July 31, 2017 at 3:02 PM
The long quest to revive the nation's nuclear power industry suffered a crippling setback Monday when two South Carolina utilities halted construction on a pair of reactors that once were expected to showcase a modern design for a new age of nuclear power.
The project has been plagued by billions of dollars in cost overruns, stagnant demand for electricity, competition from cheap natural gas plants and renewables, and the bankruptcy of Westinghouse Electric, the lead contractor and the designer of the AP1000 reactor that was supposed to be the foundation of a smarter, cheaper generation of nuclear power plants.
Instead, the partly finished South Carolina reactors, along with two others under construction in Georgia, have demonstrated that the main obstacle to new nuclear power projects is an economic one. The plants would be more viable if the federal government imposed a tax on carbon as part of climate change policy, but that seems unlikely.
"Today's announcement is another powerful signal of just how bleak the outlook for nuclear in the United States is, a result of a hollowed-out nuclear industry, cheap gas, falling renewable costs and inadequate policies to account for the climate change costs of carbon emissions," said Jason Bordoff, director of the Columbia University Center on Global Energy Policy.
"Stronger climate policy as well as government support will be needed if we are to realize the much-heralded 'nuclear renaissance,' " he added.
Five U.S. nuclear plants have shut down recently, a result of age and of competition from renewable and natural gas plants.
Santee Cooper, the junior partner in the reactor project with a 45 percent share, said shelving the project would save its customers nearly $7 billion in additional costs to complete it, which would have pushed the price to $11.4 billion on what was supposed to cost $5.1 billion to begin with. The project is also at least five years behind its original schedule.
SCANA, the lead partner with a 55 percent stake, said completing the plants on its own would be "prohibitively expensive." The reactors were being built at the Virgil C. Summer Nuclear Generating Station in Jenkinsville, S.C., which has one reactor. The two utilities said they would ask the Public Service Commission of South Carolina to approve a plan to abandon the project. About 5,000 construction workers have been on the job.
The United States has 99 nuclear reactors, but only one new nuclear power reactor has been completed since the 1980s. And none had begun construction since an accident at Pennsylvania's Three Mile Island site in March 1979 gave regulators and utilities pause. In 1986, disaster struck the Chernobyl nuclear power plant in Ukraine, killing 30 within weeks, making many more ill and contaminating a wide area.
But a wave of optimism about electricity demand and nuclear reactor designs fueled new proposals in the early 2000s. And federal production tax credits and loan guarantees also have been designed to promote new projects. The V.C. Summer reactors were part of a proposal made in 2008.
If they had come online by 2021, the V.C. Summer reactors would have benefited from federal production tax credits. That would have been plenty of time with the original schedule; the first plant was due to come online in 2016 and the second in 2019. But that appears impossible now, and neither Congress nor the Trump administration has acted to extend the deadline for the credits.
During the administration's "energy week," Energy Secretary Rick Perry said that "this administration believes that nuclear energy development can be a game-changer and an important player in the development of our clean-energy portfolio globally." Yet the Trump budget proposal would slash nuclear research and development.
Although the Trump administration has touted the benefits of nuclear power, the completion of the reactors would have created competition for coal-fired power plants in the region, undercutting a key Trump goal. An analysis by Michael Shellenberger, president of an independent group called Environmental Progress, says that V.C. Summer reactors would reduce coal generation in South Carolina by 86 percent, an amount of coal that produces pollution equivalent to 3.8 million cars.
Special provisions in South Carolina and Georgia allow utilities to charge ratepayers for a portion of power projects before they come online, a controversial way for private utilities to raise capital. South Carolina ratepayers already have kicked in $1.4 billion through surcharges on their monthly bills.
"We simply cannot ask our customers to pay for a project that has become uneconomical," Lonnie Carter, the president and chief executive of Santee Cooper, said in a statement. "And even though suspending construction is the best option for them, we are disappointed that our contractor has failed to meet its obligations and put Santee Cooper and our customers in this situation."
Santee Cooper said that Westinghouse's parent, Toshiba Corp., has contractually agreed to pay Santee Cooper $976 million in a settlement beginning later this year and continuing through 2022. Santee Cooper will use that money to avoid new debt and stabilize customers' rates. The company said it will continue to pursue Westinghouse's assets in bankruptcy court to obtain further payment.
SCANA chief executive Kevin Marsh said in a statement that "many factors outside our control have changed since inception of this project." He said that "chief among them" was "the bankruptcy of our primary construction contractor, Westinghouse."
In a conference call with analysts Monday, Marsh said the company had sought other partners and government assistance but found none.
Nuclear energy is expanding more abroad, especially in fast-growing China, which has 36 nuclear reactors and 21 others under construction, according to the World Nuclear Association. But it has been easier to meet financial hurdles because the plants are built by state-owned companies and the cost of capital is heavily subsidized by the government.
That could create opportunity for salvaging some of the equipment already delivered to the South Carolina site, said SCANA's Marsh. He said the utilities would maintain the equipment in case a buyer using the same Westinghouse design emerges. Selling the equipment for scrap would be less beneficial than simply taking a tax write-off.
But with Westinghouse mired in bankruptcy court and its parent Toshiba financially strapped, it isn't clear whether the AP1000 design will be used again. Any foreign company seeking to buy the design would need approval from the interagency Committee on Foreign Investment in the United States.