President Obama reaffirmed his willingness to expand the commercial nuclear energy in the United States when he said in his State of the Union address that we should be “building a new generation of safe, clean nuclear power plants in this country.” He backed it up by including an additional $36 billion in loan guarantees to nuclear energy projects. On top of the $18.5 billion allotted under the Energy Policy Act of 2005 (EPACT 2005), the total amount in loan guarantees now stands at $54.5 billion. Is this good or bad for the future of nuclear energy; more importantly, is it good for electricity consumers?
The initial $18.5 billion in loan guarantees were to mitigate the massive government-imposed regulatory risk that inflate. It was meant to bring stability for the first handful of reactors built in the United States. Congress and the nuclear industry believed these provisions would provide predictability after years of erratic regulatory hurdles through targeted and limited temporary assistance.
But “Expansive loan guarantee programs are wrought with problems,” writes Heritage’s Research Fellow, Jack Spencer, in a new paper entitled, “Conditions and Policy Reforms Must Accompany Nuclear Loan Guarantee Boost.” He adds, “At a minimum, they create taxpayer liabilities, give recipients preferential treatment, and distort capital markets. Further, depending on how they are structured, they can remove incentives to decrease costs, stifle innovation, suppress private-sector financing solutions, perpetuate regulatory inefficiency, and encourage government dependence.”
Nuclear loan guarantees alone won’t bring about a nuclear renaissance in the United States; in fact, by themselves they will likely do more harm than good. However, if coupled with a set of conditions that limit the scope of the program, the negative impact of loan guarantees can be contained while maximizing their benefit. The nuclear loan guarantee program should be conditioned on: ending further loan guarantees, ensuring that recipients pay the full cost of the subsidy, making recipients privately refinance within five years of project completion, limiting guarantees to no more than two plants of any reactor design and limiting two thirds of the loan money to supporting a single technology. Other reforms necessary to create a sustainable nuclear industry consist of finding a solution for waste management, making the regulatory process more efficient, and equipping the NRC to regulate multiple reactor technologies.
You can read more in Spencer’s paper, here.