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.

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

Why nuclear?

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

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

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

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

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

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

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

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

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

Uranium prices – a market indicator?

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

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

Who?

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

New US nuclear plant announcements
Company Constellation (UniStar) Duke SCE&G TVA (NuStart ) NRG Energy / STPNOC Progress Energy Dominion Entergy (NuStart ) Southern Company Entergy Alternate Energy Holdings Exelon Texas Utilities Amarillo Power DTE Florida Power & Light Exelon Duke Toshiba
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Site MD, NY, plus 3 TBD SC Summer, SC Bellefonte, AL Bay City, TX NC and FL North Anna, VA Grand Gulf, MS Vogtle, GA River Bend, LA Bruneau, ID TX TX, TBD Amarillo, TX Michigan FL, TBD Clinton, IL NC & SC Galena, AK

Design (# of Units) EPR (5) AP1000 (2) AP1000 (2) AP1000 (2) ABWR (2) AP1000 (2), TBD (2) ESBWR (1) ESBWR (1) AP1000 (2) ESBWR (1) TBD TBD TBD (2 – 5) ABWR (2) TBD TBD TBD TBD Toshiba 4S (1)

COL First submittal 4Q - 2007 October 2007 October 2007 October 2007 Latter part of 2007 NC - Oct 2007; FL - Jul 2008 November 2007 November 2007 March 2008 May 2008 2008 2008 2008 As soon as practicable after 2007 Late 2008 2009 TBD TBD TBD

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

Nuclear Plant Designs
Areva Nuclear Power GE/Hitachi Toshiba/Westinghouse AECL General Atomics Mitsubishi Heavy Industries PBMR, Pty Ltd (South Africa) Toshiba Blue = Certified NSSS design Green = DC under review
16 EUCI - Who will build generating baseload capacity? - 8 Mar 07

US EPR ABWR, ESBWR AP600, AP1000, System 80+, IRIS Advanced CANDU ACR-700 Gas Turbine-Modular Helium Reactor US APWR Pebble Bed Modular Reactor (PBMR) 4S (10 MWe sodium-cooled)

At what cost?

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

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

Nuclear is competitive – without CO2 impacts

Solar PV Wind Gas CC ($6/mmBTU) Gas CC ($5/mmBTU) Nuclear ($1,400/kW) Coal IGCC Coal PC Nuclear ($1,200/kW) 0

125 69 57 50 46 43 42 42 50 $/MWh 100 150

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

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

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

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

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

Risk over time
Design Certification & ESP COL ITAAC

Plant-specific risk Design & engineering

Regulatory risk

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

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

How many MW?

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

Existing US nuclear power capacity
120

100

80 GW

60

40

20

0
19 57 19 59 19 61 19 63 19 65 19 67 19 69 19 71 19 73 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05

Source: DOE/EIA

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

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

20%

15%

10%

5%

0%
19 99 19 93 19 87 19 81 19 73 19 67 19 61 19 57 19 59 19 63 19 65 19 69 19 71 19 75 19 77 19 79 19 83 19 85 19 89 19 91 19 95 19 97 20 01 20 03 20 05

Source: DOE/EIA

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

Nuclear capacity additions - EIA forecast

14 12 10 GW
29

8 6 4 2 0
20 07 20 09 20 11 20 13 20 15 20 17 20 19 20 21 20 23 20 25 20 27 20 29

Net cumulative additions Source: EIA; includes 2.7 gigawatts of uprates through 2030

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

Nuclear capacity to maintain 20% share of US generation

50 45 40 35 30 25 20 15 10 5 0
20 07 20 09 20 11 20 13 20 15 20 17 20 19 20 21 20 23 20 25 20 27 20 29

Net cumulative additions Source: EIA forecast; CRA analysis

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GW

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

EIA forecast of steam coal additions

160 140 120 100 GW
31

80 60 40 20 0
20 07 20 09 20 11 20 13 20 15 20 17 20 19 20 21 20 23 20 25 20 27 20 29

Net cumulative additions Source: EIA forecast

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

When?

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

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

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

Where?

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

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

Some new locations; others TBD
Company Constellation (UniStar) Duke SCE&G TVA (NuStart ) NRG Energy / STPNOC Progress Energy Dominion Entergy (NuStart ) Southern Company Entergy Alternate Energy Holdings Exelon Texas Utilities Amarillo Power DTE Florida Power & Light Exelon Duke Toshiba
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Site MD, NY, plus 3 TBD SC? Summer, SC Bellefonte, AL Bay City, TX NC and FL? North Anna, VA Grand Gulf, MS Vogtle, GA River Bend, LA Bruneau, ID TX? TX, TBD Amarillo, TX Michigan TBD Clinton, IL NC & SC? Galena, AK

Design (# of Units) EPR (5) AP1000 (2) AP1000 (2) AP1000 (2) ABWR (2) AP1000 (2), TBD (2) ESBWR (1) ESBWR (1) AP1000 (2) ESBWR (1) TBD TBD TBD (2 – 5) ABWR (2) TBD TBD TBD TBD Toshiba 4S (1)

COL First submittal 4Q - 2007 October 2007 October 2007 October 2007 Latter part of 2007 NC - Oct 2007; FL - Jul 2008 November 2007 November 2007 March 2008 May 2008 2008 2008 2008 As soon as practicable after 2007 Late 2008 2009 TBD TBD TBD

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

Existing nuclear units

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

State laws

Source: Nuclear News, November 2006

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

Electricity markets and RTOs

Source: FERC
41 EUCI - Who will build generating baseload capacity? - 8 Mar 07

Conclusions

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

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

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. Prior to joining Charles River Associates the first time, Mr. Kee was a consultant at McKinsey & Company and a merchant power plant developer. During service as a naval officer, Mr. Kee was engaged in construction, start-up and testing of the nuclear power plants on the aircraft carrier USS Carl Vinson (CVN-70). During this time he qualified as a watch office and as Chief Engineering Officer. Mr. Kee received an MBA from Harvard University and a BS in Systems Engineering, with honors, from the United States Naval Academy.

Edward Kee CRA International 1201 F Street, NW Washington, DC 20004 (202) 662-3953 ekee@crai.com

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

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