Nuclear Subsidy Roundup, June 27, 2013

Written by dkoplow Posted: 06/20/2013 11:20 AM EDT

1)  Nuclear economics continue to worsen.  In addition to widespread cancellations of new nuclear reactors and an increasing number of announced closures of older plants too expensive to repair and keep running (Crystal River in FL, Kewaunee in WI, and San Onofre in CA in the past six months), power uprate projects are also being terminated.  Exelon is taking a $100 million charge associated with ending planned expansions in Illinois and Pennsylvania due to weak market demand.  The firm cancelled two other power uprate projects in 2011.

Increasing output at existing plants, and keeping older plants running longer are two strategies that have historically been financial wins for plant owners.  The power output achieved required much lower overall capital investments than building a new facility with far lower risks of large cost overruns.  Both reduced financial risks substantially.  The continued cancellation and closure trend across the board of nuclear projects is another indication that the long-hyped nuclear "renaissance" is unlikely to happen.

2)  Southern Company CEO Tom Fanning upset government money isn't cheap enough.  One of the only remaining new reactor projects in the US is Vogtle 3 and 4 in Georgia.  Southern Company, through its Georgia Power Subsidiary, is a big player in that effort both in terms of ownership stake and its role in project management.  The Vogtle construction is by no means a case study in market economics:  the project benefits from a host of subsidies, including tax exempt debt, construction work in progress rules that shift financing costs onto current customers, long-term power purchase agreements with municipal customers that require payout even if the reactor is never completed or the power is above-market, and multi-billion dollar loan guarantees. 

But Southern is upset that DOE money in the form of a $3.5 billion loan guarantee (separate loans with different terms apply to the other Vogtle owners) is too expensive.  CEO Fanning refers to changes in the terms following the Solyndra loan guarantee default as being unwarranted.  A reasonable observer might instead suggest that the Fukushima nuclear accident, credit market meltdown, and plunging demand for electricity (as well as lower prices) due to recession and fracked gas, were also factors.  Such an observer might also point out that such changes on the part of a lender were both prudent and reasonable; and that Southern had been an important player in dragging out negotiations with DOE long enough such that the worsening market conditions could be addressed in the terms of the open loan. 

Or at least we can hope they were.  The most recent available version of the draft loan agreement between DOE and GPC (from January 2013) can be accessed here.  It is long and detailed, but still has some important gaps.  For example, much remains unknown about specific credit subsidy amounts DOE has proposed (2010 was the latest release of credit subsidy cost figures) and how collateral and owner repayment obligations would play out in a real bankruptcy.

The draft agreement includes a number of clauses about an obligation to repay the feds in the case of a Vogtle default.  However, a corporate guarantee from Georgia Power would provide less solace to creditors about being made whole than would one from its Southern Company parent.  Detailed clauses on collateral continue to suggest that there may be limits well short of the entire firm on what the borrower would be on the hook to use for full repayment in the case of a default.  It is notable that at least through the middle of 2012, many of the open issues between DOE and Georgia Power involved disagreements over what collateral DOE could tap into in the case of a project failure.

If the federal money is really too expensive, Fanning always has the option to forgo the federal loan entirely and tap private capital markets instead.  That is a course of action I personally would be quite happy to see.  It might actually be in the long-term best interest of the nuclear industry as well were it to demonstrate that new reactors could be (mostly) privately financed.

A review of issues related to the proposed Vogtle loans by Earth Track and Synapse Energy Economics released in January can be accessed here.

3)  Maybe this is one factor in why their reactor costs are so low.  Multi-country reviews of nuclear power costs, such as this one by OECD in 2010 quoted by the World Nuclear Association, regularly show South Korea as the lowest or near-lowest in the World.

Nuclear overnight capital costs in OECD ranged from US$ 1556/kW for APR-1400 in South Korea through $3009 for ABWR in Japan, $3382/kW for Gen III+ in USA, $3860 for EPR at Flamanville in France to $5863/kW for EPR in Switzerland, with world median $4100/kW. Belgium, Netherlands, Czech Rep and Hungary were all over $5000/kW. In China overnight costs were $1748/kW for CPR-1000 and $2302/kW for AP1000, and in Russia $2933/kW for VVER-1150. EPRI (USA) gave $2970/kW for APWR or ABWR, Eurelectric gave $4724/kW for EPR.

The figures for countries with extensive state involvement in particular sectors -- Eastern Europe and much of Asia are common examples -- are hardly clean market metrics.  Governments routinely provide large amounts of direct financing or credit support, and often underwrite accident, operating, and post-closure risks.  Where supplier firms are state-owned, economic murkiness grows still further.

But far more troubling than the role of an opaque state is the recent disclosure of corruption within the South Korean nuclear sector, deploying sub-standard equipment in reactor projects around the world.  The firms involved include core industry players, raising the obvious question as to whether the corruption and parts problem have been a factor in the domestic nuclear market as well.

4)  UK Parliament broad review of energy subsidies.  The UK Parliament has recently launched a significant information gathering effort on energy subsidies to inform the country's energy policy going forward.  The main link to background reports and testimony is here.  A brief submittal by Energy Fair, a UK organization focused on nuclear issues, covering UK nuclear subsidies, can be accessed here.