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Sometime this fall, a U.S. federal bankruptcy judge in New York will decide the fate of Westinghouse, the venerable nuclear power company that failed financially earlier this year. When the decision is made, it will determine something far more important: whether the West will play an active role in mitigating the twin threats of nuclear proliferation and climate change, or instead cede the global market for nuclear energy to Russia. But to succeed, a reorganized Westinghouse will need a management team capable of breaking from the past and adopting a different, well-tested nuclear plant design; as well as the long-term, low-interest financing required to compete with the Russians.
RUSSIA'S GROWING NUCLEAR DOMINANCE
Westinghouse was founded in 1886, but was reorganized in the mid-1990s and owned by various companies until it was finally bought by Japanese conglomerate Toshiba in 2006—at a time when natural gas prices were high and nuclear energy’s prospects looked bright.
Westinghouse declared bankruptcy earlier this year after long construction delays stemming from building an entirely untested new design, the AP-1000, which resulted in significant and ongoing cost overruns during the building of two U.S. plants, one in South Carolina and the other in Georgia.
The greatest risk is that Westinghouse emerges out of bankruptcy proceedings in the hands of an owner who pulls the company out of the nuclear construction business entirely so that it can focus on its lucrative refueling business, and then sells off the remaining assets. Such an outcome would significantly undermine U.S. and Western national security interests, as well as global climate mitigation efforts.
Moscow views nuclear reactor sales as a vehicle for expanding and enhancing its influence. Russia’s state-owned nuclear corporation, Rosatom, is currently offering to not only build but fully finance and operate nuclear plants abroad, a deal that many cash-strapped and electricity-poor nations are finding hard to refuse.
Russia’s Build, Own, Operate (BOO) contracts are rightly raising flags within Western national security communities. Beyond establishing a measure of energy dependency, such contracts put Russian workers and valuable Russian assets on foreign soil, creating defensible grounds for the Kremlin to introduce a physical troop presence in regions of strategic interest. This is a particularly troubling prospect in the case of Turkey, a NATO member.
Russia has reactors under construction in Bangladesh, Belarus, China, India, and Slovakia, and recently inked deals for new builds in Armenia, Egypt, Finland, Hungary, Iran, and Turkey. In all, Russia is responsible for 60 percent of global reactor sales and technical assistance, and is positioned to build 34 reactors in 13 countries at a total value of $300 billion. After Westinghouse’s failure, India expanded Russia’s role in its planned nuclear build-out.
Most nuclear reactors, whether for medical research or energy, are closely monitored by the International Atomic Energy Agency (IAEA) to detect diversions of nuclear materials to clandestine weapons programs. But the success of safeguards and inspections depends heavily upon cooperation from state regulators, operators, and reactor vendors. A particular region of concern is the Middle East, which has a checkered history of compliance with the IAEA.
Like the United Arab Emirates, Saudi Arabia wants to build a nuclear plant, which would allow the country to preserve its abundant oil and gas resources for export. But securityexperts fear the Saudis may be motivated to hedge against the prospect of a nuclear-armed Iran, perhaps by developing their own clandestine enrichment or reprocessing capabilities. Although it seemed likely that Saudi Arabia would work with KEPCO, in light of South Korea’s recently planned nuclear phase-out, it is more likely that Russia will win that contract, too.
The good news is that, for now, many nations do not want Russia’s influence to expand within their borders, which was part of the reason Vietnam cancelled its plans for a nuclear build-out and is planning to construct coal plants instead.`
With nations in Europe and Asia looking to reduce their reliance on nuclear power, Westinghouse is the last opportunity for the West and its allies to remain in the nuclear construction business.
French-owned Areva, like Westinghouse, failed financially because of construction delays stemming from building an untested new European Pressurized Reactor design. Although Areva was recapitalized and reorganized by the French government, buyer nations will rightly be skeptical of its ability to deliver on projects given its history.
South Korea’s KEPCO has earned a reputation for building nuclear power plants on time and on budget, including abroad in the United Arab Emirates. But now South Korea’s newly elected president is pursuing a phase-out of nuclear energy in response to public fears that have grown since the 2011 nuclear accident at Fukushima. If he succeeds in doing so, South Korea will be out of the global nuclear competition, lacking a domestic supply chain and, equally importantly, the trust of foreign nations.
Japan’s Hitachi has a nuclear construction partnership with General Electric, but GE’s last two CEOs were publicly skeptical about the future nuclear construction, and customers are unlikely to contract with a firm from a country that is, like South Korea and France, reducing its domestic reliance on nuclear energy.
A reorganized Westinghouse under more visionary leadership could eventually buy Hitachi, which has proven capable of building its advanced nuclear plants on time and on budget in Japan and Taiwan; what remains of KEPCO; or another nuclear construction company.
For all the challenges Westinghouse faces, the United States still has twice as many nuclear reactors as the world’s second-largest nuclear energy power, France, and is the nation most committed to keeping and expanding nuclear energy to mitigate air pollution and climate change. For example, New York and Illinois last year extended a subsidy to economically distressed nuclear plants in recognition of their environmental benefits. Connecticut, Ohio, and Pennsylvania are considering similar measures.
WASHINGTON'S NEXT STEPS
The future of nuclear energy is too important to be left to a single bankruptcy judge, however forward-thinking. For Westinghouse and a Western-based nuclear construction industry to succeed, the U.S. government must do three things.
First, the Department of Energy (DOE) should take a page from its efforts in the 1990s that led to the shale gas fracking revolution and accelerate the testing of so-called accident tolerant fuels. In the 1990s, the DOE paid for higher-than-normal horizontal drilling and fracking costs to successfully test the technology. It should do the equivalent today for accident tolerant nuclear fuels, which promise to withstand temperatures three times higher than those withstood by today’s fuels, preventing hydrogen gas explosions like the kind that occurred at Fukushima in 2011.
If accident tolerant fuels prove successful, the cost of operating nuclear plants could decline by as much as 30 percent, making nuclear energy instantly competitive even with rock-bottom natural gas prices. After several decades of laboratory testing, these type of fuels are set to be loaded into a U.S. civilian nuclear reactor in 2018, but there is no reason they could not be loaded into civilian reactors this fall—something that would require a modest investment by DOE of well-under $500 million. If after 18 months these fuels have performed as expected, they should be subsidized across the U.S. nuclear fleet.
Second, Washington must recommit to becoming its own primary source of nuclear fuel enrichment and production, as well as a globally competitive supplier. The only U.S. firm capable of realizing that status is Centrus, which just completed a three-year demonstration of its advanced AC100 centrifuges at its Piketon, Ohio facility. Yet despite the DOE’s finding that the AC100 represents “the most technically advanced and lowest risk option” to meet the nation’s long-term national security needs, additional financing is needed to scale up and commercialize the technology.
Congress must greatly expand the financing available to reorganize Westinghouse so that it can compete with Rosatom.
Third, Congress must greatly expand the financing available to reorganize Westinghouse so that it can compete with Rosatom. In the past, some conservative members of Congress have objected that such financing should be the exclusive domain of private banks. But in the current situation, national security must take precedence over ideological purity.
In the end, the future of Westinghouse must be decided less on the size of the offer from competing bidders and more on a realistic plan for the United States to realize the vision offered by President Dwight Eisenhower in his famous “Atoms for Peace” speech to the United Nations General Assembly. The ultimate purpose of nuclear energy, Eisenhower said, was to “provide abundant electrical energy in the power-starved areas of the world.” Yet today, just ten percent of the world’s electricity comes from nuclear, almost all of it in power-rich rather than power-starved areas. American leaders can work together to turn today’s crisis, facing both Westinghouse and our largest source of clean energy, into the opportunity the West needs to guarantee its security while also realizing a humanitarian dream.