by Daniel J. Weiss
President Barack Obama’s proposed FY 2011 budget includes
some important proposals to invest in clean energy, but it also
includes a nuclear bombshell. The budget will seek at total of $54 billion in loan guarantees for nuclear power. This would require a $36 billion increase over the existing $18.5 billion for nuclear loan guarantees,
a program created under the Energy Policy Act of 2005—none of which
has been issued yet. And while they loan guarantee proposal cheered
some pro-nuclear senators, it has not garnered their support for
comprehensive, bipartisan clean energy and climate change legislation.
None of the four “top-tier” project proposals inspire confidence:
all have “rising cost estimates, delays related to reactor designs, and
credit downgrades,” according to Taxpayers for Common Sense.
For instance, one of the top four pending applications for a loan
guarantee for reactors in Texas may be withdrawn by the utility
proposing it, NRG Energy. The project was supposed to be a joint
venture with San Antonio’s municipal utility, but the latter is having
second thoughts due to enormous estimated cost increases that would
bring the project from the initial $5.4 billion to at least $17 billion.
The San Antonio city council was poised to approve a
$400 million bond issuance in late October but held back when new
numbers came to light that indicated the nuclear project could cost
more than it expected.
The nuclear industry wants loan guarantees because Wall Street
investors are unwilling to lend money to these projects because of
their high level of risk—they are too prone to default. The Congressional Budget Office found that nuclear investments are very risky.
CBO considers the risk of default on such a loan
guarantee to be very high-well above 50 percent. The key factor
accounting for this risk is that we expect that the plant would be
uneconomic to operate because of its high construction costs, relative
to other electricity generation sources.
Despite this high potential for losses from default, The Hill reports that the nuclear industry wants a very low assumption of default risk to lower its credit costs.
It wants to keep the ‘credit cost’ at 1 percent or below
the anticipated total cost to build a new plant. A company would be
required to pay DoE $100 million to reduce the risks for a $10 billion
project, but industry critics have sought a much higher percentage.
The guarantees would mean the government would step in to repay 80 percent of a loan should a company default.
Since the going rate of a nuclear power plant is $8 billion or more,
such an approach could stick taxpayers with at least a $6 billion bill
for every plant that defaults. A $54 billion loan guarantee program
with a fifty percent default rate could cost taxpayers billions, and
provide no electricity benefits. During this time of trillion dollar
deficits, this is a very imprudent use of taxpayers’ money.
The nuclear energy industry has sold itself as a large potential
source of low-carbon electricity. The Energy Information Agency has
predicted that by putting a price on global warming pollution under the
American Clean Energy and Security Act, H.R. 2454, would lead to a big
increase in electricity generated by nuclear power.
According to the Energy Information Administration’s 2010 Annual Energy Outlook business as usual scenario, electricity generation from nuclear power
will increase by 9 percent from 2010-2020, and only another .3 percent
by 2030. It is important to note that EIA assumes that new plants will
be much less expensive than real world experience. Under ACES, nuclear electricity will increase by 11 percent from 2010-2020, and by 77 percent from 2010
to 2030. Putting a price on global warming pollution would make
nuclear power more economically competitive.
If EIA’s projections are accurate, then enactment of global warming
pollution reductions would provide a huge boost in nuclear energy
generation without additional loan guarantees beyond the existing
program or the ACES Clean Energy Deployment Administration that can
provide up to 30 percent of its funds for loan guarantees for new
nuclear technologies.
Tripling of the loan guarantees is also dubious political strategy
because it provides huge subsidies for nuclear power without securing
the support of pro-nuclear senators for comprehensive, bipartisan
global warming pollution reduction legislation.
USA Today noted that
Obama’s pitch to expand U.S. nuclear power is seen by
some members of Congress and analysts as an effort to win GOP support
for his legislation to reduce greenhouse gas emissions, passed by the
House of Representatives last year but pending in the Senate.
Indeed, Sen. Lisa Murkowski (R-Alaska), whose state is suffering more
than any other from global warming, spoke positively about the loan
guarantee proposal, calling it “a good first step toward expanding our
use of clean nuclear energy.” She is also the author of the “Dirty Air
Act,” to block the Environmental Protection Agency from establishing
limits on global warming pollution. Sen. Murkowski has yet to join
Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.), and Joe Lieberman
(I-Conn.) in their efforts to craft a bipartisan bill.
The Associated Press reported on long-time opponent of global warming legislation Sen. Lamar Alexander (R-Tenn.):
‘I see an evolving attitude on energy by the
president,’ said Sen. Lamar Alexander, who has called for 100 plants to
be built in the next 20 years.
Yet Sen. Alexander continues to oppose comprehensive clean energy jobs and reductions in global warming pollution legislation.
In 2009, the Senate Appropriations Committee (subs. req’d) approved Sen. Robert Bennett (R-Utah) proposal to add
$50 billion in nuclear loan guarantees to the pending Recovery bill.
Fortunately, it was dropped due to the opposition of the Obama
administration and the House Appropriations Committee. Sen. Bennett remains a fierce opponent of reductions in global warming
pollution, yet his proposal was revived by the administration for the
2011 budget.
Nuclear power will likely play a role in the effort to reduce global
warming pollution. Yet it does little good to provide Senate nuclear
proponents with an expanded loan guarantee program without first
securing their support for global warming pollution reductions, such as
the bill that Sens., Kerry, Graham, and Lieberman are drafting. At
the same time, tripling the loan guarantee program before the existing
funds are exhausted does not make fiscal sense. The Obama administration should withdraw this flawed proposal or failing that,
Congress should reject it.
Related Links:
Sen. Lindsey Graham on the importance of passing climate legislation
A Critical Moment for Energy Leadership
Obama talks about ‘clean coal’ and solar during YouTube Q&A
