U.S. conglomerate General Electric Co. and Japan's Hitachi Ltd. said Monday they planned to pool their nuclear units in a $2 billion enterprise they hope will capture more contracts as power suppliers gear up to build a new generation of plants.
The two companies, which already have a joint venture for nuclear fuels, have also teamed up on a bid to build a nuclear power plant that merchant power company NRG Energy Inc. aims to build in Texas. That could be among the first new nuclear plants ordered in the United States in three decades.
They said their alliance comes at a time when demand for nuclear power is ramping up in the United States, as volatile oil and natural gas prices make nuclear a more appealing fuel source.
"To maintain the ratio of nuclear (power) generation to the total in the United States of roughly 20 percent, it's going to require roughly 20 plants to be built over the next decade or so," said John Krenicki, president and chief executive officer of GE Energy, on a conference call with reporters.
The deal will create two companies, one focused on Japan and 80 percent owned by Hitachi, and another serving the rest of the world and 60 percent owned by GE. Krenicki said when the deal closes a yet-to-be determined amount in the "hundreds of millions" of dollars will be paid to GE.
The partnership would help Hitachi, Japan's biggest electronics conglomerate, turn its nuclear power business around and help it get more boiling water reactor contracts abroad, Hitachi said.
Hitachi President Kazuo Furukawa told reporters the company aimed to win contracts to build at least a third of the 25 nuclear power plants the U.S. Department of Energy aims to have built by 2020.
Hitachi, which had sales of 160 billion yen ($1.4 billion) from its nuclear power business in Japan last year, will transfer its 2,000-person nuclear power division to a joint venture in Japan.
GE has roughly 1,500 employees involved in its $1 billion nuclear power business, GE said.
The move comes a month after France's Areva, the world's largest maker of nuclear reactors, and Japan's Mitsubishi Heavy Industries Ltd. said they would cooperate in this sector, while Japan's Toshiba Corp. completed a $4.2 billion deal to take control of Westinghouse, the U.S. power plant unit of British Nuclear Fuels.
GE also is a partner with Hitachi rival Toshiba. GE will not create similar joint ventures with Toshiba, but Toshiba will continue to be a supplier, Rudolph Villa, president of GE's Asian nuclear energy Asia unit, told reporters.
With U.S. utilities seeking permission to build about 18 new nuclear plants in the United States in the coming years, GE said Hitachi's recent construction experience would help.
"They've been building a lot more plants than we have over the last 10 years," GE's Krenicki said.
Hitachi's deal with GE, to be signed by June 2007, comes as market watchers worry about Hitachi's ability to secure overseas contracts, after its faulty turbines caused nuclear power units to close down at Japanese utilities Chubu Electric Power Co. and Hokuriku Electric Power Co. in the summer.
Hitachi expects a group net loss of 55 billion yen for the year to March, after factoring in an expected cost of 38 billion yen fix the turbines, plus cost overruns at its U.S. thermal power plants.