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Politicians are drawing parallels between the $535 million federal loan guarantee issued to bankrupt solar manufacturer Solyndra and loan guarantees that the U.S. Department of Energy is offering to utilities building new nuclear power plants. But while those nuclear startups could also go bust, experts say U.S. taxpayers are unlikely to take a loss on them. That’s because the only reactor projects moving forward are those in a handful of southern states, where laws allow utilities to offload the risk onto state ratepayers.

A case study is the two-reactor expansion by Southern Company at the Vogtle nuclear power station in Georgia—the only project in construction to be offered a federal loan guarantee. Southern Company is unlikely to default on its $8 billion loan guarantee because, under Georgia law, it is prebilling its customers for much of the cost.

This all but assures Southern Company of recouping the total expenditure, according to Peter Bradford, a former U.S. Nuclear Regulatory Commission member and a nuclear policy expert at Vermont Law School’s Institute for Energy and the Environment. “The risks in Georgia are fairly low because state utility commissioners have said customers will cover the full cost no matter what, whether the plant is canceled or experiences substantial cost overruns,” says Bradford.

Utility-friendly laws in states such as Georgia and South Carolina are, however, an exception. The risk of default on nuclear loan guarantees would be higher in most U.S. states, because most states have competitive, rather than regulated, power markets. New nuclear plants are expected to generate power at 12 to 20 cents per kilowatt-hour, which is two to three times more than average U.S. power prices. “The economic setback of 2008 and the decline of natural gas prices—a decline that’s now projected … to last out into the 2030s—have pushed any semblance of economic justification for these plants way off over the horizon,” says Bradford.

Reactor operators that proposed expansions in competitive markets such as Texas and Maryland have subsequently canceled their projects rather than building reactors backed by federal loan guarantees. Recipients of nuclear loan guarantees—unlike renewable energy generators such as Solyndra—must pay a fee based on the risk that the federal government will face.

New nuclear projects also appear to be faltering in the U.K.’s competitive power markets. Last week, EDF Energy—the U.K. unit of Paris-based utility giant Electricité de France—disclosed that it had suspended its nuclear schedule.

For its part, Southern Company officials argue that Georgia ratepayers will benefit from nuclear power if one projects the costs out over the 60-year life of the project. Southern Company declined to be interviewed for this story, but in a filing last week with the Georgia Public Service Commission, utility officials stated that the two Westinghouse 1,100-megawatt AP1000 reactors proposed for Vogtle will cost Georgia ratepayers $6.1 billion.

Assuming 60 years of operation, Southern argues, the reactors will be competitive with natural gas-fired generators. It expects to receive a license from the NRC early next year to build and operate the plants, which would start generating power in 2016 at the earliest.

While the Solyndra case appears unlikely to be replicated with nuclear loan guarantees, political attacks from Congressional Republicans on the wisdom of loan guarantees for energy projects may, ironically, hurt the prospects for further nuclear projects that many support. The Obama administration has just $8 billion left to support new nuclear loans, and has asked Congress for another $36 billion. But as Bradford puts it: “The Republican rhetoric is every bit as applicable to nuclear loan guarantees as it is to poor old Solyndra.”

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Credit: Southern Company

Tagged: Energy, energy, nuclear, power, government, Solyndra, loan guarantee

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