U.S. backs nuclear loans

Guarantee program still needs billions in funds from Congress

Constellation expected to benefit

October 05, 2007|By Paul Adams | Paul Adams,SUN REPORTER

The Energy Department approved giving federal loan guarantees to finance new nuclear plants yesterday, but the industry won't be able to take advantage until Congress approves billions more to fund the program - something that is not expected until at least 2009.

Despite that delay, the decision could help Baltimore's Constellation Energy Group kick-start development of a new reactor it hopes to put adjacent to its Calvert Cliffs nuclear plant in Lusby.

Constellation said the loan guarantees are essential to its plans to build a standardized series of advanced nuclear plants for itself and other utility buyers nationwide. The plants - at least six so far - are among about 30 new reactors proposed industrywide and would be among the first built in the U.S. in more than 30 years.

The Energy Department's decision yesterday clears the way for billions of dollars in loan guarantees for a first wave of projects that include hydrogen fuel cell, biomass, solar and so-called "clean" coal plants.

Congress approved the program in the 2005 energy bill to support environmentally friendly projects that might otherwise be unable to obtain financing from lenders because they are deemed risky.

Constellation said the loan program announced yesterday would help it entice other utilities to buy new reactors from its UniStar Nuclear subsidiary.

"I do believe the loan guarantee rulemaking we're seeing today could prove to be a significant watershed event ... that will bring many more parties out into the open to express interest," said Michael J. Wallace, executive vice president of Constellation Energy.

Under the program, the government would back 100 percent of the amount borrowed, up to 80 percent of a project's total cost. New reactors are expected to cost about $4 billion or more to build.

Constellation and others in the industry had criticized the Energy Department's original proposal to provide loan guarantees for about 72 percent of the amount borrowed. Key members of Congress complained that the 2005 energy bill intended for the Bush administration to support 100 percent of a project's debt, provided energy companies pledged to finance 20 percent with their own funds.

The industry's complaint was backed by five Wall Street investment banks, who said new nuclear plants would be unlikely to win financing without a package of loan guarantees along the lines of what was approved yesterday.

"At last, we now know that the program will proceed in a way consistent with our intent in the Energy Policy Act of 2005," said New Mexico Sen. Pete V. Domenici, the ranking Republican on the Senate Committee on Energy and Natural Resources.

Energy Secretary Samuel W. Bodman told industry officials at a nuclear power conference yesterday that he would seek increases in the 2009 federal budget for loan guarantees - enough to support seven to eight nuclear plants, the Associated Press reported.

"That's a big positive for the industry," said Charles W. Whitney, an Atlanta attorney who specializes in energy issues. "It shows a major commitment by the U.S. government ... in support of all clean technology, including nuclear."

Industry officials say the guarantees are needed because investors are reluctant to finance nuclear projects after the high-profile financial disasters in the late 1970s. One factor was the near meltdown at the Three Mile Island nuclear plant in 1979.

Cost overruns, regulatory delays and public opposition contributed to the cancellation of dozens of proposed reactors, nearly bankrupting some utilities and forcing the industry to write off billions of dollars in losses.

Environmentalists and some consumer advocates oppose providing loan guarantees for nuclear plants on the grounds that it puts money in the hands of deep-pocketed corporations and fails to answer where nuclear waste will be stored. Some argue federal subsidies should be targeted only for new technologies, such as wind and solar, rather than an old technology like nuclear energy.

But proponents see nuclear playing a critical role in efforts to curb greenhouse gas emissions as part of the fight against global warming. Despite the high cost of construction, nuclear plants are also billed as a way to produce large amounts of power and stabilize electricity prices.

"Nuclear energy also is essential to any credible program to prevent or avoid greenhouse gases, and it provides forward price stability in a volatile energy marketplace," said Frank L. "Skip" Bowman, president and chief executive of the Nuclear Energy Institute, in a statement.

Constellation has been laying the groundwork for a nuclear revival for at least two years. The company secured $300 million in tax breaks from Calvert County if it builds a new reactor there at a cost estimated at $4 billion to $5 billion. It recently submitted the first 6,000 pages of its application for an operating license to the Nuclear Regulatory Commission and plans to file the rest later this year. It is hoped that operations could begin by 2015.

The Calvert Cliffs plant would be built by UniStar Nuclear, a joint venture between Constellation and Electricite de France SA, the state-owned energy monopoly.

UniStar is working on applications for five other plants it hopes to build. One will go next to Constellation's Nine Mile Point plant near Oswego, N.Y. The four others will be built in Texas, Pennsylvania, Idaho and Missouri.

paul.adams@baltsun.com

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