One of the very first new nuclear power plants proposed to be built in the U.S. in over 30 years just hit a brick wall. It’s the same brick wall — absurdly high cost — being hit around the world (see “Nuclear Bombshell: $26 Billion cost “” $10,800 per kilowatt! “” killed Ontario nuclear bid” and “Turkey’s only bidder for first nuclear plant offers a price of 21 cents per kilowatt-hour”).
The San Antonio Express News reports today:
The estimated cost of two new nuclear reactors proposed by CPS Energy has gone up as much as $4 billion, prompting the City Council to postpone Thursday’s vote on the project’s financing until January.
CPS officials and Mayor Juli¡n Castro, flanked by every council member except David Medina, held a hastily arranged news conference Tuesday afternoon announcing the delay.
CPS interim General Manager Steve Bartley said the utility’s main contractor on the project, Toshiba Inc., informed officials that the cost of the reactors would be “substantially greater” than CPS’ estimate of $13 billion, which includes financing.
The San Antonio Current notes that “After what can only be considered a sustained Certified Sales Event by CPS Energy matched by Mammoth Media Buildup,” the City Council was set to vote for the $400 Million bond issue this Thursday, which would have put the city “on an irreversible date with” the Toshiba nuke.
Occasional guest CP blogger Craig Severance not only tipped me off to this, but in fact predicted this price rise last month in a post, “San Antonio: New Economy Leader or Nuclear Guinea Pig?” that offers some saner and cheaper clean energy alternatives, which I’ll reprint below.
If you want to see an especially painful press conference from a Mayor who had been putting his foot on the nuclear accelerator, watch this:
Even before the latest jump price jump, the city was planning “a 9.5 percent base rate increase to cover the nuclear expansion and the utility’s other capital projects.” Such preemptive rate increases years before the plant would even deliver a single kilowatt hour are inevitable when you pursue nuclear power these days, as Florida has painfully found out (see “What do you get when you buy a nuke? You get a lot of delays and rate increases”¦.”).
New nuclear plants are so expensive they are likely to provide electricity at some 15 cents per kilowatt hour (see “Nuclear power, Part 2: The price is not right”) “” or possibly more than 20 cents/kWh (see “Exclusive analysis, Part 1: The staggering cost of new nuclear power”). The precise answer “” 50% higher than average U.S. electricity prices or more than 100% higher “” is hard to know since it is all but impossible to find a utility willing to stand behind a firm price in a rate hearing.
Some city Council members are now rethinking their commitment to the nuke:
For Council members, the vote delay was not a negotiation tactic. Councilman Justin Rodriquez had been lined up in the “aye” column for the $400-million vote but said the news reveals a serious “chink in CPS’s armour.” That it is, perhaps, “a mixed blessing.”
“We need to take a step back and look at all the options, including continued investment in renewables,” Rodriquez said.
Perfect timing to review a fact still lost on most residents “” and, apparently, many of our elected officials “” that we have alternatives capable of delivering the needed 500 megawatts by 2020.
Developed by a team of international energy experts, the report, San Antonio: Leading the Way Forward to the Third Industrial Revolution lays out in broad brushes a way to meet future energy needs, save utility customers a collective $3 billion by 2030, and create, on average, 10,000 jobs a year in a stimulated “green-collar” revolution.
It’s not a bad report, other than the use of uber-high-priced hydrogen storage when other strategies would be far cheaper — see these Craig Severance posts, “The Holy Grail of clean energy economy is in sight: Affordable storage for wind and solar” and “The dynamic duo: Hybrid solar/gas plants provide low-cost, low-carbon power when needed”).
Severance is co-author of The Economics of Nuclear and Coal Power (Praeger 1976) and a former Assistant to the Chairman and to Commerce Counsel, Iowa State Commerce Commission. He’s been prescient on this San Antonio plant and has also advanced superior alternatives. Here is his September analysis:
Photo: Mural at Construction site in beautiful downtown San Antonio, TX
SAN ANTONIO, TX — San Antonio’s new Mayor Julian Castro, in office just three months, has inherited a dilemma. The nation’s 7th largest city is suffering from almost 8% unemployment. With limited resources, the Mayor and City Council are searching for ways to create local jobs. At the same time, the City, through its municipal utility City Public Service (CPS), is burning through hundreds of millions of dollars on just paperwork, to prepare to spend billions on a new nuclear power plant project some 200 miles away at Bay City, TX.
Should the Mayor and the City Council question the wisdom of rushing ahead with the nuclear project, or approve CPS continuing to spend hundreds of thousands of dollars a day to prepare applications for CPS to buy a 40% share of two new reactors proposed for the South Texas Project? CPS says the two new reactors, to be co-owned with NRG Inc., would help the utility meet power demands projected for 2020 and beyond — over 10 years away.
$400 Million Bond Issue. The issue comes to a head next month, when the City Council must approve or disapprove CPS issuing $400 million in bonds to continue its spending on the project. The monies will not be used to actually begin construction — — that would be years away — but to prepare the enormously complex engineering, design, and environmental applications required for a new nuclear power project.
Local citizen groups, however, say a far better use of such monies would be to help CPS fund aggressive energy conservation, Smart Grid, and solar energy programs to help citizens cut utility bills. Such programs would immediately create local jobs — and cut electric growth so the nuclear projects would not be needed.
“First in U.S.” CPS and NRG, Inc. are rushing the proposal, as they say the South Texas Project expansion will be the first new nuclear plants to be built in the U.S. in over 30 years. They hope to be first in line to receive Federal Nuclear Loan Guarantees under an $18.5 Billion program authorized by Congress.
Many San Antonions question the wisdom of rushing to be the guinea pig for the nuclear industry, which has a history of massive cost overruns. They challenge whether it is even a good idea to be first. Why not let someone else find out whether the nuclear industry has learned how to build plants on-budget?
Nuclear Debate Held Wednesday, September 16th. With so much at stake, San Antonio civic leaders have taken extraordinary measures to open up the process to public scrutiny. The San Antonio News Express , led by Editor Robert Rivard, has for months run articles on the nuclear proposal. Open meetings have been sponsored by the utility in many neighborhoods.
As a peak event in this public discussion, The San Antonio Clean Technology Forum, led by civic leader Michael Burke, organized a sold-out luncheon debate this past Wednesday, attended by 400 of San Antonio’s leading citizens. Tables were sold to major companies and organizations, and all news media were invited.
The Clean Technology Forum invited myself and Dr. Arjun Makhijani, President of the Institute for Energy and Environmental Research, to debate the wisdom of the new nuclear project. Supporting the project were Steve Bartley, CPS Interim General Manager, and Patrick Moore, who is a paid spokesperson for the nuclear power industry. Mayor Julian Castro keynoted the event, which was gracefully moderated by Bob Rivard, Express-News Editor.
View the Actual Debate. The video of the full debate can be viewed here:
Click HERE to go to TexasVox site with Videos of Debate.I encourage readers to view the full debate to hear the exchange for themselves, as it was quite lively. Each speaker had only 12 minutes, followed by audience Q&A and a 2 minute close, so it’s not too long.
Due Diligence Needed. With hundreds of millions in spending already underway, and billions more to come, the proposal for San Antonio to buy 40% of the South Texas Project expansion is well overdue for an independent “Due Diligence” evaluation. In other words, does the project actually make business sense? This was the approach I took in my speech, with six common Business Tests applied. (See here for the 2 page handout with details of these points.)
Business Test #1: Financial Stress. If you approach your banker for a $100,000 home improvement loan, the questions asked do not center around whether you like the improvements, how beautiful they are, or even if they will raise the value of your house. Rather, the first question is can you support a project of such size? Do you have enough income, and assets, to back up such a huge project?
For the same reason, it does not matter if anyone likes nuclear power,or if they think it’s a cool technology. It doesn’t even matter if they think it might be a way to reduce carbon dioxide emissions. The first question is CAN the utility do the project — without severely stressing the financial viability of the utility, and the City of San Antonio itself?
CPS estimates its 40% share of the 2,700 Megawatt (MW) project will cost $5.2 Billion. This is a really low estimate by national standards, and other estimates place this closer to $9 Billion. Just the likely cost overruns are greater than the entire $3.1 Billion Net Worth of CPS.Proposals to build new nuclear power plants place them among the costliest private construction projects in the history of the world. For this reason, Wall Street investment banks in 2007 specifically singled out new nuclear power plants as too risky for loans, unless backed by Federal Loan Guarantees.
These same banks are still loaning money for natural gas power plants, wind farms, solar plants — but nuclear power has been deemed a crap shoot, now requiring Federal Loan Guarantees.
A Federal Loan Guarantee might work, but an important question has arisen. If San Antonio gets a Federal Loan Guarantee based on the $5.2 Billion estimate, but the project actually costs $9 Billion — where will the City raise the extra money, when Wall Street has already said it will NOT loan money for nuclear?
Another question concerns nuclear’s impact upon the City’s bond ratings. The bond rating agency Moody’s has — two years in a row — taken the extraordinary measure of warning utilities that if they pursue new nuclear power plant projects, their bond ratings are likely to be downgraded.
In its June 2009 Special Report, Moody’s coined a new Wall Street technical term for new nuclear power: “Nuclear’s ‘Bet the Farm’ Risk.“Bet the City” Risk. The municipal utility CPS contributes $282 million to the San Antonio City Budget — the largest source of revenue for the City. Because the City is so dependent upon CPS, not only is the new nuclear project a “Bet the Farm” risk, it is a “Bet the City Risk”.
Business Test #2: Is Decision Rushed? Other types of power plants only require 3 to 5 year lead times, so San Antonio actually has a lot more time to decide. The City could wait 5 more years — until around 2015 — to make a decision to build a new power plant, to meet a 2020 need. However, the very long lead time for nuclear power is forcing the City’s hand right now.
If there was ever a time to avoid making a huge spending commitment on a speculative10 year forecast, it is this next 10 years. Everything is changing about how we use energy over this next 10 years — nothing is “Business as Usual” right now.
The nuclear project is like investing billions right now, for a Hummer factory to start selling Hummers in 10 years. Is that wise?
Business Test #3: Does the Proposal Match Actual Customer Needs? An amateurish business plan starts with somebody’s idea for a cool product, then tries to find a way to get people to buy it. Business plans that actually work start with identifiying a customer need, then work backward to design a product that exactly matches that customer need.
The proposal for San Antonio to buy 40% of two new nuclear baseload power plants is the former type of business plan. Half of the output won’t even be needed by San Antonio for decades — that’’s like buying 4 new cars, and sticking 2 in the garage till your kids grow up. CPS says it will try to find buyers for the extra power — thus placing San Antonio at risk of losing money on those outside sales.
Another flaw is that the forecast shows only peak load capacity will be needed by 2020 — which occurs only a few hours of the day or year. Yet, the proposal is to build nuclear plants, which run 24/7. What will they do with the kWh’s generated off peak? More excess power sales will be needed, into a Texas market that often pays close to zero cents per kWh when massive wind farms are running
Business Test #4: Competition. All business plans must evaluate the competition. For a power plant, this means two things — the competition about what type of plant to build, and also the competition for selling kWh’s into the open market, if you need to do that.
Another type of power plant San Antonio could build might be a natural gas power plant (of course, it can wait until at least 2015 to decide to do so, as noted above under “Rushed Decision”).
As noted under #3 “Matching Needs”, CPS admits it will have to sell excess power to other Texas utilities, as it is buying too much power plant. The price these utilities are willing to pay for power in the Texas market is greatly affected by the price of natural gas.