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Nuclear Renaissance

Edward Kee
Washington DC
These slides do not provide a complete record of the
accompanying oral presentation and discussion.
This presentation represents the views of the speaker
only and does not necessarily represent the views of
others at CRA International or the views of our clients.

2 EUCI - Who will build generating baseload capacity? - 8 Mar 07


Agenda

• Why nuclear?
• Who?
• At what cost?
• How many MW?
• When?
• Where?
• What next?

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Why nuclear?

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Excellent safety & performance record

• The result of decades of hard work


• Longer periods between ever-shorter refueling outages
• Pervasive culture of safety
• Consistent record across plant designs, NSSS vendors and
vintages
• Consolidation of nuclear plant ownership – best operators
and practices at more plants
• Safety and performance linked to market value
• Lessons, practices, culture, and staff will carry over to new
plants

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Global warming

• Growing consensus about potential impacts


• CO2 emissions from human activity seen as cause
• Electricity sector accounts for about 1/3 of CO2 emissions
• Nuclear power viewed as real, even dominant, way to
reduce electricity sector CO2 emissions
– Proven technology
– Low life-cycle carbon impact; comparable to green options
– Base load operation rather than intermittent
• Programs or markets aimed at CO2 reduction will likely
provide financial benefits to nuclear power plants

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EPAct of 2005

• Significant US government commitment


• Significant benefits to first wave of new nuclear plants
• “Kick start” for next generation of nuclear power plants
• Combines financial and risk management mechanisms
– Loan guarantees, Standby Support, Production tax credits, etc.
• Major benefits only available to the first few plants
• The first-come, first-served aspects of these benefits are
driving the current spate of announcements
• Implementation and funding issues remain

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Electricity industry changes

• Shift to electricity markets in many regions, with associated


marginal cost pricing
• High gas prices have big impact on electricity prices
• Industry restructuring – large national corporations have
replaced local vertically-integrated utilities
• Purchase and sale of existing nuclear plants
• Need for new baseload generation in many regions
• Existing nuclear power plants have enhanced value
– As merchant unit in an electricity market
– As a part of a regulated utility’s generating portfolio

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NRC license process

• Changed to remove past problems


– COL (combined construction and operation license) process
– Operating license issued before start of construction
– One-time design certification (DC) process
– ESP allows early review and approval of sites that can be banked
– Comprehensive DC and ESP will mean shorter COL process
– Process encourages standardized plant design approach
• Final rules, final hearing/ITAAC, and other details not yet
completed
• NRC funding

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New nuclear power plant designs and approach

• Significant experience since the design of existing


commercial nuclear power plants
• New designs are aimed at
– Safer operation
– Lower cost
– Higher efficiency
• Standardized power plants
– Allows NRC-certified design at multiple sites
– Replicate success in France and US nuclear navy
• Several vendors competing to be the standard

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Nuclear power outside the US

• Asia
– Japan – 16 plants on line since 1990; 3 units under construction
– Korea – 10 units on line since 1990; 8 units under construction
– Big plans for nuclear power in China and India
– Interest elsewhere (e.g., Thailand, Indonesia, Vietnam)
• Russia
– By 2030, plans for 42 new units inside Russia and 40-50 units abroad
• Europe
– New plants in Finland and France
– Re-think of nuclear phase-out in several countries
– EU report on nuclear power in January 2007
– UK moving toward nuclear power option
• Other countries interested
– Includes Canada, Argentina, Australia, Egypt, Persian Gulf states

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There are still some concerns

• Timing to meet baseload needs, compared to coal


• Uncertain electricity industry structure and markets
• Infrastructure and staffing to support surge in nuclear
• Potential for terrorist attacks
– Diablo Canyon spent fuel case – does a new facility increase threat?
– NRC design basis threat and 9/11 type attacks
• Spent nuclear fuel disposition
– Long-term storage - Yucca Mountain or PFS or on-site
– Re-processing of used fuel – GNEP, MOX fuel
• Weapons proliferation - linked to re-processing

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Uranium prices – a market indicator?

Source: The Ux Consulting Company, LLC http://www.uxc.com/

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Who?

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New US nuclear plant announcements
Company Site Design (# of Units) COL
Constellation (UniStar) MD, NY, plus 3 TBD EPR (5) First submittal 4Q - 2007
Duke SC AP1000 (2) October 2007
SCE&G Summer, SC AP1000 (2) October 2007
TVA (NuStart ) Bellefonte, AL AP1000 (2) October 2007
NRG Energy / STPNOC Bay City, TX ABWR (2) Latter part of 2007
Progress Energy NC and FL AP1000 (2), TBD (2) NC - Oct 2007; FL - Jul 2008
Dominion North Anna, VA ESBWR (1) November 2007
Entergy (NuStart ) Grand Gulf, MS ESBWR (1) November 2007
Southern Company Vogtle, GA AP1000 (2) March 2008
Entergy River Bend, LA ESBWR (1) May 2008
Alternate Energy Holdings Bruneau, ID TBD 2008
Exelon TX TBD 2008
Texas Utilities TX, TBD TBD (2 – 5) 2008
Amarillo Power Amarillo, TX ABWR (2) As soon as practicable after 2007
DTE Michigan TBD Late 2008
Florida Power & Light FL, TBD TBD 2009
Exelon Clinton, IL TBD TBD
Duke NC & SC TBD TBD
Toshiba Galena, AK Toshiba 4S (1) TBD

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Nuclear Plant Designs

Areva Nuclear Power US EPR


GE/Hitachi ABWR, ESBWR
Toshiba/Westinghouse AP600, AP1000, System 80+, IRIS

AECL Advanced CANDU ACR-700


General Atomics Gas Turbine-Modular Helium Reactor
Mitsubishi Heavy Industries US APWR
PBMR, Pty Ltd (South Africa) Pebble Bed Modular Reactor (PBMR)
Toshiba 4S (10 MWe sodium-cooled)

Blue = Certified NSSS design


Green = DC under review

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At what cost?

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Nuclear is competitive – without CO2 impacts

Solar PV 125
Wind 69
Gas CC ($6/mmBTU) 57
Gas CC ($5/mmBTU) 50
Nuclear ($1,400/kW) 46
Coal IGCC 43
Coal PC 42
Nuclear ($1,200/kW) 42

0 50 100 150
$/MWh

Source: NEI; “Investment Stimulus for new nuclear plant construction – frequently asked questions” September, 2006

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EPAct of 2005 - Production Tax Credit

• Enhances financial performance after a new plant is built


• Applies to new nuclear plants that
– File a COL application by the end of 2008
– Start construction before 2014
• 6,000 MW of new nuclear capacity
• First eight years of operation
• DOE allocates credits if more than 6,000 MW of new plants
• Allocated PTC = MW allocated / nameplate MW * 1.8¢
– e.g., 750 MW allowance / 1000 MW plant -- 1.35¢ PTC
• Limited to $125 million per year per 1,000 MW allocated

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EPAct of 2005 - Standby Support / Delay Insurance

• Safety net for investors to help manage risk of delays


• Focused on mitigating impact of licensing/litigation delays
seen in earlier generation of nuclear plant development
• Covers debt service and power market costs related to off-
take agreements
– Regulatory failures (e.g., NRC licensing delays)
– Litigation (e.g., intervention)
• Covers up to 6 reactors from no more than 3 designs
– 100% delay costs up to $500 million for first two plants
– 50% of delay costs up to $250 million for plants 3-6
• Significant progress on developing rules

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EPAct of 2005 - Loan Guarantee / Title XVII

• Most important part of the EPAct of 2005 incentives


• Loan guarantee up to 80% of project cost:
– Permits highly leveraged capital structure (e.g., 80% Debt)
– Facilitates off-balance sheet, project-financed entities
– Reduces cost of debt
• Offsets higher cost of initial plants due to FOAK issues
• Allows access to capital and helps ensure financing
• Slow progress on DOE implementation
– Initial draft solicitation for small projects oversubscribed
– NOPR for nuclear loan guarantees delayed
– Debate over details of DOE approach
– Questions about funding and need for appropriations

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Risk over time
Design Certification & ESP COL ITAAC
Regulatory risk
Plant-specific risk

Design & engineering Construction Comm’l Ops


Construction contracts & procurement

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Other risks related to infrastructure constraints
• Qualified suppliers of nuclear equipment, components,
materials and commodities
• Fabrication capability and capacity for forging large
components such as reactor vessels
• Long lead times for major components
• Adequate supplies of commodities (e.g., SS pipe,
specialty metals)
• Transportation of large components
• Competition for scarce resources should worldwide
demand for reactors surge
• Political and economic risks of offshore production

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Risk mitigation

• Regulatory/licensing risk
– DC, ESP processes; minimize issues in COL and NRC final hearing
• Construction risk – risk-sharing with vendors, contracts
– Delays
– Cost overruns
• Market risk – during financing & after completion
– Market prices, offtake agreements (merchant plants)
– Regulatory treatments, prudence reviews (regulated plants)
– Upside from global warming actions
• Infrastructure constraints
– Early procurement of critical components
– Invest in critical suppliers
– Establish cross-border partnerships

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How many MW?

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Existing US nuclear power capacity
120

100

80
GW

60

40

20

19 99
20 01
20 03
20 05
19 93
19 95
19 97
19 81
19 83
19 85
19 87
19 89
19 91
19 71
19 73
19 75
19 77
19 79
19 65
19 67
19 69
19 57
19 59
19 61
19 63

Source: DOE/EIA

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Nuclear share of U.S. net electricity generation
25%

20%

15%

10%

5%

0%

20 05
19 97
19 99
20 01
20 03
19 87

19 91
19 93
19 95
19 83
19 85

19 89
19 73

19 79
19 81
19 75
19 77
19 61
19 63
19 65
19 67
19 69
19 71
19 57
19 59

Source: DOE/EIA

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Nuclear capacity additions - EIA forecast

14
12
10
8
GW

6
4
2
0

25

27

29
17

19

23
21
07

09

11

13

15

20

20
20

20

20

20
20

20

20

20

20

20

Net cumulative additions


Source: EIA; includes 2.7 gigawatts of uprates through 2030

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Nuclear capacity to maintain 20% share of US generation

50
45
40
35
30
GW

25
20
15
10
5
0

23

25

27

29
15

17

19

21
07

09

11

13

20

20
20

20

20

20
20

20

20

20

20

20

Net cumulative additions


Source: EIA forecast; CRA analysis

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EIA forecast of steam coal additions

160
140
120
100
GW

80
60
40
20
0

25

27

29
15

17

19

21

23
07

09

11

13

20

20
20

20

20

20

20
20

20

20

20

20

Net cumulative additions


Source: EIA forecast

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When?

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33 EUCI - Who will build generating baseload capacity? - 8 Mar 07
Getting to commercial operation

Design and engineering / NRC Design Certification; ESP

COL application and approval


3-4 year process, $50-90 million

Long-lead procurement of major


components and commodities

Construction and
procurement

Final NRC hearing; fuel load, startup and


testing; commercial operation

0 1 2 3 4 5 6 7 8 9

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Why schedule might slip

• Potential sponsor commitment delays


– State regulatory proceedings/prudence reviews for regulated units
– Arranging financing and off-take arrangements for merchant units
• Utilities shift attention away from nuclear
– Coal projects become first priority
– Priority on reliability and near-term need for baseload
• NRC licensing process takes longer
– Funding slows pace of NRC activity in critical period
– Intervention in COL process or final hearing/ITAAC process
• Construction delays

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Where?

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Locations of new U.S. nuclear plants

• Announced units (see earlier list)


• Near existing units
– Initial site permit for more units than were actually built
– Local acceptance or even embrace of new nuclear
– Positive utility, state and community experience
• Where state laws permit
• Where markets (or regulation) provide incentives

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Some new locations; others TBD
Company Site Design (# of Units) COL
Constellation (UniStar) MD, NY, plus 3 TBD EPR (5) First submittal 4Q - 2007
Duke SC? AP1000 (2) October 2007
SCE&G Summer, SC AP1000 (2) October 2007
TVA (NuStart ) Bellefonte, AL AP1000 (2) October 2007
NRG Energy / STPNOC Bay City, TX ABWR (2) Latter part of 2007
Progress Energy NC and FL? AP1000 (2), TBD (2) NC - Oct 2007; FL - Jul 2008
Dominion North Anna, VA ESBWR (1) November 2007
Entergy (NuStart ) Grand Gulf, MS ESBWR (1) November 2007
Southern Company Vogtle, GA AP1000 (2) March 2008
Entergy River Bend, LA ESBWR (1) May 2008
Alternate Energy Holdings Bruneau, ID TBD 2008
Exelon TX? TBD 2008
Texas Utilities TX, TBD TBD (2 – 5) 2008
Amarillo Power Amarillo, TX ABWR (2) As soon as practicable after 2007
DTE Michigan TBD Late 2008
Florida Power & Light TBD TBD 2009
Exelon Clinton, IL TBD TBD
Duke NC & SC? TBD TBD
Toshiba Galena, AK Toshiba 4S (1) TBD

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Existing nuclear units

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State laws

Source: Nuclear News, November 2006

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Electricity markets and RTOs

Source: FERC

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Conclusions

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Conclusions

• US nuclear renaissance is inevitable


• A lot of hard work to do; some hurdles to overcome
• COL applicants racing to obtain limited EPAct benefits
• Vendors competing to become standard

• What happens after the first wave?


• Not a panacea for global warming
• May be too late to meet need for new baseload

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Mr. Kee leads CRA’s work in nuclear
matters and is a specialist in the electricity
industry. He has experience in industry
restructuring, electricity markets, nuclear
generation, private power, and related
issues. He has testified as an expert
witness on a range of electricity industry
issues.

Prior to re- joining CRA in mid-2006, Mr.


Kee was a consultant at PA Consulting
Group and Putnam, Hayes & Bartlett. Edward Kee
Prior to joining Charles River Associates
the first time, Mr. Kee was a consultant at CRA International
McKinsey & Company and a merchant
power plant developer. 1201 F Street, NW
During service as a naval officer, Mr. Kee Washington, DC 20004
was engaged in construction, start-up and
testing of the nuclear power plants on the
aircraft carrier USS Carl Vinson (CVN-70).
(202) 662-3953
During this time he qualified as a watch
office and as Chief Engineering Officer. ekee@crai.com
Mr. Kee received an MBA from Harvard
University and a BS in Systems
Engineering, with honors, from the United
States Naval Academy.

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