Kate Thomas
OGJ Online
ORLANDO-More US nuclear plants are ending up in fewer hands with the odds being some five to six companies will own the US fleet of 100 plants, says the head of a firm that consults on nuclear unit sales.
Originally utilities believed five or six units were the most that could be run efficiently by a single operator, said Doug Chapin, principal officer of MPR Associates Inc., at Power-Gen International. But recent transactions suggest the thinking has changed. Commonwealth Edison and Peco Energy will have 20 plants in a combined fleet but will use regional companies to run them.
"I have heard Entergy talking about 16 or more," Chapin said, noting the industry has undergone a significant change in its attitude toward nuclear power. "We have gone from a period when you couldn't give away a nuke to now they selling for a $1 billion."
Units such as Three Mile Island Unit 1, Oyster Creek, Pilgrim, Vermont Yankee, and Clinton commanded fire sale prices. In contrast, the more recent sales of FitzPatrick and Indian Point 3, Nine Mile Point units 1 and 2, Millstone units 2 and 3, and Canada's Bruce plants were highly competitive and prices rose by at least an order of magnitude, said Chapin.
Nuclear plants are attractive because they produce low cost power. In 1998, average electricity production cost at a nuclear plant was 2.13�/kw-hr, compared to 2.07� for coal, 3.24� for oil, and 3.30� for natural gas. Average production costs of nuclear plants peaked at 3.12�/kw-hr in 1988 and have since dropped to 2.13�/kw-hr in 1998. Fuel is in oversupply creating price pressure. Divested nuclear plants are no longer burdened by initial capital costs, a big plus so long as availability and reliability remain high.
"These plants [nuclear] are baseloaded and will anchor the dispatch curve," Chapin said. "They are clearly something you can make money with."
Nuclear risks remain, with the biggest being plant equipment, regulation, decommissioning, and public perception. Chapin said equipment risks are real, but the plants are now mature and their histories well known. The industry is now largely self-regulated with US Nuclear Regulatory Commission oversight.
Now that four or five owners have gone through the decommissioning process, there is less concern about it, Chapin said. Initial worries the nest eggs accumulated to pay decommissioning bills would not be enough have proved mostly unfounded, and, in fact, the insurance industry has stepped in with products to mitigate the risk, he said.
Up to now no bank has financed a nuclear plant sale, but Chapin said the recent record of sales suggests some form of financing will be available in the future. He predicted the most likely candidate will be a large integrated company with nuclear assets, not a single plant owner. Future financing arrangements will include reasonable mitigation of nuclear power's unique risks, he predicted.
"Just as people couldn't imagine financing of merchant plants, this has become a fairly common occurrence," Chapin said, and the same could happen with nuclear transactions.
