A $120 Billion Westinghouse Reactor Plan Is Taking Shape. Here’s What History Says Happened the Last Time the U.S. Built Them.

The U.S. government recently signed a new framework agreement with South Korea to support the deployment of Westinghouse technology in the U.S. The new framework commits up to $120 billion of investment by South Korea to help finance the construction of eight large reactors on federal sites, six Westinghouse AP1000s and two Korean APR1400 reactors that incorporate Westinghouse technology.

For investors in Brookfield Renewable (NYSE:BEPC)(NYSE:BEP) and Cameco (NYSE:CCJ), which currently co-own Westinghouse, that's a very exciting development. However, before you get too excited, you'll want to see what history says about the last time Westinghouse built AP1000s in the U.S. Here's a look back at the last build cycle and why the setup looks different this time.

Image source: Getty Images.

What happened last time?

In 2008, Westinghouse signed fixed-price contracts to build two AP1000 nuclear reactors at Plant Vogtle in Georgia and two more at V.C. Summer in South Carolina. The company initially expected Vogtle to cost $14 billion and V.C. Summer to cost $9.8 billion. However, due to delays and other factors, costs ballooned out of control, causing Westinghouse to file for bankruptcy in 2017. The utilities developing V.C. Summer abandoned the project in 2017 after the cost estimate soared to $25 billion, even after already investing $9 billion. Meanwhile, Southern Company took over construction management at Vogtle and eventually finished Unit 3 in 2023 and Unit 4 in 2024, spending over $30 billion, more than double the original estimate.

What's different this time?

As the old saying goes, this time it's different. Two things stand out. One major difference is the funding strategy. Last time, utilities contracted with Westinghouse to build additional reactors at existing sites they operated, with the utilities funding up to the fixed cost they agreed to with Westinghouse. When it went bankrupt, they were on the hook for 100% of the cost. This time, the U.S. government is deploying the reactors at federal sites, with funding from South Korea. So, instead of utility-led projects, these are government-led projects.

The second difference is Westinghouse's role. According to Brookfield Renewable's latest earnings release, Westinghouse will provide design, engineering, and procurement for the AP1000s, plus long-term maintenance and fuel services. For the two Korean-designed reactors built on Westinghouse technology, Brookfield said Westinghouse would receive upfront licensing fees and a significant scope of work during construction and operations. Westinghouse expects about $2 billion per reactor from intellectual property licensing, engineering and procurement services, subcontracting opportunities and long-term fuel fabrication services. In other words, these aren't fixed-price contracts where it bears any cost overruns.

What does it mean for Cameco and Brookfield Renewable investors?

Brookfield Renewable and its institutional partners own 51% of Westinghouse (Brookfield's actual stake is currently closer to 11%), with Cameco holding 49%. However, those interests will likely get diluted. The framework with South Korea provides for a cornerstone equity investment between 5% and 10% in Westinghouse to align all parties around the long-term growth of its technology. Meanwhile, the U.S. Government can take an equity stake in Westinghouse, depending on its IPO valuation and timing.

That makes Westinghouse a meaningful investment for Cameco and a smaller piece of Brookfield's cash flows. For example, Brookfield's distributed energy, storage, and sustainable solutions segment (which includes its Westinghouse investment) contributed $54 million in funds from operations during the third quarter (16% of the total). However, it highlighted Westinghouse as a bright spot, noting that its operating plants business was up over 20% due in part to progress on new AP1000 reactor developments.

Meanwhile, Cameco reported that its share of Westinghouse's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $143 million in the third quarter (54% of its adjusted EBITDA). That was up from $124 million in the year-ago period. Cameco's larger stake makes Westinghouse a more meaningful contributor to its financial results.

What could go wrong?

Westinghouse is a different company than it was when the U.S. last built AP1000s. However, there's still lots of risk this time around. The South Korean investment is non-binding and subject to final negotiations. The deal may fall apart or end up at a much lower figure than $120 billion and fewer than eight new reactors. Meanwhile, delays and cost overruns could again impact returns. As we saw last time, nuclear reactors are challenging to build.

What I'd watch

Brookfield Renewable and Cameco investors should keep an eye on a few things. Whether the U.S. signs definitive agreements with South Korea, who signs the construction contracts and carries the cost risk, and whether Westinghouse will directly participate in the investment build-out. If the contract structure limits Westinghouse's risks, the risk of history repeating would diminish.

Matt DiLallo has positions in Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has positions in and recommends Cameco. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.