Markey using Solyndra as scape goat on nuclear loan guarantees
On February 9th, the Nuclear Regulatory Commission approved a Combined Construction and Operating License for two nuclear reactors at the Vogtle facility in Waynesboro, Georgia, the first new reactors in a generation. This is terrific news for the long-awaited revival of a nuclear renaissance in this country. Doubly great: the Department of Energy is finalizing plans to issue the plant an $8.3 billion loan guarantee to support construction. Unless Congressman Markey has his way.
In a letter sent to DOE Secretary Chu, Markey lays out the situation as he sees it: the nuclear loan guarantee to finance Vogtle is more risky than Solyndra, and far larger; before DOE moves forward, they should finalize new policies to reform the loan guarantee program. In other words, they should delay the loan guarantee indefinitely. To Markey, “the Republican push for a loan guarantee for a nuclear reactor project exponentially riskier than Solyndra proves that their interests are not in financial stewardship but in political game playing.”
Leaving aside Congressman Markey’s penchant for bombastic and overstated rhetoric, he is dangerously wrong on this point. The DOE loan guarantees for nuclear power have been in the works since the Energy Policy Act of 2005 was signed into law, and are designed to help first-movers in new nuclear construction attract private investment to support the large up-front capital costs needed to build reactors. Undoubtedly, loan guarantees for nuclear plants are large – Markey is right on that point – but the nature of nuclear power generation (and this project in particular) suggests that nuclear loan guarantees are much lower risk than the terrible bet that DOE made on Solyndra.
So what went wrong and Solyndra? Solyndra’s business model depended on two things: the high cost of silicon and the complexity of flat-roof installation. They developed an easy to install, silicon free solar panel. At the same time, market prices for silicon dropped precipitously. Competitors’ products became so much less expensive that it more than compensated for the difference in installation costs. That Solyndra tried to tackle high silicon prices and create easy-to-install panels reflects the brilliance of the free enterprise system. That these bets were bad, that management didn’t take heed soon enough, and that we paid for their mistakes reflects the downside of a federal loan program that liberated the company from the full consequence of perilous financial decisions. Moreover, the Department of Energy stepped in as a venture capitalist on Solyndra, forcing bureaucrats to make investment decisions well outside the core areas of their expertise.
Why isn’t Solyndra a good template for sizing up Vogtle? Well to start, we know that nuclear power has a market. But DOE has also limited risk by supporting a nuclear project that’s poised for success. Vogtle is a major piece of generating infrastructure which will provide abundant, baseload power at low cost, starting as soon as 2016. The facility already has a standing power purchase agreement for two-thirds of the electricity it will generate, and electricity demand is expected to grow steadily in the South Atlantic region in the coming years. All stakeholders have already taken aggressive – at times unprecedented – steps to secure necessary financing. The Georgia Public Service Commission checks in on the process monthly, to ensure the project is built on-schedule and in budget. And when Vogtle is built, it’s built; operating costs for nuclear facilities are extremely low, making them a terrific investment for long-term profitability.
Nuclear loan guarantees won’t support unproven, risky technologies. They’re designed specifically to tackle the first-mover issues associated with attracting huge sums of capital. The nuclear industry has been on pause since Three Mile Island in 1979; investment markets are wary of entering unfamiliar territory. That doesn’t mean the government is on the hook for a technology gamble; it means the government can help this industry solicit the funds needed for a major first-in-a-generation investment.
With an administration that’s gotten very good at saying “no” to major energy projects, the nuclear industry is a bright glimmer of opportunity. Between NRC approval and a DOE nuclear loan guarantee for the Vogtle reactors, and serious federal consideration about the nuclear fuel cycle, we are primed for resurgence in clean, zero-emission power that can fuel an economic recovery. Pro-growth Americans should herald this news.
The only “political game playing” here comes from Markey’s corner. He may be disappointed that even government meddling can’t guarantee a rapid transition to renewable fuels, but his disappointment shouldn’t hold back the promise at Vogtle.