The Obama administration yesterday pledged a conditional $8.3 billion loan guarantee to support the construction of two nuclear reactors in Georgia, which would be the first new U.S. nuclear plants in more than three decades. More commitments are on the way, officials said.
Administration climate adviser Carol Browner said yesterday that the Energy Department's preliminary commitment to Southern Co. and its partners in the $14 billion Plant Vogtle development was hopefully "the first of many new nuclear projects."
Jonathan Silver, executive director of DOE's loan guarantee program, said the administration is "actively engaged in advanced work on three other transactions" and has begun analysis on four more beyond that. The next three in the queue, according to industry officials, are projects in southern Maryland, San Antonio, and Fairfield County, S.C.
DOE has not identified any of the projects it is reviewing or said when final decisions may come. The administration's fiscal 2011 budget request asks Congress to add $36 billion to the nuclear loan guarantee program. Industry officials say the additional funds are needed to back more than the first two or three projects on DOE's list.
Yesterday's anticipated announcement produced the political anomaly of a Democratic president being cheered by the nuclear power industry for supporting nuclear's long hoped-for revival, while being condemned by nuclear power opponents on the left for putting billions of taxpayer money at risk. The program stalled during the Bush administration, and Southern Co. CEO David Ratcliffe said yesterday that there were times he lost hope for it.
"This loan guarantee, and others to follow, will act as a catalyst to accelerate construction of new nuclear plants and other low- and non-emitting sources of electricity," said Marvin Fertel, president of the Nuclear Energy Institute, the industry's chief lobbyist.
The guarantee "is a dirty and dangerous distraction from the clean-energy future the president promised America," said Jim Riccio, nuclear policy analyst at Greenpeace.
The administration's unreserved backing of a group of advanced design reactor projects reflects the conviction of President Obama and key aides that the nation cannot reach its goals for reducing carbon emissions from power plants without a bigger contribution from nuclear power, officials say.
"As the world moves to address climate change, nuclear energy will play an indispensable role," Energy Secretary Steven Chu said yesterday. Loan guarantee announcements on other advanced technology projects on the climate front are coming soon, Silver added.
"It is a great step in the right direction," said Ratcliffe, whose Georgia Power subsidiary is a 45 percent owner of the new Vogtle reactor project. Southern Nuclear, another subsidiary, is overseeing construction of the two 1,100-megawatt reactors alongside the two existing reactors near Waynesboro, Ga. The new units are expected to be completed in 2016 and 2017.
The agreement is not yet cast in stone, however. Ratcliffe said that yesterday's commitment announcement was "based on terms and conditions ... which we have discussed but we haven't actually seen." The loan guarantee will cover 70 percent of Southern's $6.1 billion share of the total project, Ratcliffe said.
He did not give details on how Southern planned to divide its 30 percent share between debt and equity but said his company was not looking for financial backing from Japan. Toshiba of Japan is majority owner of Westinghouse, whose AP1000 reactor has been selected for the Vogtle plant's expansion and is under review by the Nuclear Regulatory Commission.
Southern and its partners, Oglethorpe Power Corp., the Municipal Electric Authority of Georgia, and Dalton Utilities, have 90 days to conclude the agreement announced yesterday. The guarantees would not take effect until the NRC approves operating licenses for the reactors.
One key element remains to be settled -- the amount of credit subsidy that nuclear developers must pay to the government to cover the risk that a project is not completed and the government has to repay the project's lenders. Industry officials have said an upfront credit subsidy payment of 1 to 2 percent of the loan amount would be manageable, but a significantly higher number would kill the proposed new reactor projects.
The credit subsidy figure "is part of the final terms and conditions that are still yet to be agreed upon," Ratcliffe said. His company and DOE have a "ballpark" understanding, which he would not disclose. "We're going to continue to work to drive that cost as low as we can," he said, because it reduces what utility customers have to pay for the project.
Silver said no significant differences remained. "Effectively, we're all in agreement on the main points of the transaction. ... For all intents and purposes, we have a credit subsidy number in place. All parties are comfortable with it." Like Ratcliffe, he would not give specifics.
Yesterday's announcement may serve the administration's political push for a bipartisan climate legislation deal this spring. The closer the November midterm congressional elections come, the poorer the prospects for major climate legislation grow, congressional aides say. Now, the administration has provided more concrete evidence of its willingness to invest in an energy sector dear to many Republican lawmakers.
Silver said DOE issues commitments as the transactions are completed. "The timing is driven more by our ability to conclude them efficiently than by anything else," he said. Browner reminded Senate Republicans yesterday of the administration's bipartisan overtures on climate policy.
The administration is also counting on a nuclear revival to boost job creation. Southern said 3,500 people would be employed in construction of the two new reactors, while operating the plants would provide permanent jobs for 800 people. DOE has awarded investment tax credits to two firms to build U.S. manufacturing plants that will turn out components for new reactors.
The loan guarantees, approved in the 2005 Energy Policy Act, are required to move a new round of nuclear plants forward, the industry says. The government's willingness to protect lenders if a project fails significantly reduces financing costs and permits projects to carry a heavier portion of debt than costlier equity, experts note.
Doug Koplow of Earth Track Inc., in a paper published last year by the Nonproliferation Policy Education Center, said loan guarantees could reduce nuclear plant financing costs by $500 million a year. "These savings are not 'free' money, as the industry likes to portray them," he said. "Quite the contrary: the savings to a specific industrial facility arise because their business risk is being moved from the investors who will profit from the new reactor to ... taxpayers. It is clearly a good deal for the nuclear industry; far less clear is how the taxpayer is benefiting."
Nuclear power critics assert that there is a substantial risk that the new projects will default, citing a Congressional Budget Office study that estimated a 50 percent likely failure rate. The CBO study, however, was made in 2003, before the loan guarantee program was created. The failure rate calculation assumes that nuclear power from new plants could not complete economically against generating plants fired by coal or natural gas. It did not consider whether future climate policies would make coal or natural gas generation more expensive, or whether environmental regulations would force the closure of coal plants.
Nuclear power company officials say that the non-guaranteed part of new reactor financing is still a huge burden they would not take on if they saw a significant risk of failure.
The greatest issue surrounding a nuclear "renaissance," according to many industry analysts, is whether new plants can be built on time and on budget. The loan guarantee program provides answers to that question, Chu said.