Friday, December 18, 2009

NRG’s Recent Cost Estimate Increases for STP 3&4 Due to a Weaker Dollar?

By now I’m sure most readers here have heard that NRG’s cost estimates to build two new reactors at South Texas Project increased around $4 billion just recently. Apparently quite a bit of the increase was due to a weaker dollar. From the Wall Street Journal:

Dollar weakness helped drive up cost estimates for two new reactors NRG Energy Inc. (NRG) is planning in Texas with Toshiba Corp. An NRG executive said last month the cost of equipment and materials from Japan climbed 13% to an estimated $2.5 billion compared with a 2007 estimate, mostly due to declines in the dollar.

Currency risk is just one variable for developers. Scana and Southern already have taken steps to eliminate the risk by using dollar-dominated contracts. For other projects, currency fluctuation typically is viewed as part of the larger issue of construction costs. Developers are trying to balance the massive cost and lengthy construction timetable with a tricky outlook for power demand and prices. Additionally, any decision by the U.S. government to place limits on carbon-dioxide emissions could heavily impact the economics of nuclear projects, since reactors become more competitive when a cost is placed on CO2.

It’ll be interesting to see what NRG and Toshiba agree on for the new cost estimates which were asked to be determined by the end of this year.

7 comments:

SteveK9 said...

I have heard very low numbers for the costs of essentially the same reactors in Japan ~ $1.4B. Anyone know if that is correct. If so, why is it SO much more here?

David Bradish said...

Probably a number of factors. The $1.4B you cite I'm guessing is for one unit, whereas the STP estimate is for two. As well, the $1.4B number was probably for a unit that came online more than a decade ago before commodities and labor costs increased dramatically. Also, I think the size of the ABWRs in Japan are smaller than the ones proposed in the US. And as the WSJ found, currency rates make a difference in costs. Those are just some guesses, though.

Anonymous said...

You numbers are correct, but not $1.4B per plant, $1.4B per gigawatt. So, a large 1600MW plant would be a little more. This was for gen-iii plants they built in the late `90s, not even the improved gen-iii plus models. Let's get our act together and start building electric cars, trains and nuclear plants like Japan!

uvdiv said...

Here are recent numbers Shika #2, an ABWR built over 2001-2006. It is the same reactor as the Texas project - 1,300 MWe ABWR (although oddly the IAEA source says 1,200 MWe gross, not sure about the discrepancy). The total project cost was 370 billion yen, according to table 3B from

http://web.mit.edu/ceepr/www/publications/workingpapers/2009-004.pdf

This is a nominal $3,033/kWe at current exchange rates. The table gives it as $2,280/kWe PPP-adjusted, or $2,350/kWe overnight cost.

David Bradish said...

Good info uvdiv.

Anonymous said...

It is interesting to remember the reason STP owners switched from a GEH ABWR to a Toshiba ABWR was to save money.

Anonymous said...

The switch to Toshiba was more about terms and conditions than about saving money. GE just didn't want to take any risk. Perhaps MSNBC is a true reflection of company policy?

Of course the equity participation from Toshiba (half a billion) was part of it.

One predictable consequence of the devalued dollar will be fewer imports and more domestic production. American pipe, labor, steel, valves, and engineers got cheaper. Expect more work on STP to be performed in the US and less in Japan.