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<span style="text-transform: uppercase"><font size="6"><b>The upcoming
renaissance of nuclear Power<br>
</b></font></span><strong><font size="4">Nuclear Power Is On The Verge Of
An Extraordinary Expansion</font></strong></p>
<p class="MsoNormal"> </p>
<p class="MsoNormal"><font size="2" face="Arial">
<strong style="font-weight: 400">By<b> </b></strong>John O. Sillin</font><span style="color: black"><font size="2"><br>
</font></span><font size="2">(<em>originally published by PMA OnLine Magazine: 04/01</em>)</font></p>
<p>Thought impossible only a few years ago by most energy<br>
industry managers, regulators, and public policymakers,<br>
commercial nuclear energy had been written off as hope-lessly<br>
uneconomic, too technically complex to operate<br>
efficiently, and financially risky. But without much publicity, nuclear
power has been resurrected from the cemetery of<br>
dead and dying industries, and it has helped prevent a com-plete<br>
financial collapse of the electric power industry.<br>
<br>
For example, U.S. nuclear power plant energy production<br>
reached an all-time high for the fifth year in a row in 2002 (see<br>
Figure 1, p. 21).<sup>1</sup><br>
Also, nuclear power plant production rates<br>
(capacity factors) reached an all-time high in 2002. This rate<br>
now exceeds 90 percent, significantly higher than any other<br>
type of power plant in operation. The high capacity factor for<br>
nuclear plants is a reflection of nuclear power�s low operating<br>
costs, and the ability of power plant managers to operate these<br>
plants efficiently and safely. Second, nuclear power plants have<br>
<p>The Longer-Term Outlook�<br>
Environmental Benefits<br>
One of nuclear energy�s primary environ-mental<br>
(and economic) advantages is its<br>
energy density. The heat value of uranium<br>
used in a light water reactor is 500,000 mega-joules<br>
per kilogram. For high-Btu content<br>
coal, the value is 30 megajoules per kilogram.<br>
Residual oil is about 50 megajoules per kilo-gram;<br>
natural gas comes in at 40 megajoules.<br>
For wood (biomass), the heat content is on<br>
average 16 megajoules per kilogram.<br>
4<br>
The extraordinary heat content of ura-nium<br>
translates into significant environmen-tal<br>
and economic benefits. For example, a<br>
1,000-MW power station will consume more<br>
than 3 million tons of coal each year. If it is a<br>
nuclear power plant, the physical resource<br>
requirements are 24 tons of UO2 enriched to<br>
about 4 percent U235. This in turn requires<br>
200 tons of natural uranium processed from<br>
25,000 to 100,000 tons of uranium ore.<br>
5<br>
Even at the high end of 100,000 tons, this<br>
translates into a resource extraction ratio of<br>
30 to 1 in favor of uranium. Similar statisti-cal<br>
ratios can be generated comparing ura-nium<br>
with oil, natural gas, and biomass.<br>
In truth, the ratio is much higher in ura-nium�s<br>
favor. Much uranium and nuclear fuel<br>
comes from secondary sources, including<br>
other mineral mining operations and mate-rial<br>
from dismantled Russian nuclear warheads. Also, most of<br>
the uranium ore mined today comes from rich mines in<br>
Canada and Australia. Uranium is a relatively abundant ele-ment,<br>
with only one commercially practical application: gen-erating<br>
electric power. Fossil fuels, possibly excepting coal, can<br>
have multiple applications that in part explain their higher<br>
price on a Btu basis, i.e., they have a larger potential market.<br>
Fuel density also results in a smaller footprint for nuclear<br>
power plants and supporting facilities. Nuclear power plant<br>
sites can be more compact than similar-sized fossil stations.<br>
Also the transportation and supporting facilities to supply<br>
fuel are much smaller for nuclear power plants; large con-necting<br>
rail, barge, and pipeline facilities are not necessary,<br>
and neither are fuel storage yards or tanks. The reduced need<br>
for supporting facilities also increases the flexibility to site<br>
nuclear power plants, including at more isolated and secure<br>
locations. By contrast, renewable energy facilities such as<br>
windmills and solar power plants require enormous chunks<br>
of real estate�an inevitable result of their being extremely<br>
energy diffuse.<br>
While much is made of nuclear waste, it is small and man-ageable<br>
compared to other fuel forms. The 24 tons of UO2 after<br>
it is irradiated is extracted and stored, and ultimately will be<br>
encased in a repository. If processed, the amount of material<br>
that would go to the repository would be less than 700 kilo-grams,<br>
a small fraction. A coal-fired power plant would pro-duce<br>
about 7 million tons of CO2 each year, as much as 200,000<br>
tons of SO2 and other emissions such as NOx, and mercury.<br>
6<br>
While oil- and natural gas-fired power plants produce less emis-sions<br>
than coal plants, they are nevertheless significant.<br>
Air emissions bring up the subject of global warming.<br>
Nuclear power plants are emission free. In 2001 nuclear power<br>
plants were the source of more than 76 percent of all emis-sion-<br>
free generation in the United States. Hydro accounted<br>
for 21.6 percent. Combined geothermal, solar, and wind<br>
accounted for 2 percent of emission-free generation.<br>
7<br>
Cur-JUNE<br>
become economically attractive assets. Significant nuclear con-solidation<br>
has occurred through the formation of nuclear gen-erating<br>
companies and nuclear operating companies (see<br>
sidebar on p. 22).<br>
Also, several operating companies have been formed to<br>
manage nuclear reactor fleets. They include Southern Nuclear<br>
Operating Co. (six reactors at three sites owned by Southern<br>
Co. affiliates), and Nuclear Management Co. (nine reactors at<br>
six sites owned by five different utilities).<br>
As nuclear ownership consolidation and asset transfers<br>
have occurred, the value of the transactions has increased.<br>
The earliest nuclear power plant asset transfers occurred at a<br>
price of as little as $20 to $30 per kilowatt. The latest trans-fers<br>
(for which information is available) indicate acquisition<br>
prices of as much as $660 per kilowatt. Also, the earliest asset<br>
transfers involved a single buyer. The most recent nuclear<br>
power plant sales involved competitive bids. The obvious<br>
trend is that nuclear assets are appreciating in value, and the<br>
financial, technical, and regulatory risks associated with own-ership<br>
are declining�the opposite of almost all other gener-ation<br>
forms.<br>
The Near-Term Outlook<br>
The outlook for nuclear power is upbeat, showing every sign<br>
of improvement. First, the nuclear industry is gaining regula-tory<br>
approval for extending the operating licenses of existing<br>
reactors. Originally these reactors were licensed to operate for<br>
40 years, but after extensive safety analysis, testing, and struc-tural<br>
analysis, the Nuclear Regulatory Commission (NRC) is,<br>
on a case-by-case basis, allowing the plants to operate for<br>
another 20 years. To date, 10 reactors have received 20-year<br>
operating license extensions. Also, 20 reactors have filed for<br>
the same operating license extensions, and another 20 reactors<br>
are expected to file for operating license extensions during the<br>
next six years. A growing consensus is that the entire fleet of<br>
existing reactors will be relicensed.<br>
Contrast this with the situation 10 years ago, when the first<br>
plant to proceed with relicensing, Yankee Rowe, was closed<br>
along with several other plants in the United States. The con-sensus<br>
was that the existing fleet of nuclear reactors would not<br>
operate their allowed 40 years, and by 2020, nuclear power<br>
would be no more than a failed industrial artifact.<br>
Now, not only are nuclear plants operating lives being<br>
extended, their capacity ratings are being increased. Sophisti-cated<br>
analyses by plant owners and the NRC have demon-strated<br>
that large safety margins were incorporated into plant<br>
designs. Combined with improved instrumentation, new fuel<br>
designs, and other plant improvements, the NRC is allowing<br>
some nuclear plants to operate at higher power levels than<br>
those at which they were originally licensed.<br>
Currently there are nearly 98,000 MW of nuclear generat-ing<br>
capacity operating in the United States. Former NRC<br>
Chairman Richard A. Meserve, in recent remarks to the Amer-ican<br>
Nuclear Society, said that during the last 30 years the<br>
NRC has approved 80 up-rates that added nearly 4,000 MW<br>
of generating capacity. Prospective power up-rates, when com-bined,<br>
may result in the effective addition of seven new nuclear<br>
power plants, amounting to nearly 7,000 MW. A recently<br>
completed analysis done for the Energy Information Admin-istration<br>
(EIA) documented 1,060 MW of power up-rate<br>
applications before the NRC and 5,730 MW of additional<br>
up-rates likely to be submitted within the next seven years.<sup>2</sup><br>
The National Energy Policy prepared under the direction of<br>
Vice President Dick Cheney estimates the nuclear up-rate<br>
potential at 12,000 MW.<sup>3</sup><br>
In addition, nuclear reactors with operations or construc-tion<br>
that were terminated are now being investigated to deter-mine<br>
whether they should be repaired, completed, and<br>
restarted. The Tennessee Valley Authority, for example, is ana-lyzing<br>
the benefits and costs of repairing and restarting Browns<br>
Ferry 1. Other partially constructed power plants that may be<br>
evaluated to determine whether it is technically practical and<br>
cost-effective to complete them include Watts Bar 2 in Ten-nessee,<br>
Atlantic Energy (Seabrook) 2 in New Hampshire, and<br>
Washington Public Power System 1.<br>
Preliminary steps have been taken that may result in the<br>
construction of new nuclear reactors. The NRC has certified<br>
several new nuclear reactor designs, obviating the need for<br>
review of any technical issues about those designs that were<br>
resolved during the certification process. The NRC has certi-fied<br>
three designs: General Electric�s Advanced Boiling Water<br>
Reactor, Combustion Engineering�s System 80+, and the<br>
Westinghouse AP600. A fourth design, Westinghouse�s<br>
AP100, is currently being reviewed, and the NRC is engaged<br>
in pre-certification discussions with vendors representing five<br>
other designs, including gas reactor designs.<br>
The NRC also is proceeding with early site permitting, or<br>
advanced approval of a potential site for a nuclear power plant,<br>
which may then be banked for future use. Issues resolved in the<br>
early site permit review are not reviewed again in the combined<br>
license process. The combined license process folds into one<br>
proceeding two separate reviews�construction permit and<br>
operating license�required of currently operating plants. Once<br>
the license is issued the plant may be constructed and proceed<br>
to operation after the NRC determines the as-built plant con-forms<br>
to the approved license. These changes have reduced<br>
uncertainty and will result in regulatory decisions as early in<br>
the process as practical.<p>The Longer-Term Outlook�<br>
Environmental Benefits<br>
One of nuclear energy�s primary environ-mental<br>
(and economic) advantages is its<br>
energy density. The heat value of uranium<br>
used in a light water reactor is 500,000 mega-joules<br>
per kilogram. For high-Btu content<br>
coal, the value is 30 megajoules per kilogram.<br>
Residual oil is about 50 megajoules per kilo-gram;<br>
natural gas comes in at 40 megajoules.<br>
For wood (biomass), the heat content is on<br>
average 16 megajoules per kilogram.<sup>4</sup><br>
The extraordinary heat content of ura-nium<br>
translates into significant environmen-tal<br>
and economic benefits. For example, a<br>
1,000-MW power station will consume more<br>
than 3 million tons of coal each year. If it is a<br>
nuclear power plant, the physical resource<br>
requirements are 24 tons of UO2 enriched to<br>
about 4 percent U235. This in turn requires<br>
200 tons of natural uranium processed from<br>
25,000 to 100,000 tons of uranium ore.<sup>5</sup><br>
Even at the high end of 100,000 tons, this<br>
translates into a resource extraction ratio of<br>
30 to 1 in favor of uranium. Similar statisti-cal<br>
ratios can be generated comparing ura-nium<br>
with oil, natural gas, and biomass.<br>
In truth, the ratio is much higher in ura-nium�s<br>
favor. Much uranium and nuclear fuel<br>
comes from secondary sources, including<br>
other mineral mining operations and mate-rial<br>
from dismantled Russian nuclear warheads. Also, most of<br>
the uranium ore mined today comes from rich mines in<br>
Canada and Australia. Uranium is a relatively abundant ele-ment,<br>
with only one commercially practical application: gen-erating<br>
electric power. Fossil fuels, possibly excepting coal, can<br>
have multiple applications that in part explain their higher<br>
price on a Btu basis, i.e., they have a larger potential market.<br>
Fuel density also results in a smaller footprint for nuclear<br>
power plants and supporting facilities. Nuclear power plant<br>
sites can be more compact than similar-sized fossil stations.<br>
Also the transportation and supporting facilities to supply<br>
fuel are much smaller for nuclear power plants; large con-necting<br>
rail, barge, and pipeline facilities are not necessary,<br>
and neither are fuel storage yards or tanks. The reduced need<br>
for supporting facilities also increases the flexibility to site<br>
nuclear power plants, including at more isolated and secure<br>
locations. By contrast, renewable energy facilities such as<br>
windmills and solar power plants require enormous chunks<br>
of real estate�an inevitable result of their being extremely<br>
energy diffuse.<br>
While much is made of nuclear waste, it is small and man-ageable<br>
compared to other fuel forms. The 24 tons of UO2 after<br>
it is irradiated is extracted and stored, and ultimately will be<br>
encased in a repository. If processed, the amount of material<br>
that would go to the repository would be less than 700 kilo-grams,<br>
a small fraction. A coal-fired power plant would pro-duce<br>
about 7 million tons of CO2 each year, as much as 200,000<br>
tons of SO2 and other emissions such as NOx, and mercury.<sup>6</sup><br>
While oil- and natural gas-fired power plants produce less emis-sions<br>
than coal plants, they are nevertheless significant.<br>
Air emissions bring up the subject of global warming.<br>
Nuclear power plants are emission free. In 2001 nuclear power<br>
plants were the source of more than 76 percent of all emis-sion-<br>
free generation in the United States. Hydro accounted<br>
for 21.6 percent. Combined geothermal, solar, and wind<br>
accounted for 2 percent of emission-free generation.<sup>7</sup>
Currently, U.S. nuclear power<br>
plants annually avoid the<br>
release of 5.1 million tons of<br>
SO2, 2.4 million tons of NOx,<br>
and 164 million tons of carbon<br>
to the atmosphere. From 1973<br>
to 2000, emissions avoided by<br>
nuclear energy totaled 66 mil-lion<br>
tons of SO2, 34 million<br>
tons of NOx, and 3 billion tons<br>
of carbon.<br>
8<br>
While all of the above is<br>
generally well known, only<br>
now is it beginning to affect<br>
power plant investment deci-sions.<br>
For example, the U.S.<br>
Environmental Protection<br>
Agency (EPA) has only recently<br>
reversed its position on New<br>
Source Review. But this deci-sion<br>
holds little comfort for<br>
investors; if the EPA can reverse<br>
itself once on this subject, then<br>
at some future date it may reverse itself again.<br>
Another uncertainty is whether older and new coal-fired<br>
power plants can stay within the emission caps established in<br>
the 1992 Clean Air Act. Absolute limits were placed on SO2<br>
and NOx emissions, but as electricity demand and produc-tion<br>
grow, there will come a point where production from fos-sil<br>
power plants can�t be increased without exceeding mandated<br>
caps. Also, several Northeast states are suing large coal burn-ing<br>
utilities in the Southeast and Midwest on the grounds that<br>
they are the cause of acid rain, haze, and other degradations in<br>
air quality.<br>
Irrespective of whether the cases have merit, these and other<br>
events (including the controversy surrounding the United<br>
States� refusal to adopt the Kyoto Protocol on global warm-ing)<br>
have introduced significant uncertainty into fossil-fueled<br>
power plant investments, particularly coal. The result: Very<br>
few large coal-fired power plants are either under construction<br>
or planned. There is growing concern that new plants will not<br>
be allowed to operate at anything close to capacity for their<br>
planned operating life.<br>
Relative Economic Profile of Nuclear Energy<br>
Generating plant economics are also trending in nuclear<br>
energy�s favor. Nuclear power plants at present have signifi-cantly<br>
lower operating costs than coal, natural gas, or oil<br>
plants. Nuclear power plant production costs have declined<br>
from a peak of 3.4 cents per kilowatt-hour in 1987 to 1.76<br>
cents in 2000. This compares with 1.79 cents per kilowatt-hour<br>
for coal-fired power plants, 5.28 cents per kilowatt-hour<br>
for oil-fired capacity, and 5.69 cents for natural gas-fired<br>
capacity.<br>
9<br>
Nuclear power plant capacity factors continued to increase<br>
in 2001 and 2002�a strong indicator that production cost<br>
declined further. Future power up-rates are likely to further<br>
reduce nuclear per-unit production costs as increased output<br>
is realized from existing facilities. Stable or declining operat-ing<br>
costs are assuredly not the case for coal, natural gas, and<br>
oil-fired power plants.<br>
For coal power plants, operating costs are subject to<br>
increases as complying with current emission limits becomes<br>
more expensive. In addition, regulatory ratcheting on air emis-sions<br>
may continue. For example, the EPA just recently<br>
released a report warning that emissions of mercury by coal-fired<br>
power plants (and other industrial sources) pose an<br>
increasing health danger to young children. Also, on Feb. 20,<br>
2003, six Northeast states and the state of Washington<br>
announced plans to sue the federal government to force the<br>
regulation of CO2 from power plants. The states claim that<br>
the EPA hasn�t updated an analysis of air pollutants from power<br>
plants in at least 20 years. What is clear is that the consequences<br>
of legislative or regulatory actions will be to further increase<br>
coal power plant operating costs.<br>
10<p>Also, oil and natural gas prices have increased significantly<br>
in each of the past two years. Average natural gas prices to<br>
utilities increased from under $2/Mcf in 1995 to more than<br>
$4 in 2000. Prices rose to nearly $4.50 in 2001. At the end of<br>
2002 natural gas prices to utilities were at $4.60/Mcf and in<br>
January of this year rose to more than $5/Mcf. The EIA in its<br>
short-term projections shows continued high prices for natu-ral<br>
gas. There are also predictions by industry that high natu-ral<br>
gas prices are here to stay. Reasons for this include refilling<br>
storage sites from their abnormally low levels and low domes-tic<br>
production. Large industrial consumers have found it dif-ficult<br>
to switch to less expensive alternatives, due in part to<br>
the worker strike in Venezuela and the unstable conditions in<br>
the Middle East.<br>
The Longer Term Outlook�Need for Power<br>
Electricity demand has and will continue to increase as the<br>
national economy expands. The strong relation between eco-nomic<br>
and electricity demand has moderated in recent years<br>
but has nevertheless continued. Also, while modernization<br>
will no doubt bring about increases in energy usage efficiency,<br>
it will also continue the longer-term trend toward electrifica-tion,<br>
particularly of stationary applications.<br>
The National Energy Policy, published in May 2001, and<br>
prepared by the National Energy Policy Development Group<br>
stated at the outset in its section on electricity:<br>
�Electricity demand is projected to grow sharply over<br>
the next twenty years. Based on current estimates, the<br>
United States will need about 393,000 MW of new gen-erating<br>
capacity by 2020 to meet the growing demand.<br>
If the U.S. electricity demand continues to grow at the<br>
high rate it has recently, we will need even more gener-ating<br>
capacity. To meet that future demand, the United<br>
States will have to build between 1,300 and 1,900 new<br>
power plants; that averages to more than 60 to 90 plants<br>
a year, or more than one a week.�<br>
Furthermore, the EIA projects in its Annual Energy Out-look<br>
2002 that by 2020 electricity consumption will increase<br>
by over 40 percent, increasing at a rate of 1.8 percent per year.<br>
This growth will result in the need for 355,000 MW of new<br>
generating capacity.<br>
The electric industry also is projecting significant electric<br>
demand growth and need for new capacity. In its Reliability<br>
Assessment 2002-2011, the North American Electric Reliabil-ity<br>
Council (NERC) projects significant new generating capac-ity<br>
requirements. NERC electricity demand projection over<br>
the next 10 years is an annual average increase of 2 percent.<br>
NERC and the EIA in their most recent Annual Energy<br>
Outlook project that upward of 75 percent of all new electric generating
capacity will be natural gas-fired. With natural gas<br>
futures hovering at $6/Mcf, with the possibility of climbing<br>
further, the veracity of projections of large numbers of natural<br>
gas power plants must be questioned. These projections of<br>
natural gas capacity additions simply reflect today�s conven-tional<br>
wisdom. And today�s conventional wisdom is of no<br>
value when natural gas prices per million Btu have nearly<br>
tripled in the last five years, and have at least briefly approached<br>
double-digit levels.<br>
The Path Forward<br>
Relicensing of the existing plants and the up-rating of addi-tional<br>
plants will continue commercial nuclear power�s renais-sance.<br>
The Nuclear Energy Institute (NEI), in its Vision 2020<br>
publication, expects the industry to add 10,000 MW of capac-ity<br>
through increased efficiency and improved performance of<br>
the existing 103 reactors. But NEI also states that a corner-stone<br>
of the nuclear industry�s vision is to add 50,000 MW of<br>
new generating capacity by 2020.<br>
11<br>
Complementing the industry vision is the DOE�s Nuclear<br>
Power 2010 initiative to bring a new U.S. nuclear power plant<br>
online by the end of the decade.<br>
The DOE is providing modest financial support to Exelon<br>
Nuclear, Entergy Nuclear, and Dominion Resources in the<br>
preparation and submittal of early site permit applications to<br>
the NRC. These applications will focus on sites that host oper-ating<br>
nuclear power plants, but which were originally licensed<br>
or designed to host additional reactors. The department also<br>
has funded �scoping� studies analyzing both private and fed-eral<br>
sites as potential locations of new nuclear plants. Identify-ing<br>
and obtaining NRC permits for acceptable sites will answer<br>
the question of where to build the first new nuclear plants and<br>
remove a major hurdle to building new nuclear plants.<br>
DOE also will offer to share the cost of demonstrating the<br>
new regulatory process that enables utilities to obtain com-bined<br>
construction-operating licenses. DOE states that pro-viding<br>
a one-step licensing process will remove a major risk in<br>
investing in new nuclear plants. Other initiatives undertaken<br>
by the department and Congress to support the renaissance of<br>
nuclear power are:<br>
The affirmation of Yucca Mountain as the site of a per-manent<br>
spent nuclear fuel repository. This will allow<br>
nuclear plant owners to move spent nuclear fuel from<br>
the more than 70 nuclear plant sites with temporary stor-age<br>
facilities to a single site that is a permanent storage<br>
facility.<br>
Reauthorization of the Price-Anderson Act, which limits<br>
the liability of nuclear plant owners in a catastrophic<br>
nuclear event. While the conditions of such an event<br>
occurring has not been formulated and presented, its<br>
existence is a precondition for investment in new nuclear<br>
power plants.<br>
In addition to federal government support for nuclear<br>
energy, there appears to be at least lukewarm public support<br>
for the construction of new nuclear power plants. According<br>
to NEI�s Vision 2020, two-thirds of those surveyed support<br>
the continued and increased use of nuclear energy, with 27<br>
percent of those surveyed opposed. Also, the president, vice<br>
president, secretary of energy and other members of the<br>
administration have issued strong statements in support of<br>
nuclear energy, most prominently in the president�s national<br>
energy policy.<br>
What is holding up new plant construction? Except for<br>
timing new investments to coincide with the ups and downs<br>
of the business cycle, there is nothing stopping a decision to<br>
build new nuclear plants but the reticence of nuclear plant<br>
owner-management, their boards of directors, and Wall Street.<br>
This reticence is difficult to comprehend given the large finan-cial<br>
returns being earned on existing nuclear assets, and the<br>
billions of dollars that have been lost on other ill-considered<br>
energy ventures.<br>
Energy company managers and their Wall Street advisors<br>
have been pursuing investment strategies that couldn�t have<br>
had a higher risk profile, while they have all but ignored new<br>
nuclear plants.<br>
John Sillin is a director of Sillin & Associates and administrative<br>
officer for Energy Strategists Consultancy Limited. He can be<br>
reached at [email protected].<br>
Endnotes<br>
1. U.S. Department of Energy, Energy Information Administration Web<br>
site, www.eia.doe.gov.<br>
2. U.S. Commercial Nuclear Power Industry Assessment for Department<br>
of Energy, Energy Information Administration, October 2001, Edward<br>
M. Quinn, MDM Services Corp.<br>
3. Reliable, Affordable, and Environmentally Sound Energy for America�s<br>
Future; Report of the National Energy Policy Development Group;<br>
May 17, 2001.<br>
4. World Nuclear Association, www.world-nuclear.org.<br>
5. Ibid.<br>
6. Ibid.<br>
7. Nuclear Energy Institute, www.nei.org.<br>
8. Ibid.<br>
9. Ibid.<br>
10. The Wall Street Journal; May 16, 2003.<br>
11. Vision 2020, Nuclear Energy and the Nation�s Future Prosperity;<br>
Nuclear Energy Institute.<font face="Times New Roman"><br>
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