it may help ease investor's concerns that they may be overextending themselves with the huge deal.

NRC issues a fine for error three years ago.

This week the NRC levied a $60,000 fine against the owner of the DC Cook nuclear plant in Michigan because they failed to obtain the NRC's approval before making a change to their Emergency plan in 2003.

I'm not bringing this up to disagree with the fine. I don't know enough about the technical merits of the specific situation to weigh in on that. The utility is not contesting the fine. I do, however, want to discuss how it's being handled, and why fines like this don't work.

The NRC may choose to issue fines as a punitive measure, or punishment, when a nuclear plant violates a regulation. But you have to ask, Who's being punished? Well, the fine is paid by the utility, so it's the shareholders who are bearing the burden. You might think that the shareholders would hold the management team accountable, and in many cases they do. The problem here lies in the length of time that's passed between the infraction and the penalty.

The mistake was made more than three years ago, and was corrected shortly after it was discovered, so the condition has not existed for about three years. As is often the case in these situations, many of the managers and executives who were in charge at DC Cook three years ago are no longer in their positions there. So there's no one for the shareholders to hold accountable. Worse than that, the current plant staff has to deal with the fine and with the negative press they'll get as a result. Believe me, the negative public relations generated by the fine is far, far worse than having to shell out $60,000.

By comparison, this week the British regulating body announced they've issued a fine of 500,000 BSP to British Nuclear Group for a leak that occurred in April of 2005 at the Thorp Fuel Reprocessing facility. British Nuclear Group has the contract to operate the facility. The facility owner, The Nuclear Decommissioning Authority that owns the site also withheld 2,000,000 pounds in payments due last year after the leak was discovered. While the leak was sizable, the fluid was contained within barriers installed at the site, and none escaped to the environment. I have to question the size of the penalty - in essence 2.5 million pounds - for an even in which there was no actual or potential safety risk, and no release to the environment. At least the penalty was levied much more promptly!

In the case of DC Cook, the public good is not served when there is a delay in issuing a fine, because the public is led to believe there are problems at the plant, when in reality, the problem hasn't existed for three years. To make a simple analogy, the NRC is crying wolf, and the utility, rightfully so, says "There's no wolf here! It's been gone for three years!" In the end, the public doesn't know who to believe and both parties loose credibility. This contributes to an environment where the public doesn't feel they can trust either the utility or the NRC, and that gives third parties - the anti-nuclear groups - an open door to run in and save they day. They come to the rescue, claiming utility is covering things up, and the NRC is going easy on the industry. How amny times have we heard that? I've lost count!

What's the fix? I honestly believe the NRC should eliminate the use of civil penalties for all but the most severe cases, and then the penalties should be stiff and swiftly levied out.

Apex, NC Evacuates 16,000 for Chlorine Leak

Since we're discussing Emergency Plans, I wanted to bring your attention to an event that speaks to the incredibly good brought about by the Sharon Harris nucear plant in North Carolina. About two weeks ago in Apex, NC there was a huge fire at a chemical storage facility in the middle of the night that caused a release of deadly chlorine gas. More than 16,000 people had to be evacuated from their beds, and it was done quickly and safely.

From everything I've read it was done with out panic, and without incident. What I didn’t hear was any mention of the fact that the emergency planning infrastructure in Apex and the surrounding communities was developed primarily by Progress Energy, the owners of Sharon Harris as part of their emergency plan. The citizens of Apex have Progress Energy to thank for the well-organized response that kept them informed and alerted them of the need to evacuate.

I've seen this repeated all over the USA. Communities that have nuclear plants have a well organized and well-funded emergency response organization that's had the benefit of training they get from the nuclear plant staff. They put that training to use in all kinds of emergencies.

The newspapers and other mainstream media rarely pick up on this, but if you talk to the state and county officials, and I have, they'll tell you they're much better prepared for all sorts of emergencies because of the funding, equipment, and training they get through the nuclear plant's emergency preparedness program.

British Energy's Woes

British Energy is in tough shape because of an unplanned outage at the Hinkley B nuclear plant. They'll be unable to produce enough power to meet their contractual obligations, and will have to purchase power on the open market. This means higher cost generators that burn natural gas will be coming on line to fill the gap, and British Energy will have to absorb the added cost. This realization by investors caused British Energy shares to tumble - the company has lost 25% of its market value in a few days.

This situation underscores the vital importance of high reliability and being a predictable generator of electricity. Nuclear plants make lots of money for their shareholder when they are running, but unplanned outages can make that profit disappear in a hurry. That's true of any base load power plant, but when the low cost provider shuts down the problem is amplified because the owner has to make up a greater difference between the contract price for their low cost power, and the market price which in this case is driven by natural gas.

The units are down because of boiler tube cracking that was discovered first at a similar plant at the Hunterston site in September. British Energy made the safe and conservative decision to shut down Hinkley to inspect for cracks, and when they did, they found similar defects.

The Hinkley Point B nuclear plant consists of two 660 MW advanced gas cooled reactors that came on line in 1976 and 1978. They provide about 3% of the United Kingdom's electricity, and are planned to be in service until 2011.

Of course the local anti-nuclear groups are dancing in the streets. Jim Duffy of "Stop Hinkley" was quoted as saying this is the beginning of the end for the nuclear plant, and he added that the government needs to start building wind turbines so they "have enough power to cook their breakfast n the morning." He's off base on more than one account - there's plenty of high priced power available that can be brought into the area. He'll be stuck on a diet of beans on toast when his energy bills triple or quadruple! I'm chuckling at his comment that the government should come to the rescue - he obviously doesn't have a clue of what degradation and privatization of the electrical grid means. The government isn't coming to the rescue. Market forces will dictate where his replacement power will come from, and it won't be from wind!

Jim Duffy is also predicted the plant would be down for three or four months. I don't know the details of where these cracks are or what it takes to fix them, but four months is an eternity in nuclear plant outage space. Heck - plants can replace steam generators altogether in less time than that! My guess is they'll do the inspections in a couple of weeks, will plug any defective boiler tubes, and will be back on line in under a month. They may have to run at reduced power if they plug more than a certain number of tubes, but they'll be back on line none-the-less. I'm going to mark this date and will report back to you in 30 days to see if my predictions are true.

Areva and Mitsubishi To Jointly Develop New Reactor Design

On Thursday Areva and Mitsubishi Heavy Industries announced they've signed an agreement to jointly develop and a new design for a 1000 MW generation III reactor. Both companies stated they expect strong demand for their mid-sized unit in southeast Asia and eastern Europe.

They also said they expect demand for their 1000 MW design in the USA, and they may be right. I kind of doubt it though - the economies of scale have proven to be a dominate factor in nuclear power economics in the USA, and the larger units, while more costly to build, have an advantage with it comes to overall operating costs because the size of the plant staff is not proportionately larger, and the added cost of fuel is a minuscule fraction of the operating cost. This is certainly true for base-load units connected to a well-established electrical grid.

I DO believe in the viability and value of small power reactors, particularly in remote areas where the distances to other forms of generation make transmission costly and there is insufficient local demand to support a large power reactor. Small power reactors also have the potential to be used in other applications like ship propulsion, hydrogen production, and water desalination in arid climates. If you want to learn more about this topic visit Adams Atomic Engines web site at . Mitsubishi and Areva need go no further than Maryland for some great idea!

Anyway, I'm getting off track! Both companies specialize in Pressurized Water Reactors, Areva having supplies all 53 of France's units and MHI 23 of Japan's 55 reactors. In researching this story I discovered something I hadn't realized - Areva is the only company in the world that provides the entire nucear fuel cycle from mining the uranium, enrichment, fuel fabrication, plant design and construction, used fuel reprocessing, and plant decommissioning.

This seems like a good deal for both companies, and follows a pattern that's been shaping up recently with Japanese companies partnering with or acquiring nuclear construction companies - Toshiba and Westinghouse, General Electric and Hitachi, and now Areva and Mitsubishi. It will be interesting to see how this relationship manifests, and what kind of creativity it will being to the nuclear plant drawing board!

Russia's Plans for Nuclear Expansion

And finally, here's an overview of Russia's plans for expanding their domestic nuclear power industry. Russia has 31 operating nuclear power plants that provide 16% of their electricity. In addition, a few of their plants provide steam for heating the cities where plants are located.

Russia has an interesting situation in their energy supply. At present, most of their electricity, about 80% of it, is generated from natural gas-fired plants. Russia has large natural gas reserves, and they exports a lot of it to the rest of Europe and Asia. The figures I have for 2004 indicate they export about 157 million cubic meters of gas per year which is a little bit more than 1/3 of the gas they produce. They use 60% of their natural gas to produce electricity.

As it turns out, that is an extremely expensive proposition. Gazprom, the Russian gas company, earns five times more for gas that it exports compared to gas it sells at home, so they have a huge financial incentive to replace gas fired plants with nuclear plants. No only do nuclear plants produce electricity much more cheaply than gas plants, Russia is missing out on a huge source of revenue.

So that gives you an idea of a major factor driving their nuclear energy policies. Earlier this year they announced their plan to reduce their use of natural gas, and to double their nuclear power output by 2020. That will bring nuclear energy to about 23% of the projected electrical generation. This past week I got some details on how they plan to finance their nuclear renaissance.

Russia has formally adopted a $54 billion USD nuclear energy development program. Between now and 2015, the Russian government will contribute $25 billion USD to the program. After 2015, 100% of the program funds will be covered by Rosatom, the Russian nuclear power company.

Russia has 3 nuclear plants under construction, and they will add seven more in the near term. This will result in ten new reactors totaling at least 9.8 GWe on line by 2015. They'll be building two new reactors per year from 2011 through 2014, then three per year from 2014 to 2020.

That's a very aggressive nuclear construction program, and don't forget they'll also be building new plants outside of Russia. I'm putting some links in the show notes to information sources I used in this story.

Russia is not hampered by the politics of western nations. They're seeing an opportunity and they're going to grab it. I for one, think they're smart. Just like an agile company that takes advantage of changing market conditions to gain market share, Russia is making a play for the world nuclear plant market. If you are a county looking to buy a nuclear plant, are you going to buy from someone who hasn't built one in years, or maybe has only built two or three? Or you going to buy from someone who has a robust construction program.

The thing Russia has going against them is the reliability of their plants has not been nearly as high as light water reactors built in the USA and France, or in other countries with western technology. The GE, Westinghouse, and Framatone reactor designs have demonstrated long term capacity factors much higher than Russian built plants. Five or ten percentage points may not sound like a lot, but there's a huge difference in the cost of electricity generated by a nuclear plant running at 75% capacity compared to 90%. That alone more than off-sets the price difference between a Russian-built plant and one built by GE, Westinghouse, or Framatone.


I really admire Germany's Chancellor Angela Merkel for sticking to her guns and speaking out even when her position is in violent disagreement with that of her political party. She's been keeping an open mind about options to secure Germany's energy supply, and just today she made her strongest remarks yet in support of advancing nuclear energy in Germany. In a speech give at a party rally Chancellor Merkel said it was a mistake for Germany to stick with it's plan to phase out nuclear energy over the next 14 years. IN addition, she criticized the Social Democrats for refusing to reconsider laws previously passed that will shut down that nation's nuclear plants by 2020.

Her exact words were "I consider it to be wrong that we're turning off our nuclear plants only because that is what was agreed," later she added "No one can prevent us from discussing the topic of energy anymore. We're facing challenges and need to develop strategies to ensure our energy supplies over the years ahead," Germany's 18 nuclear plants supply 32% of their electricity, and all 18 plants are mandated to shut down by a law that was passed by the greens and social democrat when they were in power.

I wonder where the green and the social democrats think they're going to get their energy from. Hey - how about getting it from the Russians! You'd think the people of Germany would see the writing on the wall. If they phase out nuclear energy they will be wholly reliant on Russia's natural gas for their electricity.


If you're at the American Nuclear Society winter meeting in Albuquerque, NM in November be sure to look me up. I've mentioned before that I'll joined there by Rod Adams of The Atomic Show and Eric McErlain of the nei nuclear notes blog. The three of us will be holding a panel discuss on the new media that will include some tips on pod casting, and we'll be sharing our experiences spreading the truth and the science behind nuclear energy using this fantastic new media!

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