Why is the Obama administration using taxpayer money to back a nuclear plant that’s already being built?
If nuclear power is such a good idea, why does it need financial help from U.S. taxpayers?
This week, Energy Secretary Ernest Moniz announced that the Obama administration would extend a $6.5 billion federal loan guarantee to cover part of the cost of building two new reactors at Southern Co.’s Alvin W. Vogtle site. Thursday he went to Waynesboro, Ga. to finalize the deal. Another $1.8 billion in guarantees could come soon.
The impact: Southern’s Georgia Power subsidiary, which owns 46 percent of the project, will save $225 million to $250 million because the loan guarantee will reduce interest costs. Instead of borrowing from a commercial bank, Southern can now borrow at rock bottom rates from the government’s Federal Financing Bank. And you, gentle reader, the taxpayer, take on all the risk if the project goes bust. Does the name Solyndra ring a bell?
If that’s not enough, Southern is also getting help from the federal production tax credit and other federal incentives that will ultimately save the company an additional $2 billion or so, Southern’s chief executive Tom Fanning said on a Jan. 29 conference call about earnings.
“This is a deeply subsidized project that will cost the taxpayers a lot,” said Ken Glozer, a former Office of Management and Budget senior official who is president of a consulting firm OMB Professionals.
Southern has said it didn’t need the loan guarantee to finish the project. But the guarantee doesn’t hurt.
The company also says that it will pass along the savings in financing costs to Georgia electricity ratepayers, but those ratepayers are already footing a large chunk of the reactors’ construction costs. Usually ratepayers only pay such costs once a generating station is in operation, not while it’s being built. In December, the Georgia Public Service Commission approved a three-year plan to spread out $465 million in rate increases, according to Wells Fargo Securities analysts. Southern said customer rates once the units are in service would rise between 6 and 8 percent, less than the 12 percent increase originally projected for capital costs.
This is all part of a bigger picture. Less than a decade ago, the nuclear industry was anticipating a renaissance, fueled by hopes that climate concerns about fossil fuels would trump safety worries and would help rally support beyond the industry’s usual allies. Congress tried to do its part by approving in the 2005 Energy Policy Act a $17.5 billion program of nuclear loan guarantees.
But even with that help, building a nuclear plant is extremely expensive, and for a single utility, even a large one, to undertake such a project means betting the farm, as former Duke Energy chief executive Jim Rogers once put it. Moreover, costs rose since 2005. While Congress envisioned helping half a dozen reactors or more, the program is now expected to cover only three or four.
Then, if those challenges weren’t enough, the industry was hit by the recession, competition from low natural gas prices, and the Japanese earthquake and tsunami that destroyed three reactors at the Fukushima plant and fanned safety concerns worldwide.
It wasn’t just a perfect storm. It was three perfect storms.
Moniz said the Vogtle project was “not only a major milestone in the Administration’s commitment to jumpstart the U.S. nuclear power industry, it is also an important part of our all-of-the-above approach to American energy as we move toward a low-carbon energy future.”
Many experts say it’s not the sort of milestone Congress and the industry once had in mind. The nuclear industry is nearly halfway through a more than $30 billion construction program, with the two new reactors being built in Georgia, and three others in South Carolina and Tennessee. Like the ones in Georgia, a pair under construction in South Carolina can rely on a state law allowing costs to be passed along to customers while construction is in progress. The fifth is being built by the Tennessee Valley Authority.
But while five reactors are under construction, four others have closed down or announced plans to close down. Two cited competition from natural gas plants and two others faced large repair and upgrading costs. The renaissance seems to be stillborn.
Proponents of nuclear power are still trying, though, and they say that the loan guarantee and production tax credits aren’t any different from what wind and solar projects get. Level playing field and all that. Besides, Southern says, Solyndra was a new company with a new technology whereas Southern has been around for roughly a century and nuclear power plants have been in operation for decades.
“Loan guarantees have been in place for years and are a successful vehicle used by the federal government to ensure investment in critical infrastructure projects,” Marvin Fertel, president of the Nuclear Energy Institute, said.
The Vogtle loan guarantee had been conditionally approved by the Obama administration four years ago, and Southern is already well into construction — although it’s running about 21 months behind schedule according to the anti-nuclear group Public Citizen. (You can see photos of the project’s progress here.) The reactors are Westinghouse AP1000 models, a new generation reactor.
Wells Fargo last month lowered its earnings outlook for Southern, citing “construction risk” from the nuclear reactors as well as a modern coal plant under construction — and over budget — in Mississippi. Now that risk belongs to all of us.
“No doubt, this is a bad deal for the American people who have been put on the hook for a project that is both embroiled in delays and cost overruns and to a company that has publicly stated that it does not need federal loans to complete the project,” Allison Fisher, Outreach Director, Public Citizen’s Energy Program said. “This is a classic case of throwing good money after bad – an unnecessary and unconscionable decision to make with taxpayer money.”
Bonus fact: The reactor site in Georgia is named after the late Alvin Ward Vogtle Jr., former chairman of Southern. Vogtle was an Army Air Force pilot in World War II, and flew more than 30 missions before crash-landing in North Africa and being taken to a prisoner of war camp in Germany. On his fifth attempt, he escaped by scaling a 14-foot barbed-wire border fence and crossing to Switzerland. The character Steve McQueen played in the 1963 film “The Great Escape” was based on recollections of several veterans, including Vogtle.
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/02/21/why-is-the-obama-administration-using-taxpayer-money-to-back-a-nuclear-plant-thats-already-being-built/?hpid=z4
Nuclear Power Subsidies: The Gift that Keeps on Taking
April 26, 2011 03:29:17 pm
Since its inception more than 50 years ago, the U.S. nuclear power
industry has been propped up by a generous array of government subsidies
that have supported its development and operations. Despite that
support, the industry is still not economically viable, according to a
report by the Union of Concerned Scientists (UCS). The report, “Nuclear
Power: Still Not Viable Without Subsidies,” found that more than 30
subsidies have supported every stage of the nuclear fuel cycle, from
uranium mining to long-term waste storage. Added together, these
subsidies often have exceeded the average market price of the power
produced.
“Despite the fact that the nuclear power industry has benefited from decades of government support, the technology is still uneconomic, so the industry is demanding a lot more from taxpayers to build new reactors,” said Ellen Vancko, manager of UCS’s Nuclear Energy and Climate Change Project. “The cost of this technology continues to escalate despite billions in subsidies to both existing and proposed plants. Instead of committing billions in new subsidies that would further distort the market in favor of nuclear power, we should focus on more cost-effective energy sources that will reduce carbon emissions more quickly and with less risk.”
Pending and proposed subsidies for new nuclear reactors would shift even more costs and risks from the industry to taxpayers and ratepayers. The Obama administration’s budget proposal would provide an additional $36 billion in federal loan guarantees to underwrite new reactor construction, bringing the total amount of nuclear loan guarantees to $58.5 billion, leaving taxpayers on the hook if the industry defaults on these loans.
The key subsidies for nuclear power do not involve cash payments, the report found. They shift the risks of constructing and operating plants – including cost overruns, loan defaults, accidents and waste management – from plant owners and investors to taxpayers and ratepayers. These hidden subsidies distort market choices that would otherwise favor less risky investments.
The most significant forms of subsidies to nuclear power have four principal objectives:
- Reduce the cost of capital, labor and land through loan guarantees and tax incentives.
- Mask the true costs of producing nuclear energy through subsidies to uranium mining and water usage.
- Shift security and accident risks to the public via the 1957 Price-Anderson Act and other mechanisms.
- Shift long-term operating risks such as radioactive waste storage to the public.
“Without these generous subsidies, the nuclear industry would have faced a very different market reality,” said Doug Koplow, the author of the report and principal at the Cambridge, Massachusetts-based consulting firm, Earth Track. “Many of the 104 reactors currently operating would never have been built, and the utilities that built reactors would have been forced to charge ratepayers even higher rates.”
The industry continues to benefit from subsidies that offset its operating costs, which include uranium mining, cooling water, accident liability insurance, waste disposal, and plant decommissioning. The exact value of these subsidies, however, is difficult to ascertain. According to the report, ongoing subsidies range from 13 percent to 98 percent of the value of the power produced. Even at the low end however, subsidies account for a significant portion of nuclear power’s operating cost advantage over competing energy sources.
Subsidies to new reactors could significantly exceed those enjoyed by the existing fleet. In addition to benefiting from ongoing subsidies to existing plants, the Energy Policy Act of 2005 introduced a new suite of subsidies for nuclear power. The report estimates that these subsidies could be worth between 4.2 and 11.4 cents per kWh, or as much as 200 percent of the projected price of electricity when these plants are built.
“All low-carbon energy technologies would be able to compete on their merits if the government established an energy-neutral playing field and put a price on carbon,” said Vancko. “Investing in nuclear power carries the unique risks of radioactive waste storage, accidents, and nuclear weapons proliferation that must be fully reflected in the technology’s costs, which is not the case today.”
Based on these findings, the report recommends that the federal government reduce subsidies to the nuclear power industry. If subsidies are necessary, the government should award them competitively to the most cost-effective low-carbon energy technologies. The report also recommends that the government modernize liability systems for nuclear power and establish regulations and fee structures for uranium mining, waste repository financing, and water usage that fully reflect the technology’s cost and risks.
“After 50 years,” said Koplow, “the nuclear industry needs to move away from government patronage to a model based on real economic viability. The considerable operational and construction risks of this power source need to be reflected in the delivered price of power rather than dumped onto taxpayers.”
