John McCain’s plan to revive the U.S. nuclear power industry with 45 new reactors may cost $315 billion, with taxpayers bearing much of the financial risk.
The Republican presidential nominee wants the plants built in time to help the U.S. meet a 29 percent increase in electricity demand by 2030. Industry estimates put their cost at $7 billion each. Barack Obama, McCain’s Democratic opponent, is less specific about his plans, saying he wants to “find ways to safely harness nuclear power.”
Global warming and the rising cost of fossil fuels have boosted chances that atomic energy will supply more U.S. electricity. Public concerns remain about reactor safety and disposing of waste that stays hazardous for millennia. Investment bankers, citing the industry’s cost overruns in the 1980s, say they won’t finance its long-sought “nuclear renaissance” without federal backing.
“Loan guarantees get reactors built, simply put,” said Kevin Book, senior vice president and energy specialist at the Friedman, Billings, Ramsey & Co. investment banking firm in Arlington, Virginia.
No new nuclear plants have opened in the U.S. since 1996. The 1979 scare at Three Mile Island in Pennsylvania and the 1986 explosion at Chernobyl in the former Soviet Union damped support for the technology.
Congress in December authorized $18.5 billion in guarantees that cover as much as 80 percent of nuclear plant construction costs — enough to fund three typical reactors. Three power companies have already applied for the aid.
Constellation Energy Group Inc. of Baltimore was the first, on July 31. Its vice chairman, Michael Wallace, said in an interview that while the company hasn’t decided whether to build a new reactor, securing loan guarantees is “the last large obstacle in our path.”
Dominion Resources Inc. in Richmond, Virginia, also applied, as did a joint venture between Princeton, New Jersey-based NRG Energy Inc. and Toshiba Corp. of Tokyo. Chicago’s Exelon Corp. will ask for the guarantees by month’s end, said Thomas O’Neill, the company’s vice president of new plant development.
A building boom would benefit developers of nuclear plants, including Paris-based Areva SA; Toshiba’s Westinghouse Electric Co. subsidiary in Monroeville, Pennsylvania; and GE-Hitachi Nuclear Energy, a joint venture of General Electric Co., in Fairfield, Connecticut, and Tokyo’s Hitachi Ltd.
The Nuclear Energy Institute, a trade group in Washington, says it will ask the next president to expand and extend the loan guarantee program.
The guarantees under the program, which is set to expire next year, require no upfront public spending.
Taxpayers are on the hook only if borrowers default. A 2003 Congressional Budget Office report said the default rate on nuclear construction debts might be as high as 50 percent, in part because of the projects’ high costs.
“The nuclear industry has been aggressively going after taxpayer-backed loan guarantees because nuclear technology cannot stand on its own two feet in the marketplace,” said Allison Fisher, an energy policy analyst for the nonprofit consumer group Public Citizen in Washington.
The Energy Information Administration estimated last year that adding nuclear power capacity would cost $2,143 a kilowatt before financing and inflation. That compared with $1,434 to $2,302 for clean-coal technologies.
Over the past year, the expense has more than doubled to $5,000 a kilowatt, or $7 billion for a typical reactor, utility filings and company statements show. The increase in part reflects rising prices for commodities such as steel and cement.
Uranium Prices Drop
At the same time, uranium prices have dropped. The Standard & Poor’s Global Nuclear Energy Index has lost about a third of its value since November.
Arizona Senator McCain called for the 45 reactors by 2030 during a June campaign appearance, citing “the ultimate goal of 100 new plants.” The 104 U.S. reactors now operating produce 20 percent of the country’s electricity.
Senator Obama, an Illinois Democrat, qualifies his support.
“It is unlikely that we can meet our aggressive climate goals if we eliminate nuclear power as an option,” his energy plan states. “However, before an expansion of nuclear power is considered, key issues must be addressed, including security of nuclear fuel and waste, waste storage and proliferation.”
Industry officials say they are encouraged.
“We’ve told them we think we can move ahead because these conditions can be met,” said David Brown, vice president of federal affairs at Exelon, which operates 11 reactors in Illinois and six in the mid-Atlantic region, including the surviving Three Mile Island unit.
Exelon in Texas
Exelon is developing a new site in Victoria County in southeast Texas. Since that “merchant” plant would sell its power in the marketplace, it wouldn’t be subject to state rate regulation. That means the company can’t ask a public utility commission to recapture construction costs from customers.
That’s the same reason why Constellation’s Wallace says his plans for a new reactor in Maryland hinge on federal guarantees.
“Commercial banks, not having experienced new nuclear plant licensing in 30 years — and with all the uncertainties inherent in the process in the U.S. — are just not willing” to provide financing without the supports, he said.
Through its Unistar Nuclear Energy LLC joint venture with the Paris-based utility Electricite de France, the company is developing a merchant power plant in Lusby, Maryland, 56 miles (90 kilometers) west of Washington.
“For the plants that are not regulated, the loan guarantees are essential,” says Morgan Stanley executive director Caren Byrd, a nuclear finance specialist. Bloomberg