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DOE Loan Guarantee Program Needs Work, Morgan Stanley Executive Tells Nuclear Industry

MIAMI—Regulations recently proposed by the U.S. Department of Energy to implement the clean-energy loan guarantee program authorized by the Energy Policy Act of 2005 still need “a lot of work” to attract investment for capital-intensive projects like new nuclear power plants, a leading financial expert said here today.

While voicing optimism that the program can be made to work, Morgan Stanley Vice Chairman Jeffrey Holzschuh warned that investors will not accept the risks associated with the financing of multi-billion-dollar power plants unless deficiencies in the proposed regulations are corrected.

“No one is going to take the long-term risk without some (government) intervention,” he said. “It is not a constraint in the amount of investment capital available. The constraint is in structuring it properly.”

Speaking at the Nuclear Energy Institute’s annual conference here, Holzschuh said the loan guarantee program authorized by Title XVII of the Energy Policy Act is “critical” to the financing of capital-intensive projects. “The economics of all of this rely on 80 percent debt” with a 20 percent equity investment by the company borrowing the money to build new power plants.

DOE earlier this month issued a notice of proposed rulemaking for the loan guarantee program that Congress authorized to encourage investment in clean-energy technologies that do not emit greenhouse gases and other pollutants into the atmosphere.

Nuclear energy provides more than 70 percent of the electricity in the United States that comes from emission-free sources, including renewable technologies and hydroelectric power plants.

Holzschuh estimated that about $3.5 billion per year will be needed for the next 15 years to finance the construction of the new nuclear power plants that are planned. Given that U.S. power and utility capital accumulation averaged about $80 billion per year over the past five years, the amount of investment capital needed to bankroll new plant construction relative to the amount of money historically available “is quite a small number. We have very large and deep capital markets and private capital around the world.”

Describing the investment community’s view of new plant financing, “We’re ready and willing,” Holzschuh said.

Lawrence Makovich, managing director of Cambridge Energy Research Associates, gave conferee attendees an overview of the enormous infrastructure needs in the nation’s electricity sector. Overall, the electricity industry needs $900 billion of investment over the next 15 years, he said, with $350 billion needed for new electric generating capacity.

“We are on the front end of an enormous wave of investment,” Makovich said.

U.S. electricity demand is estimated to increase 40 percent by 2030.


The Nuclear Energy Institute is the nuclear energy industry’s policy organization. This news release and additional information about nuclear energy are available on NEI’s web site at