Mitsubishi's growing presence in the U.S. nuclear market
The Japanese heavy manufacturing firm will build reactors via joint ventures
Mitsubishi Heavy Industries (MHI) as made rapid strides establishing a market presence in the U.S. nuclear industry. In the past three years in North America it has submitted a reactor design for NRC review, inked deals to build new reactors for two U.S. utilities. In Europe the firm will team with Spain's Iberdrola to build a new reactor and is poised to purchase an equity position in Areva, France's state-own vertically integrated conglomerate.
First deal in Europe
The most recent development comes in Spain where MHI has an agreement to team with the construction and engineering subsidiary of Iberdrola to jointly bid on new reactor projects in Europe. Spain is said to need four new reactors, but other opportunities may involve new reactors in Scandinavian countries. The agreement calls for MHI to be responsible for overall engineering and the reactor, which is the 1,700 MW APWR. Iberdrola will be in charge of design, procurement, and commissioning of each new reactor.
This is the first market presence for MHI in Europe. The firm is fine tuning its design to meet requirements set forth in European Utility Requirements for light water reactors established by an industry working group of 16 nuclear utilities. The requirements cover design issues for safety, quality, and performance. Some of the changes include increases in thermal efficiency, reduction in size of the physical plant, and a 24-month fuel cycle.
Westward ho in Texas
MHI's initial foothold in the U.S. nuclear market comes in the form of a planned twin 1,700 MW reactor project for Luminant's Comanche Peak site located 80 miles southwest of Dallas, TX. The NRC license application was submitted in September 2008. The project is the fifth place runner up on the Department of Energy's short-list of the first round of four new reactor projects for federal loan guarantees.
If Congress expands the program, and legislation is pending this month to do that, the project could get the a jump start on financing which also benefits from export financing to MHI from the Japanese government. One of the advantages of the Comanche Peak project is that the new reactors will be able to tap into existing plant and transmission and distribution networks to bring power to Dallas, FT. Worth, and other major cities in Texas.
The state has its own grid separate from the rest of the U.S. so the electricity will be used almost entirely by Texas ratepayers. In the competitive electricity market in Texas, the utility, which is building the reactors in a joint venture with MHI, is responsible for all costs. None of the reactor costs are passed on to ratepayers until the plants enter revenue service.
Down home in Virginia
On May 7 Dominion Virginia Power announced it had MHI had gotten the brass ring with the utility selecting it to build a 1,500 MW APWR as the utility's third reactor at the North Anna Power Station in central Virginia. In doing so it stepped away from a prior relationship with GE-Hitachi which had offered the 1,500 MW ESBWR. This is the third time GE-Hitachi has lost a sale in the U.S. market since Exelon and Entergy withdrew from agreements to build new reactors using the ESBWR.
Dominion has not formally committed to build the new reactor, but said it will make a decision to do so later this year. According to forecasts for electricity demand, Virginia will need an additional 5,600 MW by 2019, which is about the time the 1,500 MW reactor would come online. Dominion is planning to build a slightly smaller version of the 1,700 MW design selected by Luminant for expansion of its Comanche Peak power station.
Virginia is the second largest importer of electricity in the U.S. after California. Much of that electricity comes from carbon sources. If a tax is placed on carbon in the next few years, even a small one, those imports will become more expensive making the choice to build a nuclear reactor for 25% of the expected growth in demand all the more attractive.
Competitive factors in Virginia
Dominion’s competitive review focused, among other things, on the cost of the engineering procurement contract (EPC) which has multiple risk factors. They include items for fixed cost commitments from vendors, items that involve shared risk for cost escalation, and items which both the supplier and the buyer negotiate prices for with the vendors. With a total cost of $6-10 billion for the reactor, inability to put numbers on some critical reactor components may have limited GE-Hitachi’s competitive position relative to MHI.
The MHI reactor design is still in the review process at the NRC as is the ESBWR though both are making progress. The Wall Street Journal reported May 7 that David Matthews, director of the Division of New Reactor Licensing, told the newspaper, certification of the ESBWR “is moving along very well.”
Dominion will have to amend its NRC application for a combined construction and operating license with the NRC. This change could add some time to getting authority from the regulatory agency to break ground. Dominion will now also be betting that all will go well with reactor design certification for the APWR.
Investment with Areva?
In 2009 MHI and Areva signed an agreement to form a joint venture in the nuclear fuel fabrication 
business. A new factory will be built in the U.S. It will supply customers with uranium fuel assemblies for commercial light water reactors and eventually also supply MOX fuel to customers in Japan and the U.S.
More recently, MHI was positioning itself to take an equity stake in Areva as the French, state-owned, nuclear conglomerate, prepared to sell of 15% of its shares to investors. MHI and Areva have also worked on a joint reactor design project called Atmea which is an 1,100 MW PWR positioned as a “mid-size reactor relative to MHI’s 1,700 MW APWR and Areva’s 1,600 MW EPR.
All has not gone as planned with the MHI investment in Areva. A planned sale of shares schedule for this month June has been pushed back while the government defines its nuclear energy strategy. The sale of shares, which is expected to raise $3-4 billion, could hurt the company’s rating with Standard & Poor’s. The company needs the money to meet obligations from existing reactor projects and for new projects sought by customers.
In the U.S. Areva plans to break ground for its first EPR at Constellation Energy's Calvert Cliffs site. It will be the third reactor for Constellation. In Idaho Areva is planning to build a $2 billion uranium enrichment plant. Both projects will benefit from federal loan guarantees.
Regardless of whether MHI buys shares of Areva, it plans to double its global nuclear business to over $6 billion during this decade. Growth sectors include new plant construction, nuclear fuel, and after sales service. While the company is said to be unlikely to have sales in China, which is aggressively expanding its nuclear fleet, MHI expects to sell at least two reactors a year in other markets.
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