Key Issues
Financing New Nuclear Power Plants
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Loan Guarantees Are Important in Regulated, Unregulated Markets
Loan guarantees are important to new nuclear plant financing for both unregulated and regulated companies. Unregulated generating companies will be hard-pressed to build nuclear power plants and other large capital-intensive baseload projects except on a project finance basis with the debt financing secured by the federal government. Unregulated companies may not have the capacity to finance these projects on their balance sheets.
Many regulated electric companies, especially those pursuing multiple generating and transmission projects at the same time, may be limited in their ability to finance projects without project finance capability because of substantial pressure on credit quality and debt ratings.
The federal government uses loan guarantees widely and successfully to ensure investment in critical infrastructure, including shipbuilding, transportation infrastructure, exports of U.S. goods and services, affordable housing, and many other purposes. The government manages a successful loan guarantee portfolio of $1.1 trillion.
The energy loan guarantee program is not a subsidy. Unlike other federal loan guarantee programs, project developers are required to pay the cost of the loan guarantee, as well as the full cost of administering the program. The program addresses market imperfections that otherwise would restrict access to capital or impose inordinately high financing costs on projects. The Office of Management and Budget noted that federal credit programs, such as the energy loan guarantee program, “effectively fill the gaps created by market imperfections.”
The Department of Energy finalized the loan guarantee program in October 2007. According to the final rule, a guarantee may cover 100 percent of the project debt, provided the debt does not exceed 80 percent of the project’s cost. In December 2007, Congress authorized DOE to grant $18.5 billion worth of loan guarantees to new nuclear projects.
Now that the rules and authorization are in place, the industry expects solicitations from DOE for nuclear projects in 2008. At that time, companies will submit applications and begin to negotiate terms and conditions of the guarantee.
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Loan Guarantees Are Important in Regulated, Unregulated Markets
Loan guarantees are important to new nuclear plant financing for both unregulated and regulated companies. Unregulated generating companies will be hard-pressed to build nuclear power plants and other large capital-intensive baseload projects except on a project finance basis with the debt financing secured by the federal government. Unregulated companies may not have the capacity to finance these projects on their balance sheets.
Many regulated electric companies, especially those pursuing multiple generating and transmission projects at the same time, may be limited in their ability to finance projects without project finance capability because of substantial pressure on credit quality and debt ratings.
The federal government uses loan guarantees widely and successfully to ensure investment in critical infrastructure, including shipbuilding, transportation infrastructure, exports of U.S. goods and services, affordable housing, and many other purposes. The government manages a successful loan guarantee portfolio of $1.1 trillion.
The energy loan guarantee program is not a subsidy. Unlike other federal loan guarantee programs, project developers are required to pay the cost of the loan guarantee, as well as the full cost of administering the program. The program addresses market imperfections that otherwise would restrict access to capital or impose inordinately high financing costs on projects. The Office of Management and Budget noted that federal credit programs, such as the energy loan guarantee program, “effectively fill the gaps created by market imperfections.”
The Department of Energy finalized the loan guarantee program in October 2007. According to the final rule, a guarantee may cover 100 percent of the project debt, provided the debt does not exceed 80 percent of the project’s cost. In December 2007, Congress authorized DOE to grant $18.5 billion worth of loan guarantees to new nuclear projects.
Now that the rules and authorization are in place, the industry expects solicitations from DOE for nuclear projects in 2008. At that time, companies will submit applications and begin to negotiate terms and conditions of the guarantee.
Pages 1 2 3