Thursday, Aug. 7, 2008

Nuclear plant financing scarce

Hearings on plans for Constellation start this week

E-mail this article \ Print this article

As the Maryland Public Service Commission began public hearings this week on a potential new nuclear reactor, the debate about nuclear energy's cost and effectiveness continues.

The Maryland Public Interest Research Group released a report recently saying a new reactor at the Calvert Cliffs Nuclear Power Plant would lead to higher electric costs for Maryland ratepayers. The new plant's cost continues to escalate, and the project would likely receive substantial federal subsidies, the Baltimore organization says.

The reactor is planned by a subsidiary of Baltimore energy giant Constellation Energy Group and a joint venture involving Constellation, which owns the 1,735-megawatt, two-reactor Lusby plant on the Chesapeake Bay.

"Nuclear reactors can only become financially viable by transferring risk to taxpayers and-or customers," the Maryland PIRG report says. "The long-term value of federal taxpayer subsidies for a new reactor at Calvert Cliffs could exceed $13 billion if it is one of the first new plants built in the United States."

The $13 billion figure came from a recent report by Earth Track, a Cambridge, Mass., organization. Another recent report by Amory Lovins, chief scientist of the Rocky Mountain Institute in Colorado, and others, say Wall Street simply is not sinking private capital into new nuclear plants.

This year, a company controlled by billionaire investor Warren Buffet scrapped plans to build a nuclear plant in Idaho, reportedly largely due to escalating costs.

High-paying jobs

expected from reactor

Executives with UniStar Nuclear Energy, the joint venture between Constellation and French energy giant EDF Group that wants to build the Maryland reactor along with Constellation, emphasized the job and tax benefits of the project, which they said could be the largest industrial project in the state. About 4,000 construction jobs will be created during the four- to five-year construction process, with about 400 permanent jobs expected, UniStar CEO and president George Vanderheyden said July 31.

"Those will be relatively high-paying jobs," Vanderheyden said.

Taxes to local and state coffers through the project will be substantial, he said. Calvert's county commissioners estimated that a new reactor would provide about $20 million in additional annual tax revenue for the county alone.

UniStar and Constellation Generation Group, the Constellation subsidiary that operates the company's nuclear plants, are seeking loan guarantees from the U.S. Department of Energy, with specific financing likely to come from the Federal Financing Bank, Vanderheyden said. The bank is a government entity managed by the U.S. Treasury Department.

Loan guarantees are not government handouts or subsidies, but a guarantee that an investment in a particular project will be safe, said Robert Gould, a Constellation spokesman.

State officials this year agreed to provide Constellation with "financial flexibility to attract financial capital needed to expand," according to a state news release. The revised law allows up to 20 percent of Constellation stock to be acquired without advance approval of regulators at the PSC.

At Constellation's annual shareholders meeting last month, CEO and president Mayo A. Shattuck III said the company had not yet made a commitment to build a new reactor and is targeting next year for making a decision.

"It's dependent on receiving timely and workable loan guarantees, as well as the schedule for state and regulatory reviews," Shattuck said. "The other major factor, of course, is cost."

Constellation's second-quarter profits spiked to $171.5 million from $116.3 million in the same period last year, the company reported Thursday. Revenues grew to $5.08 billion from $4.88 billion a year ago.

Nuclear costs

on the rise

While the company was still calculating the project's cost, recent cost estimates for similar U.S. projects have increased, Shattuck acknowledged. Steel, cement and other construction materials have risen in price, he said. A new nuclear plant has not been built in the U.S. for about three decades, while they have continued to be constructed in other parts of the world.

"Virtually all of the materials and components of a new reactor will come from abroad," Shattuck said. "America abandoned its nuclear manufacturing base many years ago. Unfortunately, that will drive the cost of new plants even higher."

Industry cost estimates to build nuclear reactors have risen in the past year to about $4,500 to $6,000 per KW. A new reactor in southern Maryland will likely be in the "mid- to upper end of that range," as it would have the latest safety features and upgrades, Vanderheyden said.

That means the cost would range from $8.4 billion to $9.6 billion. A new reactor is slated to generate 1,600 megawatts of electricity, almost doubling the plant's output. Those two reactors now produce about 20 percent of Maryland's electricity, Vanderheyden said.

This report originally appeared in The Business Gazette.