Yesterday, Dr. Ernest Moniz made it official; he is continuing his recent travels through the southern US. As he joked with the audience at the National Press Club, there is a reason why his itinerary has focused on southern locations in December, January and February.
His next stop will be today, Feb 20, 2014, in Waynesboro, Georgia. While there Secretary Moniz will visit the Vogtle nuclear power station, the construction site for Vogtle units 3 and 4. As part of the day’s agenda, he and representatives of Georgia Power and Oglethorpe Power Corporation will sign the closing documents for two separate federal loan guarantees for a total amount of $6.5 billion dollars.
Matt Wald in the New York Times provided his analysis for why this might be the only nuclear loan guarantee provided as a result of the $17.5 billion authorization given by the Energy Policy Act of 2005. He pointed to the four-year duration of the negotiations, the difficulty that the government has had in providing terms and conditions that beat the terms that Southern Company could arrange in the private marketplace, the fact that the deal offered to Constellation Energy came with an onerous fee of $880 million for a $7.75 billion dollar loan, and the fact that SCANA, the majority owner of the only other nuclear construction project in progress has decided to avoid the program.
Here is a quote from Wald’s article describing why South Carolina Electric and Gas, a unit of SCANA, is not interested in pursuing a government backed loan.
“Everything we offer is oversubscribed,” Mr. Byrne said. Getting a government loan guarantee requires extensive financial disclosures to the federal government, and paying fees. “I’m not sure why I’d want to,” he said.
However, during his speech at the National Press Club, Dr. Moniz fielded a question about the loan guarantee program that provides a slightly different point of view about whether there may be more deals in the pipeline.
Q: There are a combination of reasons why more utilities aren’t building nuclear. The NRC is reviewing the Waste Policy, natural gas prices are low, etc., but utilities including Georgia Power say they want to keep nuclear on the table as an option. Will the DOE consider issuing loan guarantees again as an incentive to build? Will they do this to kick start a program for small modular nuclear reactors?
Moniz: As I said earlier, we still have very significant amounts of loan authority, both for advanced vehicles and, in another program, for let’s call it “all of the above.” As we go forward we are developing plans for ‘all of the above.’ We will be looking at these options across the board; that certainly can include nuclear and it certainly can include small modular reactors in which we currently have two commitments to advance two rather different designs of small modular reactors to again ‘first mover status’ in — roughly — a decade.
That indicates a potential openness to using the loan guarantee incentive authority that Congress gave the DOE almost nine years, but also indicates the ambivalence within the administration for any aggressive efforts to ensure that nuclear energy remains more than just a future option.
As Wald mentioned in his article, there was “bipartisan support” at one time for doubling or even tripling the loan guarantee authority to $36 billion or even $50 billion, but there was also a heated bipartisan effort from groups as diverse as NIRS and Cato to prevent that from happening. Nuclear energy has some powerful friends and allies, but it also has numerous detractors that have a variety of motives for doing everything they can to slow its development.
As a result of the political pushing and shoving, the amount authorized was never increased. Though Dr. Moniz described the amount remaining as “very significant,” it would be inadequate to fund more than one more large nuclear project involving two units on a single site.
I’m sure that many potential applicants have also watched the negotiations over the one deal that has been offered and decided that the potential savings are simply not worth the trouble. For the Vogtle project, the government backed loan might save as much as $200 million in financing costs, but that is spread over a couple of decades on a project with a total cost on the order of $15.5 billion after all financing costs are included.
From the outside, it seems like there has been a lot of executive and managerial effort put into the process that may have been better invested in other ways.
My guess is that the remaining authority in the program will languish due to a lack of interest both on the part of the government and on the part of applicants.
I don’t think that an ineffective loan guarantee program will stop new nuclear projects that make economic sense from moving forward. In fact, it might accelerate the completion of those projects if they work within the commercial finance system and avoid the distraction of attempting to obtain support from a government that is, at best, ambivalent toward new nuclear power projects.
Note: The allocation of the $6.5 billion was not part of the DOE press release. I assume that the loan guarantee amount for each recipient is roughly based on the share of the project that they own. Of the $6.5 billion, Georgia Power should receive $3.9 billion — it owns 45.7% of the project — and Oglethorpe should receive $2.5 billion as the owner of 30% of the project. The press release indicated that the third party, MEAG (Municipal Electric Authority of Georgia) would receive $1.8 billion, which works out to 22.7% of the initial $8.33, matching their ownership. There are some rounding errors, including the fact that the published percentages do not add up to 100%.
US News and World Report (Feb 21, 2014) Despite New Plants, Nuclear Future Still Decades Away