The economics and financing of new nuclear facilities often is misstated or misunderstood. These facts set the record straight on loan guarantees and much more.
Myth: The bulk of government energy subsidies have gone to nuclear energy.
Fact: An exhaustive study of federal energy incentives spanning the past 60 years has been released by Management Information Services Inc., a D.C.-based economic research firm. It shows that the main beneficiaries of more than $800 billion of federal energy incentives over the past six decades have been the oil and natural gas industries, and that nuclear energy and renewable technologies both have received 9 percent of the total inccentives provided by the federal government since 1950. The Energy Policy Act of 2005 authorized $18.5 billion in loan guarantees each for nuclear and renewable energy projects. The American Recovery and Reinvestment Act of 2009 authorized an additional $60 billion in loan guarantee authority and tax credits for renewable and alternative energy supplies with none for nuclear energy.
Myth: Nuclear loan guarantees are government handouts.
Fact: A loan guarantee provides government backing for a 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, and project sponsors 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. For more information, see Loan Guarantee Fast Facts.
Myth: The expected default rate on nuclear loans is 50 percent or higher.
Fact: The claim of a 50 percent default rate comes from a 2003 Congressional Budget Office (CBO) analysis of a proposed loan program that was not enacted and was much different than the loan guarantee program put in place under the Energy Policy Act of 2005. The CBO recently refuted critics’ use of the 50 percent default characterization, saying it was not applicable to the nuclear loan guarantee program under the Energy Policy Act of 2005. For more information, visit NEI Nuclear Notes.
Myth: A mature industry doesn’t need loan guarantees.
Fact: Because of the structure of the U.S. electric energy industry, most of the more than 1,000 electric companies are relatively small. Southern Co., the nation’s largest electric company, has a market value of approximately $38 billion. This pales in comparison to oil companies such as Exxon Mobil and Chevron, which have market values of $415 billion and $215 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.
Note: Loan guarantees also are being made available to other low-carbon technologies that have received federal support as far back as the 1970s, so they also are “mature.” The notable difference between nuclear energy and those technologies is that the federal investment in nuclear energy has proven worthwhile: Despite constituting only 10 percent of installed electric generating capacity, nuclear energy provides more than 63 percent of the nation’s carbon-free electricity production at among the lowest electricity production costs.
Myth: Nuclear loan guarantees take money away from other energy supplies.
Fact: Seventy-six and a half billion dollars in direct subsidies, tax credits and loan guarantees was made available by the federal government for renewable energy technologies and other alternative energy supplies. This compares to $18.5 billion in loan guarantees available for new nuclear energy facilities. Only a fraction of the funding available for renewable energy has been utilized to date.
Note: The federal government successfully manages a loan guarantee portfolio of $1.2 trillion consisting of 70 loan guarantee programs to ensure investment in critical infrastructure. The federal loan guarantees enable investment in critical national needs, including shipbuilding, transportation infrastructure, exports of U.S. goods and services, affordable housing, and many other purposes.
Myth: Commercial nuclear reactors were designed to operate for 40 years.
Fact: The decision to place a 40-year limit on initial operating licenses of commercial nuclear reactors was based on a judgment of the appropriate period to amortize the large capital investment, not the anticipated design life. In the May 1954 hearings before Congress’s Joint Committee on Atomic Energy, when it was considering amendments to the Atomic Energy Act of 1946, E. H. Dixon, chairman of the Edison Electric Institute’s Committee on Atomic Power, said of a proposed 20-year amortization period, "I think that the period is too short, for one thing. If atomic power is to be competitive with standard orthodox fuels, the need for amortizing facilities over 20 or 25 years puts an undue price burden on that product. These reactors may work 50 years, we don’t know." The fact that the Atomic Energy Act of 1954 permits nuclear plants to renew their operating licenses is additional clear evidence that the potential for plants to stay in operation beyond the initial 40-year licensing period was recognized at the time. The operating lifespan of a nuclear plant is determined by federal regulations and the plant's proven ability to operate safely.