Opinion Extra

Wolfe: Insist on loan guarantees for nuclear plants

Imagine that we as a society decide that we want Superbium (a fictitious commodity) to be our primary energy source because it is clean, safe, abundant and affordable. Now suppose there are a few corporations in our country that can incorporate Superbium plants into their business model and produce our much-needed electricity. We say, "Build Superbium plants."

A typical company says: "We would like to, but we can't get the financing because the banks want collateral. The entire capitalization of our company is $5 billion, and the cost of the Superbium plant is $10 billion."

So is Superbium too expensive? No. It's actually less expensive than all other options - on a cost-per-kilowatt-hour basis. But any company that builds a Superbium plant may be investing the entire net worth of the company (or more) in one project. Taking that sort of risk in an industry that typically limits exposure to just 1 percent or 2 percent of the company's value can be a career-limiting decision for an energy executive - particularly when the success of the investment depends heavily on the whims of the next government administration, the next round of regulatory complications or the next round of anti-Superbium obstructionist activities.

The answer, of course, is that society must guarantee the loan in order to have its preferred energy production. This doesn't mean that the taxpayers are actually paying off the loan. They are merely co-signing the note.

This is a good strategy for the taxpayer/ratepayers because loan guarantees might lower the financing costs of a large capital project and result in lower electricity rates. Lowering the financing rate by 1 percent results in more than a $1 billion saving for a 10-year $10 billion project. Since the payoff for the project is likely to be longer than 10 years, even greater savings may be realized by choosing the most cost-effective method of financing.

Now exchange "Superbium" for "nuclear," and you understand why it's so important that President Obama has requested up to $54 billion in federal loan guarantees for new nuclear construction. Companies don't need loan guarantees because nuclear is a bad investment; they need it because the cost of building new nuclear plants often rivals the net worth of the owner.

Unlike every other country in the world that is building nuclear electricity-generating capacity, we have no direct government sponsorship of the effort; nor do we have a national energy policy. If we did, the loan guarantee discussion would be moot, because that policy would address how to incorporate the desired technology into our energy mix and how to recover the cost.

Instead, we have a patchwork of energy acts (32 since 1920), congressional legislation and state mandates trying to encourage a particular technology or group of technologies.

Those often heard criticizing nuclear for being "on the government dole" seem oblivious to the fact that their favorites - wind and solar - received 15 times more government subsidies per kilowatt-hour than did nuclear in 2007. In fact, if one removes government support for research and development (which is not paid to the nuclear utility industry anyway), the nuclear utility industry was a net payer to the U.S. Treasury in 2007, thanks to the $800 million sent to the nuclear waste fund.

I generally support federal investment in research and development for so-called renewable energies. Some I find troubling based on their likelihood of success, but in general I believe we should keep investing in fundamental knowledge about potential clean energy sources. Fortunately, we already have the knowledge and more than a half century of safe operating experience to make the most affordable, cleanest and safest of them all - nuclear power - the workhorse of our electrical power industry.

It is in our interest not only to agree to loan guarantees for new nuclear capacity, but to insist upon them.

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