Obama's Nuclear Power Play Lacks Economic Voltage
;Southern Co. (SO) and two partners are planning to add two new reactors at the Vogtle Nuclear Power Plant near Augusta, Ga., to be completed by 2016 and 2017. Guaranteed borrowings wouldn't exceed 70% of the company's eligible projected costs, or approximately $3.4 billion, and are expected to be funded by the Federal Financing Bank. Even the Atlanta-based utility acknowledges that this is nowhere near enough to fund the full project, which will cost an estimated $14 billion. The remainder of the money will come from the debt and equity markets, according to a company spokeswoman.
The nuclear power industry denies that the loan guarantees available through the U.S. Department of Energy are any sort of bailout or a subsidy. A statement from the Nuclear Energy Institute (NEI), an industry trade group, says the U.S. Treasury will make money on the deal.
But whether the guarantees make economic sense may be beside the point. New nuclear power plants mean new jobs at a time when the stagnating U.S. economy badly needs them. Southern says its project, the first new nuclear plant in 30 years, will create 3,500 jobs during construction and an additional 800 permanent jobs once the units are operating.
While many energy experts agree that nuclear power should play a role in U.S. energy policy given rising concerns about climate change, a surprising amount of agreement exists across the ideological spectrum that the administration's policies are based too much on the energy industry's wishful thinking and not enough on economic reality. The critics are particularly chagrined that Obama had earlier tripled the amount of money allocated to the program to $54.5 billion and that the nuclear industry now wants a permanent source of federal financial help.
"It's rather ironic that the president is trying to make inroads with fiscal conservatives with this issue," says Pete Sepp,NTU spokesman. "I am not sure who he is going to get on his side . . . but it won't be us."
Daniel J. Weiss, senior fellow and director for climate strategy at the Center for American Progress, writes on his blog that the loan guarantees "might sucker a few utilities to bet their entire balance sheet on nuclear power plants" even though demand for nuclear power isn't strong. The policy doesn't make fiscal sense, he says. "It's very risky for the taxpayers," Weiss tells DailyFinance. Consumer advocate Ralph Nader called the plan a "monumental mistake." And Taxpayers for Common Sense argues on its Web site that the loan guarantees should "worry" taxpayers given the industry's dismal track record on cost control.
Indeed, the first 75 reactors built in the U.S. had cost overruns of more than $100 billion, even before the Three Mile Island meltdown, according Greenpeace. Last year, Moody's Investors Service called investing in new nuclear generation plants a "'bet the farm' endeavor for most companies." When discussing nuclear power expansion plans in the U.K., analysts at Citigroup say the risks faced by developers are so huge that they can be "classed as Corporate Killers."
There's also a greater than 50% risk of default on these new plant loans, according to a 2003 Congressional Budget Office report. But a more recent CBO study paints a more positive picture of the industry, according to the NEI.
Steve Kerekes, a spokesman for the NEI, says some of the criticism leveled against the industry is unfair. For instance, many of the overruns happened decades ago in the wake of Three Mile Island, when interest rates were high and utilities were often forced to make expensive design changes. Plus, operators had to go through separate licensing and operating permit processes, which took years and added costs to the project.
"It's a different licensing process right now," Kerekes says, adding that the Nuclear Regulatory Commission now awards combined licenses for siting and operating projects.
"Back to the Drawing Board"
Still, officials in San Antonio, Texas, are trying to pull out of a nuclear reactor project after costs ballooned by $4 billion higher than the city's municipal utility expected. The New York Timeslast year reported that delays and cost overruns are hurting a project in Finland billed as the world's most powerful reactor.
Southern's Georgia plant is using a different reactor design called the Westinghouse AP 1000, which, as the U.K.'s Guardian noted, "was sent back to the drawing board after federal regulators last October discovered major safety concerns in the design proposal, with regulators noting that it would not sufficiently protect the reactor from earthquakes, tornadoes, hurricanes and airplane crashes."
Nuclear power may have the potential to help combat climate change, but it needs to make economic sense as well, especially if taxpayers are providing the necessary funding.