WASHINGTON, D.C.—The federal clean-energy loan guarantee program created in the Energy Policy Act of 2005 should be expanded significantly to provide an adequate foundation for the investment in new electric generating capacity that is vital to the nation’s future, a nuclear energy industry leader said in comments submitted today to the Senate Energy and Natural Resources Committee.
“The United States is facing its most severe economic challenges in more than a generation, with the federal government taking the primary role as a catalyst in leading us back on the path to prosperity,” said Marvin Fertel, the Nuclear Energy Institute’s president and chief executive officer. “One of the keys to economic recovery is a plentiful supply of electricity, and it is a national imperative for the federal government to facilitate the flow of adequate financing support for deployment of clean-energy technologies.”
Fertel submitted his comments to coincide with today’s committee hearing on the program that was authorized in Title XVII of the 2005 energy bill to provide loan guarantees for up to 80 percent of the cost of “innovative technologies” that “avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases.”
Nuclear power plants operating in 31 states provide nearly 75 percent of the nation’s carbon-free electricity generation. Over the past 18 months, energy companies have submitted license applications to the U.S. Nuclear Regulatory Commission for as many as 26 possible new reactors that would be built over the next 10 to 20 years. Many of these companies have applied to the U.S. Department of Energy for loan guarantees to facilitate debt financing that would lower the overall cost of the projects and, thus, lower the price of electricity generated by these new baseload power plants.
Loan guarantees are a powerful tool for mobilizing private capital, Fertel said. He noted that the federal government has a long history of ensuring necessary investment in critical national needs such as shipbuilding and transportation infrastructure. The government today manages a loan guarantee portfolio of more than $1 trillion.
Large new nuclear power plants capable of supplying electricity to approximately 650,000 households are expected to cost in the $6 billion to $8 billion range. The financing challenges of the U.S. electric power sector are significant as it is made up of relatively small companies that do not have the market capitalization or financial strength to easily fund these sizable investments, Fertel said.
“Loan guarantees offset the disparity in scale between project size and company size and allow for these companies to build new plants in a responsible manner that can include financing from export credit agencies in other countries like France and Japan,” Fertel said.
The Title XVII loan guarantee program is structured to be self-financing and does not represent a subsidy. Companies receiving loan guarantees pay all costs, including administrative, to the government for providing the guarantee.
Raising the volume of loan guarantees is especially critical as the initial funding of $18.5 billion for new nuclear plants is “clearly inadequate,” Fertel said. The initial round of applications resulted in requests for $122 billion in loan guarantees. Loan guarantee applications for other technologies such as innovative coal projects also were more than double than the amount budgeted.
As DOE’s loan guarantee program has taken shape, structural impediments and restrictive interpretations of statutory language are proving to be obstacles, particularly in co-financing nuclear plant projects, Fertel said.
Despite progress made within DOE over the past year, “implementation of the program by the Executive Branch continues to be difficult, for reasons outside the control of the Loan Guarantee Program Office,” he said.
Suggestions of establishing separate independent institutions within DOE should be seriously considered to maximize the benefits of the loan guarantee program, Fertel said.
“The loan guarantee program is as essential today as it was in 2005, and we believe that the U.S. energy and environmental challenges justify a significant expansion of the program.”