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Financing New Nukes

Federal loan guarantees raise hopes for new reactors planned by affiliates of Constellation and NRG.

Fortnightly Magazine - February 2008

the U.S. have retired by now. And once these units are completed, we’ll need nuclear engineers and plant operations professionals too.”

In the meantime, UniStar intends to finalize the Calvert Cliffs COL application by March 2008 and apply for a loan guarantee for the project as soon DOE finalizes its 2008 Title XVII solicitation process.

Concurrently, AREVA submitted the EPR design—a 1,600 net MW pressurized water reactor that already is under construction in Finland and France and in the pre-licensing phase in the United Kingdom and China—to the NRC for design certification in December 2007.

Finally, UniStar has ordered the steam turbine for Calvert Cliffs from French steam turbine supplier Alstom, which recently announced it will be expanding its manufacturing capabilities in Chattanooga, Tenn.

“We’ve basically executed everything on the critical path to get our first reactor on-line by 2015,” Vanderheyden says. “The next step is to arrange the funding and that’s a highly complicated process. It will take a year to put together information for the Federal Financing Bank and other institutions.”

Critical Mass

While project sponsors have made remarkable progress addressing many of the uncertainties they face, the ultimate price tag and financing structures for new nuclear plants in the United States remains unknown.

Though the general consensus on the cost of a new reactor is in the $4 billion to $6 billion range, Vanderheyden says the actual cost of the UniStar units hasn’t been determined yet. “We’re looking at $2,400 per installed kilowatt, in 2005 dollars,” he notes. “But that doesn’t include the cost of interest during construction, the cost of fuel, the federal loan guarantee subsidy fee and the cost of everything from concrete and steel, to nickel and copper.”

Standard & Poors credit analyst Arthur F. Simonson puts the price tag closer to $4,500 per installed kilowatt, especially considering the estimated cost of a base-load coal unit now stands at roughly $4,000 a kW. The actual cost of an advanced reactor will be determined by the way the project is funded, and that can’t be established until a project’s loan guarantee and the corresponding subsidy fee are hammered out.

As a result, exactly how nuclear developers will finance their projects, and what structures they will use, remains to be seen. But project sponsors seem unlikely to finance nuclear projects on the strength of their corporate balance sheets, with a $6 billion unit representing roughly one-third of Constellation’s market capitalization, and two-thirds of NRG’s.

“That’s putting all your eggs in one basket,” Simonson says. “If the project doesn’t work out, it could crater the whole company. So as a risk management tool, a special purpose entity financed on a non-recourse basis makes the most sense to me.”

Financing plans will continue evolving as project sponsors get closer to making firm commitments to move forward. In the meantime, development work proceeds, and costs continue mounting. While Vanderheyden won’t reveal how much UniStar has spent on development thus far, he did say “the number is substantially north of $100 million.”

At some point, nuclear development in the United States will