Last year, the V.C. Summer twin-reactor AP1000 project in South Carolina was abandoned after the expenditure of at least US$9 billion. The project was initially estimated to cost US$9.8 billion1; when it was abandoned, the estimate was around US$25 billion.2
Last month, the last remaining reactor project in the US ‒ the Vogtle twin-reactor AP1000 project in Georgia ‒ came close to being abandoned due to massive cost overruns. The construction cost blowout at Vogtle is just as bad as that in South Carolina:
The current cost estimate for Vogtle reactors #3 and #4 is 10 times greater than Westinghouse's 2006 estimate of US$1.4‒$1.9 billion to build one AP1000 reactor.3 To find another blowout of that magnitude you'd need to go back to … Vogtle #1 and #2! Built in the 1970s and 1980s, the cost of the first Vogtle twin-reactor project skyrocketed 13-fold, from US$660 million to US$8.7 billion (around US$18 billion on today's money).13
The Vogtle project is 5.5 years behind schedule: planned startup dates of April 2016 and April 2017 have been pushed back to November 2021 and November 2022.
The project was 69.9% complete as of the end of July 2018, and construction 55.3% complete.14 Thus there is plenty of scope for further cost increases and delays.
Near-death experience
Vogtle's recent near-death experience began with the latest multi-billion-dollar cost increase: a US$2.3 billion increase announced in August. That automatically triggered a Project Adverse Event under the terms of the Vogtle Joint Ownership Agreement, requiring a vote by the four project owners ‒ Georgia Power (45.7%), Oglethorpe Power Corp. (30%), MEAG (22.7) and Dalton Utilities (1.6%) ‒ about whether to go ahead or to abandon the project.15 Georgia Power, MEAG and Dalton agreed to proceed. Oglethorpe held out for concessions but eventually agreed to proceed after several extensions to a deadline for a decision.
Under the revised agreement, Southern Co. subsidiary Georgia Power would pay an increased share (55.7% ‒ an additional 10%) of cost overruns up to US$1.6 billion beyond the current cost estimate and 65.7% of costs up to US$2.1 billion over the current estimate. Beyond that, minority owners would have the right to sell a portion of their stake in the project to Georgia Power, unless Georgia Power chose to abandon the project.15 Morgan Stanley analysts say there is a "very good chance" that future cost increases could exceed US$2.1 billion.16
Overall, the three smaller project partners (Oglethorpe, MEAG and Dalton) won minor risk reductions in relation to the inevitable future cost increases, but cost increases will no longer trigger a Project Adverse Event or another vote on the project.19 The minor partners were steamrolled according to the Energy and Policy Institute and "now only have one option for recourse; wait until costs go up by another $2.1 billion and forfeit their investment."19
The revised agreement also includes a provision to address a lawsuit from Jacksonville Electric Authority (JEA), which is doing everything it can to exit a Vogtle power purchase agreement it signed with MEAG.6 If JEA succeeds in exiting its agreement, Georgia Power would provide MEAG with up to US$250 million in loans to finance the plant's completion.17
JEA's legal filing against MEAG bemoans its "unlimited obligation to fund the exorbitant and ever-ballooning cost of constructing units of a nuclear power plant that JEA does not own, over which it has no control and which will be owned and controlled by private enterprises."18 It goes on to say: "JEA must satisfy this open-ended obligation to pay for MEAG's yet unknown and uncapped debt service regardless of the amount, regardless of whether the Additional Units are ever built or ever become operational, and regardless of whether JEA ever receives any electricity, capacity, or benefit whatsoever from the Additional Units."12
Carrots and sticks from the federal government have been important. Federal tax credits will amount to a subsidy of around US$2 billion. In addition, the federal government has provided loan guarantees to Vogtle project partners of US$8.7 billion, and has offered additional loan guarantees of US$3.7 billion. Last month, the Department of Energy lobbied the project partners to go ahead with Vogtle and warned that: "If the owners decide to cancel the project, the Department is prepared to move swiftly to fully enforce its rights under the terms of the Loan Guarantee Agreements, including the repayment provisions."12
Snatching defeat from the jaws of defeat
US Department of Energy spokesperson Shaylyn Hynes said the revised Vogtle agreement "will reaffirm America's international leadership in nuclear technology and ... mark the beginning of a nuclear renaissance in America."15
Yeah, right.
Long before the latest multi-billion-dollar cost increase, in May 2017, Atlanta Journal-Constitution journalists wrote: "Years behind schedule, billions over budget, and with a key contractor's bankruptcy clouding its future, the troubled Vogtle project near Augusta is fast becoming Exhibit A for why no U.S. utility before Atlanta-based Southern had tried building a new reactor in 30-plus years."20
Exhibit B is the abandoned V.C. Summer project in South Carolina.
Bloomberg opinion columnist Liam Denning argued that Southern Co. "snatched defeat from the jaws of a different kind of defeat" with the revised project agreement.21 He continued:
"While Vogtle may well be completed due to sheer political doggedness, it won't be for any reasonable economic reason. Even assuming no further overruns, it will already cost more than $11,000 per kilowatt of capacity, multiples of what a new gas-fired plant or utility-scale solar array would cost. …
"Nuclear power proponents rightly point out that it provides vast quantities of carbon-free, uninterrupted energy. They also raise concerns about the U.S. falling behind on nuclear technology. That may be a valid concern, but does rather raise the question as to why the good ratepayers of Georgia should be saddled with the costs of maintaining national security.
"The problem, however, is that these plants are gigantic, one-off projects prone to cost overruns and requiring years of planning and construction before they generate a cent of revenue. This is just an unacceptable risk for most commercial operators, and why government assistance in the form of regulated cost recovery, price guarantees or finance is so often crucial to getting them built."
References:
1. World Nuclear Industry Status Report, 2 Feb 2017, 'Toshiba-Westinghouse: The End of New-build for the Largest Historic Nuclear Builder', www.worldnuclearreport.org/Toshiba-Westinghouse-The-End-of-New-build-for...
2. Brad Plumer, 31 July 2017, 'U.S. Nuclear Comeback Stalls as Two Reactors Are Abandoned', www.nytimes.com/2017/07/31/climate/nuclear-power-project-canceled-in-sou...
3. Jon Gertner, 16 July 2006, 'Atomic Balm?', www.nytimes.com/2006/07/16/magazine/16nuclear.html
4. Ross Williams, 19 Sept 2018, 'Vogtle fate rests in key vote, deadline Monday', www.mdjonline.com/news/vogtle-fate-rests-in-key-vote-deadline-monday/art...
5. Peter Maloney, 2 Oct 2018, 'S&P downgrades Georgia Power's partners in Vogtle nuclear project', www.utilitydive.com/news/sp-downgrades-georgia-powers-partners-in-vogtle...
6. Southern Alliance for Clean Energy, 20 Sept 2018, 'A Series of Unfortunate Events for Plant Vogtle – last new nuclear project in turmoil', http://blog.cleanenergy.org/2018/09/20/a-series-of-unfortunate-events-fo...
7. Ryan Alexander, 17 Aug 2017, 'Nuclear Waste for Taxpayers', https://www.usnews.com/opinion/economic-intelligence/articles/2017-08-17...
8. Sonal Patel, 24 Sept 2018, 'How the Vogtle Nuclear Expansion's Costs Escalated', www.powermag.com/how-the-vogtle-nuclear-expansions-costs-escalated/
9. Gavin Bade, 3 Aug 2017, 'Vogtle nuke cost could top $25B as decision time looms', www.utilitydive.com/news/vogtle-nuke-cost-could-top-25b-as-decision-time...
10. Tom Corwin, 2 Sept 2017, 'Subsidizing new nuclear power such as Vogtle reactors in nation's interest, says expert', http://chronicle.augusta.com/news/2017-09-02/subsidizing-new-nuclear-pow...
11. Will Robinson, 30 Sept 2018, 'Credit rater downgrades JEA over Plant Vogtle exposure', Jacksonville Business Journal, www.bizjournals.com/jacksonville/news/2018/09/30/credit-rater-downgrades...
12. Will Robinson, 26 Sept 2018, 'Plant Vogtle's fate finally decided in latest vote', www.bizjournals.com/jacksonville/news/2018/09/26/plant-vogtles-fate-fina...
13. David Schlissel, Michael Mullett, Robert Alvarez, March 2009, 'Nuclear Loan Guarantees Another Taxpayer Bailout Ahead?', Union of Concerned Scientists, www.ucsusa.org/sites/default/files/legacy/assets/documents/nuclear_power...
14. Georgia Power, 31 Aug 2018, 'Nineteenth Semi-annual Vogtle Construction Monitoring Report', https://assets.sourcemedia.com/a0/5b/de057dbb4d6dab264cfc857a7008/gpc-19...
15. World Nuclear Association, 27 Sept 2018, 'Vogtle owners vote to continue construction', www.world-nuclear-news.org/Articles/Vogtle-construction-to-continue
16. Matt Kempner and Anastaciah Ondieki, 28 Sept 2018, 'After wrangling over Georgia nuclear plant, cost concerns remain', The Atlanta Journal-Constitution, www.myajc.com/business/after-wrangling-over-georgia-nuclear-plant-cost-c...
17. Gavin Bade, 26 Sept 2018, 'Vogtle nuclear plant owners agree to continue construction', www.utilitydive.com/news/vogtle-nuclear-plant-owners-agree-to-continue-c...
18. Times-Union Editorial Board, 23 Sept 2018, 'Sunday Editorial: Grand jury must get to the bottom of JEA's terrible contract', www.jacksonville.com/opinion/20180923/sunday-editorial-grand-jury-must-g...
19. Daniel Tait, 4 Oct 2018, 'Georgia Power Steamrolls MEAG, Oglethorpe in New Vogtle Agreement', www.energyandpolicy.org/georgia-power-steamrolls-meag-oglethorpe-in-new-...
20. Russell Grantham and Johnny Edwards, 19 May 2017, 'Plant Vogtle: Georgia's nuclear 'renaissance' now a financial quagmire', The Atlanta Journal-Constitution, www.myajc.com/business/plant-vogtle-georgia-nuclear-renaissance-now-fina...
21. Liam Denning, 28 Sept 2018, 'Nuclear Power's Big Problem Isn't That It's Nuclear', www.bloomberg.com/view/articles/2018-09-27/nuclear-power-s-big-problem-i...