Key Issues
Policies That Support New Nuclear Power Plant Development
<< Previous
Standby Support
Standby support is a type of risk insurance created by section 638 of the Energy Policy Act of 2005. This insurance covers licensing and litigation risk for the first six new nuclear plants. Standby support covers delays caused only by factors outside a company's control.
The standby support program is administered by the Department of Energy. Final regulations for the standby support program were issued by DOE in August 2006.
Each of the first two new nuclear power plants constructed are eligible for up to $500 million of standby support coverage. Each of the subsequent four new plants can receive up to $250 million of coverage.
This coverage can only be applied to debt service (principal and interest).
In addition, the law placed additional limits on the coverage provided plants three through six:
Project sponsors receiving the standby support coverage will pay a premium for the insurance coverage.
Standby support has limited value for companies building new plants. If licensing or litigation delays occur, the project sponsor will incur substantial delay costs in addition to debt service. These include work force costs, replacement power and other items.
Although standby support does provide some financing support, the financial community and the industry look to the loan guarantee program as the primary instrument to protect project sponsors and lenders from unanticipated delays in plant operations.
State Policies
Several states have passed legislation or implemented regulations, or both, to support construction of new nuclear power plants.
These policies range from property tax incentives to pre-determination of rate-making principles for a project before construction begins.
The policies that help most with financing new plants in regulated states are those that:
Some unregulated states assist with financing for unregulated plants by allowing pre-negotiated, long-term power purchase agreements (PPA). PPAs guarantee the project will have a source of cash flow (and cost recovery) once it is operational.
State-level policies send positive signals to the financial community, helping companies finance projects reasonably, and, thereby, keeping the cost of electricity for consumers lower.
Pages 1 2 3 4
Standby Support
Standby support is a type of risk insurance created by section 638 of the Energy Policy Act of 2005. This insurance covers licensing and litigation risk for the first six new nuclear plants. Standby support covers delays caused only by factors outside a company's control.
The standby support program is administered by the Department of Energy. Final regulations for the standby support program were issued by DOE in August 2006.
Each of the first two new nuclear power plants constructed are eligible for up to $500 million of standby support coverage. Each of the subsequent four new plants can receive up to $250 million of coverage.
This coverage can only be applied to debt service (principal and interest).
In addition, the law placed additional limits on the coverage provided plants three through six:
- Delay coverage begins six months into a covered delay.
- The program only covers 50 percent of eligible delay costs.
Project sponsors receiving the standby support coverage will pay a premium for the insurance coverage.
Standby support has limited value for companies building new plants. If licensing or litigation delays occur, the project sponsor will incur substantial delay costs in addition to debt service. These include work force costs, replacement power and other items.
Although standby support does provide some financing support, the financial community and the industry look to the loan guarantee program as the primary instrument to protect project sponsors and lenders from unanticipated delays in plant operations.
State Policies
Several states have passed legislation or implemented regulations, or both, to support construction of new nuclear power plants.
These policies range from property tax incentives to pre-determination of rate-making principles for a project before construction begins.
The policies that help most with financing new plants in regulated states are those that:
- Require the state public utility commission to determine if a proposed plant is prudent before construction begins and approve costs periodically during construction, thereby guaranteeing these capital costs will be added to the rate base when the plant comes online.
- Allow the carrying cost of construction work in progress (CWIP)—or the financing cost associated with construction—to be passed on to ratepayers during construction. Allowing CWIP reduces the cost ratepayers will pay for power from the plant when it goes into commercial operation.
Some unregulated states assist with financing for unregulated plants by allowing pre-negotiated, long-term power purchase agreements (PPA). PPAs guarantee the project will have a source of cash flow (and cost recovery) once it is operational.
State-level policies send positive signals to the financial community, helping companies finance projects reasonably, and, thereby, keeping the cost of electricity for consumers lower.
Pages 1 2 3 4