Federal Agency Airs Plan to Finance Exports of Nuclear Power Plants

dfc logoWith an eye towards eventually helping the U.S. compete in the global nuclear market to counter the export efforts by Russia and China, a key federal agency announced June 10th that it has opened a 30-day public comment period to gauge support for the plan.

The U.S. International Development Finance Corporation (DFC) said it plans to update its procedures for making investments as part of its $60 billion of lending authority as authorized by Congress.  As a practical matter the agency is more likely to favor bank-to-bank financial arrangements rather than getting directly involved in specific nuclear power projects.  Here’s a summary of information from the “Products” section of their website.

DFC offers equity and debt financing and political risk insurance and funds technical assistance to plan new technology development efforts.  It’s priorities include investments in low-income and lower middle-income countries (as defined by the World Bank).

The agency considers other investments that are important to U.S. foreign policy and national security or address key agency priorities such as women’s economic empowerment.

DFC, under the European Energy and Diversification Act of 2019, is authorized to support energy infrastructure projects in upper middle-income and high-income countries in Central and Eastern Europe that strengthen regional energy security, which is essential to economic growth and U.S. foreign policy interests

Note that the third paragraph makes no mention of developing nations which is the global market where Rosatom, and Chinese state owned firms, have grown their order books. For Russia, examples include countries like Egypt and for China examples include countries like Pakistan.  U.S. prospects could include Poland, Romania, and the Czech Republic.

All that said, does the agency understand what it is getting into and will it reach out for help from the U.S. nuclear industry in order to achieve success with its investments?

What to Export?

According to the press statement by the DFC, the agency sees opportunities for financing “advanced nuclear technologies under development and deployment in the United States, including small modular reactors (SMRs) and microreactors, will have significantly lower costs than traditional nuclear power plants, and may be well suited for developing countries.”

Export Gains for U.S. Nuclear Industry or Foreign Policy Outcomes?

There are foreign policy objectives at work. Both Russia and China use nuclear energy exports as tools of foreign policy by bringing much needed energy projects, with attractive financial terms, to developing nations like Egypt, Bangladesh, Turkey, and Pakistan. Russia has far outpaced China in this regard despite China’s globe spanning “belt and road” infrastructure investment program.

China has taken equity positions in two of the UK’s biggest nuclear power station projects which are Hinkley Point C and Sizewell C. Both projects are expected, when completed, to each generate 3,200 MW of carbon emission free electricity.

In return, China has a gained a commitment to build multiple units of its 1000 MW Hualong One PWR at the Bradwell site. Its Hualong One Design has completed about three-quarters of the UK Generic Design Review process which is a safety certification required to build the reactor in the U.K.

China is using its massive investments in the U.K. nuclear new build as political leverage to insure that its telecommunications giant Huawei is not locked out of doing business to build 5G networks in the UK, due to cybersecurity concerns, and to preserve plans to build a high speed rail line in the U.K.

Countering this growing influence, the U.S. hopes to match the efforts by Russia and China with similar attractive financial incentives for advanced and affordable nuclear reactors such as small modular, micro, and mini scale designs. Significantly, the DFC has twice the financial loan authority ($60 billion) of the Overseas Private Investment Corporation, which it replaced, to throw at the program.

A Look at the Political Calendar

The DFC declined to put a timeline on its decision to proceed with this strategy nor did it explain how it would develop inhouse the technical and financial expertise to identify and select projects, conduct due diligence assessments on candidates countries for financing, or monitor funded projects. (more on this issue below)

The DFC’S executive director has experience as an investor in the health care industry. Key executives with the agency have backgrounds in finance, management consulting, and politics. None of them have ever led or worked on a nuclear power plant new construction project or an energy project at a similar financial scale. The agency has tilted over time, and has obligated so far about half of its investment authority,  mostly on projects to alleviate poverty in developing nations.

Working through the comment period, and the congressional debate that may follow, it could be late 2020 before the DFC’s board feels confident to enact the policy and begin its shift in investments to consider nuclear energy projects as part of its portfolio. The first investment decisions could be several years in the future.

green_earth_nuclear_atom-1_thumb.jpgAnother imponderable is that in less than a year a new President and Congress will take office and will likely include a Democratic president and majorities for the party in both the House and Senate. The left wing, or progressive wing, of the Democratic Party has struggled with the concept of investing in nuclear energy as an essential part of the strategy to decarbonize the U.S. economy.

During the public comment period, DFC said it would reach out to external engagement with stakeholders representing Congress, peer U.S. Government agencies, NGOs, and the private sector.  Getting the green wing of the Democratic party onboard ought to be an important part of that outreach effort.

Management and Supply Chain Challenges

While there is no shortage of U.S. based consulting financial and technical capabilities to help the DFC make and manage its investment decisions, it needs to be wary of the condition of the U.S supply chain and to take action to get its house in order.

The U.S. has not sold any reactors overseas for decades. The sole U.S. manufacturer of nuclear reactors is Westinghouse which, following a bankruptcy, is now owned by a Canadian private equity firm that counts as its investors including several nations including Qatar.

In 2014 completion of the four Westinghouse 1150 MW AP1000s to exported to China was delayed by issues with the reactor cooling pumps (RCPs) requiring them to be replaced.  In 2019 one of the four RCPs installed at the operating Sanmen project failed after being fully qualified and installed taking the reactor off line and out of revenue service for months.

The Vogtle project in Georgia, twin Westinghouse AP1000s, is running over budget and behind schedule at the cost of billions more than budgeted due in part to problems with installed components that didn’t work as advertised.

The V C Summer project, two Westinghouse AP1000s, in South Carolina failed due in large part to the inability of the utility and its EPC contractors to manage the supply chain and deliver major components on time leaving a $9 billion hole in rate payer pocketbooks. A  failure of the project management function, and allegations of fraud allegedly carried out by the utility’s executives, also contributed to the collapse of the project.

The Securities and Exchange Commission (SEC) said in a recent complaint that with the V C Summer project the lure of tax credits for the utility building the reactor led the former CEO and EVP to lie about progress in order to quality for the federal financial support.

“The SEC’s complaint alleges that SCANA, its former CEO Kevin Marsh, former Executive Vice President Stephen Byrne, and subsidiary SCE&G misled investors about a project to build two nuclear units that would qualify the company for more than $1 billion in tax credits. According to the complaint, the defendants claimed that the project was on track even though they knew it was far behind schedule, making it unlikely to qualify for the tax credits.”

Management and Due Diligence Issues

The issue of corruption and potential for fraud in developing countries should be a particular focus of the DFC’s due diligence efforts. South Africa’s struggles to start a new nuclear power station are a case study in the perils of double dealing that can affect a nation’s plans to spend billions on a new nuclear power plant.

In Brazil in 2014 the volume of bank notes involved in bribery of the CEO and executives of the state owned nuclear utility by the construction firms and suppliers to the Angra III project was so immense that the people taking the bribes ran out of room to keep them secret and some of the paper was stashed in a car wash.

A Win Strategy for the DFC

If the DFC is going to loan tens of billions of taxpayer dollars for the export of U.S. sourced commercial nuclear energy technologies, it needs to get it right. In addition to rigorous due diligence on the award and execution of loans, it needs to collaborate with a broad range of associations of nuclear subject matter experts for project management and supply chain issues. It is not enough to just write a check. The success of the DFC loan program depends on successful nuclear reactor projects to earn and keep the confidence of congress and the public.

Organizations that can help include the Nuclear Energy Institute, the Nuclear Industry Council,  American Society of Mechanical Engineers, the American Nuclear Society, and the industry trade groups representing engineering services and manufacturers of nuclear reactor components.

The objective is to work on a national strategy of getting all U..S. vendors fully capable of supporting these export projects. Also, DFC needs to include expertise of U.S. firms who have a baked in project management culture to focus on delivery of the projects receiving the loans on time and within budget. Congressional funding for the Department of Energy to organize and pay for the effort is a necessary success factor. The industry can’t do it alone.

Stakeholder Support for the DFC Proposal

(NEI) The Nuclear Energy Institute (NEI), the inside the beltway trade group for the U.S. nuclear industry, announced on its website that it was thrilled with the proposed policy change which would overturn a decades long ban on government financial support for U.S. nuclear technology exports.

Maria Korsnick, president and chief executive officer of NEI said, “The proposed policy change to lift its legacy prohibition on nuclear energy projects supports the development of clean, reliable energy worldwide, helps countries reach their energy development goals, buttresses U.S. national security, and can help level the playing field for U.S. firms.”

In her statement, Ms. Korsnick echoed the view of former INL Director John Grossenbacher who said way back in 2010 that development and operation of a nuclear reactor is a “50-100 year proposition.” By this he meant that the stages of a reactor’s life span can be measured by these milestones. Here’s a more current example.

  • Year 1 – Start project preceded by up to a decade of planning and efforts to arange finacing
  • Year 4 – Construction and operations license
  • Year 10 – Start up with 40 year license
  • Year 50 – First 20 year license renewal
  • Year 70 – 2nd 20 year license renewal
  • Year 90 – Life extension 20 year license
  • Year 110 – Start decommissioning

NEI’s Korsnick apparently has taken a page from Grossenbacher’s book. She said, “Partnering with U.S. companies would position countries to provide long-term clean, reliable energy for electricity grids, desalination, and other applications. In addition, these partnerships will forge long-term strategic economic and security relationships with the United States that can last 100 years.”

Clearpath, a conservative clean energy group, also said it supported the change in DFC’s investment policy. Rich Powell, the groups’s executive director, said in a press statement;

“As Russia and China utilize their command and control government-owned enterprises to attempt to gain influence internationally, the American government must ensure that our companies, our innovators, and our clean energy technologies have the best possible chance to compete internationally.”

“By lifting the previous restrictions on the U.S. nuclear energy industry to develop internationally, America is taking a huge step to truly offer a competitive product — similar to the incentives China and Russia provide when they approach other countries with offers to develop infrastructure and energy.”

(ANS) World Nuclear News reported that the DFC announcement came during the annual meeting of the American Nuclear Society (ANS) held last week with a virtually connected attendance of about 2,300 people. The potential change in U.S. policy to begin offering financing solutions was highlighted in a statement during one of the ANS conference session by US Assistant Secretary for the Office of Nuclear Energy Rita Baranwal.

She identified the ability to offer attractive financing options as one of two areas of deficiency which the government could address to support US exports, the other being the ability to take back used nuclear fuel.

“We really need to be offering a comprehensive global package to countries that really do want to deploy US technology.”

Brazil / Business Model Approved for Angra-3 Nuclear Plant

(NucNet)  The Reuters wire service reports that Brazil has approved a business model to complete the Angra-3 nuclear power plant, with or without a partner joining Eletronuclear, the Eletrobras subsidiary that operates the country’s nuclear reactors.

The business model is said to have been approved recently, although there has been no official confirmation. Reuters said was devised by major lender, state development bank BNDES, and requires a private partner to share the financial burden.

Eletronuclear president Leonam Guimaraes said last month that Brazil wanted to find a partner by 2023 to help finish and operate Angra-3, with companies in China, Russia, France and South Korea among possible candidates. He said lower demand for electricity and a fall in the value of the Brazilian real during the coronavirus crisis could push completion of Angra-3 into 2027,

Construction of the 1,245-MW Siemens/KWU pressurized water reactor unit began in 1984 but was halted in 1986 because of a lack of financing. In 2010, a construction permit was reissued by the authorities, but the project was suspended again in 2015 because of financing concerns and corruption investigations that snared the CEO of the Brazilizan nuclear utility and execuives of of construction firms building the plant.

According to Eletrobras Eletronuclear, almost 47% of civil work at the site had been completed in 2014. So far, 9 billion reals ($1.6 bn) has been spent on the project.

Brazil has two operational nuclear plants, Angra-1 and Angra-2, which provide around 2.7% of its electricity production.

U.S. Seeks Brazilian Nuclear Business

In April a U.S. trade delegation visited Brazil to promote U.S. exports of nuclear technology.

As a result Brazil and the USA have signed agreements on extending the operation and generating capacity of Angra unit 1 and on cooperation in new nuclear technologies.

The agreements, between Westinghouse and Eletronuclear, and between the US Nuclear Energy Institute (NEI) and the Brazilian Association for the Development of Nuclear Activities (Abdan), were signed in February at the Brazil-US Energy Forum in Rio de Janeiro in the presence of Brazilian Energy Minister Bento Albuquerque and US Energy Secretary Dan Brouillette.

The U.S. delegation also included representatives of Framatome, GE Hitachi Nuclear Energy, and Holtec International, among others. An agreement for bilateral cooperation on development of nuclear energy was the key outcome of the meeting.

Brazil has also expressed an interest in small modular reactors.

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