Compulsive gamblers are perpetually looking for the big score. Always thinking that the next card will draw that inside straight or the last card will turn their garbage into gold. Casinos have a name for these people–suckers. Well, Uncle Sam has pushed more than $8 billion into the pot, gambling on big returns from the nuclear power industry. Sadly, we know where this ends.
Southern Company is salivating over an $8.33 billion conditional loan guarantee announced this week for the construction of two reactors in Waynesboro, Georgia. The “lucky” backer of that long shot bet? The U.S. taxpayer. If the current state and history of the nuclear industry tells us anything, signing off on this tentative agreement will deal us a losing hand.
This will be the first Treasury-backed loan guarantee for a new nuclear reactor under the Department of Energy Loan Guarantee Program. The program was created in 2005 to distribute loan guarantees to innovative energy technologies. While the program covers a range of emerging technologies, other mature industries–like coal and nuclear–are also eligible. Currently, the program has an overall cap of $51 billion, with $18.5 billion in loan guarantee authority earmarked for nuclear reactors.
Adding to the program’s already significant federal financial risks, President Obama’s fiscal year 2011 budget proposed taxpayers go all in on this nuclear gamble. To begin funding the industry’s so-called “nuclear renaissance,” the administration’s budget has proposed tripling the amount of loan guarantees for nuclear power to $54.5 billion.
But even before Obama had proposed this increase, nuclear power was belly up to the bar for federally backed loan guarantees. With extremely high capital costs, significant technology risks, and a track record of project defaults, the industry can’t get anyone on Wall Street to back them. Even when the market couldn’t get enough exotic, high-risk investments a few years ago, nuclear power was kryptonite to investors. To date, the nuclear industry has applied for $122 billion in loan guarantees–far surpassing any other loan guarantee applicant.
With numbers this high, these loan guarantees could cause a huge financial hangover. The nonpartisan Congressional Budget Office considers the risk of default on the part of the nuclear industry to be very high–above 50 percent–and payments for defaults would come directly from the Treasury. Additionally, DOE loan guarantees carry an extremely high risk because they can cover the entire value of a loan, worth up to 80 percent of a project’s total cost–terms far better than any private lender would provide.
In the case of Southern Co., Obama is promising the full faith and credit of the U.S. Treasury behind a $14 billion dollar project that already has serious design flaws, even though construction has yet to begin. The story is much the same for the other nuclear projects that are lining up for loan guarantees. In many cases cost estimates have doubled and there is turmoil between project owners. And many of the new U.S. reactors rely on designs that are in financial shambles in other parts of the world to boot.
If the nuclear industry is a solid investment, then it should be able to receive the backing of Wall Street.
For over a half-century, taxpayers have propped up the nuclear industry with more than $100 billion in subsidies. It’s time for the gravy train to stop. Facing massive budget deficits for as far as the eye can see, taxpayers shouldn’t be forced to gamble billions of dollars backing loans for an industry plagued with financing, design, and construction delays and a track record of defaulting on loans.