Green Blog: Nuclear Opponents Invoke Solyndra

Are new nuclear power plants a good bet for taxpayers? Congress evidently thought so in 2005, when it set aside $17.5 billion in loan guarantees to help restart nuclear construction in this country after a three-decade drought.

The theory at the time was that nuclear power was essential to maintaining diversity in the nation?s electric power system and to cutting carbon dioxide emissions by reducing reliance on fossil fuels. The program was signed into law by President George W. Bush, and President Obama later proposed expanding that program to more than $50 billion.

Eight years later, no actual loans have been made, and opponents of one nuclear project in Georgia are now arguing that none should be, because the risk of default is too high.

The loan guarantee program has in fact already been blamed for the demise of one project as a result of disagreement over the risk of default. Calvert Cliffs 3, a proposed new reactor in Maryland, was canceled in 2010 because, the builders said, the Energy Department was asking for an upfront payment that was so large that it made the reactor uneconomic.

That fee was supposed to compensate the government for taking on the risk of a loan default, and the government set that fee higher than the builders thought was reasonable. (With natural gas prices still low, however, the decision to pull the plug may been wise in any case.)

How to set such fees has long been a matter of uncertainty and debate, even for Congressional experts, because at this point the United States has no recent experience in completing nuclear construction.

While no nuclear loan guarantees have been granted, one has nonetheless been promised to the companies now building the Vogtle 3 and 4 reactors, near Augusta, Ga. It is not clear whether those builders, led by the Southern Company, will actually accept a federal guarantee; Southern says it has been shopping in the private market.

Nonetheless, two groups that oppose the construction of the Vogtle reactors are arguing that the proposed loan guarantee for the project is ?Solyndra-like,? a reference to the scandal over a solar panel manufacturer in California that went bankrupt in 2011 after receiving a $535 million federal guarantee.

On Wednesday, the opponents, Synapse Energy Economics and Earth Track, released a report based on the Department of Energy?s responses to four Freedom of Information Act requests over three years. The report argues that Vogtle might not go forward without the loan guarantees and that the department is poorly set up to evaluate the risk of default and set an appropriate upfront fee.

Furthermore, they argue, with new setbacks for nuclear power, including the persistence of very low prices for natural gas and the accident at Japan?s Fukushima Daiichi plant, the loan package should be revised. By some measures, the Vogtle project is more than a year behind schedule, they noted. And the owners and the contractor are enmeshed in a $900 million dispute on costs.

At the Southern Company, Tim Leljedal, a spokesman, said that loan guarantee negotiations with the Department of Energy were continuing. ?We are committed to financing options that will serve the best interests of our customers, and ? as long as the terms and conditions of D.O.E. loan guarantees serve those interests ? we will continue pursue that option,?? he said.

Last year, he noted, Southern borrowed $4.3 billion from commercial sources at an average rate of 2.8 percent.

One of the report?s authors, Doug Koplow of Earth Track, argued that this comparison was irrelevant. That was senior secured debt to be used for other purposes, he said, and ?it didn?t have any of stigma or risk like a large nuclear project.??

But proponents of Vogtle argue that its prospects are sound. For one thing, its builders note, it is fundamentally different from a project like Calvert Cliffs 3.

Calvert Cliffs, about 50 miles south of Washington, would have been a ?merchant? plant, meaning that it would pay back its loans by selling energy at whatever the prevailing rate was, and that rate is subject to market risks like shifts in overall demand and a decline in the price of competing sources like natural gas.

Vogtle is being built with the approval of the utility regulators, with its costs paid by ratepayers as long as the regulators consider the money to be spent appropriately. In other words, it could be a poor choice or a great choice, depending on future trends like the price of natural gas and the overall demand for electricity, but the builders will have the revenue to repay the loans.

The Department of Energy has extended the deadline for Southern and its partners to decide on the loan guarantee offer until this June.

Meanwhile,the new reactors are taking shape.

An earlier version of this post misidentified a critic of nuclear power who dismissed the relevance of a $4.3 billion debt arrangement secured by the Southern Company last year. It was Doug Koplow of Earth Track, not Max Chang of Synapse Energy Economics.

Source: http://green.blogs.nytimes.com/2013/01/31/nuclear-opponents-invoke-solyndra/?partner=rss&emc=rss

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