Share This

Rapid Response: New Report Misrepresents Subsidies for Nuclear Energy, Feb. 23, 2011

A new report, “Nuclear Power: Still Not Viable without Subsidies," from the activist group Union of Concerned Scientists, misrepresents the nature of subsidies for nuclear energy.

The UCS report fails to consider subsidies for other forms of energy. In fact, on a comparative basis with other forms of energy, nuclear power receives relatively little in subsidies and provides significant electric generation in return. The report also considers programs such as loan guarantees as a form of “subsidy” when they actually make money for the government.

Below, we examine some misleading statements from the UCS report and present the facts.
 


 

Myth

“The [nuclear power] industry presents a skewed economic picture of nuclear power’s value compared with other low-carbon power sources.”

The Facts

The UCS report’s claims to catalog “in one place and for the first time the full range of subsidies that benefit the nuclear power sector,” but excludes comparative studies of support for other forms of energy—including low-carbon alternatives.

In fact, nuclear energy has received one of the smallest amounts of federal subsidies over time for any energy source. Over the past decade, the industry has received less federal support than renewables and coal. A recent study analyzed all federal energy expenditures from 1959 to 2006 and found that of the $725 billion that was distributed, 73 percent went to oil, natural gas and coal; 18 percent to hydro and renewable; and 9 percent to nuclear.

This Management Information Services Inc. (MISI) study is the most comprehensive analysis of federal government expenditures for energy development, as it considers six types of assistance: R&D, tax policy, disbursements, regulation, market activity and government services. The MISI study found that, during the period analyzed, renewables received more than twice as much federal assistance as nuclear energy—203 percent more.

 


 

Myth

Loan guarantees are a type of “subsidy” for the nuclear energy industry.

The Facts

Despite being listed as a subsidy in the UCS report, loan guarantees are emphatically not a subsidy and there is no cost to the taxpayer. In fact, loan guarantees have the potential to lower electricity prices for consumers and the industry pays the cost of using the guarantee.

A loan guarantee is a government-backed loan that allows companies to access capital at lower interest rates. This reduces the overall project cost, which means lower electricity prices for consumers. All guaranteed loans must be paid back in full.

Project sponsors of new nuclear energy facilities must pay a fee to the government to participate in the loan guarantee program. There is no cost to taxpayers unless there is a default, which is unlikely because of the stringent financial requirements of the nuclear loan guarantee program. Sponsors of other energy technologies receiving federal loan guarantees do not pay this participation fee; instead it is paid by taxpayers. For example, the fiscal 2012 budget request unveiled earlier this month by the Obama administration seeks $200 million of direct federal spending “for loan guarantee credit subsidy costs [to] support an estimated $1 [billion] to $2 billion in eligible loans for innovative renewable energy systems and efficient end-use energy technology projects,” according to U.S. Department of Energy budget documents.

The loan guarantee program has many features that reduce risk:


  • A disciplined process evaluates and identifies creditworthy projects.
  • Expert outside financial, technical and legal advisers assist the U.S. Department of Energy with due diligence, underwriting, negotiation and monitoring.
  • The creditworthiness of projects is measured by the credit rating of its sponsor, its capital structure, its cash flow, its strength of power purchase agreement and other factors.

Finally, because of the structure of the U.S. energy industry, most energy companies are relatively small. Southern Co., the nation’s largest electric company, has a market value of $32 billion. This pales in comparison to oil companies such as Exxon Mobil and Chevron, which have market values of $440 billion and $206 billion, respectively. Because of electric companies’ small size and the capital investment needed for new nuclear plants, loan guarantees are a prudent low-cost means to help achieve the nation’s energy and environmental goals.

For more information on loan guarantees, see NEI’s Financial Center.