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Seismic Omen

Fukushima shockwaves hit America’s nuclear renaissance.

Fortnightly Magazine - May 2011

Fukushima crisis demonstrates why nuclear power should be phased out.

To those who remember the financial crisis after the TMI accident, these reactions are disconcerting. Will they frustrate, if not derail, the industry’s willingness today to undertake large-scale nuclear projects?

No Bailouts

The energy industry is unlike most of industrial America. It suffers from a hypersensitivity to ever shifting-regulatory, social and political sentiments—not a good thing given its long construction and capital commitment cycles.

The Obama administration has stated that nuclear power is an integral part of the nation’s clean energy future and is needed to maintain electric reliability and lower our dependence on foreign oil. The president’s view is painfully pragmatic. He clearly recognizes that the 20 percent of the electricity generated in this country by nuclear energy can’t be replaced overnight, regardless of how aggressively we pursue alternatives.

If anything, we are late in the process of replenishing existing nuclear generating capacity. As recently as February 2011, the president stated, “On an issue that affects our economy, our security, and the future of our planet, we can’t continue to be mired in the same old stale debates between left and right, between environmentalists and entrepreneurs.”

The Department of Energy has approved $8.3 billion in conditional federal loan guarantees for construction of the first nuclear power plants in nearly three decades. The loan guarantees are designed to act as a financing catalyst. Southern Company (SO) is the initial recipient of loan guarantees that are intended to aid in funding twin units at the existing Vogtle nuclear station in Georgia. The DOE echoed the administration’s view that they were hopeful that Vogtle would be “the first of many new nuclear projects.” The DOE, the administrator of the loan guarantee program, stated that the department is “actively engaged in advanced work on three other transactions and has begun analysis on four more beyond that.” While not specifically identifying the three projects up for review, according to industry officials the facilities are in Maryland, South Carolina and Texas.

Southern, together with two partners, is planning to add two additional reactors at the Vogtle site at an estimated cost of $14 billion. The company anticipates that the reactors will be finished by 2016 and 2017, respectively. The reliability of these dates now bears questioning, because while construction might be physically possible, it might not be politically possible. There is a slim margin for error, politically speaking. The importance of these completion dates shouldn’t be underestimated because they are the only reactors scheduled to come on line while President Obama is still in office—assuming he wins re-election in 2012. His successor might or might not continue federal support for nuclear power.

As a means to induce investors and mitigate company construction risk, Obama’s 2011 budget proposal would add $36 billion in new federal loan guarantees to the money already earmarked for such guarantees—raising the total to $54.5 billion. While this initiative has been criticized by conservatives and liberals alike, the utility industry says the allocation is well below its needs, which it places at a minimum