Something over a year ago, the US government announced that four companies out of 17 that had applied for over a hundred billion dollars worth of federal loan guarantees for 21 proposed nuclear reactors had made what the Wall Street Journal called its “short list.” At the time, Carl from Chicago, who occasionally writes for ChicagoBoyz, penned an article expressing his “confusion” at the choices. Several seemingly logical candidates had been passed over, and, of the four picked, three were underfunded and had an assortment of legal and financial issues that made them dubious choices for coming up with the kind of capital needed to fund new construction. As it turns out, the feds should have listened to Carl. NRG, one of the two companies he picked as “least likely to succeed,” effectively dropped out of the game some time ago. Now, as he puts it, “the other shoe has dropped.” The other weak sister, Constellation Energy Group, just announced it is pulling out of negotiations to build the build the Calvert Cliffs 3 reactor in Maryland.
Separately, administration officials said they had approved a $1.06 billion loan guarantee for an Oregon wind farm, the world’s largest, after project developers waged a vigorous lobbying campaign to bring the year-long application process to a conclusion.
Rod notes the gross disparity in the terms and conditions of loans offered to the two industries:
Just in case anyone wonders why the wind farm project accepted its loan guarantee while Constellation refused, the key is in understanding the terms and conditions.
For a project that would have produced 4,000 jobs for 4-5 years in Maryland, the companies involved were being told that they had to PAY the US government a non refundable fee of $880 MILLION dollars in order to BORROW $7.5 billion for a project where they would have to invest at least 20% of the project cost as their own equity, thus giving them at least $2.0 billion in reasons to make sure the project succeeded.
In contrast, the wind farm, which will produce 400 jobs for a relatively short period during construction, was able to obtain a $1.06 billion dollar loan with NO CREDIT SUBSIDY COST at all. The ARRA has provided all of the money required for the credit subsidy cost for politically defined “renewable” energy via a change in section 1705 of the Energy Policy Act. In addition, section 1603 of the ARRA provides a CASH GRANT in lieu of a production tax credit of 30% of the cost of the project via a check within 6 months after the project closes. The wind project thus gets a $1.06 billion loan with no closing cost and the sponsors have no equity in the project at all since they get their 20% down payment back with a 50% kicker less than a year after the project starts.
In a word, hype about a “nuclear renaissance” can be taken with a grain of salt, at least until the government gets its act together. Meanwhile, the coal industry has reason to cheer. New coal gasification plants are being built in the US even as we speak. Among other things, they produce hydrogen, a long shot candidate as a non-polluting vehicle fuel to replace petroleum. Ideas for getting the stuff out of coal without releasing tons of CO2 in the process remain sketchy. Even more intriguingly, a firm is seriously looking into the possibility of building a coal liquefaction plant in Indiana. Whether they decide the new plant is financially feasible or not, the fact that such a project has made it this far along in the planning process demonstrates how close coal has come to becoming a viable replacement for petroleum. Given that the United States has over a quarter of the proved coal reserves in the entire world, and that those reserves are more than twice the size in terms of energy as the world’s remaining oil, that is a fact of no small significance.