Concrete Action to Follow Strongly Supportive Words On Building New Nuclear Power Plants
After posting a video clip of a key segment of Wednesday’s State of the Union address, in which President Obama states:
“But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country.”
I received a lot of comments about the administration’s track record so far and expressing the often repeated notion that “talk is cheap”. This morning, I saw a Twitter post from the Nuclear Energy Institute that pointed to a Bloomberg article titled Obama Said to Seek $54 Billion in Nuclear-Power Loan Guarantees. Dan Yurman at Idaho Samizdat also has produced a post titled Obama to triple nuclear loan guarantees. There is evidence that the action to back up the words has begun.
One reason that I respect President Obama is that he is not only a thinker, but he is an athlete. He plays a sport where there is a lot of talk, but the players who gain respect and keep getting invited to play are the ones who back up their talk by delivering scores and playing hard defense. They might miss on occasion and even go through cold spells. Successful pick-up basketball players are those who keep coming back and occasionally go on hot streaks.
Loan guarantees are important to the nuclear industry because the currently available models are large, capital intensive projects that need a stable regulatory and financial environment. The projects can be financed because they will produce a regular stream of income that can service the debt and still provide a profit, but that is only true if the banks are assured that the government will not step in at an inopportune time to halt progress and slow down the revenue generation part of the project. Bankers do not forget history or losses very easily; they want to make sure that government decisions like those that halted Shoreham, Barnwell’s recycling facility or the Clinch River Breeder Reactor program are not going to be repeated this time around.
For the multi-billion dollar projects being proposed, bankers demand the reassurance that comes when the government is officially supportive and has some “skin in the game” that makes frivolous bureaucratic decisions to erect barriers very expensive for the agency that makes that decision. I have reviewed the conditions established for the guarantee programs pretty carefully – at one time, my company (Adams Atomic Engines, Inc.) was considering filing an application. The loan conditions are strict and do a good job of protecting government interests. They were not appropriate for a tiny company, but I can see where a large company would have less trouble complying with the rules and conditions. The conditions do allow low or no cost intervention in the case of negligence or safety issues, but they put the government on the hook for delays that come from bad bureaucratic decision making.
Loan guarantees are not a subsidy, but the industry and the people who support new nuclear energy developments for many good reasons that include excellent jobs for highly trained workers, affordable energy, domestically produced energy, and emission free energy production need to help others understand this. Be aware that there are plenty of well-funded sources of misinformation that are already firing up their press release mechanisms to try to whack this mole again. Let’s not let it happen again like it did with the stimulus bill.
Additional Reading
If you are interested in a wide range of reactions to the State of the Union Address, you might want to visit The Blogometer: Assessing the Speech
It’s like d
Brian – loan guarantees are not “spending money”. They are putting the government in a position of standing behind a well vetted project. No difference between that and a VA or FHA loan except in scale.
If it’s not “spending money,” then why does it need to go into a budget? 😉
Seriously, however, I know what loan guarantees are. Last year’s failed attempt to add $50 billion in loan guarantees required an appropriation of $500 million. That’s money in the budget that is not going to be used for something else. Thus, I’d call that money “spent.” It’s not $36 billion (the additional amount of loan guarantees), but it’s not zero either.
Brian – though I have been in DC long enough to recognize that an appropriation is often considered to be “spent” money, I am still connected with reality enough to believe that money is only spent after it is obligated. The way I understand it, loan guarantees require an appropriation, but the money is actually parked in a reserve account against the potential that it might need to be paid out sometime in the distant future if there is a default on the part of the borrower making payments.
The actual flow of money in a loan guarantee program is from the applicants to the government in the form of the upfront fees paid that will go into that same reserve account along with the government’s appropriation. The reserve account size is computed to be large enough, with interest earned, to pay off any defaults. That has been one of the big rubs in getting the loans out the door; the Office of Management and Budget is lead by a guy who actually believes the assertion that 50% of the projects will default, even though it is not based on any kind of reality.
I have run the numbers – these projects are going to be fiscally sound and be able to pay off their loans – unless the government (which includes the citizens) decides to move the goal posts. Bad management is also a possibility, but I think that the nuclear industry is run by smart enough managers to avoid many of the problems of the past.
Rod – Now you’re just arguing semantics instead of substance. I think that Kit called it right: load guarantees are an insurance policy against changes in government policy.
Sadly, the government’s track record is not good.
Brian:
I do not understand the accusation. Why do you believe it is “semantics” to clearly state that money is not spent until it is actually obligated? I did not say that it has to actually go out the door, but surely you agree that there is a difference between money sitting in an account and money that you have agreed will be used to pay a real bill. If it is “insurance”, it is self-insurance. That is certainly money that you still control far more than if you had paid it out to Warren Buffett and Geico.
If the government’s track record is not good, so be it. Let’s work to change it and remember that “past performance is not evidence of future performance”. That warning is often published in the fine print on mutual funds, but it is equally true on the positive side as on the negative. Just because an organization has failed in the past does not mean it will fail in the future if people actually pay attention to the available lessons and do something different than they did in the past.
Let me clarify: your splitting hairs is off topic. It was originally in response to my (mildly snarky) comment that all Obama has done is to spend money. Well, I stand by my claim, regardless of whether the money is real or virtual or appropriated or whatnot. I don’t see much positive change in direction in the DOE or NRC relative to the previous administration’s policies.
Anyhow, I’m on the optimistic side that believes that these loan guarantees will not cost the taxpayer a cent. We already have $18 billion approved. The additional amount has now been proposed, but it has not been approved. Let’s just hope it fares better than the $50 billion in loan guarantees that was put forward by Republicans last year.
Brian/Rod: You’re both right. Right about how reserves are set aside and the government’s willingness to (sort of) insure against itself in the scheme of things. Search using “energy policy act 2005 price anderson act standby support” and you’ll find plenty of .pdfs on the subject summarized on Wikipedia this way:
Authorizes ‘standby support’ for new reactor delays that offset the financial impact of delays beyond the industry’s control for the first six reactors, including 100% coverage of the first two plants with up to $500 million each and 50% of the cost of delays for plants three through six with up to $350 million each for [3]
There’s a Rule in here somewhere: http://edocket.access.gpo.gov/2006/06-6818.htm which may or may not have been modified by now.
I just thought conceptually, all this is a great improvement over what happened in the 1980’s, i.e., explaining over & over how TMI impacted new construction costs due to government mandated design changes. Whether the amounts are sufficient is another matter.
I consider load guarantees for nuke as an insurance policy against changes in government policy. Think of it as Obama insurance instead of flood insurance.
The time to build nuke plants is when demand for electricity is low during slow economic times. How many steel mills could running full time making rebar if there if we were confident 4 nukes would be under construction in 2012?
The time to ask for triple loan guarantees was a year ago. That would have been leadership.
If running steel mills full time is the objective, Obama should stick with wind and thermal solar. To build an equivalent amount of generation capacity, wind requires 90 times more steel and 7 times more concrete than nuclear, while thermal solar needs 140 times more steel and 14 times more concrete.
John
The US has the capacity to build both nukes and wind turbines. The idea is to create productive jobs. Nuke plants and wind turbines produce electricity.
I agree, diversity of clean energy sources is desirable. I support energy diversity through an agreement with my electric utility to charge an additional two cents for a portion of my kWhs in order that their mix will include more wind generated power. Here in Iowa wind power is creating jobs.
John – how many competitive businesses, which together represent a larger electrical power market than homeowners, would make that same decision? If they do, how many employees will they have to lay off in order to pay for the extra cost of electricity?
I used to run a small manufacturing company as the General Manager. The highest paid “employee” that I had was the local electrical power company. We paid out approximately 3 times my salary in power bills each month to provide the energy for the heaters and motors that allowed us to shape and mold plastic. Our lighting bill was minimized by having a lot of skylights and we only air conditioned the very small office portion of the factory. The factory floor was a “sweatshop” with large fans and open doors at each end large enough to drive trucks through. (The owner made a conscious decision when he built the factory to concentrate on commodity plastic products that accepted a wide range of conditions and did not need careful atmospheric temperature control.)
Increasing our electrical power bill by 2 cents per kilowatt hour would have meant a 30% increase in the bill, or roughly the wages of two of the factory workers.
Rod – No wind turbines would be built without a 2.3 cent/kWh government subsidy because wind is not competitive with clean nuclear or dirty coal. I am opposed to energy subsidies in general. Mine is a voluntary contribution that I have been making for a least at decade going back before the large subsidies to renewables. Those favoring energy diversity or green energy can make arrangement with their local providers to pay a supplement. I don’t think that anyone should be forced or taxed to shell out and additional two cents to make wind go. I don’t take a strong position on the AGW controversy, but the conservative position is to phase out dirty coal a rapidly as possible. The only solution to getting rid of dirty coal is to find a cheaper source of clean energy. Generation IV nuclear power is our best hope. Historically governments role has been to fund basic research and education. I hope that the blue ribbon commission will support research for a range of new nuclear technologies and mandate a responsive NRC approval path. They need to recommend that government support be shifted from subsidies to research and education. Education support should extend down into high school in order to attract the best minds into the energy field. Energy underlies the the productive potential of a society. We need to make a strong commitment if we are to remain competitive in today’s world.
Do you mean recommendations such as these?
Encourage the NRC to ensure that safety and environmental protection are high priorities as they prepare to evaluate and expedite applications for licensing new advanced-technology nuclear reactors.
In the context of developing advanced nuclear fuel cycles and next generation technologies for nuclear energy, the United States should reexamine its policies to allow for research, development and deployment of fuel conditioning methods (such as pyroprocessing) that reduce waste streams and enhance proliferation resistance.
The United States should also consider technologies (in collaboration with international partners with highly developed fuel cycles and a record of close cooperation) to develop reprocessing and fuel treatment technologies that are cleaner, more efficient, less waste-intensive, and more proliferation-resistant.
Anybody want to guess where I got these recommendations?
Looks simpler than the average local garbage recycling ordinances: http://www.lgprogram.energy.gov/NuclPowerSol7-11-08Amend1.pdf
Whoever wrote this needs to take a look at the tax code.
While loan guarantees do put some government skin in the game, there is less skin in the game for politicians. The immediate cost is essentially zero. If there are any defaults on nuclear power plants, they will be many years in the future, when said politicians are likely to have left office.
The place where I see that the government could have real skin in the game is at the NRC. It is obvious to me that the NRC staff needs to be beefed up so that license applications can be approved in a timely manner. That costs money right now. The fee structure needs to be reduced to approve innovate small reactor designs. That costs money right now. And I think the whole NRC licensing and approval process needs to be reviewed to make sure that everything they are doing does add value in the area of significant safety improvements. That takes both money and political courage, two commodities in rather short supply these days.
Any possibility of tying compensation (with clawbacks) for congressmen and NRC staffers to the loan guarantee program? (Didn’t think so, but it’d be nice.)
More concrete action: The Obama administration has just announced that it has appointed Rod’s favorite “bootlegger” to the Blue Ribbon Commission that will provide recommendations on how to manage our so-called “nuclear waste.”
True. In this case, I think that Rowe has a strong interest in a real solution. He has the responsibility for the used material from 19 reactors. The commission also includes Dr. Per Peterson, former Senator Domenici, Susan Eisenhower, Ernie Moniz, Brent Scowcroft and Dick Meserve. I am even somewhat encouraged by the selection of Allison MacFarlane; I interviewed her for The Atomic Show a couple of years back. There is a possibility that the commission might even make some good decisions.
True. Rowe has the responsibility for the used material from 19 reactors, and he can opt to sit on it, with the stuff stored on site until he has comfortably retired, just as he has decided to sit on old nuclear capital and milk them for everything their worth without giving much thought to what is going to ultimately replace them.
Don’t be surprised if the commission recommends that the waste just sits where it is until enough future “scientific studies” have been performed. That’s my prediction. Chu has even hinted as much in Senate hearings last year.
Peterson is good. Domenici is good. As for the rest, I have to go with uvdiv on this one. I don’t like it.
Yes, I listened to your interview of MacFarlane. She came across to me as fairly clueless and burdened with some pretty heavy baggage in the form of preconceived notions that have nothing to do with reality. Sorry. (I thought that you did a good job as interviewer, however.)
MoveOn.org ran a poll of 10,000 members tallying their support of what Obama was saying during the speech, and when he mentioned nuclear their approval completely plummeted to zero. The graph they have over at their site is pretty chilling. And to think that these luddites actually list revitalizing the economy, creating a clean energy future and bringing the troops home from Iraq as top priorities. When we’re building nuclear plants as fast as we can five years from now and gasoline is $8 a gallon, they’ll be surprised.
Zack – this is why I think it is so important for us to keep cheering the decision to include the comment in the speech and to keep encouraging appropriate follow-up action. The industry should NOT be looking at the support as an opportunity to start capturing government money, but as a vote of confidence that we can deliver what we promise – clean, safe, affordable, reliable energy (electricity at first and then heat and motive power as we demonstrate success and expand).
I still believe that one of the most effective tools that the nuclear industry gave to the anti-nuclear establishment is that they asked for massive rate increases with the completion of every single plant. Instead of recognizing the low cost of generating electricity with nuclear fuels and realizing that the payoffs would come, but relatively slowly, the financial managers wanted to use the existing monopoly position and rules to extract quick return on investment. That decision allowed the anti’s to effectively implant the idea that “nuclear electricity is expensive electricity”, an idea that is stubbornly accepted, even though it is not true from a cost point of view. Associating PRICE INCREASES with starting up a new nuclear plant made it a true statement in the public consciousness.
That’s an interesting graph Zack. More interesting that of all the important topics Obama discussed, that one point received the highest peak, low or high, than anything else. Moveon.org has cultivated an anti-nuke sentiment from its very start, so I wouldn’t say they are good representation of the full spectrum of voters across the board. Moveon is a classic example of knee-jerk opposition to nuclear by organization group think and association. As far as I can see they are doing the Democratic party no favors with their rigid views.
Obama could enhance the incentive for building new nuclear power plants and renewable energy systems by getting Congress to pass a law requiring that every public and private utility in America to produce at least 50% of its electricity through carbon neutral systems (nuclear, hydroelectric, wind, solar, biomass. etc.) by the year 2020– with the penalty of a carbon tax on all carbon emissions for any utility that does not meet these requirements.
Obama could also set an example for other electric power utilities by ordering the TVA to sell off all of its coal and natural gas power plants and use those funds to finance new nuclear and renewable energy power plants.
Marcel F. Williams
Marcel – I disagree. I do not like mandates and I certainly do not like the idea of forcing the sale of any assets. That would significantly devalue the assets and potentially turn them into worthless albatrosses. (A sale mandate gives potential buyers a very strong negotiation position and also distorts the market by ignoring the effects of a temporary supply that is greater than demand. Also, the coal and gas plants are huge potential assets in a conversion to nuclear – Jim Holm’s coal2nuclear.com shows the way, especially if you happen to recognize that gas2nuclear conversions of atmospheric Brayton cycle gas turbines are a distinct technical possibility.
I think that the point is this – Democrats will support a real full-steam ahead nuclear renaissance (like Labor is doing in the UK) if Republicans start taking the possibility (or even the probability) of climate change seriously – along with prudent action to prevent it, consistent with economic growth. That does not mean cap and trade, necessarily. What it does mean is real action getting real results.
The only thing that both sides have to lose are their preconceived notions and articles of quasi-religious faith. There are useless and harmful dogmas on both sides of the aisle in energy and environmental policy; all deserve examination, and modification or termination, as appropriate.
Obama has held forth his hand. Will he find another to shake?
I’m a believer when they turn the lights back on