Thursday, February 20, 2014

DOE Finalizes Plant Vogtle Loan Guarantee

Here’s the good news:

The nuclear industry applauds the Department of Energy and Southern Company for fulfilling the promise of the clean-energy loan guarantee program enacted by Congress in 2005. The agreement demonstrates the Obama administration’s recognition of the key role nuclear energy must play in a successful clean energy policy. U.S. nuclear energy facilities have proven their ability to provide reliable, affordable electricity while protecting the environment.

Energy Secretary Ernest Moniz announced this yesterday at a luncheon and you may well be thinking that this happened a while ago – even a long while ago. Well, yes and no. Previous Energy Secretary Steven Chu announced the guarantee to Southern Company in 2010. Reuters picks up the story from there:

But record low natural gas prices, tepid growth in electricity demand and the lack of a federal cap on carbon emissions have kept any such revival at bay.

Now only a few new reactors are projected to be built and Vogtle is the only nuclear power plant to receive a federal loan guarantee so far.

Southern's drive for a loan guarantee also got caught up in the political fallout from the high profile 2011 bankruptcy of solar panel maker Solyndra, which had received a federal loan guarantee.

The Obama administration added requirements after Solyndra's collapse that complicated negotiations over Southern's loan deal, which was initially expected to be finalized in 2012.

But you know what? Almost none of this is germane. Southern has motored right ahead with the plant while negotiating loan terms with DOE. The rise of natural gas and collapse of Solyndra did not deter it in the least – and the issues around Solyndra were always more political than actual. If DOE makes a lot of loan guarantees, some are going to fail – and DOE has an exceptionally good track record. The value is in keeping the responsibility for building out essential infrastructure in private hands. Russia or France can splash out for a new nuclear plant or solar array (Solyndra was actually a solar panel company) because the governments will own the plants.

That’s not true here, but we still need these plants because we need the electricity. Loan guarantees make this possible – it makes gigantic projects plausible without government ownership. It’s what you want to happen in a capitalist economy.

NEI President and CEO Marvin Fertel gets into this while congratulating Southern Co.:

Loan guarantees have been in place for years and are a successful vehicle used by the federal government to ensure investment in critical infrastructure projects. In addition to electricity generation, these projects include shipbuilding, transportation infrastructure, exports and affordable housing. The loan guarantee program created in the 2005 Energy Policy Act will act as a catalyst in hastening the construction of low- and non-emitting sources of electricity, such as nuclear power plants.

Some of those kinds of projects fail, too, but most succeed.

And there’s even a bonus in all this: one of the issues raised in 2010 was that the American public would be on the hook if Southern could not finish the two reactors, but that’s no longer even a distant worry. Southern is doing fine and the reactors are on track. If this seemed, oh, let’s say 95 percent certain in 2010, it’s 99.94 percent pure now. Anything can happen, of course, but it didn’t seem a big issue then – except to professional worriers - and it’s a smaller one now.

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Here is Southern Company on the terms of the loan guarantee:

Under the terms of the agreement, total guaranteed borrowings will be the lesser of 70 percent of the company's eligible projected costs or approximately $3.46 billion and will be funded by the Federal Financing Bank. Georgia Power received an initial draw of $1 billion and future draws may occur as often as quarterly. The loan guarantees apply to borrowings related to the construction of Vogtle units 3 and 4, and any guaranteed borrowings will be full recourse to Georgia Power and secured by a first priority lien on the company's 45.7 percent ownership interest in the two new units.

Takes a couple of reads, doesn’t it? Moniz visited Plant Vogtle today to announce the loan guarantee to the workers. Click the leak for an account.

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And speaking of Moniz, we can’t let this post past without a few of his comments from the lunch yesterday (our transcription):

“The construction of new nuclear power facilities like this one [at Plant Vogtle]—which will provide carbon-free electricity to well over a million American energy consumers—is not only a major milestone in the Administration’s commitment to jumpstart the U.S. nuclear power industry, it is also an important part of our all-of-the-above approach to American energy as we move toward a low-carbon energy future. The innovative technology used in this project represents a new generation of nuclear power with advanced safety features and demonstrates renewed leadership from the U.S. nuclear energy industry.”

It gets better:

“Investing in clean energy…is an opportunity to lead in global clean energy markets that are forming right now. Tomorrow, maybe I’ll ask those three and a half thousand construction workers [at Vogtle] how they think about the opportunities in this new economy.”

And even better:

“The president—I want to emphasize—did make it clear that he sees nuclear energy as part of America’s low-carbon energy portfolio. And of course, nuclear power already is a major part of our carbon-free portfolio.”

Spectacular.

4 comments:

martin burkle said...

Well this does not seem too clear to me. What I would like to know includes:
1. How much will Southern pay for the loan guarantee?

2. At what rate will the money be browed at?

3. Is the Federal Financing Bank providing a billion dollars or the insurance on a billion dollars?

Joffan said...

Good questions Martin - hopefully we'll get to know the answer to #1 at least, perhaps #2 also.

As for question 3, I think I understand that the answer is that the DoE provides the loan guarantee (for the fee #1), and the Federal Financing Bank provides the loan (at the interest rate #2). So, one part of the federal government guaranteeing a loan made by another part.

My preference would have been to simply offer discounted-interest loans directly. No doubt there is some reasoning or restriction on the FFB that prevented such a straightforward option.

I did look at the loan guarantee act some years ago and - as I recall - there is a restriction on the choice of lender (to the FFB) for loans guarantees covering more than 80% of the project value.

Joseph said...

"Loan guarantees make this possible – it makes gigantic projects plausible without government ownership."

Chip fabs don't exist? Movies don't exist? I won't more than mention that loan guarantees might increase costs. They're more a matter of letting politicians grab credit.

Loan guarantees might be needed as regulation insurance but not for other reasons. Besides, I suspect smaller reactors might make more sense.

OmegaPaladin said...

Loan guarantees make sense in the nuclear sector because of the powerful regulatory barriers to nuclear plant construction, and the fact that a plant can delayed indefinitely by some activists raising hell.

Solyndra was the result of blatant political pressure to avoid vetting the company, and it did not face government-imposed hurdles.