GE’s $1 Billion Nuclear Unit at Risk as India, Germany Mull Atomic Future

 

General Electric Co. (GE)’s goal of broadening its $1 billion nuclear service-and-parts business with sales of new reactors risks stalling as world leaders reconsider the future of atomic energy.
Governments from Germany to India are reassessing the technology after Japan’s March 11 earthquake and tsunami crippled a power plant and raised the threat of a meltdown. China today halted nuclear project approvals and plans safety inspections of new facilities.
Political doubts after the Japan disaster may signal dwindling appetite for new plants, and the reactors that Chief Executive Officer Jeffrey Immelt has said he wants to pursue. Three reactors at the Fukushima Dai-Ichi plant use a GE design, including the damaged No. 1 unit that began operating in 1971.
“We want to look at, just like the whole industry, the details of what happened here,” GE Power & Water CEO Steve Bolze said yesterday in an interview. “There is going to be a lot of discussion, and we’re part of that process.”
Tokyo Electric Power Co. operates and maintains the Dai- Ichi plant complex. Fairfield, Connecticut-based GE operates its nuclear business through a 60-40 venture with Hitachi Ltd. (6501) everywhere except Japan, where Hitachi has 80 percent ownership. Services and parts produce most of the revenue for GE-Hitachi.

Sales Effect

GE’s portion of those sales makes up less than 1 percent of the parent company’s $150.2 billion in 2010 revenue. A possible loss of sales for GE’s latest reactor design to customers such as India or for parts and service wouldn’t cause much harm, according to analysts such as JPMorgan Chase & Co. (JPM)’s Stephen Tusa and Matt Collins of Edward Jones.
“GE-specific exposure is relatively minor and, even if there were an earnings impact, we do not believe that it’s material to the intrinsic value of GE stock,” Tusa wrote in a March 14 note. The New York-based analyst recommends buying GE.
The shares have been under pressure, tumbling 7 percent from March 11 through today to $18.95 in New York Stock Exchange composite trading, the worst drop among the 30 companies in the Dow Jones Industrial Average.
Japan’s unfolding nuclear disaster opens up questions on the future of nuclear power worldwide, scholars and analysts said. About 15 percent of global electricity comes from nuclear power, according to London-based World Nuclear Association.

‘Step Backward’

A large radiation release reaching the Japanese public would be “a big step backward,” James Bartis, a senior research analyst at the Santa Monica, California-based public policy group Rand Corp., said yesterday in an interview.
As France reaffirmed its backing this week for nuclear power, Germany halted production of 25 percent of its nuclear- generated electricity for a safety review and Switzerland put renewal of three atomic stations on hold.
Shreyans Kumar Jain, chairman of the Nuclear Power Corp. of India, said in Mumbai that Japan’s disaster may be a “big dampener” on the nuclear program in the country, which has planned $175 billion in spending by 2030.
“There’s going to be some immediate slowdown,” Richard Lester, head of the department of nuclear science and engineering at the Massachusetts Institute of Technology, said yesterday in an interview.

Building GE Energy

Immelt is concentrating on building other areas within the $37.5 billion GE Energy business, including solar, wind, biogas and natural gas-fired turbines, in part because it can take a decade or more to complete a nuclear plant.
GE has produced nine versions of a boiling water reactor design. The latest one in operation is the Advanced Boiling Water Reactor, sold to the Japanese in 1996. A new version, the Economic Simplified Boiling Water Reactor, is awaiting final certification from the U.S. Nuclear Regulatory Commission.
GE’s Bolze defended the design used at the Dai-Ichi site, saying it operated as expected even under stresses beyond the criteria set by Japanese regulators. GE has assembled 1,000 reactor specialists, including retirees, at an emergency center in Wilmington, North Carolina, where GE-Hitachi is based.
On-the-ground information from Japan is flowing from Tokyo Electric and the Washington-based Nuclear Energy Institute, which represents reactor owners and builders, Bolze said.
The company is offering aid, including 10 truck-mounted gas turbines being flown to the Dai-Ichi plant to help restore power. Authorities in Japan have said the tsunami knocked out backup generators needed to cool the reactors.

‘Peculiar Spot’

GE “is in a peculiar spot,” Michael Levi, a senior fellow for energy and environment at the Council on Foreign Relations in New York, said in an interview. “It’s not good to have your company’s name mentioned repeatedly next to ‘large nuclear accident,’ regardless of the safety potential of your current offering.”
The company is shielded from legal liability in the disaster by Japan’s so-called channeling laws, according to Omer Brown, a Washington-based lawyer who is a member of the International Atomic Energy Agency’s International Nuclear Liability Expert Group. Japan assigns nuclear-accident liability to plant operators.
The protections are “rock solid,” Brown said in an interview.
For GE, any pullback in global nuclear demand would be tempered by the prospect of adding sales of other power- generating equipment, according to Edward Jones’s Collins, who rates GE as “hold” and is based in Des Peres, Missouri.

GE’s Strengths

“GE is actually stronger in those areas than it is in nuclear, so it could largely offset any nuclear decline,” Collins said yesterday in an e-mail.
GE and competitors including Germany’s Siemens AG (SIE), France’s Alstom SA and Japan’s Mitsubishi Corp. (8058) may benefit in the near term from sales of gas-fired turbines, Citigroup Inc.’s Deane Dray wrote March 14.
Immelt, who has been in talks to sell reactors in India, said during a visit to New Dehli on March 14 that it’s too early to forecast the future of nuclear power in that country or elsewhere.
“We just have to let discovery take place,” he said. “Let people and countries reach their own conclusions.”