Distress in the US nuclear industry

June 2017  | FEATURE  |  BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

June 2017 Issue

A US nuclear industry in distress is a development likely to cause concern among even the hardiest – yet ‘distress’ does not quite do justice to the extent of the issues currently troubling the industry stateside.

The origin of this elevated distress is the plight of Westinghouse Electric Company (WEC), the Toshiba Corporation-owned US nuclear company which has been haemorrhaging billions of dollars due to severe difficulties with a number of key projects and, as a result, has now filed for Chapter 11 bankruptcy.

Indicative in many ways of the struggles facing the global nuclear industry, WEC’s indigenous operations – in the main, four nuclear plants under construction in Georgia and South Carolina – have been hit by massive cost overruns and delays of nearly four years, leaving the Japanese conglomerate with a forecasted annual loss of 1.01 trillion yen ($9.1bn).

Satoshi Tsunakawa, Toshiba’s chief executive, has stated there is no risk of additional losses from overseas nuclear projects (which includes the £10bn Moorside nuclear project in the UK, Europe’s largest planned nuclear power plant). “The filing by WEC is an important step toward recovery,” said Mr Tsunakawa. “It is also in-line with our goal of limiting risk from overseas nuclear operations.”

On the other hand, Dr Paul Dorfman, from University College London’s Energy Institute, concludes that Toshiba’s nuclear gamble with Westinghouse has been the cause of the nuclear company’s financial problems. “Both corporations are in dire straits and face a relatively dismal future without significant public and governmental financial input,” he says. “In this sense, the situation mirrors that of new nuclear worldwide – because of the sheer expense of nuclear construction, without huge public and government subsidy, new nuclear is being left behind by the renewable evolution.”

Irreversible dark age

Considered to be something of a coup at the time, the $5.4bn purchase of Pittsburgh-based WEC by Toshiba in 2006 was swiftly followed by deals to build four reactors in 2008 – the first US nuclear plants to be approved by regulators since the controversial Three Mile Island incident in 1979. Today, WEC’s major power plant problems, not to mention its bankruptcy filing, threaten to plunge the US nuclear industry into an irreversible dark age.

“The Westinghouse bankruptcy is a huge blow to the US nuclear industry,” says Steve Clemmer, director of energy research for the Union of Concerned Scientists (UCS) Climate and Energy Program. “After three decades of not building new nuclear plants in the US, only a handful of companies are left in the world with the expertise to build new reactors. Westinghouse is building all four reactors currently under construction in the US and the bankruptcy will make it much harder for power companies in Georgia and South Carolina to finish these projects and collect money Westinghouse owes them. It will also have reverberations across the nuclear supply chain, because Westinghouse is holding $508m in claims from its top 30 creditors.”

More renewable, less new nuclear

As one might expect, the huge losses being incurred by WEC/Toshiba is serving to prompt the exploration of renewable energy opportunities rather than the pursuit of new nuclear projects. “Westinghouse’s recent experience clearly shows that building new nuclear plants in the US is considerably more expensive than new natural gas, wind and solar projects,” says Mr Clemmer. “Increased energy efficiency in homes and businesses is also reducing electricity demand and the need for new power plants. Utilities in South Carolina have already raised consumer electricity rates by nearly 20 percent since 2009 to pay for the construction of the new reactors, even though they have not generated any electricity yet.”

Concurrently, and bolstering the case for a renewed focus on renewable energy opportunities, the cost of wind and solar projects installed in the US has fallen by more than two-thirds since 2009. Furthermore, over the same period, US wind and solar capacity has almost tripled, adding 86,000 megawatts of new capacity – a quantity equivalent to the electricity produced by more than 23 new nuclear reactors.

“The key problem with new nuclear is cost-effectiveness,” states Dr Dorfman. “Solar costs have fallen by 50 percent in the last five years, and now significant new offshore wind projects will be built in Germany without any subsidy. With these very significant drops in renewable costs, nuclear is simply not cost-effective.”

Making nuclear competitive

Across the globe, the outlook for the nuclear industry looks bleak in the near-term, with the construction of new reactors hindered by significant cost and time overruns, and a number of existing nuclear plants economically vulnerable due to historically low natural gas prices. “Over the long-term, if new nuclear plants are to play a role in achieving deep reductions in global warming emissions by 2050 under the Paris Agreement, policies that put a price on carbon and invest in research and development will likely be needed to make nuclear competitive,” concludes Mr Clemmer.

In the US, while bankruptcy proceedings continue, Toshiba and WEC have been working with the owners of the Georgia and South Carolina projects to develop arrangements for the continuation of construction during an interim period – an arrangement which, although keeping work at the sites going and preventing further distress, is likely to do little toward finding a comprehensive solution that can reinvigorate the prospects of new nuclear in the US in the long-term.

© Financier Worldwide

BY

Fraser Tennant