U.S. to nuclear power industry: please take our subsidies

Original Reporting | ByJames Lardner | Energy

May 4, 2011 — For nearly a decade, American political leaders have been predicting and promoting a “nuclear renaissance” as a way to respond to global warming and the other high costs of a carbon-based economy. Now, after one of the worst nuclear-energy disasters on record, Congressional Republicans and Democrats, along with the White House, remain steadfast in their determination to extend an additional $36 billion in guaranteed loans to an industry that has long enjoyed a host of taxpayer-financed advantages. And some in Washington seem willing to consider additional stimulus measures if the current ones should prove insufficient to get the renaissance rolling.

In the 1950s, the rationale for giving special benefits to the nuclear industry was economic. The point was to jump-start a technology that promised to provide energy “too cheap to meter,” in the memorable phrase of Lewis Strauss, who headed the Atomic Energy Commission in the era.

The current wave of bipartisan enthusiasm for nuclear power goes back to the Energy Policy Act of 2005, which provided an initial $18 billion in loan guarantees on top of a “clean energy” tax credit for anyone willing and able to bring a new reactor online. When that offer failed to attract any takers, Congress sweetened the pot in 2007 by agreeing not only to reduce the private share of the risk to 20 percent, but to allow in-kind assets such as real estate to count in the reckoning.

Yet even before the Fukushima catastrophe raised fresh questions about safety and the costs of proper construction, the renaissance was stubbornly refusing to proceed on schedule. “Right after the Energy Policy Act of 2005, there were upwards of 30 reactors potentially being considered,” said Charles Ferguson, president of the Federation of American Scientists and author of the forthcoming book, "Nuclear Energy: What Everyone Needs to Know," in a telephone interview. “Over time, more and more of those have fallen by wayside,” Ferguson added, and now “we’re down to a few that seem promising.”

Of these, the project with the most momentum behind it is a plan to add two new reactors to the two already operating in Burke County, Georgia. The builder, the Southern Nuclear Company, will be able to impose a surcharge on current electricity customers to cover its share of the construction costs. The other strongest bets are projects in Texas and South Carolina — two states that, like Georgia, have clung to a traditional regulated model of electricity provision, allowing utilities to cover their capital costs up front.

 

Losing steam

Meanwhile, interest in new nuclear plants has ground to a halt in the majority of states, where deregulation compels providers to charge a market price for electricity. A pivotal moment came last October, when Constellation Energy suspended plans to build a reactor in Maryland, near the Calvert Cliffs on the western side of Chesapeake Bay.

“Right after the Energy Policy Act of 2005, there were upwards of 30 reactors potentially being considered,” said Charles Ferguson, president of the Federation of American Scientists, in a telephone interview. “Over time, more and more of those have fallen by wayside,” Ferguson added, and now “we’re down to a few that seem promising.”

Constellation officials complained that they were being asked to pay an unreasonably high subsidy fee to cover the risk and administrative costs of a $7.5 billion loan. The fee was many times greater than “traditional subsidy fees” associated with loan guarantees for other types of borrowers, according to Leslie Kass, senior director of business policy and programs for the Nuclear Energy Institute, the lobbying arm for a group of nuclear-plant-owning utilities. NEI has proposed a subsidy fee of 1 percent instead of the 8 percent decreed for Calvert Cliffs by the Office of Management and Budget.

But others have argued that 8 percent was actually generous for an industry with a historical record of not completing many of the reactor projects it starts.

There is no ‘traditional subsidy,’” Henry Sokolski, executive director of the Nonproliferation Policy Education Center, countered. “Each field is different — each field has its own actuarial table, so to speak. And theirs stinks. It certainly ain’t one percent.”

To critics of nuclear power, the Calvert Cliffs decision signaled that reactor construction had become economically unsupportable except for utilities that, like Southern Nuclear in Georgia, can “pass all the costs of capital construction to the rate-payers in advance,” as Sokolski put it. “The truly private investors were bailing even before Fukushima,” Sokolski said.

John Rowe, the chief executive officer of one of America’s largest utilities, Exelon, seemed to echo that judgment when he declared, in the wake of the Calvert decision, that reactor construction would not make economic sense in the U.S. without a CO2 emissions charge of at least $100 per metric ton, which is five times the level currently in force in Europe. (See box on next page discussing reasons for nuclear’s lack of economic viability.)

 

A long history of subsidy

What sometimes gets forgotten in the debate over nuclear power, according to its critics, is that the industry has always been subsidized. Long before the Energy Policy Act of 2005, nuclear plant operators benefited from special depletion allowances for uranium mining; Department of Energy investment in uranium enrichment; water and plant security subsidies; and from not having to pay (or plan) for the disposal of nuclear waste.

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