U.S. Nuclear Industry Will Remain Ward of the State, as in France, Report Warns

Report wary of "French model of nuclear socialism," and calls $36 billion of federal loan guarantees a raw deal for taxpayers

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Government subsidies of nuclear power plans could hitch U.S taxpayers to a technology that suffers out-of-control costs while pushing aside renewable energy development, according to a study released last week by the Vermont Law School’s Institute for Energy and the Environment.

The study looks at the nuclear energy industry in France, where an aggressive nuclear program has resulted in three-quarters of the country’s power coming from nuclear sources. But it says that what has been hailed as a “nuclear miracle” in the European nation should serve as a cautionary tale of over-dependence on nuclear power.

“This analysis shows the greatest danger is not that the U.S. will import French technology, but that it will replicate the French model of nuclear socialism,” said Mark Cooper, the report’s author and a senior research fellow for economic analysis at the Vermont Law School Institute. “Nuclear power will remain a ward of the state, as has been true throughout its history in France.”

The report comes as U.S. utilities are developing what would be the first new domestic nuclear plants in three decades, and lawmakers consider extending federal loan guarantees to help pay for such projects.

The 2005 Energy Policy Act gives the U.S. Department of Energy authority to disburse $18.5 billion in loan guarantees. In early 2010, the agency announced that $8.3 billion of that would go toward a proposed nuclear plant in Georgia being built by Southern Company, an Atlanta-based electric utility holding company. The Obama administration’s pending 2011 budget request includes an additional $36 billion in loan guarantees for nuclear projects.

Such guarantees would be a raw deal for taxpayers, Cooper said. 

“It’s highly unlikely that the problems of reactor construction will be solved by an infusion of federal loan guarantees,” Cooper said. “U.S. policymakers should resist efforts to force the government into making large loans in terms that put taxpayers at risk in order to save a project or industry that may not be salvageable.”

Specifically, the report says the nuclear industries in the United States and France have seen sharp cost escalations. Measured in 2008 dollars, the cost of a nuclear power plant, excluding interest on loans, was about $1,000 per kilowatt in the early 1970s. Twenty years later, U.S. costs had risen to between $5,000 and $6,000 per kilowatt, while French costs had climbed to up to $5,000 per kilowatt.

Nuclear energy backers, meanwhile, contend that nuclear plants can serve as engines of economic growth and job creation while providing baseload power—still a challenge for intermittent resources such as wind and solar—without creating greenhouse gas emissions.

There are about two-dozen proposed reactor projects currently making their way through the federal permitting process, with the first expected to receive approvals in late 2011. That would mean a wave of construction jobs — potentially more than 60,000 — once those projects begin breaking ground, according to a report from the Nuclear Energy Institute, a Washington, D.C.-based nuclear policy organization. Once operational, each plant represents about 700 permanent jobs, NEI says.

But getting those projects built without federal support could be tough. The price tag for a nuclear reactor is about $8 billion to $10 billion. That cost relative to the market value of even the largest U.S. utilities is considerable, NEI spokesman Steve Kerekes said.

Not Looking to Build Just One or Two

The loan guarantee program would allow projects to receive better financing in the debt markets, bringing down the overall costs of building a nuclear power plant, ideally leading to increased investor confidence in future projects. But that doesn’t mean the need for loan guarantees would stop with the first few projects.

With U.S. power demands expected to increase almost 30 percent by 2035, it would take bringing one reactor on line each year starting in 2016 to maintain the current 20 percent of U.S. electricity that comes from nuclear sources, according to the DOE.

“To meet emission reduction requirements we’re going to need potentially dozens of nuclear plants,” Kerekes said. “We’re not looking to build one or two.”

Kerekes and other nuclear supporters say costs of building plants will be stabilized by standardizing reactor designs and a streamlined regulatory process, but the VLS report contends that increasing complexity and individual site differences among projects would cause costs to continue to escalate, meaning a perpetual reliance of federal support.

“The idea that future costs will decline with standardization and economies of scale is a big selling point, that big subsidies now will bring a future cost decline,” Cooper said. “That it simply not the case.”

And while the nuclear industry would continue to lean on federal support, the report says it could also hamstring renewable energy development by siphoning off funding and other resources.

France has been slower than its European counterparts to adopt renewable energy and energy efficiency measures, the report says. Meanwhile, in the United States, states where utilities are not pursuing nuclear plants have set higher renewable energy procurement targets and stronger energy efficiency programs.

“You don’t have to go to France to see more nuclear means less renewables and energy efficiency,” Cooper said.