Friday, April 29, 2011

Federal Nuclear Guarantees Going Begging

I have written before that the nuclear power industry still requires subsidies to cover its enormous environmental and financial risks. But even with a big pot of money for loan guarantees, the industry may still not be economical. The New York Times reports that most of a multi-billion pot to support nuclear power is being left on the table:
WASHINGTON — In an effort to encourage nuclear power, Congress voted in 2005 to authorize $17.5 billion in loan guarantees for new reactors. Now, six years later, with the industry stalled by poor market conditions and the Fukushima disaster, nearly half of the fund remains unclaimed. And yet Congress, at the request of the Obama administration, is preparing to add $36 billion in nuclear loan guarantees to next year’s budget.
It's one of the rare instances of government money going begging:
Only $8.8 billion of the 2005 guarantee has been allocated — to a twin reactor project in Georgia. Ground has been broken on the fourth candidate, a twin reactor project in South Carolina, but its sponsors may get a better deal in the commercial finance market.
Supporters of the guarantees claim the cost to the government is very small:
A federal loan guarantee is a little like a parent co-signing a child’s car loan; if the child makes the payments, the parent pays nothing. Under the 2005 law, borrowers pay a lump sum to the government to compensate the Treasury for the risk it is undertaking, and if the companies finish the projects and can pay back the loans, the government makes a profit.

The precise shape of new loan guarantees is uncertain, but when “scoring” the provisions for the purpose of calculating their expense, the White House says they cost nothing, and Congress assumes they cost 1 percent of the face value. But they are not without risk. 
If the builders default, as happened on some nuclear construction projects in the 1980s, the taxpayer liabilities could run into the billions of dollars.
The loan guarantees cover 80 percent of construction costs, but the industry is still having trouble finding investors to cover the other 20 percent.


Blogger Nancy Willing said...

Awesome post, Tom!

7:33 PM, April 29, 2011  

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