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US power companies have a history of walking away from nuclear projects

William Freebairn, senior managing editor, Platts Nuclear Publications

August 17, 2017 06:00:00 EST (3:25)

After spending close to $10 billion, two South Carolina power companies recently walked away from a half-finished nuclear power plant they were building, and a decision is expected by the end of August about a Georgia project. William Freebairn explains how the story of the Summer project in South Carolina demonstrates the capital-intensive nature of nuclear energy and the substantial risks of cutting-edge nuclear plant design. Will the Vogtle project in Georgia join the ranks of abandoned projects in the US?

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Video Transcript

US power companies have a history of walking away from nuclear projects

By William Freebairn, senior managing editor, Platts Nuclear Publications

Welcome to the Snapshot, a series examining the forces shaping and driving global commodities markets today.

Two South Carolina power companies decided July 31 to walk away from a half-finished nuclear power plant they were building, after spending close to $10 billion. How could that happen and what does is say about nuclear power in the US? It’s a remarkable story, really, about how expensive and capital-intensive nuclear energy has become, but also about the substantial risks of first-of-a-kind plant design.

This project, the Summer nuclear plant expansion in South Carolina, was one of two in which next-generation nuclear reactors were being built in states where regulators allow utilities to recover some early plant costs from ratepayers during construction. This treatment was touted as the only way that nuclear plants could be built given their costs.

The Summer station expansion were cancelled mostly because reactor designer Westinghouse, the contractor that had agreed to build the units, provided the utilities a nearly fixed-cost contract for the reactors.

Westinghouse, reactor designer of Summer station expansion, entered bankruptcy in March

But then licensing obstacles, problems in manufacturing components and quality control issues developed during construction, creating lengthy delays and cost overruns that pushed Westinghouse into bankruptcy in March.

That left the power companies that owned the Summer expansion, as well as a group of companies that owned the similar Vogtle plant expansion in Georgia, to decide whether to take on the risks of completing the reactors themselves.

Santee Cooper and South Carolina Electric and Gas abandoned Summer expansion on July 31

Santee Cooper, a non-profit power company in South Carolina, decided it could not ask customers to keep paying for the project and on July 31 pulled the plug on the Summer expansion. Partner South Carolina Electric and Gas went along with that decision.

Owners of Vogtle project in Georgia expected to announce project decision by end of August

The owners of the Vogtle project in Georgia are expected to announce their decision by the end of August.

It’s certainly not the first time a partly – or even mostly – built nuclear plant was abandoned. In the 1970s, the Tennessee Valley Authority walked away from 11 nuclear reactors for which it had started construction; in fairness, it went back and finished one recently.

Dozens of plants were canceled as costs rose and financial problems mounted, forcing one company, the Washington Public Power Supply System to default on more than $2 billion in bonds and giving the company a new nickname: “whoops”!

The factors that forced all those nuclear plant cancellations in the 1980s may sound familiar to those building today’s plants. The Three Mile Island nuclear accident in 1979 created pressure for increased safety standards in the middle of construction for those plants, and Fukushima in 2011 did the same for today’s projects..

Starting construction before engineering is complete and underestimating work can be blows to projects

Additionally, construction got started before engineering was completed. As with many large infrastructure projects, there was a tendency to underestimate the amount of work required to complete the installation of miles of pipes, cables and concrete.

Whoops indeed.

Until next time on the Snapshot, we’ll keep an eye on the markets.

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