[ RadSafe ] Article: Can an expanded loan guarantee programme dispel . . . hesitation about resuming construction of npp?

[John Jacobus]

The site link is at the bottom
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Published online: 15 August 2007; 

Powerful incentives

Can an expanded loan guarantee programme dispel US
power companies' hesitation about resuming
construction of nuclear power plants? Geoff Brumfiel
investigates. 
  
To an outside visitor, America's nuclear power plants
look distinctly dated. Operators watch their reactors'
progress on racks of indicator lights and run them in
part by using old-fashioned relay switches. Even the
beige and taupe colour scheme of the control rooms is
a throwback to an earlier era.

The vintage look underscores the screeching halt that
nuclear-power business came to in 1979, when a
successfully contained accident at Three Mile Island
in Pennsylvania soured the public's attitude to
nuclear energy. Since then, work hasn't started on a
single new nuclear power station in the United States.
But as memories of that era fade and concerns mount
about global warming, the industry thinks that
attitudes are changing.

In an effort to restart construction, congressional
supporters of the industry such as Senator Pete
Domenici (Republican, New Mexico), have incorporated
powerful incentives into a pending energy bill. If the
bill passes with these provisions intact, as is
considered likely, it would allow the government to
provide tens of billions of dollars in federal loan
guarantees to the industry. That would allow utilities
to raise the money needed to build new plants, says
Mitchell Singer, a spokesman for the Nuclear Energy
Institute (NEI), an industry lobby group in Washington
DC.

Risky guarantees

Under the legislation, the federal government could be
liable to pay back loans covering up to 80% of
construction costs if the utility defaults. Not
everyone thinks that this is the best course of
action. "This is a huge risk for taxpayers," says
Michele Boyd, legislative director at Public Citizen,
a consumer advocacy group in Washington DC.

For investors, new nuclear plants offer an unfortunate
combination: they're both long term and high risk. The
NEI estimates the cost of a new facility at US$3.5
billion to $5 billion. For a typical utility with a
market capitalization of, say, $50 billion, that's a
big investment to make.

Lenders and investors are reluctant to finance such
projects because of the industry's troubled past. In
the 1960s and 1970s, construction of nuclear plants
regularly ran behind schedule and over budget. As
inflation rose in the 1970s, and energy demand
subsequently shrank, utilities struggled to make
payments on their plants. "There were significant
write-offs and massive dividend cuts," recalls Caren
Byrd, an energy analyst at Morgan Stanley in New York.
"The financial community was hurt very badly."

The Bush administration has already offered a swathe
of subsidies to encourage new nuclear plants. Since
2004, the US Department of Energy has spent $250
million on collaborations with industry to certify a
new generation of reactor designs and prepare the
first licence applications. A 2005 energy bill offers
utilities a production tax credit of 1.8 cents for
every kilowatt-hour — around one-quarter of the
typical electricity price — generated by the first
6,000 megawatts of nuclear generating capacity for the
first eight years of operation. It also offers them
insurance of up to $2 billion for the first six plants
in the event of construction and licensing delays.

These incentives have led four companies to file for
'early site permits'. But only one firm —
Constellation Energy of Baltimore, Maryland — has
started to apply for the 'combined operating licence'
needed to start construction. Funds to start
construction have yet to materialize, says David
Schlissel, an analyst at Synapse Energy Economics, an
energy consultancy firm based in Cambridge,
Massachusetts. "It's unclear that anyone will put up
the capital for the new plants unless the Feds
guarantee the loans," he says.

The NEI claims that the industry would be ready to
borrow about $50 billion to build new plants within
two years if such guarantees were available. It also
says that utilities would protect the government's
investment by paying into a fund to cover losses if a
couple of projects fall through. The entire system
"will be self-financing in many ways", Singer claims.

But a study in June by the non-partisan Congressional
Budget Office in Washington DC warned that new nuclear
plants pose "significant technical and market risks".
It also said that the US Department of Energy, which
would oversee the programme, was likely to
underestimate the fees that need to be paid into the
fund.

Safety net

The guarantees would provide a major boost for plant
construction, says Marilyn Kray, vice-president for
project development at Exelon, a utility based in
Chicago, Illinois, and the largest nuclear generator
in the nation. They would reassure lenders, and allow
utilities to borrow at lower rates. Given the enormous
capital costs, he says, "a single interest percentage
point is quite significant."

"It would be a very useful incentive to have," agrees
Dimitri Nikas, an energy analyst with Standard &
Poor's, a financial services company in New York. But
it might still fail to drive down the costs of
construction to a competitive level. The expert labour
and technology needed to build such plants is
expensive, as is the meticulous regulatory process.
The bottom line, Nikas says, is that the incentives
may get one or two plants built — but they won't
herald a building boom in nuclear power stations.

Story from news at nature.com:
http://news.nature.com//news/2007/070813/448741a.html 
  © 2006 Nature Publishing Group | Privacy policy 

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"If you guard your toothbrushes and diamonds with equal zeal, you'll probably lose fewer toothbrushes and more diamonds."
- Former national security advised McGeorge Bundy
-- John
John Jacobus, MS
Certified Health Physicist
e-mail:  crispy_bird at yahoo.com


       
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