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2009 06 15 NPI - 1st Wave or 2nd Wave EDK

2009 06 15 NPI - 1st Wave or 2nd Wave EDK

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Published by Edward Kee
This article (Contact Edward Kee at edward.kee@nera.com) discusses the first wave strategy that seems to have been adopted by most US nuclear projects and suggests that many of these projects would enhance value and chance of sucess by moving now to a second-wave strategy.
This article (Contact Edward Kee at edward.kee@nera.com) discusses the first wave strategy that seems to have been adopted by most US nuclear projects and suggests that many of these projects would enhance value and chance of sucess by moving now to a second-wave strategy.

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Published by: Edward Kee on Jun 30, 2009
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01/05/2010

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First Wave or Second Wave?
It may be time for U.S. nuclear power plant projects with a first-wave build strategy to consider moving to thesecond wave.
 
By Edward Kee, NERA
 Most new nuclear power plant projects in the U.S. seem to be pursuing a first-wave build strategy, whichinvolves a significant early commitment of resources while deferring the investment decision and retaining theoption to defer or cancel the actual power plant investment as long as possible. But only a handful of thesefirst-wave projects are expected to actually start construction. The other projects could lower costs and risksby moving to a second-wave strategy now.As of May 2009, 17 combined construction and operating license (COL) applications for 26 new nuclear unitshad been docketed by the U.S. Nuclear Regulatory Commission (NRC). Many of these projects are aiming tostart construction in the first wave as soon as a COL is approved by the NRC, now expected to be in 2012.While it is possible to keep a first-wave strategy intact right up to COL approval before deciding to move tothe second wave, many first-wave projects might decide to pursue a second-wave strategy earlier, which maybe a way to lower costs and risks for some projects.
Why be in the first wave?
 A typical first-wave strategy is aimed at being first in the queue. One of the key drivers of the first-wavestrategy is the Energy Policy Act of 2005, which created a race by limiting benefits to only the first few newnuclear power plants, allocating them on a first-come-first-served basis to projects that accomplished certainactivities on or before a defined date.Another first-wave nuclear build strategy is aimed at ensuring that the project could start and completeconstruction in spite of the potentially high demands on the nuclear industry if all first-wave projects startedconstruction at the same time, with a general view that the first projects to start construction might be able tolock in resources that would be unavailable to other projects for some time. Reactor vendors and EPCcontractors may have encouraged this by offering more attractive terms to buyers willing to commit to beingearly in the overall build sequence.Finally, some utilities with a first-wave nuclear plant strategy have—or had, until the recent economicdownturn—a need for new baseload capacity and might have had to build a coal or gas power plant to meetdemand unless the nuclear plant were built on a first-wave schedule.In spite of these potential benefits, a first-wave project may face higher risks and costs, including scarcenuclear industry resources, uncertainties about carbon control and electricity demand, organized anti-nuclearefforts, some degree of first-of-a-kind risks and higher costs and difficult markets for nuclear financing andfunding.
Second-wave strategies: 2014 and 2020
 
Page 1 of 5Nuclear Power International - First Wave or Second Wave?6/19/2009http://pe.articles.printthis.clickability.com/pt/cpt?action=cpt&title=Nuclear+Power+Intern...
 
The benefits of a second-wave strategy come from the availability of additional information. Some informationwill be available to second-wave projects in 2014, but even more will be available by 2020, assuming that atleast one first-wave project actually starts construction in 2012. (See Fig. 1, Second-wave Timing.)
Construction starts in 2014
Lessons from the first-wave projects should provide a clearer view of thetiming, issues and potential for legal challenges to the COL process up to the COL approval point.A second-wave project should be able to choose from several standard reactor designs that will have beenapproved by 2014.The degree of detailed engineering will be much greater and approaches to construction, such as modular, willbe better understood.Second-wave projects may be able to learn from first-wave EPC contract experience.The financial markets may have returned to a more stable situation, making the financing of a new nuclearpower plant more feasible. First-wave construction funding may provide lessons that will mean easier accessto construction funding for second-wave projects.The real response of the stock market to new nuclear plant investment decisions will be known, allowing asecond-wave sponsor to better assess its own decision to invest.New nuclear power projects outside the U.S. may be close to completion and some may have startedcommercial operation, reducing uncertainty about total project cost, construction times, reactor designoperating performance, market success of reactor designs and vendors and other issues.The U.S. approach to controlling carbon emissions may be in place by 2014, allowing a second-wave projectsponsor to better understand the financial implications for new nuclear power plants.The impact of the current economic recession and build-out of renewable energy projects will also be betterknown.
Construction starts in 2020
Even more information will be available by this date. Second-wave projectsponsors as well as investors, regulators and others will have a clearer view of the costs of new nuclear powerplants and the time required to build them. Differences in cost, time to construct and operating performanceacross reactor designs and vendors will also be much clearer.One or more new U.S. nuclear power plants may have been built, approved and placed into commercialoperation, providing a clearer view of the NRC licensing process.Second-wave buyers may be able to obtain lower costs, less risk and shorter and more certain schedules fromEPC vendors. Detailed design modifications and improved construction approaches that lower cost and cutconstruction time may also be available.Click here to enlarge image
Page 2 of 5Nuclear Power International - First Wave or Second Wave?6/19/2009http://pe.articles.printthis.clickability.com/pt/cpt?action=cpt&title=Nuclear+Power+Intern...
 
Nuclear fuel cycle issues, including reprocessing and used fuel disposition, may be more settled. Several newuranium enrichment facilities may be operational in the U.S. and uranium market prices may be more stable.First-wave projects will have arranged and closed permanent financing and regulated first-wave projects willhave placed nuclear plant investments into rate base, providing some guidance for second-wave projects.There will be even more experience with new nuclear plants outside the U.S. Reactor vendors not in the U.S.market now may have entered, based on the success of build-programs outside the U.S., giving second-wavebuyers more options. And while the timing remains uncertain, there is a possibility that one or more alternatereactor designs such as micro-reactors and Generation IV reactors now in the R&D phase will be commerciallyavailable as an option for a second-wave project.
Assess the latest information
 In the past year, much new information about new nuclear plants in the U.S. has come to light. Somesuggests a near-term move to a second-wave strategy for some first-wave projects. Support also exists forthe view that only a few projects will start construction in the first wave.Current nuclear power plant cost estimates are high and as they are incorporated into generation expansionplanning models and policy analyses, new nuclear power plants may no longer be the least-cost generationexpansion option.Demand for electricity is growing at a slower rate in many parts of the U.S. as a result of the current economicdownturn, so the projected need for baseload capacity may be less and later than projected a year ago. Forsome utilities with industrial customers, this may be a significant change.New nuclear plants may benefit from programs or taxes targeted at controlling carbon emissions, but any realaction on carbon control may be delayed or watered down as a result of the economic recession.DOE loan guarantees for nuclear remain limited to $18.5 billion. Given the high cost estimates for new nuclearpower plants, this will only cover a few nuclear units. And the terms, conditions and costs of the loanguarantees may not be attractive. DOE is reported to be negotiating with a short list of loan guaranteehopefuls; projects not on this list may not have much chance of a loan guarantee.World financial markets are tight and financing any large capital project is difficult. Financing a new nuclearpower plant would have been very difficult even without the financial crisis, but with it, it may not be possible.Financial markets will recover, but this may not happen in time for a first-wave project.Nuclear build experience so far is mixed. There was some hope that nuclear project development experienceoutside the U.S. would resolve uncertainties for U.S. projects that would follow, but this has not happened.The Olkiluoto EPR project has experienced significant cost overruns and delays and is now in arbitrationproceedings and the Chinese have just started construction on the first AP1000 unit.NRC schedules are running later than anticipated. The first COL approvals are not expected until late 2011 or2012 and final approvals could be later if there are delays or challenges to the NRC process.
Adopt a second-wave strategy now?
 Some regulated utility sponsors of first-wave projects have gained approval from their state regulators torecover project development costs in current rates, allowing recovery of the cost a first-wave strategy. Forthem, the “option recovery” arrangements may make it easier to maintain a first-wave strategy as long aspossible. But if a first-wave nuclear project has little hope of actually being in the first wave, cutting costs andrisks by adopting a viable second-wave strategy now might be an attractive option.A first-wave strategy is based on ensuring the viability of immediate construction as soon as a COL is
Page 3 of 5Nuclear Power International - First Wave or Second Wave?6/19/2009http://pe.articles.printthis.clickability.com/pt/cpt?action=cpt&title=Nuclear+Power+Intern...

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