Sat, Sep 15, 2012 page9

• Cheap gas could push costly nuclear power out of the US energy mix

  Nuclear power operators, including Duke Energy Corp, which faces a billion-dollar repair bill to fix a reactor dubbed ‘Humpty Dumpty’ on account of its fractured concrete shell, are finding that compared with natural gas, atomic energy is struggling in the marketplace

  • By Julie Johnsson / Bloomberg
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  A damaged nuclear plant in Florida that spurred a boardroom coup at Duke Energy Corp in July is at risk of being scrapped unless the power company can justify spending more than US$1.3 billion on the costliest-ever US atomic repair.

  Duke’s decision, a signpost for utilities from Japan to Belgium which are considering shuttering reactors, hinges on natural gas. Near-record low prices in the US make new gas-fired generation look more economical than fixing the 35-year-old Crystal River Unit 3 Station. The question for Duke, the biggest US power company, is whether to bet that gas will stay this low in the decades to come.

  “If you close that plant down I will have a concern about the dependence on natural gas,” J.R. Kelly, Florida’s Public Counsel, said in a phone interview.

  

  Illustration: Lance Liu

  He sees the reactor that has been out of service since 2009 being replaced by gas-fired generation.

  “That’s what they will build. They’ll have to,” Kelly said.

  Volatile fuel prices and increased safety concerns after last year’s meltdown of reactors in Fukushima, Japan, are pushing utilities to reconsider new construction, major repairs and license extensions. Nuclear power provides almost 20 percent of US energy supplies.

  Duke’s board ousted then-chief executive officer Bill Johnson hours after acquiring his former company, Progress Energy Inc, and after expressing concern he was prejudiced toward repairing the reactor, dubbed “Humpty Dumpty” for its cracked concrete shell.

  The dispute underscores the stakes for US power companies weighing nuclear investments against falling power prices and risks that plants will not be relicensed or may close prematurely. Regulators have not approved Duke’s plans to pass repair expenses on to clients and decommissioning costs have not been tallied.

  Edison International faces a similar decision with its 30-year-old San Onofre atomic station near Los Angeles closed since January because of leaks and unusual wear to its steam generators.

  The surplus of gas-fired plants in the western US weakens the case for repairing San Onofre’s twin reactors.

  “The argument that ratepayers need to keep supporting Grandma lasts for about 15 seconds,” John Geesman, a former California energy commissioner, said in a phone interview.

  He serves as outside counsel for the Alliance for Nuclear Responsibility, which lobbied the state to keep that plant idle.

  For Florida regulators and consumers, the costs to fix Duke’s reactor may be dwarfed by the risk of becoming dependent on a fuel where prices have swung from less than US$2 to almost US$15 per million British thermal units and then back to US$2 in the past 11 years.

  Gas fueled 62 percent of Florida’s electricity generation last year, up from 31 percent 10 years ago, the US Energy Department said on its Web site.

  Officials in Omaha, Nebraska, opted to repair the fire and flood-damaged Fort Calhoun Station, a nuclear plant owned by the municipality, to avoid becoming overly dependent on one fuel.

  “We have seen coal go up, natural gas go up,” said Jeff Hanson, spokesman for the plant’s owner, the Omaha Public Power District. “Uranium stays somewhat stable,” he said of the fuel used to derive nuclear power.

  Deciding whether to shutter a large power plant is not easy for Duke, based in Charlotte, North Carolina, or for Edison of Rosemead, California, and other owners of regulated US utilities.

  The rates the utilities charge customers, which are set by state regulators, cover fuel and some repair costs, while providing a mandated return on assets such as plants and transmission lines.

  “In that model you’d prefer to repair the nuclear plant because it’s a bigger investment, you’re earning more,” Sam Brothwell, utilities analyst for Bloomberg Industries, said in a phone interview. However, he added that “you’ve got to get the regulators to agree. That’s where natural gas is a real challenge because it’s the least-cost option.”

  Gas has become the cheapest source of power for much of the US with prices that have tumbled 23 percent from a year ago and 78 percent from 2008’s peak price of US$13.58 per million British thermal units, according to data compiled by Bloomberg.

  The all-in cost to produce electricity during the second quarter, including operating and capital expenses, was US$71 per megawatt-hour at a combined-cycle gas plant, US$82.27 at a coal- fired plant and US$101.54 at a nuclear plant, according to data compiled by Bloomberg New Energy Finance.

  A gas slump that lasts through the decade, as some industry forecasts suggest, would make “big-ticket” investments in steam generators, reactor vessels or costly capacity upgrades “increasingly difficult to justify,” Brothwell said.

  The case is toughest for plant owners operating in deregulated markets, whose capital spending is funded by power sales, not state-mandated rate increases.

  Wholesale electricity prices in PJM Interconnection LLC, the largest competitive US power market, have fallen about 10 percent since late April and “seem to be testing historical lows,” Angie Storozynski, a New York-based analyst for Macquarie Capital USA Inc, wrote in a Sept. 4 research note.

  Some merchant nuclear plant owners are deferring large projects such as steam-duct and turbine upgrades that would boost plant output by 10 percent or more at a cost of as much as US$1,000 per kilowatt, said Mike Granowski, principal with Bridge Strategy Group, a Chicago-based management consulting firm.

  Exelon Corp of Chicago decided in 2010 that it was more economical to close its Oyster Creek reactor in Forked River, New Jersey, when its license expired in 2019 than spend as much as US$801 million to build a cooling tower demanded by state officials.

  Duke’s board faces a more complicated analysis as it decides the best approach to its Crystal River plant which is 129km north of Tampa, Florida.

  The silo-shaped concrete building that houses the Crystal River 3 reactor cracked in 2009 as crews replaced the steam generators, huge pipe assemblies that transfer heat from the nuclear reactor to power-generating turbines. Once the damaged panel was patched, two other sections cracked in March and July last year after workers tightened steel tendons intended to strengthen the structure.

  “We’re not joking when we call it the Humpty Dumpty reactor,” Stephen Smith, executive director of the Southern Alliance for Clean Energy, said in a phone interview. “We think they ought to quit throwing good money after bad.”

  Duke’s board is waiting to see whether Crystal River’s insurer will pay a portion of costs escalating above last year’s estimates of between US$900 million to US$1.3 billion, said Mike Hughes, a spokesman for the company. Directors also ordered an independent engineering study of the delamination that has laced about half of the plant’s 42-inch-thick containment structure with cracks.

  “We are going to try to make a prudent decision,” James Rogers, Duke’s chairman and chief executive officer, told reporters on Aug. 13 after briefing Florida regulators on the plant’s status.

  Repairing and refueling Crystal River would cost about US$2,000 per kilowatt of generating capacity. That is already “well in excess” of the US$1,000 to US$1,200-per-kilowatt cost of building a new gas plant, Granowski said.

  Duke faces fines if repairs do not start this year under the terms of an agreement with regulators. It would be required to refund as much as US$100 million that it has received to buy power from other sources while the plant is offline.

  Yet if Duke retires Crystal River, the agreement still allows the power company to earn a return on “all remaining investments” it holds in the plant, according to a company filing.

  Duke may hibernate the facility rather than permanently decommission it, said Margaret Harding, a nuclear industry consultant based in North Carolina.

  “My gut is that Duke says: ‘No thanks, no thanks’ to the repair this year,” Harding said.

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