The Nuclear Bailout

President Obama's high risk gamble on new reactors undermines the fight against global warming
Released by: Environment Georgia

Executive Summary

In February 2010, the Obama administration announced that it would help finance two new nuclear reactors at the Vogtle nuclear power station in Georgia, offering an $8.33 billion loan guarantee to Georgia Power (a subsidiary of Southern Company) and two other companies invested in the project. President Obama claimed that the investment was necessary to create clean energy jobs, stimulate our economy to export homegrown technology instead of importing foreign oil, and secure the future of our planet and our civilization by fighting the growing threat of global warming.

However, this loan is an expensive gamble on a technology with a long history of bankrupting utilities and soaking ratepayers. New nuclear reactors are not cheap, not clean, and will set America back in the race against global warming. Most importantly, they are not necessary.Clean energy technologies can begin cutting global warming pollution right away,do so at lower cost and with less risk, and will create more jobs in the process.

There is an extremely high risk that taxpayers will be on the hook if the Vogtle loan guarantee proceeds. The loan guarantee is an up-front bailout that will enable Southern Company to make an uneconomic investment.

• Private lenders decline to finance new reactors because of the substantial risk that the investment will fail. In 2003, the Congressional Budget Office estimated that the chance of a loan for new nuclear reactor construction resulting in default would be “very high – well over 50 percent.” In 2008, the Government Accountability Office estimated a default rate of just over 50 percent for all loan guarantees (including other eligible projects in addition to nuclear power plants). The Obama administration’s proposed loan guarantee would transfer this risk onto American taxpayers, who would pay up to $8.33 billion in the event that Southern Company and its partners run into trouble.

• Vogtle perfectly illustrates the risk. The original two reactors at the plant took almost 15 years to build and came in 1,200 percent over budget. Southern Company shareholders had to swallow $1 billion in losses, and Georgia Power electricity customers saw their electricity rates climb 40 percent over several years.

• The design of the new reactor has not been finalized, and is still undergoing review at the U.S. Nuclear Regulatory Commission (NRC). As a result, Southern Company’s cost estimates for the two new reactors are speculative. If delays and cost escalation drive up the price tag before or during construction – as was the case with nearly every previous reactor – the company could default on the loan and even fail to complete the reactor, wasting taxpayer dollars.

• Moreover, the electricity demand Southern Company anticipates the reactor to serve may not materialize. And since nuclear power plants are large and inflexible, this possibility poses a serious financial risk. Construction of a nuclear reactor cannot be halted halfway to get half of the power output – it’s all or nothing.

• Moreover, in May 2010, a Georgia state judge found that the state Public Service Commission (PSC) failed to adequately explain why building new reactors at Vogtle would be a prudent investment, and remanded the state certification for the reactor back to the PSC.

• Southern Company’s decision on whether to accept the offer of the loan guarantee or not is expected in mid-June 2010, after the company requested a 30 day extension.

The Vogtle nuclear loan could cost electricity customers and taxpayers billions of dollars.

• Georgia Power customers will be paying $1.6 billion through higher electricity rates over the next six years to help finance the reactor construction. By 2017, the average Georgia Power customer will be paying an additional $10 per month to support the project.

• If Southern Company defaults before the reactor becomes operational and the government fails to charge an appropriate subsidy cost for the loan guarantee, the taxpayer cost could reach as high as $11 billion (including the loan guarantee amount of $8.3 billion and a possible subsidy cost of $3 billion) – or $95 per American household.

Building new nuclear reactors – at Vogtle or elsewhere – is an expensive way to produce electricity.

• The estimated cost to build a new reactor has more than tripled since 2005. Analysts at Moody’s Investor Services call it a “bet the farm” risk.

• Illustrating the risk, the French government-owned nuclear giant Areva is building a new reactor in Finland, and the project is three and a half years behind schedule and 75 percent over budget after a series of construction problems. Southern Company and its partners estimate that the new Vogtle reactors and transmission upgrades will cost $14 billion. Over the lifetime of the reactors, that translates to an estimated rate of 13.5¢ to 16.5¢ per kWh for nuclear electricity (including transmission and distribution costs). The benefit of the loan guarantee would only lower the estimated cost of electricity by about 3 cents per kWh. This would still compare unfavorably to the 8.8¢ per kWh average retail price that Georgia households and businesses currently pay.

• Moreover, Southern Company may be underestimating the actual cost of the reactors. For example, in 2009, Florida Power & Light estimated that a similar project to add new reactors of the same design to Turkey Point in Miami would cost $12 to $18 billion. And in May 2010, Progress Energy increased the estimated cost of building a new 2-reactor nuclear facility in Levy County by $5 billion, for a total of $17 to $22.5 billion. Independent estimates of possible reactor costs go even higher.

New nuclear reactors are not safe or clean – nor are they a solution to global warming.

• The new reactors at Vogtle would set America back in the race to reduce global warming pollution. The new reactors would take a decade or more to build and tie up investment dollars, delaying action to reduce emissions. If that money were instead directed to clean energy solutions, such as energy efficiency measures, it could begin reducing emissions immediately.

• The NRC has raised safety concerns about the proposed design of the new reactors at Vogtle, which it has not yet certified. Specifically, the NRC has identified issues that could prevent the reactor’s shield building from performing adequately during an earthquake, tornado or hurricane.

• The new reactors at Vogtle would produce 2,500 metric tons of highly radioactive spent fuel over their lifetimes. This waste would remain dangerous for thousands of years, and no nation has developed a permanent solution for safely disposing of it.

• The two reactors at Vogtle already consume as much as 66 million gallons a day from the Savannah River – more water than 500,000 Georgians use daily at their homes. Adding two more reactors would increase water withdrawals to as much as 132 million gallons a day, or 2 percent of the river’s normal flow – competing with other downstream water needs. Drought and high temperatures, such as the severe water shortage the state experienced for three years ending in June 2009, could force the reactor to reduce output or shut down even as demand for electricity is highest – a vulnerability that will only be aggravated by global warming.

• Moreover, two additional reactors would double the volume of heated water the reactors discharge back into the river, which kills fish and damages the fragile river ecosystem. Construction of the reactors would likely require dredging up to 100 miles of the river channel as well, disrupting fish spawning.

Guaranteed loans for nuclear reactor construction are not a good way to create jobs.

• After a brief spike in employment during the construction of the plant, the Vogtle reactors will actually become a drag on Georgia’s economy. The high cost of power from the Vogtle reactor (estimated at 10 to 13 cents per kWh including the benefit of the loan guarantee) will raise citizens’ energy bills, leading to the loss of 5,000 to 9,000 jobs (full time equivalent).

Clean energy and energy efficiency are more effective tools to stimulate America’s economy, create clean energy jobs, increase energy security and fight global warming than new nuclear reactors.

• Clean energy is more cost-effective than new nuclear reactors. Per dollar spent over the lifetime of the technology, energy efficiency and biomass co-firing produce as much as 500 percent more electricity than nuclear power and are five times more effective at preventing carbon dioxide pollution. Combined heat and power (in which a power plant generates both electricity and heat for a building or industrial application) is greater than three times more cost-effective.

• If the $14 billion capital investment required to build two new reactors at Vogtle were instead directed into energy efficiency, Georgia Power could reduce electricity consumption in its service territory by 2 percent annually over 15 years. This investment in energy efficiency would save Georgians close to $13 billion on their energy bills at current electricity prices – since energy efficiency measures are cheaper than running an existing power plant. The savings on energy bills would create on the order of 2,800 jobs statewide – an increase in employment on the order of 8,000 to 12,000 jobs when compared to the job losses that would be caused by higher electricity rates from building two reactors at Vogtle.

The United States should focus on improving energy efficiency and generating electricity from clean sources that never run out – such as wind, solar, biomass and geothermal power – rather than wasting taxpayer dollars to offer upfront bailouts to builders of expensive and risky nuclear reactors. State and federal leaders should:

Oppose additional subsidies for nuclear power. Nuclear power has already benefited from more than $140 billion in federal subsidies over the last half-century, from limited liability to loan guarantees. The federal government should not further subsidize new nuclear reactors. Any subsidies for low-carbon energy alternatives must be judged based on their relative shortterm and long-term costs and environmental advantages.

Shift the nation’s strategy for dealing with global warming away from propping up risky technologies like nuclear power, and instead establish a cap on emissions, guided by the latest scientific understanding. Instead of issuing loans to the nuclear industry, the United States should establish a policy to cap economy- wide emissions of global warming pollution at a level sufficient to prevent the worst impacts of global warming.

Focus on energy supply technologies that are cleaner, cheaper and deliver results faster than nuclear power. The United States should reduce overall electricity use by 15 percent by 2020, strengthen energy efficiency standards and codes for appliances and buildings, and obtain at least 25 percent of its electricity from clean, renewable sources of energy that never run out, such as wind and solar power, by 2025. States should also enact similar policies or expand existing targets.