The Department of Energy's loan guarantee program is overloaded
In an old joke told to me by a man who made a living clearing farmers' fields of tree stumps with dynamite, a truck is driving down the street of a small town and something unusual happens every time it comes to a stop light. The driver hops out, runs around to the back, pulls a 2x4 out of spare tire rack, and whacks the daylights out of the vehicle. As soon as the light turns green, he hops back in and drives off. Needless to say, he is eventually stopped by the local sheriff and asked to provide an explanation.
Here it is. The truck, which has a five ton load limit, is carrying ten tons of chickens which have to get to market for the man to make a living. While he is driving along the wind through the cages keeps most of the chickens aloft lightening his load. It is only when he stops that he has to hit the truck to keep the hens airborne.
Ten times overloaded at Department of Energy
The congressional limit on the program is a mere $18.5 billion of which $2 billion is allocated to uranium enrichment plants. The agency doesn't just have twice its carrying weight. It has ten times the limit.
DOE has received 19 applications from 17 electric power companies for federal loan guarantees to support the construction of 14 nuclear power plants in response to its June 30, 2008 solicitation. The applications reflect the intentions of those companies to build 21 new reactors, with some applications covering two reactors at the same site. All five reactor designs that have been certified, or are currently under review for possible certification, by the NRC are represented in the applications.
The 'guarantees' are federal insurance, like crop insurance for farmers, that provide confidence for commercial loans. In the case of nuclear plants, the program covers 80% of the cost of the new reactor and 100% of the loan. Utilities signing up for the program pay hefty fees to participate in it. The government has no liability unless a project defaults. In the era of the "prudent investor" as a uniform law among states, no one is going to start down the road to build a new reactor unless they are very sure of their finances.Everyone into the pool!
Bloomberg wire service reported that Richard Myers, VP at the Nuclear Energy Institute (NEI) stated the obvious and what everyone expected. He said the federal loan guarantee program "appears to be over-subscribed."
"Clearly, $18.5 billion is not adequate to provide the financing support necessary."
The Bloomberg piece provides a quick snapshot of three of the applicants.
- Southern applied for help with its planned expansion of the Vogtle plant in Georgia
- PPL is planning a third reactor at the Susquehanna plant in Pennsylvania
- Duke is planning a new plant in South Carolina
World Nuclear News offers additional insights into the applicants. They include;
- Unistar for Calvert Cliffs, MD
- Dominion for North Anna, VA
- Exelon for Victoria, TX
- Luminant for Comanche Peak, TX
In addition to the nuclear plants, both USEC and Areva have submitted loan guarantee applications for their planned uranium enrichment facilities.
What's a mother to do?
Clearly, the Department of Energy is going to make a lot of people unhappy since it has to award only $1 in coverage for every $10 applied for under the program. One thing in its favor is that by the time DOE gets done evaluating the applications, a new Congress will be in session. It will have to decide in 2009 if a loan guarantee program that is too small by a factor of ten needs some adjustment.
While this policy issue is working itself out, the industry is going ahead, filing COL applications with the NRC and making investments in the capacity to build the plants. US News & World Report reported on Sept 30 that Areva has announced plans to build a nuclear parts plant for its EPR reactor in the U.S. In September Shaw Group and Westinghouse teamed up at Port Charles, LA, to build a plant to make similar large "modules" for AP1000 reactors.
In Ohio USEC let a contract in September for $1 billion as part of its construction of a new uranium enrichment plant. Areva is planning to build a $2.4 billion uranium enrichment plant in Idaho. In terms of the loan guarantees, given the costs of the plants, under the current program, DOE can choose to support only one of them.
In short, loan guarantee program or not the nuclear industry in the U.S. is forging ahead. That's a lot of chickens in a lot of pots. It is difficult to predict what the next president and congress will do about the issue. We'll all have to see about those chickens next year.
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