Nuclear Damage Control
March 15, 2011
– Comments (8)
In the last few days there has been a lot of publicity concerning nuclear power plants. A US Congressman promoting investment in nuclear even compared the risk of a nuclear power plant collapse to that of a bridge collapse, where I'd say the risk and amount of damage each can do is not equal. I would say the financial and nuclear industries are ramping up the public relations spending to do some damage control.
However, I'd like to talk about a different kind of risk.
The biggest risk to the nuclear industry is the length of time it takes to build a nuclear power plant.
In the current environment it takes ten years and $18 billion to get a nuclear power plant up and producing electricity. Some of that is construction time, and some of that is regulatory.To a lender that is a long time and a lot of risk. They have to begin lending in year one, and not get a dollar back in sold electricity until year ten. The problem for the lender is that a lot can go wrong in ten years. For example the Government could intervene and ban the use of high electricity consumption methods of illumination in favor of low consumption (incandescent vs. LED's). So the lender needs to believe that Government will not regulate the expected revenue source out of existence. The lender needs a non-interventionist Government for that length of time, or at least as long as it takes to sell the loan.
Another risk to the lender is that even without Government intervention, some company will come along and build an LED bulb at a similar pricepoint to an incandescant. Lighting is a big electrical consumer and if it needs less electricity then there might not be a customer for the nuclear power plant's electricity.
Ten years is a long time to wait see if an investment is going to play out. Even five years is. Right now Dylan Ratigan is reporting that over 60% of the electricity the US produces is wasted in the grid and in consumption. The EU wastes less than 20% and Japan was the leader only wasting 10%. That the US could deliver twice as much electricity to its customers AND generate less than it does today is a huge risk to the revenue stream a nuclear power plant requires and a potential lender might need to justify a loan of this size.
And lenders do not like to actually take the risks they want to be compensated for.
Both of the ways to alleviate the risk is happening in Florida right now. Customers there are beginning to pay today, for the nuclear power they will have delivered in ten years. Their electric bills have gone up, due to increased conventional fuel costs, and the nuclear pre-payment. The increased cost of electricity to the customer increases the likelihood consumption will decrease as people remember to turn off lights and reduce air conditioning use to keep from spending more money on electricity.
The other way to decrease risk to the lenders is with Federal loan guarantees. Two years ago $50 billion of loan guarantees to the nuclear industry were defeated. President Obama and the Republicans/Tea Party/Conservatives/Democrats in Congress recently approved $38 billion in loan guarantees to the nuclear industry. This surely makes the lending industry happy, because now they can charge for a risk that has been passed on to taxpayers. And for a fee they can sell that risk to investors, who would like to get a taxpayer guaranteed revenue stream. You all may remember Fannie and Freddie. So far the only portion of that money that has been used is for the FPL nuclear plant expansion.
So the beneficiaries of nuclear loan guarantees are the power generation facilities, and those who can write the loans.
As for the ratepayers, they get to pay more for electricity.
Another choice for that taxpayer money would be to fund solar panels on homes. Currently that is being done through tax rebates which only benefit only homeowners who have enough income to take the rebate, certainly not the “least among us”. But at least that goes to a greater number of people than the few lenders who will benefit from collecting fees to write US backed loans. The USA could also take that $36billion and finance solar panel loans to homeowners instead. These should be pretty low risk, low interest loans because the revenue stream currently being sent to FPL in the form of electric bills actually exists, so the money to pay back the loans is there. Plus as more and more Floridians generate their own electricity, the need for expensive new nuclear facilities would go away, saving rate increases for all other Floridians.
Best wishes
Steven
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