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November 8th, 2011

The Solyndra effect—Fruity thinking on federal nuclear startup loan guarantees

Published on November 8th, 2011 | By: Eileen De Guire

Southern Company, a Georgia utility, is building a new nuclear power plant with the help of a federal loan guarantee. However, the Solyndra experience is making politicians skittish about extending loan guarantees for future nuclear plant startups. Credit: Southern Company

CTT’s Peter Wray has been following the Solyndra calamity since it started to develop last summer. That story continues to unfold and may take years to fully unpack.

Meanwhile, politicians are adopting a “once bitten, twice shy” approach to making federal loan guarantees, and new nuclear startups are likely to feel the bite according to a story by Peter Fairley published online by MIT’s Technology Review.

The story reports that politicians are making apples-to-oranges comparisons between bankrupt Solyndra and its $535 million federal loan guarantee and loan guarantees that DOE offers utilities to build new nuclear power plants. But, the story points out three key differences between these fruit baskets.

First, the only active reactor projects are in southern states, whose utility-friendly laws allow utility companies to recover loan costs from customers in advance. For example, the Georgia utility, 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.”

Second, utilities that receive nuclear loan guarantees are required to pay a fee “based on the risk the federal government will face.” Solyndra was not bound by a similar risk-based cost.

Finally, the story points out that federal exposure to potential loan default was reduced by the cancellation of several projects that were on the docket in states with unregulated-thus higher risk-power markets. Projects in Texas and Maryland were scrubbed, for example. The cost of electricity from new nuclear power plants is estimated to be two to three times greater than the average price of US power. The price of natural gas is projected to stay low into the 2030s, which will keep economic justification of new plants out of reach for a long time, especially in unregulated markets.

The story concludes, “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.”

Peter Bradford, an expert cited in the story, notes that some of the political opponents of loan guarantees are painting themselves into a corner. “The Republican rhetoric is every bit as applicable to nuclear loan guarantees as it is to poor old Solyndra,” he says.


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