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Five Nuclear Challenges

Building reactors requires new federal commitment.

Fortnightly Magazine - March 2009

power plant. Even if management was willing to bet the company, it is unlikely shareholders and state regulators would be willing to go along with such a bet.

The best-case scenario suggests that industry can afford to build only three or four of these new plants. Under this scenario, new units could be built only if a group of utilities form ownership partnerships, spread the construction risks, or qualify for government assistance and guarantees.

The Energy Policy Act of 1995 does provide limited federal assistance in the form of loan guarantees and a production tax credit (PTC). 9 The loan guarantee is capped at $18.5 billion and provides early developers with low-cost debt financing on up to 80 percent of the construction costs of a new nuclear plant (the U.S. Treasury reimburses the lender in cases of default). 10 The industry responded to the first solicitation and asked the DOE to provide loan guarantees in the amount of $122 billion, which significantly exceeds the $18.5 billion available under the June 30, 2008 Nuclear Power Facilities solicitation. 11

The PTC is limited to the first 6,000 MW of third-generation nuclear power plants and is set at approximately $18 per MWh for the first eight years of operation. 12,13 If the first wave of new nuclear plants exceeds 6,000 MW, then the PTC is reduced and pro-rated among the qualifying plants.

The price tag for 100 new plants reaches approximately $1 trillion. The question is, “if utilities are unable to fund new construction, what entity has the money needed to pay for the remaining nuclear plants and who is willing to make the necessary investment?” It appears that no one currently is able to step up to the plate.

Without assistance from federal or state governments, a majority of U.S. utilities will be unable to finance the construction of a single new nuclear facility. Without viable financing, the future of new nuclear power plant construction looks gloomy.

Most Retail Rates Are Too Low to Support Nuclear Power: The projected levelized cost of a new nuclear power plant in 2006 dollars is approximately 7 to 8 cents per kWh. 14 Adding another 6 to 8 cents for transmission, distribution, line losses, fees, metering, and customer service, the retail rate for power delivered to the consumer would be approximately 13 to 16 cents per kWh. 15

The average retail rate to electric consumers in the United States is currently 10.2 cents per kWh. 16 If the levelized cost of a new nuclear power plant exceeds current estimates of 10.2 cents, many retail electric rates will need to increase to offset the costs of these plants.

In most states, the current retail rates are too low to accommodate a new nuclear power plant and the utility will lose money on every watt of nuclear power produced. Currently, only the Northeastern states plus California and Nevada have rates high enough to absorb the levelized cost of new nuclear power plants—and New England states have banned the construction of new nuclear units.

No utility or other business will