The fallout from shifting nuclear alliances

—Dr. Robert Peltier, PE Editor-in-Chief

In the late 1880s’ “War of the Currents,” Thomas Edison used every outrageous tactic to promote direct current (DC) as superior to alternating current (AC), which was championed by George Westinghouse. Edison’s most overblown public display was the electrocution of Topsy, a Coney Island circus elephant, to prove the dangers of AC power. He even advocated AC current for criminal executions, dubbing those killed by electrocution “Westinghoused.” As we know, Edison’s grandstanding didn’t pay off.

A similar, though more subtle, battle of technology options is playing out today in the nuclear reactor arena.

Who’s on which team?

In the old days (mid-twentieth century), a power plant owner had a pretty good idea of what he was getting from whom when he chose a nuclear reactor vendor. For example, GE, Hitachi, and Toshiba signed their first nuclear cooperative business agreement in 1967. That agreement worked well over the years, as 31 boiling water reactor (BWR) plants were built in Japan alone by GE’s Japanese partners while none was being considered in the U.S. Today, the advanced BWR (ABWR) has a marvelous operating track record in Japan: The last unit was constructed in just over three and one-half years; three more units are under construction in Japan and Taiwan; and nine more are in Japan’s nuclear queue.

But globalization has led to unanticipated trades among nuclear industry players. More countries are competing for reactors, China (an enormous new market) demands significant technology transfer from suppliers as part of the deal, and there are more reactor technologies in various stages of design certification. One result is that the roster of players seems subject to change at any time as suppliers contend with new market forces.

Toshiba fell out with its former teammates when it acquired Westinghouse Electric and its AP1000 pressurized water reactor (PWR) technology in October 2006. Toshiba-Westinghouse has at least six U.S. orders and four orders for new Chinese reactors at a bargain-basement price of $8 billion, having edged out Areva for the business—perhaps prompting Areva’s recent alliance with Mitsubishi Heavy Industries (MHI).

The remaining GE-Hitachi alliance opened a San Jose–based Global Unified Project Office in mid-April to take economic simplified BWR (ESBWR) or ABWR reactor orders. This team has said it would probably stop providing technical assistance to Toshiba, effectively scuttling their 40-year-old agreement.

Toshiba wants its new partner, Westinghouse, to sever its close relationship with MHI, which also recently opened a U.S. APWR reactor sales office. MHI, with 23 plants in Japan, has forged a partnership with Areva for PWR work, especially in China.

GE and Westinghouse have clashed over U.S. nuclear business before, but the business is now global and more complex—for buyers and sellers.

Texas skirmish

Instability among vendor alliances and a larger number of immature reactor designs is bound to raise the stakes for everyone, as it did in Texas recently. After the South Texas Project Nuclear Operating Co. (STP) accepted proposals for two new 1,350-MW ABWR reactors from GE-Hitachi and Toshiba, it submitted an application to the Nuclear Regulatory Commission (NRC) to build the units using the GE-Hitachi technology. By all accounts GE-Hitachi had a lock on what would probably be the first two new reactors built in the U.S. in a generation.

STP is jointly owned by NRG Energy (44%), CPS Energy (40%) and Austin Energy (16%). At our May ELECTRIC POWER Conference, Milton Lee, head of CPS Energy, suggested during the CEO Roundtable that GE-Hitachi had balked at selling STP the ABWR technology. Instead, it had pushed its next-generation ESBWR, which is still years away from NRC design certification. Without the reactor supplier on board, the NRC application was effectively frozen during these negotiations. “We want to build an ABWR,” Lee said. “They [GE officials] basically said, “We don’t want to participate with you.’ ”

STP abruptly changed allegiances and contracted exclusively with Toshiba to build the ABWRs, a reactor design that Toshiba has licensed from GE-Hitachi. “It’s amazing,” Lee said. “They can build one in Japan, but they won’t build one in the U.S.”

GE-Hitachi disagreed with Lee’s assessment in a statement noting that “other business disputes” were responsible. “GE-Hitachi is no longer participating in the STP project because the owners decided to contract with Toshiba to be the prime contractor,” said the statement.

Judging from press coverage and industry trends, the major unresolved issue was likely the allocation of project risks, including price escalation calculations, in the turnkey contract. But it seems to me those same risks would be even greater for an ESBWR, which lacks a track record. More likely, Toshiba, which has the largest ABWR nuclear base in Japan, made STP an offer it couldn’t refuse. My guess is that STP played GE-Hitachi against Toshiba to get the best deal possible—and so they should. When GE-Hitachi balked at the contract terms, they lost their chair at the negotiating table.

Team loyalty is so 20th century

In years past, a utility would usually standardize on either the PWR or BWR technology for all plants—at least at a particular plant site. Today the deal trumps technology-team loyalty as developers strive to pick a winning team while its equipment is still being tested and certified. Other owners will follow STP’s lead—if only to avoid being stuck with an also-ran technology for 50 years.

STP’s experience shows that bluster can backfire—a lesson Edison, and GE-Hitachi, learned the hard way.