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Nuclear Revival Falls into a Lull

Sept. 16, 2010
A wave of proposed new nuclear power plants has stalled. Will America's nuclear renaissance ever take off -- and what does it mean for manufacturers?

The U.S might be on the verge of a second nuclear renaissance, but it still feels an awful ways away in Bremen, Ohio. In this rural town of 1,200 people, 50 miles southeast of Columbus, sits a bare, uncultivated 17-acre tract of land where Westerman Nuclear was supposed to build a new state-of-the art facility to produce a range of customized vessels and heat exchangers for the nuclear power industry.

The building should have been completed in April. But there are no signs of bulldozers or cement trucks anywhere -- nor will there be until the spring of 2011, at the earliest.

Like many manufacturers that have realigned their businesses to cash in on America's return to building new nuclear power plants, Westerman Nuclear is already signing contracts for new projects. But it's hardly at the rate that was envisioned when its parent company, Westerman Cos., created a subsidiary devoted entirely to the industry.

"We just don't have a large enough backlog [of projects] to justify spending $6 million for a new facility," says Matt Dodds, vice president and general manager at Westerman Nuclear.

For all the enthusiasm generated by the Nuclear Regulatory Commission having 22 applications in hand from companies that want to build 31 reactors, the gun hasn't gone off on a 21st century nuclear boom in the United States.

Only last January, President Obama gave the nuclear industry a powerful boost by citing its potential in his State of the Union speech. Weeks later, the Energy Department announced $8.3 billion in government-backed loan guarantees to help Southern Co. build a new nuclear power plant in Georgia, the country's first new build in more than three decades.

But in the months since, that momentum has withered, as energy prices have fallen, making it harder to justify the expensive, lengthy process of securing financing and waiting on regulatory approval for a new plant -- even before actually building the reactor itself.

Tube sheet of a recently completed Babcock &Wilcox nuclear steam generator is inspected. The Nuclear Regulatory Commission is weighing applications for 31 new reactors in the U.S.Meanwhile, the Obama administration, which had hoped to triple the total amount of available loan guarantees for new reactors to $54 billion, has been unable to secure passage of the required funding measure. So while the Department of Energy is still sitting on $10 billion in available loan guarantees, none have been awarded yet as of press time.

This in many ways helps to define the unique nature of nuclear power. Without loan guarantees from the federal government, it's virtually impossible to finance a new plant. And without climate-change legislation that puts a price on carbon, nuclear power will have a harder time competing with cheaper, fossil-fuel forms of energy.

"Because of those loan guarantees, it really seems to have quenched a little bit of the fire that would get this thing off and running," says Lee Presley, vice president of nuclear operations for Chicago Bridge & Iron (CB&I), which is manufacturing containment vessels for the nuclear industry. "We know there's going to be new plants built and we know there's going to be work. But until Congress moves more money to the Department of Energy, it's probably going to be slow for a while."

This means that companies, such as Westerman Nuclear and CB&I, which have been mobilizing for the last several years for a potential boom in the industry, might be waiting a while longer.

"We've got all our ducks in a row -- between accreditations and equipment," says Terry McGhee, president and CEO of Westerman Cos. "Everyone knows there's going to be a nuclear renaissance at some point in time. It's just been delayed."

An Issue of Supply

Those delays are not expected to be indefinite. Far from it. Unlike competing carbon-less forms of energy, nuclear power has a broad range of support from both Democrats and Republicans, and already accounts for about a 20% share of electricity generation in the U.S. with 104 commercial reactors still in operation.

All of which is good news for U.S. manufacturers. But when many of these plants are ultimately approved and receive federal resources, it will undoubtedly create an entirely new and deeper question in need of answering: Who is going to build the thousands of components and subcomponents, ranging from valves to piping to pumps, heat exchangers, cables, electronic controls and steel structures?

Some of that equipment is easily accessible and some of the necessary commodities, such as concrete and steel, can be produced as necessary. But many more of the custom parts, such as reactor pressure vessels, steam generators, moisture separator reheaters, turbine generators, pumps, valves and piping, all need to be manufactured to extremely precise industry standards. And the U.S. hasn't had to mass-produce these types of pieces in over 30 years.

That's not to say there isn't a domestic nuclear supply chain already in existence. There is, only it is fairly small in size and largely focused on producing components for existing plants, not new ones.

"That's a big misconception today," says Mike Rencheck, chief operating officer at Areva. "People think we're starting from scratch in establishing a supply chain. There already is one. We just need to adjust it for having multiple plants being built over the next few years."

Rencheck has hanging in his office a graph that details the number of plants built year by year over the last half century. In 1980, for instance, there were 180 nuclear plants under construction globally -- and almost all those components were being produced in the U.S. But following the accident at Three Mile Island in 1979, the domestic market shrank dramatically.

According to Dale Klein, since 1977, three-quarters of the world's reactors still operating are of U.S. origin, either in construction or design. Klein served as chairman of the Nuclear Regulatory Commission during the administration of President George W. Bush.

That monopoly on power plant expertise no longer exists, he warns.

"When reactor orders in the U.S. ground to a halt about 30 years ago, technological progress and manufacturing innovation moved abroad -- and along with them, most of the links in the global supply chain," says Klein.

Structures such as a nuclear reactor vessel, above, havent been fabricated in large quantities in the United States in more than three decades.Thus, with half a dozen new plants ready to start building in the next several years, some within the industry worry if there's enough time to prepare a new domestic supply base.

"The struggle is going to be whether [the suppliers] can do it fast enough," says Rich Reimels, president of Babcock & Wilcox's Nuclear Power Generation Group. "The talk is [the nuclear plants] will be in operation by 2018 or 2019. Well, if you only had one plant, that wouldn't be a problem. But trying to gear up for that many plants in a very short period of time, it's going to be a huge problem, in my opinion."

Super-Sized Forgings

While most of the components and subcomponents that go into a nuclear power plant can be readily manufactured within the United States, three of the most vital pieces in a nuclear power plant -- the reactor vessel components, the turbine rotors and steam generators -- will have to be imported from elsewhere.

All of these pieces in question come from ultra-large forgings. While there are dozens of suppliers capable of providing small- to medium-sized forgings, there are few capable of delivering those that weigh greater than 400,000 pounds.

Today, Babcock & Wilcox estimates its demand at 100 heavy forgings per year. But that demand could more than triple in the next 15 years if the market in the United States takes off.

The U.S. steel industry produces over 100 million tons of steel per year, so in theory there should be enough domestic steelmaking capacity to fulfill the demand for forging nuclear components. The problem lies in how those forgings have changed over the last 40 years and the scale of the investment that would be required for U.S. forgers to participate.

Japan Steel Works presently lays claim to 80% of the worlds market for large forged components for nuclear reactors.In the late 1960s, designers discovered that larger forgings had better mechanical properties, requiring less welding and therefore less inspection requirements over the life of a plant. These larger forgings became a signature of Generation II plants and all others that have followed.

But by choosing larger forgings, even the most powerful domestic steel producers, such as U.S. Steel and the now-defunct Bethlehem Steel, were shut out of the supply chain.

Today's newest nuclear power plants, Generation III, follow designs that require steel ingots weighing between 500 to 600 tons each. And no steel producers in the U.S. can handle that kind of size or weight.

The largest and best-known supplier of heavy forgings is Japan Steel Works (JSW), which claims 80% of the world market for large forged components for nuclear power plants, including the steam generator, reactor pressure vessels and turbine shafts. JSW is contracted to supply Areva with large forged parts until at least 2016 -- enough to build six nuclear plants per year.

"The ability to make large forgings is gone in the U.S.," says Danny Roderick, senior vice president of new plant projects for GE Hitachi. "We've been trying to work with some companies that are interested in regaining that forging technology for large components, but it's very expensive and there are a lot of competitors out there now. It becomes a question of investment versus demand."

High Price of Admission

Four years ago, when Terry McGhee, president and CEO of Westerman Cos., set a course to enter the nuclear market, he was working from a position of strength. Though Westerman didn't have any prior nuclear experience, it had been a longtime producer of well-head equipment for the oil and gas industry.

Though the parts, materials and manufacturing techniques might differ between the two industries, they do hold one very important similarity: both maintain meticulous standards in quality. According to Mike Lees, vice president of nuclear equipment and manufacturing at Babcock & Wilcox, suppliers that have a history of producing parts for the petrochemical industries and military applications often have an easier time transitioning into nuclear.

Westerman first had to apply for nuclear stamp accreditations. It received five N-stamps, as they're called, which cost $300,000 upfront, plus an additional $75,000 to renew every three years.

"The price for admission is high to get into nuclear," says McGhee. "But it's a multibillion dollar market and it's an international market."

CB&I paid their entry fee 30 years ago. Nearly three-quarters of the 104 operating nuclear power plants in America use CB&I containment vessels.

"There's plenty of quality built into our normal products, but it's just at another level when you go into nuclear," says Presley. "All the workers have to be retrained and show proficiency. And there are very precise procedures you have to follow."

As an example, he cites the manufacturing process of a containment vessel. The industry stipulates that every process needs to be documented down to the finest detail, then instructed throughout the workforce and rigorously tested.

"The beauty of nuclear -- and I hate to say this -- is you don't have to do a lot of thinking, because it's all written down for you," says Presley. "None of these procedures are all that complex or harder to do than anything else we manufacture."

The difference, he says, is the paperwork. Presley boasts that CB&I can trace the material used in its containment vessels all the way back to the original iron ore. And he's only half-joking.

"The paperwork is every bit as important as the finished product," he adds. "If the documentation and paperwork is not right, it doesn't matter what you've built, you're not going to install it in a nuclear power plant. It's fundamental that everybody understands that. It's a mindset."

Forecast Cloudy

One of the newer trends among OEMs reestablishing the U.S. nuclear supply chain is localizing it to new projects. Companies like GE Hitachi, which formed a nuclear joint venture three years ago, and Areva have begun holding seminars in targeted regions to educate the manufacturing base on what it takes to break into the nuclear industry.

In Michigan, for instance, GE Hitachi held a two-day seminar in September which targeted former automotive suppliers to help provide components for the company's proposed Detroit Edison Fermi-3 plant 30 miles southwest of Detroit.

"We're trying to teach [Michigan manufacturers] what it means to be a nuclear supplier, how to get qualified and what local, state and federal aid is available to help in the process," says GE Hitachi's Roderick. "We try to provide an idea for what kind of market is on the horizon, so these companies can make informed decisions and investments."

That investment requires time and patience -- and lots of it, says Westerman Cos.' CEO McGhee.

"It's just such a long-term selling cycle," says McGhee. "We're quoting things now we won't build or ship until 2016. It takes a very strategic-minded, planning-oriented management team. You have to have a stomach for that."

And even then, there's little to no certainty of just how much business a company can expect. Juan Molina, vice president of supply chain management and the chief procurement officer at Westinghouse, visits with curious manufacturers regularly, many of whom are tantalized by the opportunity, yet ask for some sense of assurance.

There is none, he says. It's very expensive to get into nuclear, it might take years for the industry to take off, and even then, no one knows just how much business there will be in the end.

"To become a nuclear-grade supplier, it's not as simple as adding nuclear onto your business card," says Molina. "A lot of people prefer to wait to see what happens. They're hesitating. And that is the struggle. Because you have to understand, you can go through all of that -- getting those accreditations, spending all those thousands of dollars -- and there's no business guarantee of what's going to happen. We just don't know."

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