Toshiba's Financial Meltdown Puts Its Nuclear Projects at Risk Worldwide
- January 2, 2017
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- The company overpaid for Westinghouse in 2007 .
- It wrote down half of the value in 2014 .
- It is mired in court suits over the value of its acquisition of CB&I which was intended to resolve problems with the supply chain for construction of four AP1000 reactors in the U.S.
Toshiba’s audacious entry into the U.S. nuclear renaissance, once heralded as a major step forward for the industry, has turned into a financial quagmire and a potential major headache for current and future projects involving the Westinghouse AP1000 reactor.
The Japanese company said this month it may have to write down billions related to an acquisition made by U.S. unit Westinghouse Electric that was completing the new generation of reactors at two U.S. facilities. The projects, directed by utilities Southern Co. and Scana Corp., are several years behind schedule and billions of dollars over budget.
Westinghouse’s purchase of contractor CB&I Stone & Webster Inc. was expected to result in a settlement with the utilities regarding legal disputes over construction delays, supply chain issues for major components, and cost overruns.
However, the acquisition turned out not to be a match made in heaven. Westinghouse and CB&I wound up in court over how expensive the delays will be and who should pay for them.
According to a report by the Bloomberg wire service, Southern won approval from Georgia regulators to raise the capital costs of Units 3 and 4 at its Plant Vogtle by $1.3 billion to $5.68 billion. The action came after Southern agreed to resolve its dispute with Westinghouse and CB&I by paying $350 million. The parties also agreed that the units would be finished in 2019 and 2020, more than three years behind schedule.
Scana said the settlement with the contractors revised the completion schedule for its reactors at V.C. Summer in South Carolina to 2019 and 2020 and also raised the expense of its project.
Toshiba underestimated costs of projects in the U.S., Mamoru Hatazawa, the company’s executive officer in charge of the nuclear business, told a media briefing in Tokyo last week. Key issues include the cost of long lead time components and delays in delivering them. Issues with concrete at the Vogtle site bedeviled construction managers.
Toshiba bought Westinghouse in 2007 for $5.4 billion, a move that was widely seen as ill-considered as the Japanese conglomerate had no prior experience in the nuclear industry.
Analysts believe the firm paid too much for the firm. This view was confirmed soon after when Toshiba traded 10% of the purchase price, $540 million, for rights to uranium production in Kazakhstan. In 2014 it took a write down of $2.3 billion, or nearly 50% of the remaining value.
A year later Toshiba became embroiled in a major accounting scandal in which it admitted it had vastly overstated earnings across its business units including for nuclear energy.
The key issue is where the firm will wind up in terms of its net working capital. A Reuters Factbox published by the wire service on 12/281/6 explains the complex ins and out of the financial measure and how the numbers affect the future of Toshiba’s nuclear business.
The Reuters wire service reported on 12/28/16 that faced with the prospect of a multi-billion-dollar writedown that could wipe out its shareholders’ equity, Japan’s Toshiba is running out of fixes: it is burning cash, cannot issue shares and has few easy assets left to sell.
Bottom line – Toshiba’s financial woes, and the rate at which it is spending down its cash reserve, put a number of current and future nuclear reactor projects at risk. Without enough cash, or credit, the question is whether the firm will be able to start new projects or finish acquiring components and services for the reactors that are under construction and take them through the final phases of regulatory approval to start operations to generate electricity.
These plans include future efforts in the UK to build three Westinghouse AP1000 reactors at the Moorside project. Toshiba will not have the billions in new capital to pay for its 60% equity stake in the project nor will it have a financial profile necessary to make new investors confident enough to share the risk of building the units. Current plans to have the first unit operating by 2024 may need a new majority investors to be realized by that date.
In China projects include completion of four reactors (Sanmen 1 & 2, Haiyang 1 & 2) under construction in China, and in the U.S. there are four more, two in Georgia (Vogtle) and two in South Carolina (V C Summer).
Units 3 & 4 at both Sanmen and Haiyang are also expected to be AP1000s. Additionally, China has plans to build two more AP1000 units (No,. 5 & 6) at Fangchenggang and at multiple other sites.
Even after the reactors being built are finished, Westinghouse’s nuclear engineering expertise will be needed in China and the U.S. to service and maintain the reactors. In particular, Chinese nuclear engineering firms will depend heavily on Westinghouse for its expertise.
First Energy May Close Davis-Besse Nuclear Reactor
(News Messenger, Sandusky, OH) – The Davis-Besse Nuclear Power Station could soon be closed. First Energy CEO Chuck Jones told an industry conference in late December the firm is planning to sell or close the plant and several others in 2017 or early 2018 unless state officials change energy regulations that would make it financially feasible to keep iut open. The utlity has contended with ratepayers before the Ohio Public Service Commission over this issue. He said the firm does not expect to prevaail in its position.
“We have made our decision that over the next 12 to 18 months we’re going to exit competitive generation and become a fully regulated company,” Jones said. “We are not going to wait on those states to decide what they are going to do there.”
The threat of closure has put the Sandusky / Toledo, OH, region on edge. More than 700 jobs would be at risk and the payroll from these high paying jobs helps keep the rust belt cities afloat.
The implications of sale are less dire than closure. The NRC license was renewed for 20 years in December 2015. The steam generators were replaced in May 2014.
It would be an attractive property if the buyer could resolve the rate issues. For these reasons, First Energy’s threat to close the plant goes against its own best interests. The CEO’s statements may be seen by some ratepayers as an instance of “playing chicken” with them and the PUC.
Russia Reduces Ambitious Targets To Boost Nuclear Share
(NucNet) Russia’s objective is to maintain the share of nuclear in its energy mix at around 18%, a significant reduction from more optimistic targets set as recently as 2014.
Alexander Lokshin, first deputy general-director of state nuclear corporation Rosatom said in an interview on the company’s website that the reason for the reduction in new-build plans is the almost stagnant rate of energy demand in Russia.
He said forecasts of around 4.5% annual growth in energy demand set in 2006 “proved to be far from reality”.
He said growth in energy consumption is almost at zero while existing nuclear generating capacity that was scheduled to be shut down is continuing to operate.
“The result is not only that there is no generating shortage, but that there is an excess.”
Russia, which according to the International Atomic Energy Agency has 36 nuclear units in commercial operation and seven under construction, said in 2014 that it planned to put 19 new reactors into commercial operation by 2030 with lifetime extensions scheduled for 11 units.
India Sets Trial Run of 700 MW PHWR Nuclear Reactor
(IANS) The trial run of India’s first 700 MW pressurized heavy water reactor (PHWR) at Kakrapar is expected to take place in mid-2017 said an official of the Nuclear Power Corporation of India Ltd (NPCIL).
India’s atomic power plant operator NPCIL is building four 700 MW PHWRs — two each at Kakrapar Atomic Power Station (KAPS) in Gujarat and Rajasthan Atomic Power Station (RAPS) in Rajasthan.
“The construction of two 700 MW PHWRs at KAPS is at an advanced stage. The commissioning activities of the first unit has begun. The trial run of the first unit is expected to happen sometime during the middle of next year,” B.C.Pathak, Executive Director (Projects), told IANS here over phone from Mumbai.
Speaking to IANS, Vineet Kumar, Station Director of the two units (3 and 4 at KAPS) said: “We have started the commissioning activities. It will be done in stages and various milestones have to be crossed.”
“We will be doing the hydro test first in May-June 2017. The next step will be hot conditioning of the unit, which would happen around two-and-a-half months after the hydro test,” Kumar added.
“The fuel loading is expected to happen in October 2017 and the reactor’s criticality (first time starting of the nuclear fission process) is slated to happen in November 2017,” Kumar said.
According to Kumar, the unit is expected to start commercial operations early 2018.
Pathak said the 4th unit at KAPS would start 6-7 months after the third unit.
For NPCIL that has been building 220 MW and 540 MW pressurized heavy water reactors, it is a major jump to go in for 700 MW PHWRs. Concrete was first poured in November 2010 for the 3rd unit at KAPS and in March 2011 for the fourth unit.
First South Korean APR-1400 Enters Commercial Operations
(WNN) The first Korean-designed Advanced Pressurised Reactor-1400 (APR-1400) officially entered commercial operation in December. Unit 3 of the Shin Kori nuclear power plant in the south east of South Korea was connected to the grid 11 months ago.
Construction of Shin Kori 3 began in October 2008. Korea Hydro and Nuclear Power (KHNP) was issued with an operating licence for the unit by the Nuclear Safety and Security Commission in late October 2015.
KHNP noted in a statement that the start of commercial operation at Shin Kori 3 brings the total number of power reactors in operation in South Korea to 25. Together they have an installed capacity of 23.1 GWe and represent 22.1% of the country’s total generating capacity.
Operation of unit 4 at Shin Kori – also an APR-1400 – is expected to be approved during the first half of 2017.
Two more of the 1350 MWe pressurized water reactors are under construction as units 1 and 2 of the Shin Hanul site in South Korea. Those units are expected to enter service in April 2017 and February 2018, respectively.
Two further APR-1400 units are planned for both the Shin Kori and Shin Hanul sites.
Four more APR-1400s are under construction at Barakah in the United Arab Emirates. All four are scheduled to be in operation by 2020.
Construction Starts on Second Hualong One
(WNN) China General Nuclear (CGN) has started construction of its second Hualong One reactor – unit 4 of the Fangchenggang nuclear power plant in western China pouring first concrete began on December 23, 2016. It marks the official start of construction on another Hualong-1 (HPR1000) demonstration power unit, China’s first homegrown nuclear power plant.
The Fangchenggang plant will act as a reference plant for CGN’s Bradwell B Project in the UK, and “will demonstrate China’s cutting-edge nuclear power technology to the international market”, CGN said.
Fangchenggang is located in the Guangxi Autonomous Region, about 45 kilometres from the border with Vietnam. A total of six large pressurized water reactors are planned to operate there. Units 1 and 2 are both CPR-1000s, units 3 and 4 will feature Hualong One reactors, and units 5 and 6 are to be AP1000s.
Construction of the first two units at the plant began in July and December 2010, respectively. Unit 1 was connected to the grid in October 2015 and entered commercial operation on 1 January. Unit 2 was connected to the grid in July.
First concrete was poured for the nuclear island of unit 3 of the Fangchenggang plant on 24 December 2015 and is expected to start up in 2019. Unit 4 is scheduled to start up in 2020.
The plant is 39% owned by Guangxi Investment Group and 61% owned by CGN.
“Upon completion, the plant will provide steady and clear power for the Beibu Gulf Economic Zone, and also play a positive role in the control of air pollution,” CGN said.
NRC Issues Licenses For AP1000s At Duke Energy’s William States Lee Site
(NucNet) The NRC has issued licenses to Duke Energy for the construction and operation of two nuclear power nits at its proposed William States Lee III station in South Carolina. Duke is considering building two Westinghouse AP1000 units at the site of the partially-completed Cherokee nuclear plant.
In the early 1970s, Duke Power started construction of a three-reactor nuclear power plant at the site. However, the project stalled due to economic problems in the early 1980s, leading to the firm abandoning the effort.
Duke has not decided whether it will build the units which would still require state-level approvals in North Carolina and South Carolina. The states do not agree on CWIP, a regulatory policy which would allow the utility to collect the costs of building the reactors from rate payers while the units are being built.
Without common policies across both states, Duke would have to raise billions in capital for the reactors that would serve customers in North Carolina. Given the cost overruns for SCANA’s two AP1000 reactors in South Carolina, ratepayers there may be in no mood, at least for now, to agree to build two more.
Duke has not made a commitment to build the reactors. The licenses are good for 20 years as long as the utility doesn’t change the referenced reactors designs or the site where they would be built.
South Africa’s Eskom Releases ‘Request For Information’ On New Nuclear
(NucNet) State-owned utility Eskom has released a request for information (RFI) related to plans in South Africa to build new nuclear power reactors. Eskom said the RFI is part of an “information-gathering exercise” related to nuclear project capacities and costs, proposed financing solutions and localization opportunities.
The information will also be used to supplement Eskom’s response to the government’s draft integrated resource plan (IRP), which was published in November 2016 for public comment. The IRP sets long-term goals for electricity planning.
The government had previously said it wanted to generate 9,600 MW of energy from as many as eight reactors that should begin operating from 2023 and be completed by 2029, with price estimates ranging from $37bn (€34.8bn) to $100bn (€94bn).
The project is mired in controversy due to an announcement by South African President Zuma that he had inked a deal with Russia’s Rosatom to build all eight 1200 MW reactors. Zuma justified the deal on the grounds Rosatom would provide the majority of the funding.
Critics have charged that the deal came with almost total control of major energy assets being turned over to the Russians. Also they said, with some justification, that Zuma would rewards his cronies with management and construction contracts.
Since then the government’s energy and treasury ministries have feuded over the scope, timing, and costs of an open procurement that would require Rosatom to compete for the right to build the units.
For its part, the state-owned electric utility Eskom, which is broke, has asserted that it is the only actor which can manage the build and eventual operation of the reactors. The government has artificially kept Eskom’s rate low to subsidize electricity for the nation’s poor.
The low rates have also hobbled Eskom’s ability to keep the power on resulting in brown outs of the country’s major industries reducing overall GDP and raising government debt.
These factors didn’t stop Eskom from provisionally selecting four sites for new reactors. The plan is for Eskom to be the owner, operator, and manager of the new build.
In a nod to concerns about costs and debt, Eskom said in responses to press questions that one of its options is to build a third of the planned capacity, or 3.2 GB, the equivalent of two Areva EPRs.
It is anybody’s guess whether an actual RFP will eventually be released and where the money will come from to pay for it. The closing date for responses to the RFI is April 28, 2017.
Photo Credit: Lennart Tange via Flickr