Key Issues
Policies That Support New Nuclear Power Plant Development
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Loan Guarantee Program
To support financing of new nuclear plants, the most useful federal incentive is the loan guarantee program established by Title XVII of the Energy Policy Act of 2005.
Title XVII allows DOE to grant federal loan guarantees to projects that avoid, reduce or sequester greenhouse gas emissions by employing a new or significantly improved technology. It is intended to encourage construction of projects that have difficulty securing financing on reasonable terms because they use technology not yet common to the market place.
New nuclear power plants qualify for the loan guarantee program, as do renewable generation facilities, clean coal plants, and other energy-related projects.
A federal loan guarantee allows companies to use project finance structures to finance nuclear projects non-recourse to the project sponsor's balance sheet. This helps overcome the major financing challenge discussed earlier—the cost of these projects relative to the size and financing capability of the companies that will build them.
The loan guarantee also allows a more highly leveraged capital structure (the statute specifies that guaranteed project debt cannot exceed 80 percent of total project cost). This results in a lower weighted average cost of capital and a lower cost of electricity for consumers.
Loan guarantees can help finance projects in both regulated and deregulated markets.
The loan guarantee program is self-funded through loan guarantee fees charged to participants. A well-managed loan guarantee program will cost the taxpayers nothing, but will create significant value by increasing the country's energy supply and reducing emissions.
Final regulations for the loan guarantee program were published by DOE in October 2007. In July 2009, DOE proposed a change to those rules, which would improve the regulations significantly; that rule change will likely be promulgated by the end of the year. The rule change would allow DOE to share collateral with other lenders, thus making it possible for partnerships and export credit agencies to participate as co-lenders in projects.
Congress has authorized $51 billion in loan volume for the loan guarantee program: $18.5 billion for nuclear power projects, $2 billion for uranium enrichment projects, and the balance for advanced coal, renewable energy and energy-efficiency projects. Through the American Recovery and Reinvestment Act, enacted in February 2009, renewable energy and transmission projects received an additional $40-60 billion in loan volume.
The Department is now reviewing loan guarantee applications from a number of nuclear projects. Four projects have been selected for detailed due diligence and term sheet negotiations. The $18.5 billion in loan volume will provide financing support for, at best, two or three projects (the four projects requested loan volume of $38 billion). Additional loan volume is clearly necessary to support the four to eight nuclear plants expected in the first wave of new construction.
Production Tax Credits
The production tax credit (PTC) for new nuclear generation (section 1306 of the Energy Policy Act of 2005) allows 6,000 megawatts of new nuclear capacity to earn $18 per megawatt-hour for the first eight years of operation. The maximum tax credit for any one plant is capped at $125 million per year.
In 2005, $18 per megawatt-hour was comparable to the PTC for renewable resources. However, unlike the renewable PTC, which increases annually with inflation, the nuclear PTC does not escalate.
In 2006, the Internal Revenue Service published guidelines for implementing the nuclear PTC program. For a facility to be eligible for credits:
The 6,000 megawatts of available credits will be divided among eligible facilities on a pro rata basis according to the facilities' nameplate capacities.
Although the PTC reduces the cost of the power generated by these new plants once they are up and running, it does little to offset the construction and commissioning risk.
Loan Guarantee Program
To support financing of new nuclear plants, the most useful federal incentive is the loan guarantee program established by Title XVII of the Energy Policy Act of 2005.
Title XVII allows DOE to grant federal loan guarantees to projects that avoid, reduce or sequester greenhouse gas emissions by employing a new or significantly improved technology. It is intended to encourage construction of projects that have difficulty securing financing on reasonable terms because they use technology not yet common to the market place.
New nuclear power plants qualify for the loan guarantee program, as do renewable generation facilities, clean coal plants, and other energy-related projects.
A federal loan guarantee allows companies to use project finance structures to finance nuclear projects non-recourse to the project sponsor's balance sheet. This helps overcome the major financing challenge discussed earlier—the cost of these projects relative to the size and financing capability of the companies that will build them.
The loan guarantee also allows a more highly leveraged capital structure (the statute specifies that guaranteed project debt cannot exceed 80 percent of total project cost). This results in a lower weighted average cost of capital and a lower cost of electricity for consumers.
Loan guarantees can help finance projects in both regulated and deregulated markets.
The loan guarantee program is self-funded through loan guarantee fees charged to participants. A well-managed loan guarantee program will cost the taxpayers nothing, but will create significant value by increasing the country's energy supply and reducing emissions.
Final regulations for the loan guarantee program were published by DOE in October 2007. In July 2009, DOE proposed a change to those rules, which would improve the regulations significantly; that rule change will likely be promulgated by the end of the year. The rule change would allow DOE to share collateral with other lenders, thus making it possible for partnerships and export credit agencies to participate as co-lenders in projects.
Congress has authorized $51 billion in loan volume for the loan guarantee program: $18.5 billion for nuclear power projects, $2 billion for uranium enrichment projects, and the balance for advanced coal, renewable energy and energy-efficiency projects. Through the American Recovery and Reinvestment Act, enacted in February 2009, renewable energy and transmission projects received an additional $40-60 billion in loan volume.
The Department is now reviewing loan guarantee applications from a number of nuclear projects. Four projects have been selected for detailed due diligence and term sheet negotiations. The $18.5 billion in loan volume will provide financing support for, at best, two or three projects (the four projects requested loan volume of $38 billion). Additional loan volume is clearly necessary to support the four to eight nuclear plants expected in the first wave of new construction.
Production Tax Credits
The production tax credit (PTC) for new nuclear generation (section 1306 of the Energy Policy Act of 2005) allows 6,000 megawatts of new nuclear capacity to earn $18 per megawatt-hour for the first eight years of operation. The maximum tax credit for any one plant is capped at $125 million per year.
In 2005, $18 per megawatt-hour was comparable to the PTC for renewable resources. However, unlike the renewable PTC, which increases annually with inflation, the nuclear PTC does not escalate.
In 2006, the Internal Revenue Service published guidelines for implementing the nuclear PTC program. For a facility to be eligible for credits:
- The construction and operating license application must be submitted to the U.S. Nuclear Regulatory Commission by Dec. 31, 2008.
- The plant must be under construction by January 1, 2014.
- The plant must be operating by January 1, 2021.
The 6,000 megawatts of available credits will be divided among eligible facilities on a pro rata basis according to the facilities' nameplate capacities.
Although the PTC reduces the cost of the power generated by these new plants once they are up and running, it does little to offset the construction and commissioning risk.
