August 02, 2007
Congress To Give Nuclear Power Industry Loan Guarantees?

The New York Times reports that the US Senate's energy bill has a single sentence that opens the door to tens of billions of loan guarantees for the nuclear power industry.

WASHINGTON, July 30 — A one-sentence provision buried in the Senate’s recently passed energy bill, inserted without debate at the urging of the nuclear power industry, could make builders of new nuclear plants eligible for tens of billions of dollars in government loan guarantees.

As regular readers know, I'm a supporter of nuclear power and see it as a desirable replacement for dwindling fossil fuels supplies. But I'm skeptical of an argument that every nuclear power plant that gets built should receive federal loan guarantees. What's the justification for this?.

All those plans for new nuclear power plant construction? Well, now we find out that the nuclear power industry says it won't build them without loan guarantees.

Power companies have tentative plans to put the 28 new reactors at 19 sites around the country. Industry executives insist that banks and Wall Street will not provide the money needed to build new reactors unless the loans are guaranteed in their entirety by the federal government.

Um, are they serious or bluffing? Surely, capitalists want to reduce risks and increase returns on investment. Loan guarantees will lower the cost of capital and therefore increase profits. But is the nuclear power industry saying that the cost of capital for nuclear plants is so high that without lowered interest rates that new nuclear power plants can't be profitable?

I am skeptical of the claimed need for loan guarantees. The cost of fossil fuel competitors is going to keep going up. North American natural gas production is headed for a downhill slope. World coal and oil supplies are looking pretty limited. (and Saudi Arabia's Ghawar oil field looks like it has peaked) Well, nuclear's long term competitors end up being wind and solar. Unless wind and solar can out-compete nuclear why won't new nuclear power plants turn a profit even if operators borrow money at market rates?

Update: To clarify: I happen to think it is a good idea for a subsidy for the next few reactors that get built to test out the licensing process and to come up with a few reactor designs. All the utilities otherwise sit around waiting for other utilities to go first. The Nuclear Regulatory Commission doesn't know what it is going to decide during a review of any of the new designs. So the industry can get stuck with regulatory uncertainty.

Also, this loan program is supposed to apply to all energy sources that will not generate carbon dioxide from fossil fuels. There's an argument to be made for pushing along all the non-fossil fuels energy sources. Currently the dumbest and most damaging non-fossil fuel source - biomass corn ethanol - gets huge subsidies and gets used instead of far smarter choices. We need to level the playing field. I'd rather level it by ending all subsidies for corn ethanol. But the grain farmer lobby and numerous Congressional whores make that impossible.

Share |      Randall Parker, 2007 August 02 08:37 PM  Energy Nuclear

Jerry Martinson said at August 2, 2007 10:49 PM:

This would constitute an additional subsidy that the federal government gives to the nuclear power industry.

The major subsidy that is off the balance sheet is radically underpriced pooled insurance (via Price/Anderson liability caps) and other mechanisms in the unlikely but extremely costly possibility of a serious nuclear accident contaminating a large area causing hundreds of billions or more in damage and cleanup costs.

A "level playing field" would force nuclear reactors upwind of populated areas to bear the costs of credible insurance that could pay out a trillion dollars in the event of a meltdown. If running these reactors is so low risk, why can't they convince the private insurance industry to take the bet? The government says it's a crime to drive a car without liability insurance, you can't get a mortgage without homeowners, a contractor can't remodel a bathroom without posting a bond, but Uncle Sam singles out nuclear meltdown as a special case that defies all normal capitalist reasoning.

This is why I think some of the reactor designs such as pebble beds that can't possibly have a huge meltdown are going to be the way to go even though they generate a little more waste and probably cost a bit more per megawatt without the insurance.

aa2 said at August 3, 2007 2:37 AM:

Randall.. the main thing is right now lawsuits will fly and try to shut down plant construction. Judges are so out of control that one low level judge could halt or even permanently stop an entire project. No sane investor is going to fund something that could lose everything, only at extreme high interest rates.

What should be done is when the nuclear regulatory agency gives approval for a design, and a local county approves a project.. then no one should be able to stop it. But the politicians, mainly lawyers themselves aren't willing to challenge judicial overreach. So this is a workaround.

Rich said at August 3, 2007 7:43 AM:

aa2 is right. Any new power plant could take more than a decade to come online (if ever) due to the flood of litigation that is guaranteed to come. Without the Feds financial backing we aren't going to get new nukes.

Dave Gore said at August 3, 2007 10:30 AM:

In Oregon, the Trojan Nuclear Power Plant was shut down largely due to pressure by environmentalists; the state later put a nail in the coffin by outlawing nuclear power plants. Nothing stifles innovation and investment like the fear that the rules will change after you've plunked down your money.

Wolf-Dog said at August 3, 2007 10:50 AM:

What we need is a Bronx Project to build 100 nuclear power plants (1000 MegaWatt each) within 10 years (10 plants per year.)

Since the cost of a 1,000 MegaWatt nuclear power plant is between $1 billion and $2 billion, this would
mean that building 10 nuclear plants per year would cost no more than $20 billion per year. Compared to the $100 billion per year we are losing in Iraq, this is nothing for a country as large as the US.

One hundred nuclear plants (1000 MegaWatt each) would be sufficient to charge 200 million pure electric cars every day. And this can be done within 10 years.

But the US Government must get involved to make this happen. Manhattan Project was a government project, and since energy is national security, there is no reason why the Federal Government should not get 100 % involved.

Brian Wang said at August 3, 2007 11:10 AM:

They already have loan guarantees. It is 64 percent of the projects. 2005 legislation.

Congress has provided loan guarantees for 80 percent of the financing for the first several projects to win NRC approval. But that critical guarantee has already hit a serious snag.

Typically, these projects would be financed with 80 percent debt and 20 percent cash or equity put up by the owner of the plant. But federal officials in charge of loan guarantees have interpreted the law to mean that those guarantees apply only to the debt portion of the financing package. Using that math, the loan guarantee — 80 percent of 80 percent — will only cover about two-thirds of the total cost. That could be more risk than Wall Street is ready to assume — especially for the projects that go first.

The first proposals for nuclear plants will most likely come in Southern states, where utility commissions still allow companies to recapture their construction and development costs from ratepayers

The first nuclear plants are moving forward in Idaho and Maryland. It in Unistar a joint venture with the French Areva company. If Areva had problems the French government would bail them out. Completion dates if things go well of 2014 and 2015.

The US is also going ahead with the completion of Watts Bar 2. (expected complete by 2013). Brown Ferry 1 was rebuilt and came online this year.

I think the big companies have confidence in their ability to work the systems and get the support they need (They know they are crossing a tightrope with a net, whether it is loan guarantees or a gov't bailout). The companies are still risking plenty if things don't go right. The big companies have a lot of state backing. Russia, China, Japan would not let one of their major corporations go down because of a failed project. GE is another one of the big companies.

This is only relavent for the first few reactors.

I predict the 80% guarantees will happen. I predict the nuclear plants will get made and mostly on schedule because
of experience in other countries and experience basically building Brown Ferry 1 and Watts Bar 2.
This is another reason why you need big nuclear to take on and displace big coal and big oil/natural gas. You need companies with the money and connections to make it happen. I did not make the system, I am just telling you how it appears to work, but the end result will be cleaner power than if we kept using coal and oil. We will get more wind (also GE) and more solar. If technology can be made to work better and cheaper the companies can make more money than by capping losses. A good project and good tech is still more profitable than a bad project and bad tech even if the bad project has a cap on the losses.

As noted in the Godfather: I need, Don Corleone, those politicians that you carry in your pocket like so many nickels and dimes.

Eric McErlain said at August 3, 2007 11:36 AM:

Brian has it essentially correct. But we should also add that the loan guarantees we're talking about here provided under Title XVII of the Energy Policy Act of 2005 were designed to aid in the construction of advanced technologies that "reduce, avoid or sequester" CO2 emissions. In other words, the program is for any form of generation that qualifies under that definition -- which could include coal, natural gas, renewables or even biomass -- not just nuclear energy.

brian wang said at August 3, 2007 11:38 AM:

Wolf Dog, I would in general agree with your plan. However, it would not be necessary to have a big research project to scale up. Research should be put to making mass produceable molten salt thorium reactors for the 2020+ timeframe.

The US scaled up to build and complete 12 reactors in 1974 (10 in 1973 and 8 in 1972). There were only a few tiny reactors before 1969. The US economy is twice what is was in 1974.
The US could easily provide support to enable companies to start mass producing the reactors.
8 completions in 2015, 12 in 2016, 24 in 2017 etc... The reactors will be bigger than 1 GW more like 1.6 to 2.2 GW.

The world peak was 24 reactor completions in 1984. The world makes 2+ coal reactors each year and those use more concrete and steel than nuclear reactors.

The gov't and companies involved need to scale up training of personnel and large industry for supplying some of the components and supplies. They are already scaling up based on worldwide orders. GE/Hitachi is scaling up to build hundreds of reactors. Russia is scaling up.
The nuclear plants getting built in Japan, S Korea, China, Russia, Ukraine all have plenty of gov't support. So do the coal plants.

Wolf-Dog said at August 3, 2007 2:00 PM:

I agree that Molten Salt Thorium reactors are very useful, for they can, in a manner perhaps similar to the Integral Fast Reactor, actually burn all the long term nuclear waste.

Here is another web site that discusses all the advantages of the Thorium reactors:

But in any case, if the U.S. Government had been spending only 50 % of the money lost in Iraq every year since 2003 (i.e. $50 billion per year), on a Bronx Project to research the advanced futuristic nuclear reactors, then we would have already found a solution.

Randall Parker said at August 3, 2007 5:43 PM:

Jerry Martinson,

Actually, the law allows car drivers to underinsure themselves and then cause damage in accidents that they can't afford to pay for. Suppose you get hit by someone and get paralyzed from the neck down. Do you think the average driver has enough money to pay for your care of course not.

Or suppose you get killed by a drunk driver who has lost his license and isn't even insured and you die. Do you suppose your family can collect money to raise your kids? Probably not - unless you get hit by Nicole, Paris, or Lindsey.

Therefore I always find it funny when libertarian arguments get made against the Price-Anderson Act. I never hear these arguments against the vast bulk of the drivers on the road - very few of which can pay for the full extent of teh damage they could cause. "But on me it looks good".

More generally: People individually are not made to insure themselves the vast bulk of the damage they might cause.

Randall Parker said at August 3, 2007 6:00 PM:


In some parts of the country local and state level opposition to nuclear power is a problem. But that's not true everywhere.

Eric McErlain's own NEI Nuclear Notes reports, strong local support for TVA's Watts Bar 2 nuclear plant and strong local support for another Calvert Cliffs nuclear power plant.

Jerry Martinson said at August 4, 2007 11:44 PM:


You're right in that I was making an unfair analogy because other insurance markets are often broken as well. And in many things, I'm not sure that the economic concept of socializing risk through insurance leads to optimal incentives to reduce the risk to begin with. A good case is earthquake insurance.

And you're right, suppose the FITS rate for a trillion dollar reactor accident is 1E-11/s (about a 100% chance that at least one in the US will meltdown in the next 50 years), then basic math says that expected meltdown value per GWH is only a $10. This implies that the risk is socially very cheap.

But I'm still amazed that the nuclear industry can't seem to pay it's own way even though it's competitors get lots of subsidies as well. Since my expertise is in electronics, to me it's clear that the cheapest way to get more megawatts is by using "negawatts" that I just kind of get upset when something on the generation side gets yet another handout when efficiency gets treated as if it is somehow "arbitraged-out" already. I'm still waiting to seem how many economists' "invisible hands" it takes to change to an efficient light bulb.

Bode Bliss said at August 5, 2007 11:50 PM:

I think the global warming debate and the environmental concerns of some has thrown a shadow over the very real needs of the many.

I think the "Global Warming Debate" is swipe at our mad rush forward in technology and it will only get faster and faster. The ludites, the nannies, and the conformists are oozing out in every sector possible. They don't want to enjoin the future.

The problem with their approach is there is no feasable way to stop global warming other than killing off 5.8 billion people and going back to the cave.

If we halt our appetite for new technology and development when the world reaches 10 billion people, and it will, life on Earth will be worse than Hell.

There will be energy wars raging everywhere. You will have access to electricity for 6 hours once a week.

Let's take a serious look at this because this is the REAL CHEESE. The world is projected to need double the amount of power in use today by the year 2050. It will need 4X today's output by 2100 and by 2150 it will require, not desire, require 8X the amount of energy in use today. Without that added output world progress will freeze up and fall apart. Civilization will end. There will be chaos and war. The end will come with you, or your descendants huddled in a dark shelter with no hope of help arriving.

Putting a little solar power panel on your roof is not going to equal the vast amounts of energy we will require by 2050, 2100, and 2150. We need thousands of new high energy resources, or the end will come. We need Moon-based solar power, huge orbital-solar power stations, nuclear power, coal power, and we need to nail down fusion power once, and for all, or you can kiss everything you know and understand today goodbye.

How's that for a scary senario. I think it beats "Global Warming" hands down. We are on a treadmill of our own making, and until the population bomb is defused we must provide energy, or die in an armagedon type demise.

I'm not talking about the meager price of gasoline. I'm talking about the massive energy requirements of our future. We have to stop living in the past, start talking about the reality of our future. This is about providing solutions for a world with 10 billion, or more people.

If your not thinking of future energy needs, then your thinking of your own suicide!

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