Energy subsidies—of any kind—are bad business
Oct 25, 2010, Vol. 16, No. 06 • By AMORY B. LOVINS
The Georgia project’s loan-guarantee default fee is much lower than the Maryland plant’s, partly because the Georgia developers have already shifted more of their remaining risks to ratepayers. Their project is 54 percent owned by municipal utilities and rural co-ops with access to cheaper financing than private utilities, including subsidized stimulus bonds. Some of these munis and co-ops signed 50-year contracts with the nuclear operators that would put them and their customers on the hook even for power not needed or wanted. In 1982-83, the analo-gously financed five-reactor WPPSS (“Whoops”) project in the Northwest defaulted on municipal bonds, vaporizing $3-$4 billion in today’s dollars.
Moreover, a few southeastern states now make utility customers finance new reactors in advance—often whatever they cost, whether they ever run, no questions asked, plus a return to the utilities for risks that they no longer bear. This scraps all five bedrock principles of utility regulation: payment only for service delivered and only for used and useful assets; accountability for cost and prudence; return matching risk; and no commission able to bind its successors. Such laws re-create for nuclear power the same moral hazard that just shredded America’s financial sector.
With such juicy incentives, why won’t private investors finance reactors? In 2005-08, with the strongest subsidies, capital markets, and nuclear politics in history, why couldn’t 34 proposed reactors raise any private capital? Because there’s no business case. As a recent study by Citibank U.K. is titled “New Nuclear—the Economics Say No.” That’s why central planners bought all 61 reactors now under construction worldwide. None were free-market transactions. Subsidies can’t reverse bleak fundamentals. A defibrillated corpse will jump but won’t revive.
American taxpayers already reimburse nuclear power developers for legal and regulatory delays. A unique law caps liability for accidents at a present value only one-third that of BP’s $20 billion trust fund for oil-spill costs; any bigger damages fall on citizens. Yet the competitive risks facing new reactors are uninsured, high, and escalating.
Since 2000, as nuclear power’s cost projections have more than tripled, its share of global electricity generation has fallen from 17 percent to 13 percent. That of cogeneration (making electricity together with useful heat in factories or buildings) and renewables (excluding big hydropower projects) rose from 13 percent to 18 percent.
These bite-sized, modular, quickly built projects—with financial risks, costs, and subsidies generally below nuclear’s and declining—now dominate global power investments. Last year, renewables (wind, water, solar, geothermal), excluding large hydroelectric dams, attracted $131 billion of private capital and added 52 billion watts. Global nuclear output fell for the past three years, capacity for two.
This market shift helps protect the climate. Renewables, cogeneration, and efficiency can displace 2 to 20 times more carbon per dollar, 20 to 40 times faster, than new nuclear power—saving trillions of dollars over decades and avoiding vast financial risks.
Still uncompetitive despite 60 years of handouts, nuclear developers clamor for ever greater subsidies. The White House, Senate, and House all propose expanded federal loan guarantees ($36 billion was the White House figure); developers demand at least $100 billion. The Clean Energy Deployment Administration endorsed by both houses of Congress could issue unlimited loan guarantees without congressional oversight. It would probably fund nuclear and renewable energy like the recipe for elephant-and-rabbit stew—one elephant, one rabbit.
Bureaucrats, not credit markets, would evaluate risks and pick winners. Taxpayers would become America’s main energy financiers and almost exclusive nuclear risk-takers. America’s once market-based electricity investments would work like China’s, Russia’s, and France’s nuclear command economies. This is bipartisan folly.
As nuclear subsidies spiral toward fiscal ruin, brave voices protest from a handful of think tanks: the Heritage Foundation, the Cato Institute, the George C. Marshall Institute, the American Enterprise Institute, the Competitive Enterprise Institute, the National Taxpayers Union, Taxpayers for Common Sense. Yet most congressional budget hawks—supposedly sages of circum-spection and defenders of free markets—urge more nuclear socialism.
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