WASHINGTON, D.C.—The clean-energy loan guarantee program authorized by Congress five years ago has made progress but still faces significant challenges that must be overcome if the initiative is to make a meaningful impact on the energy and environmental issues confronting the United States, a nuclear energy industry leader told a Senate panel today.
“The scale of the energy and environmental challenges facing our nation—large-scale development of clean energy technologies, modernizing the U.S. electric power supply and delivery system, and reducing carbon emissions—requires a broader financing platform” than the program envisioned by the Energy Policy Act of 2005, said Marvin Fertel, president and chief executive officer of the Nuclear Energy Institute.
Testifying during a Senate Energy and Natural Resources Committee hearing on the federal loan guarantee program, Fertel said the industry is encouraged by the conditional loan guarantee commitments made earlier this year by the Department of Energy for the construction of two advanced reactors in Georgia and a uranium enrichment facility planned for Idaho.
“These projects, and many more like them, are essential if our nation is to meet our goals for clean energy and job creation,” Fertel said.
He noted the Obama administration’s willingness to address major challenges related to the program’s implementation, including its request to increase the loan guarantee volume in the fiscal year 2011 budget to $54.5 billion, a $36 billion increase. Preliminary budget votes in the House and Senate fall short of the request by at least $11 billion.
The lack of certainty over loan guarantee volume, and the magnitude of loan volume for multibillion-dollar projects that serve the national interest, are continuing hindrances to an effective clean-energy program, Fertel said.
“The success of the loan guarantee program, both for nuclear energy and renewable energy, has been hampered by uncertainty over loan volume,” Fertel said. “Project developers must have a clear line of sight that financing will be available if we expect them to continue spending millions of dollars—or, in the case of new nuclear power and fuel facilities, billions of dollars—necessary to maintain project schedules,” he said.
“An effective, long-term financing platform is necessary to ensure development of clean-energy technologies in the numbers required, and to accelerate the flow of private capital to clean technology deployment. For this reason, NEI continues to support creation of a Clean Energy Deployment Administration, as envisioned by S.1462, the American Clean Energy Leadership Act, which was approved by this committee in 2009,” Fertel said.
A significant financing obstacle is the way that the executive branch has calculated the fee that sponsors of nuclear energy projects must pay the government to cover the cost of the loan guarantee. This fee could total hundreds of millions of dollars, based on the percentage set by the Energy Department as part of a project-specific loan guarantee agreement.
“We believe the methodology used by the executive branch inflates the credit subsidy cost well beyond the level required to compensate the federal government for the risk taken in providing the loan guarantee. At least one nuclear power project was quoted a credit subsidy cost so high as to be unworkable,” Fertel said.
“The current approach is not consistent with requirements of the Federal Credit Reform Act in that it relies on standard assumptions applied to all technologies. Consistent with that law, NEI believes that the most accurate and equitable process for calculating credit subsidy costs is a detailed, project-specific assessment. Absent project-specific data, the calculation cannot produce accurate results, and will not serve the loan guarantee program’s objectives. If current practices continue, the executive branch will continue to produce inflated credit subsidy costs and, in effect, limit the expansion of low-carbon nuclear energy.”
Nuclear energy provides more than 70 percent of the electricity that comes from carbon-free sources, even though it constitutes only 10 percent of the nation’s installed electric-generating capacity. Independent analyses of climate change legislation have forecast the need for construction of scores of new nuclear power plants over the next 40 years to help achieve the legislation’s greenhouse gas emissions-reduction goals.
New nuclear plants will take approximately five years to build. Georgia Power’s Vogtle 3 and 4 reactors now being developed will produce about 3,500 jobs during construction and an additional 800 permanent jobs once the reactors begin operation.
For Fertel’s testimony, visit http://www.nei.org/publicpolicy/congressionaltestimony/september-23-2010/.