The construction of a new $10-billion nuclear reactor in Maryland seem to be dead after Constellation Energy told the Dept. of Energy that it is no longer interested in negotiating a federal loan guarantee to support the project.
In a letter to DOE, Constellation said it was unable to continue negotiations after it was presented with a “shockingly high estimate” of the fee the company and its joint-venture partner, Electricite de France, would have to pay to obtain the loan—$880 million.
“Such a sum would clearly destroy the project’s economics (or the economics of any nuclear project for that matter), Constellation Vice Chairman Michael Wallace, says in the October 8 letter.
The loan guarantee would be for a third reactor at Calvert Cliffs in southern Maryland.
DOE proposed solutions to the high fee that added to the project’s risks, and were even more untenable considering other factors currently challenging the development of new nuclear plants, Wallace says. Those factors include the lack of energy security and climate change legislation, declining natural gas prices and the rising costs of plant construction. “The purpose of the loan guarantee program is supposed to be to provide sovereign support to help bridge the financial risks inherent in such long-term capital intensive projects, not increase such risks,” Wallace says.
The letter says EDF may be interested in proceeding with the negotiations. EDF says, however, that it is unclear how Calvert Cliffs-3 would move forward given Constellation’s surprising decision to end negotiations. “Constellation has withdrawn from Calvert Cliffs-3 in spite of our repeated efforts to substantially decrease their exposure and risk to the project,” EDF says.
Analysts say that the risk of building a new nuclear unit that would sell power into the wholesale market is unwise with or without a federal loan guarantee. They site the current low cost of natural gas, which is keeping electricity costs low.
Paul Patterson, an analyst with Glenrock Associates, says the risks of building a merchant nuclear plant have always been there, but they were more clearly exposed by today’s low natural gas prices.
Constellation’s shareholders are “thrilled” with the company’s decision to withdraw from the project, says Paul Fremont, an analyst with Jefferies & Co. “The possibility of building a new reactor at Calvert Cliffs was holding Constellation share prices down,” Fremont said.
Maryland Gov. Martin O’Malley (D) has not given up hope that another nuclear unit can be built at Calvert Cliffs and he is committed to continuing work with stakeholders to make it happen, says Shaun Adamec, his spokesman. “The governor remains very personally involved in this issue,” says Adamec.