Calvert Cliffs project is dead; blame lack of climate change bill

There are many reasons behind the demise of Constellation Energy's venture with EDF Group to build a third nuclear reactor and electricity generator at Calvert Cliffs on the Chesapeake Bay.

The world financial crisis has made credit harder to come by. Constellation, parent of Baltimore Gas & Electric, isn't getting along so well these days with EDF, parent of Electricite de France. Falling natural gas prices make uranium-fired electricity less competitive by comparison.

But it's hard not to primarily blame the world's failure to do anything much about climate change. Last year's global summit in Copenhagen ended with little action on reducing growth in the carbon-dioxide emissions that are slowly cooking the Earth. A few months ago, Congress gave up on any effort to cap or tax carbon emissions, a measure that would have made (virtually) carbon-free nuclear energy an economic winner.

The end of Calvert Cliffs 3 will not be the only baleful consequence of all this. And all indications suggest that it is the end, despite what Constellation says.

"Depending on whether the U.S. effort fits in with their overall strategy, they [EDF] may yet decide to carry this through the next stage," says Constellation spokesman James L. Connaughton.

That's very hard to believe. Contractors have all but stopped work on Calvert Cliffs 3. There are legal barriers to foreign involvement with American nuclear projects. Even if the lawyers find a way around them, it's far from clear that EDF has the wherewithal or the desire to commit huge amounts of money and time to the U.S. market.

EDF boss Henri Proglio, who took charge as EDF's partnership with Constellation was being beefed up last year, was reported to be skeptical of the venture. The company has its own capital issues. Construction of a French reactor of the design contemplated for Calvert Cliffs is busting budgets and otherwise not going well. In theory, EDF could find a U.S. partner to replace Constellation, but that team would face the same economic and financing realities as the present one.

The immediate cause of the project's troubles was the refusal by the U.S. Department of Energy to guarantee financing for Calvert Cliffs on terms that Constellation could accept. Constellation and EDF have been waiting for a green light all year. But in the end, the DOE demanded more risk from Constellation — and less risk to taxpayers — than Constellation boss Mayo Shattuck or the company's board wanted.

Say what you will about government waste and profligacy, on this project the federal bean counters wielded a sharp pencil. Unlike another nuclear-financing deal approved by DOE this year for Southern Co., the new Calvert Cliffs unit wouldn't have been backed by revenue guaranteed by regulators from electricity customers.

In the old days, public utility commissions built generation construction costs into regulated electricity prices, but Maryland deregulated electricity a decade ago. Today new Maryland generation plants have to be fully financed by investors who hope they'll be able to recover costs and make profits by selling juice in the open wholesale market.

That's a much riskier proposition — both for the investors and the U.S. taxpayers who might guarantee the loans. Given the deteriorating economics of nuclear energy, it's no wonder that the Energy Department balked.

Nuclear energy would have been very attractive if a proper price were placed on carbon emissions from fossil-fuel electricity generation. Coal, which fires a large portion of U.S. electricity generators, is carbon-intensive, not to mention that it's a source of pollutants such as mercury and sulfur dioxide. Nuclear generators consume carbon in their construction, in the mining of the uranium and so forth. But using uranium to make megawatts is carbon-free.

Even without carbon penalties, nuclear energy might have been attractive if natural gas prices had shown signs of staying high. Natural gas has become the alternative to coal for making electricity. Only a few years ago, analysts saw U.S. natural gas supplies diminishing. Prices soared as a result. But new drilling techniques let prospectors tap huge reservoirs of gas from New York to Texas, a surprising development that (along with the economic slump) caused gas prices to crash.

Given the cheapness with which natural gas generators can be built and the lower cost of the fuel, such facilities are likely to be a more attractive investment in coming years than nuclear fleets, which, after all, are technically tricky and come with the growing problem of disposing the waste.

EDF is mad at Constellation for what it says was Constellation's decision to pull out unilaterally. The companies are also at odds over an option held by Constellation to sell EDF several older, fossil-fueled generation plants for perhaps $1 billion more than they're worth. Nevertheless, the companies are still deeply intertwined. EDF holds a large portion of Constellation's common stock as well as nearly half its existing nuclear-generation business.

But if the Calvert Cliffs partnership is over, so is the substance of the Constellation-EDF marriage. It's just a matter of how costly and nasty the divorce will be.

The end of Calvert Cliffs 3 represents many setbacks. A project that would have stimulated the Maryland economy is dead. Maryland again has no long-term plan for electricity to support growth in coming years. (Now it's more important than ever to get the TrAIL and PATH electric-transmission lines from the west completed.)

It's a huge setback for, if not the end of, the American nuclear renaissance. And that's too bad, because nuclear energy is a very effective way to reduce carbon emissions.

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