U.S. President Barack Obama gave the long-suffering U.S. nuclear industry a solid boost this week when he announced $8 billion in government loan guarantees in support of a new nuclear power plant in Georgia.
The move is intended to reduce usage of fossil fuels and meet America's future energy needs. It could also provide new profit opportunities for energy-sector investors.
"I know it has long been assumed that those who champion the environment are opposed to nuclear power," President Obama said in remarks made during a speaking engagement in Lanham, Md. "But the fact is, even though we have not broken ground on a new nuclear power plant in 30 years, nuclear energy remains our largest source of fuel that produces no carbon emissions."
The federal loan guarantees will provide The Southern Co. (NYSE: SO) with approximately $8.3 billion in construction and operating funds for a pair of reactors the company will build for the Alvin W. Vogtle Electric Generating Plant in Burke County, Ga.
The newly proposed reactors would generate power for some 1.4 million residents and employ about 850 people, administration officials told The Associated Press, adding that the Georgia project would create about 3,000 construction jobs.
Under the loan-guarantee program, the government promises to assume a company's debt obligations if it defaults on liabilities incurred for the projects. It's widely believed that it would be impossible for a company to build a nuclear plant in the current environment without the government's backing.
A case-in-point: The two-reactor plant Southern will build near Augusta, Ga., is projected to have construction costs of $14.5 billion. That's twice the cost of a coal-fired plant and is triple the cost of a natural-gas plant.
Such a massive capital outlay would probably represent an unacceptable risk to investors or banks in view of the associated uncertainties, including lengthy construction timelines, stringent operating costs, and unstable electricity rates that could affect potential returns on investment.
Most nuclear power plants in Europe have to run for 20 years before they break even, a European physicist told the Christian Science Monitor.
But critics say the government guarantees are little more than "masked subsidies" that will stick U.S. taxpayers with huge risks – especially given the industry's past record of cost overruns and loan defaults . Reports by Congressional Budget Office (CBO) and the Government Accountability Office (GAO) have estimated that the risk of default for new nuclear reactors could be as high as 50%.
"This is a pre-emptive bailout where the government has already guaranteed to saddle taxpayers with any failure that the (nuclear) industry might run into," Allison Fisher, an energy organizer at Public Citizen, a Washington-based consumer advocacy group, told reporters.
Three Mile Island Casts Long Shadow
It's been 30 years since the meltdown of a reactor at the Three Mile Island nuclear power plant near Harrisburg, Pa., also caused a meltdown in the U.S. commercial nuclear power business.
Even though no one was seriously injured – and only a small amount of radiation leaked into the air above Eastern Pennsylvania – the March 28, 1979 accident put the perils and mysterious nature of nuclear energy squarely in the spotlight and cast a pall over the industry from which it never recovered.
Indeed, TMI served as an industry epitaph. Not a single new commercial power plant has been ordered – let alone built – in the United States since the accident, and most experts believed the rabid anti-nuclear sentiment in the U.S. market would be impossible to overcome.
But in the U.S. market, the appetite for electricity continues to soar. While electricity demand will "only" increase by 50% in the United States between now and 2030, demand will increase 400% in China and six-fold in India.
Overall, across the planet, electricity consumption is expected to double by 2030, increasing by 17 trillion kilowatt hours.
New, renewable sources of energy won't be enough to make up the difference. While those renewable technologies will be important adjunct sources of power, alternative energy won't make a meaningful contribution to the world's power needs before 2030, the International Energy Agency reported recently.
In an effort to revive the moribund nuclear industry, utilities have applied to build more than 30 new reactors here in the United States, often at spots adjacent to existing plants. And to meet global-warming goals, 42 reactors could be built the next two decades, according to the Electric Power Research Institute.
But just maintaining nuclear energy's current 20% share of power generation in the U.S. economy would require the construction of three reactors every two years – starting in 2016, the U.S. Department of Energy has said.
And to hold output steady, every one of the reactors currently being reviewed for approval by the Nuclear Regulatory Commission (NRC) would have to come on line by 2030. The NRC says the first approvals could come by 2011. Given how long it takes to build a plant, the first one wouldn't hit the power grid until 2016.
Obama Changes His Tune
Prior to his election, President Obama appeared to be lukewarm on commercial nuclear power. While acknowledging that nuclear is one of several viable components of the nation's energy portfolio, he questioned its safety and emphasized a need to diversify the nation's energy mix with more wind, solar and other renewable sources.
And even though nuclear plants provide 70% of our non-carbon-generated electricity from pollution-free sources, including wind, solar and hydroelectric dams, Obama said that the industry's waste-storage concerns had to be solved before the nation could build new plants.
But in his Jan. 27 State of the Union speech, Obama announced his renewed support for nuclear energy, calling for "a new generation of safe, clean nuclear power plants." He later unveiled a budget proposal for 2011 that would add $36 billion in new federal guarantees – nearly tripling to $54.5 billion the current amount authorized by Congress in 2005.
Although the administration has ruled out Yucca Mountain northwest of Las Vegas as a storage option for nuclear waste, U.S. Energy Secretary Steven Chu told Congress last year that nuclear "has to be [part of] our energy future." Waste, he said, can be stored at reactor sites "for decades."
And in his press conference announcing the loan guarantees, President Obama referred to the Georgia reactors "just the beginning."
The administration hopes that project is "just the first of what we hope will be many new nuclear projects," Carol Browner, director of the White House Office of Energy and Climate Change Policy, said in a press briefing.
The administration's new stance has encouraged many utility companies to file applications to tap into the funds as quickly as possible.
Along with Southern Co., Scana Corp. (NYSE: SCG), Constellation Energy Group Inc. (NYSE: CEG) and NRG Energy Inc. (NYSE: NRG) were on a short list of companies with projects still in the running for federal loan backing as of May.
"We're working with the applicants as fast as we can to get through these processes," Chu, the U.S. energy secretary, told The Wall Street Journal.
News & Related Story Links:
- Associated Press:
Obama's loan guarantee for nuclear plants signals shift in energy strategy
- Christian Science Monitor:
Obama aid for nuclear power plant: a start, but no renaissance
Alvin W. Vogtle Electric Generating Plant
- Associated Press:
Fed loan guarantees may boost nuclear power return
- Money Morning:
Thirty Years After Three Mile Island, Nuclear Power is Poised for a Comeback
- Wall Street Journal:
Obama Unveils Loan Guarantees for Nuclear Plant
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