U.S. to nuclear power industry: please take our subsidies
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.
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.
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.
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.
The original rationale for these special benefits 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 1950s. In a 1954 advertisement, General Electric predicted that within “five years—certainly within ten,” reactors would be “privately financed, built without government subsidy.”
In 1957, Congress passed a law that effectively indemnified nuclear energy companies from the risks of an accident. That law, known as Price Anderson, was supposed to expire in ten years; that was when, according to plan, the industry would become profitable and start paying for its own insurance. Instead, Price Anderson was repeatedly extended and then, in 1988, made permanent.
Why do so many want to spend so much?
How, then, to explain why taxpayers are still being asked to keep the industry afloat more than half a century later? Why, in a period of deficit-cutting fervor, is so much of official Washington so powerfully inclined to spend more taxpayer money on nuclear power?
Many are drawn to the allure of a quick technological fix. Republicans, according to Ferguson, like the idea that all our energy and environmental problems could be solved by constructing a hundred or more nuclear plants (as Sens. Mitch McConnell and Lamar Alexander have proposed). By and large, Ferguson observes, the Republican Party’s point of view is to favor big power projects unequivocally. He cites the rhetoric: “‘Drill, baby, drill,’ ‘We can be energy self-sufficient,’ ‘We can keep going out in the deep water and getting the oil,’ and ‘We can build the big nuclear plants [and] the big coal plants.'" By contrast, the GOP sees conservation as a frill: "it’s nice, it’s a virtue, but it’s not going to really save us.”
For Democrats, there are a variety of motivations, including, says Sokolski, “an aversion to looking like Jimmy Carter.” Many relish the idea of a policy that appears “muscular” and “green at the same time.” And some, in the view of Robert Alvarez, a senior scholar at the Institute for Policy Studies, probably see their advocacy of loan guarantees as part of a relatively harmless game of “throwing nuclear candy at the Republicans,” since they don’t actually expect many new reactors to be built in any case.
Sokolski, however, argues that support for a loan-guarantee program could prove to be a dangerous gambit for the tag-along Democrats. “When you do loan guarantees on the [theory] that, well, no one will be able to put the collateral together so it’s a sweet way of having your pro-nuclear cake without having to eat it, you’re kidding yourself,” Sokolski says. “Times will change, we may get a price on carbon, you just don’t know,” he adds, and an apparent nuclear consensus might well provide critical mass for very real construction in the long run.
Constructing a nuclear plant on time and budget isn't easy
Nuclear plant construction expenses have always been high, and though each new generation of reactors has been touted as simpler and cheaper, the capital costs have gone steadily up, not down, in contrast to the trend lines of gas, wind, and solar energy.
The problem is, at heart, one of scale and exactitude, according to Henry Sokolski, who served in the first Bush administration as the Defense Department’s head of nonproliferation policy. “It’s common for us to pour lots and lots of concrete,” Sokolski explained in a phone interview with Remapping Debate. “It’s also common to weld lots of rebar. It’s not common to do these things to super-exacting standards.”
“Then there’s all the specialized nuclear items that have to go inside this structure you build out of concrete, and the many thousands of miles of piping and wiring that has to be laid — not the way you and I would do it for our house, but to exceedingly high quality-assurance standards.” This is work that calls for “people who are certified and trained and do not grow on trees — people who demand a lot of money,” Sokolski continued. “And you need lots of their time.” Building a reactor, he concluded, “is very special, as they would say on Sesame Street.”
The nuclear power industry likes to rest its cost estimates on a concept known as “overnight construction costs,” which eliminates the need to consider the possibility of delay, overruns, and additional financing expense. In the real world, according to industry critics, such extra costs are the rule, not the exception. “Anytime things get delayed, the costs of financing get compounded,” said Doug Koplow, a Boston-based consultant and advocate whose organization, Earth Track, describes itself as dedicated to making environmentally harmful subsidies “easier to see, value, and eliminate.”
Until recently, the French were hailed as exemplars of a more standardized and cost-effective approach that the U.S. could seek to emulate. But France has lost some of its allure as a global model since a French-Finnish effort to build the world’s largest and safest nuclear plant became mired in delays and cost overruns. The project, begun in 2005, has to date gone 2 to 3 billion dollars over budget and remains uncompleted. Some of the missteps involved “things as basic as how they poured their cement,” Koplow said, “We ought to be humble about this stuff. The more complex systems are, the more pieces need to fit together, the more likely something will be screwed up.”