The U.S. is scaling its nuclear renaissance to almost nothing. Today, there are only three nuclear facilities under construction. The remaining projects have been deferred or abandoned. The question is whether the three facilities under construction will ever see commercial operations. The answer appears to be a qualified yes.
First, some background. Southern (SO) is attempting to enlarge its Vogtle facility in Georgia by adding two new reactors at a combined cost of about $14 billion. The U.S. Nuclear Regulatory Commission (NRC) pre-approved the site and the plant's design. Both reactors are Westinghouse AP1000s. The engineering, procurement and construction contractor is Chicago Bridge & Iron (CBI).
SCANA (SCG) is trying to enlarge their VC Summer facility by two reactors. Summer's reactors and design are identical to Vogtle's AP1000. SCANA's site and design are also approved by the NRC and SCANA is using the same contractor. But since SCANA is a much smaller utility, tits fate appears linked to Vogtle's success.
The Tennessee Valley Authority (TVA) is a federally owned municipal utility. It is attempting to finish an old power plant it started constructing in 1973. In 2000, the NRC issued an order extending the Unit 2 construction permit. In 2012, TVA released a revised construction schedule and revised cost estimate puts Unit 2 into commercial operations in 2016.
Out of the three construction projects, the federal government has the highest likelihood of completing nuclear construction. Their cost and schedule may shift, but they are advanced. Because they are further along, they will likely enter commercial operations.
The odds are different for Vogtle and VC Summer. Their issues are construction costs and construction financing.
Southern claims Vogtle's engineering, procurement and construction is, "approximately 50% complete based on contractual milestones." But experts testifying at the state's utility commission were "not able to conclude that the schedule is reasonable and achievable."
The bond markets seem to agree. Moody's maintains a negative outlook on Vogtle debt to reflect the uncertainty over cost increases above current budget and project delays past the current completion timetable. It assigned two bonds an A2. It rated one of its revenue bonds a Baa2. Together, these bonds finance Municipal Electric Authority of Georgia's share of its ownership interest in Vogtle construction.
Consequently, if Southern or its partners need to access the credit markets to finance additional construction costs, it may face high financing costs. Since construction financing costs are capitalized, higher interests costs causes in higher capital costs.
Southern's shareholders will not know how much risk it will be absorbing until it is too late. According to the Engineering News Record, Southern entered an agreement with the state to review additional costs upon the completion of the first new nuclear unit. The timeframe suggests shareholders' uncertainty could last until 2017 or beyond.
Southern's shareholders have risk in Vogtle's construction costs and schedules. Since time is money, Southern's priority is capital costs.
One way to cut capital costs is to reduce interest expenses. The cheapest financing available is debt backed up by federal guarantees. It is therefore no surprise that Southern and its partners are extending negotiations with the Department of Energy (DOE) to secure an $8.3 billion loan guarantee. If Southern can lock down that guarantee, it can lower its construction financing and capital costs.
What happens if DOE fails to provide Southern with federal loan guarantees?
Southern claims it will proceed with traditional project financing. Butbond ratings for their project are not the best. Lower ratings cause higher costs. Higher financing costs can dramatically affect final capital costs.
The risks to shareholders could become intolerable. Based on Southern's recent experience with their Kemper integrated gasification combined cycle plant, a billion-dollar cost overrun could be absorbed by shareholders. Much beyond a billion and there may be a problem.
Southern's partners have more at stake and less flexibility. Southern only owns 45.7% of the new Vogtle units. Non-profits own a majority interest.
There are three non-profits involved. Oglethorpe Power is a cooperative utility and it owns 30% of Vogtle. MEAG Power is a public utility and it owns 22.7%. Government-owned Dalton Utilities owns the balance.
SCANA's arrangements in South Carolina are similar. Unlike Southern, it is the majority owner. But its partners are also non-profits.
There appears to be some buyers' remorse. Attitudes are shifting as they realize the economics of nuclear power construction are difficult to justify. The question is whether Vogtle or Summer will incur intolerable cost overruns. In the nuclear power industry, if what's past is prologue, neither plant will be completed.
Three projects are it. With coal already taken off the table and now nuclear withdrawing, natural gas is the fuel of the future.