Wednesday, September 28, 2011


What it May Mean for Nuclear Loan Guarantees

In the immediate aftermath of the Solyndra bankruptcy, I had the sense that nuclear proponents saw the disaster in the solar industry as a vindication of the nuclear industry.

Not so fast! The fact that one solar project tanked is not going to convince die-hard fans of renewables that anything is wrong with renewable projects, and it is certainly not going to cause a rush to the nuclear side. There will be reasons cited by solar proponents (there already are) why this is an exception, one small blip in an otherwise sterling record.

And maybe it is an exception. I actually hope it is, because the other possible trend I see emerging from this meltdown is that is will give a black eye to all loan guarantees. Particularly in the current budget environment, where everyone is looking for easy places to cut, it will be very tempting to put loan guarantees on the budgetary chopping block. If a nice, safe solar project went bust, some may say, a big, complex nuclear project may be even more risky.

I am already seeing some possible fallout from the Solyndra failure. Although Sen. Lisa Murkowski is a supporter of loan guarantees (as well as a supporter of both the nuclear and renewable industries), she has reportedly told the renewable industry to expect greatly restricted federal funding. It's not clear just how much of this restriction is a consequence of the bankruptcy and how much is a general consequence of the budget discussions, but I think it will be difficult for Congress to cut loan guarantees for one industry without also cutting others. She is recommending to the renewable energy industry that they and other industry sectors work together to form a broad coalition.

While it is too soon to panic, the nuclear industry should not have its head in the sand either. In fact, the terms of the loan guarantee program for nuclear projects (in the form of large up-front fees) has caused some to reject the option anyway. If the nuclear renaissance is to continue in the United States, it is not too soon to begin to consider other options.



  1. I have wondered (and e-mailed, commented and posted) about this same thing and the one solace the pro-nuclear crowd does have is that when it comes down to a loan for solar vs. a loan for nuclear, there are major utilities that DO want nuclear plants and are willing to invest large amounts of capital, whereas solar is still an answer to a question no one at any utility company is really asking. This means the likelihood of a nuclear loan guarantee actually having to be paid by the government is far, far less. At least that's how I see it.

    Having said all that -- as you've pointed out we DO need to keep our heads above the sand!

  2. When I first heard about Solyndra, this was the first thing that came to my mind too. . . people will say that *all* loan guarantees are a bad idea, putting too much risk on taxpayers.

    I think what proponents of nuclear should focus on, if this comes up in the discussion, is the *differences* between Solyndra and a Nuclear Plant:

    * Solyndra: after building an expensive factory, they have additional, high marginal costs one *each solar panel* they made. Because of these marginal costs, they were losing money on every solar panel they sold. There's no way the Solyndra factory could continue to operate. Once the factory is shut down, the lender (the U.S. government) is left with collateral which has a value close to zero (they can probably sell off the factory as an industrial building, and get some money from the real-estate, but probably only a fraction of the loan balance), because nobody wants to buy the product that factory can make. So, even a new owner trying to make the same thing in that factory can't make money.

    * Nuclear Power Plant: The initial build cost of the nuclear power plant represents almost all of the cost of the nuclear power plant. The "marginal" cost of each unit of electric power is very, very low. The product of a nuclear plant, electricity, has a very stable market with relatively strong demand. The owners might not be able to sell the power at as high a margin as they would like, but they can very probably sell the power at a rate which would at least cover the principal of the loan. The government might risk losing interest on the loan, but the nuclear plant, once built and operational, has an intrinsic value even if the original owner defaults on the loan, and the government has to foreclose on the plant. The government almost surely could find another buyer, or operate the plant itself (e.g. give it to TVA) and recover the remainder of the loan principal.

    Nuclear plants, unless something goes so wrong that the plant must be permanently shutdown (like at TMI, and I don't think we're likely to have a repeat of such a scenario), once built, have a lot of value as collateral. In truth, if the plant is operating, it's unlikely that the owner would ever need to default on the loan, because they are reliable revenue generators.