Last week here at Daily Kos, the Nuclear Information Resource Service published an ill-informed essay composed of inaccuracies and wild assumptions about the Calvert Cliffs 3 (CC3) nuclear project. The NIRS essay argues that the CC3 project suffers from a flawed economic model and concludes that all U.S. nuclear power projects and others worldwide are therefore also doomed to failure.
Unfortunately, much of what the essay lacked is a basic understanding that building and operating power plants is a business that depends on a number of wide-ranging market forces.
From the NIRS essay:
The [Calvert Cliffs 3] flagship project to build a new nuclear power reactor in the United States—the one that provided the economic model for most new reactor proposals since—is in serious trouble and likely will collapse of its own weight before construction could even begin.
What this means for the much-hyped nuclear "renaissance" is clear: there will be no large-scale nuclear revival in the United States, and probably not in the rest of the world either, since the pressures on this project are international in scope, and affect just about every nation not named China.
Calvert Cliffs is a vital asset in the mid-Atlantic electric grid and is reputable, but is it reasonable to suggest, as the NIRS essay does in its opening thesis, that it is "the flagship project ... that provided the economic model for most new reactor proposals"? Not quite.
There are 61 reactors under construction in 15 countries. Only four are of the same design as CC3. Therefore, claiming that one project not yet under construction will affect and stop all of the reactors in the US and world clearly misrepresents new nuclear expansion. Below is a graph showing the number of reactors under construction and planned worldwide by country. This expansion is clearly not dependent on any one company, project or country.
If there’s any facet on new reactor development the NIRS essay couldn’t get correct (or deliberately twisted), it was loan guarantees. Throughout much of the essay, NIRS referred to the financing of the CC3 project as 100% taxpayer guaranteed. This is a distortion. In order to receive a loan guarantee, a company has to contribute at least 20 percent of its own cash (equity) to the project. Therefore, if a reactor costs $10B, then the company applying for the loan guarantee has to contribute at least $2B to the project. If the project defaults, then the $2B of equity is lost first. Few companies are in a position to easily weather that kind of a loss and this is one of the reasons why new nuclear build will move at a measured pace. Like the federal government, the nuclear companies wish to avoid default at all costs. (For the benefits and reasons why loan guarantees are a useful self-financing tool for electric utilities, see our Issues in Focus (pop-up pdf)).
In the case of CC3’s financing, the terms of a loan guarantee have not been finalized. It is clear, however, that the 20% equity must be supplied by the owners, but the debt financing could come from a combination of the DOE Loan Guarantee Program and COFACE (French export credit agency). The NIRS essay is wrong in claiming this as a 100% taxpayer guaranteed project. Further, the addition of the COFACE financing reduces the amount of the DOE loan guarantee thereby reducing the risk to the U.S. government. The fact that other countries want to invest in a US project is a good thing, not bad.
After all that background, the issue that ignited the NIRS essay is that Constellation announced in its quarterly investor’s call that it is reducing spending on the project because of uncertainty with receiving a federal loan guarantee. The South Texas Project announced a similar change in spending levels due to the same issue. Much of the reason for the uncertainty is because there currently is not enough budget authority allocated to the DOE program to support all four of the leading nuclear projects (only one of them has a conditional commitment so far).
Other Energy Technologies
It is disingenuous to think Congress’ actions don’t affect other clean energy industries, though. If NIRS researched other technologies, they would find similar stories of ebb and flow. Take for instance the wind industry’s press releases over the past couple of weeks:
Without strong, supportive policy like an RES to spur demand, investment, and jobs, manufacturing facilities will go idle and lay off workers if Congress doesn’t act now - before time runs out this session.
Here’s the solar industry from last week:
Some members of the US Congress are proposing to remove $1.5 billion in funding from the DOE Loan Guarantee Program to offset other federal spending unrelated to renewable energy. SEIA is very concerned that this will adversely affect solar companies that have already applied for loan guarantees ... SEIA is requesting more information to fully articulate just how damaging this could be to the solar industry.
While the NIRS essay claims that spending changes at CC3 mean the end of nuclear, here’s something their essay didn’t mention: additional loan guarantee funding for nuclear projects has public and bipartisan policymaker support.
Earlier this year, the Obama Administration requested a $36B increase in loan guarantee authority for nuclear in its budget for 2011. Here is one of the Department of Energy’s slides detailing the figures. Note that efficiency and renewables have more than twice as much authority than nuclear energy.
Last month, a Senate Committee approved $10B and the House’s markup approved $25B for nuclear loan guarantees. Not only that, there were a number of bills considered this year where additional loan guarantee volume was included. As another example of broad support, the Western Governors Association came out last month urging Congress to support further loan guarantee funding.
EPR Design Issues
Last month, the Nuclear Regulatory Commission asked Areva for more information on the EPR’s computer systems. Based on this, the NIRS essay claimed that because the NRC has unresolved questions about the design of the EPR, the reactor is unsafe. This is a textbook example of a flawed argument known as jumping to conclusions. Questions from the regulator are all part of the licensing process and contribute to ironing out reactor design issues before construction begins.
One of the reasons why nuclear construction costs increased during the late 1970s and 1980s was because designs were being modified during the middle of construction. The new licensing process seeks to ensure that all issues are worked out ahead of time so a company building a plant has regulatory certainty.
Uncertainty All Around
The energy markets for all technologies are uncertain right now due to many factors: lower electricity demand, tighter cash flows, tougher credit markets, and so forth. But in a few years, the lagging economy and energy markets could look different. Congress is also moving closer to enacting some sort of climate/energy bill that should provide greater certainty for the markets.
Progress on CC3 and STP 3&4 could be slowed for awhile. But if the timing isn’t right for those projects, then perhaps it will be better in two years, five years, ten years or in 20 years time. It’s highly unlikely the two projects will ever go away. They’re in large deregulated markets where nuclear plants already operate profitably.
In the meantime...
Here in the US, one unit is under construction at Watts Bar in TN and two projects (four reactors) are in the pre-construction phase at the Summer and Vogtle sites in SC and GA (Vogtle picture to the right). Further, the NRC is reviewing 13 combined license applications for 22 new reactors. Keep in mind, the NRC isn’t scheduled to license new projects for at least another year at the earliest. A lot could happen between now and then.
As we’ve said for a number of years, utilities will plan and build new nuclear plants at a measured pace. The US most likely will not see a dramatic increase in new nuclear plants until the 2020s. Nevertheless, predictions of doom in the NIRS essay aren't credible. The electricity markets will change over the years as they have in the past. Fortunately, nuclear plants are 60+ year assets with very stable operating and fuel costs that provide consumers the benefits of a wonderful commodity - electricity.
(Background: I work at the Nuclear Energy Institute crunching numbers and blogging. This is my first post here but I've been a frequent reader of Kos diaries and an occasional commenter on nuclear issues for a number of years now.)