Research Report

Nuclear Loan Guarantees: Another Taxpayer Bailout Ahead?

David Schlissel
Michael Mullett
Robert Alvarez
Copyright Date: Mar. 1, 2009
Pages: 33
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Table of Contents

  1. Front Matter
    (pp. i-ii)
  2. Table of Contents
    (pp. iii-iii)
    (pp. iv-iv)
    (pp. v-v)
  5. Executive Summary
    (pp. 1-3)
  6. CHAPTER 1: Introduction
    (pp. 5-6)

    Advocates of nuclear power are promoting a “nuclear renaissance,” based on claims that a new generation of reactors will produce relatively cheap electricity while solving the threat posed by global climate change. As of the time of publication, U.S. utilities and power producers had proposed building 26 new nuclear power plants. And some analysts have called for building as many as 300 new plants by mid-century. However, ensuring that these new plants will be economical is a huge challenge for the industry.

    The Nuclear Energy Institute (NEI) regularly reminds the public that nuclear power plants have the lowest production costs...

  7. CHAPTER 2: Lessons Not Learned
    (pp. 7-9)

    From the beginning, the use of nuclear energy to produce electricity was the product of overly optimistic claims that it would provide extremely low-cost power, and action by the government to insulate companies from the risks inherent in nuclear technology. In September 1954, Lewis Strauss, the first chair of the Atomic Energy Commission (AEC), famously predicted that nuclear energy would transform America within 5 to 15 years: “It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter.”⁴

    Despite this claim, two early attempts at stimulating construction of nuclear power...

  8. CHAPTER 3: The Two Nuclear Industry Bailouts
    (pp. 11-13)

    Although they had provided significant subsidies to the commercial nuclear industry through their role as taxpayers, ratepayers of the utilities that undertook new nuclear power plants had to bear most the sunk costs of canceled projects, and most of the cost overruns for completed units. Regulators disallowed limited portions of those costs as imprudent, but ratepayers bore substantially more than $200 billion in overruns (2006 dollars).26

    This estimate is conservative because it is based on Table 1, and therefore does not include cost escalation during the construction period, financing costs, or the higher cost overruns of the most expensive U.S....

  9. CHAPTER 4: Soaring Costs and Limited Resources
    (pp. 15-18)

    As of the end of 2008, the domestic nuclear industry is planning to build a new generation of power plants. The industry has submitted applications to the NRC for 26 new reactors, based on five different designs:

    The Advanced Boiling Water Reactor (ABWR)

    The Evolutionary Pressurized Reactor (EPR)

    The Westinghouse AP 1000

    The Economic Simplified Boiling Water Reactor (ESWBR)

    The Advanced Pressurized-Water Reactor (APWR)

    The NRC has certified the ABWR and AP 1000 designs, although it is now reviewing two revisions to the AP 1000 design. However, the industry has construction and operating experience only with the ABWR, and only...

  10. CHAPTER 5: The Next Bailout?
    (pp. 19-21)

    In 2005 Congress passed the Energy Policy Act (EPACT 2005), which authorized the DOE to provide loan guarantees for energy projects that would “avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases,” and “employ new or significantly improved technologies as compared to technologies in service in the United States at the time the guarantee is issued.”

    EPACT 2005 authorized the DOE to issue loan guarantees of up to $4 billion for new nuclear projects through fiscal year 2007. These guarantees were expected to allow a few “first-mover” nuclear plants to demonstrate the new industry designs and NRC...

  11. CHAPTER 6: Rolling the Dice
    (pp. 23-25)

    In July 2008 the U.S. Government Accountability Office (GAO) reported to Congress that the average risk of default on DOE loan guarantees was about 50 percent, and that the federal government would likely recover about 24 percent of these losses.59 The GAO also expressed concern that:

    . . . if defaults occur, they will be for large dollar amounts and will likely not take place during easily predicted time frames. Recoveries may be equally difficult to predict and may be affected by the condition of the underlying collateral. In addition, project risks and loan performance could depend heavily on regulatory...

  12. CHAPTER 7: Recommendations
    (pp. 27-28)

    Our investigation of the proposed federal loan guarantee program for new nuclear plants leads to the following recommendations:

    As initially conceived, loan guarantees for new nuclear power plants should be limited to a small number of “first-mover” units, to demonstrate the feasibility of new designs and the new NRC licensing process.

    The loan guarantee program was never intended to promote all possible new reactor designs, and should not do so. Rather, it should promote the development of a small number of new designs with the greatest potential for safety, reliability, and replicability. Indeed, the best hope for reducing costs through...

    (pp. 29-31)
  14. Back Matter
    (pp. 32-32)