Monday, May 14, 2007

Lessons from America: government offer of nuclear funding spurs controversy–and one new build project
This month’s issue of the Bulletin of the Atomic Scientists lists four major obstacles to the further development of the nuclear power industry. They are (1) the question of where and how to store radioactive waste, (2) the ageing nuclear workforce, (3) low tolerance of risk on the part of prospective nuclear project financiers and utility regulators, and (4) the general psychological baggage the industry carries from the enormous costs of the nuclear construction projects that were in progress when the Three Mile Island and Chernobyl accidents occurred.


Obstacles 3 and 4 essentially boil down to the same thing: reticence among financiers and regulators. This will disappear if and when a new reactor comes on line and starts making money. Therefore, getting a project going is huge.

Nobody in America disagrees with this. This is why the nuclear financing provisions—loan guarantees, construction delay insurance, and power production tax credits—were written into the 2005 Energy Policy Act (EPAct).

However, few are thrilled with the structure of the loans the U.S. federal government agreed to guarantee. Financiers don’t like their second-class status in the event of a default.
As things stand now, the Energy Department would take over a plant if its owners default. Unless the government agrees to guarantee both the debt and equity portions of project finance, the bankers could walk.

So, in light of the obstacles listed in the Bulletin, a single stillborn project could kill the nuclear renaissance.

Enter Constellation Energy. Constellation recently confirmed it would apply for a construction license to build a new reactor at its Calvert Cliffs site in Maryland. Readers of this blog will recall my speculation last August that the EPAct’s financial support, plus Maryland’s intention to join the Regional Greenhouse Gas Initiative (RGGI) and local authorities’ offer of $300 million for Constellation to build the new reactor, could help Constellation decide in favour of the Calvert Cliffs project. It looks like all these things contributed to the crucial decision.

Readers will also note that I have called for some Canadian replication of the U.S. EPAct measures. Nuclear is the best way to add new power to Canadian systems while chopping greenhouse gases on a grand scale. Ontario since 2003 is massive proof of this (see article). If the federal government really wants to fight climate change and air pollution, it has to support nuclear.

If the Canadian government decides to guarantee loans for nuclear projects, it should take heed of the early hiccups down south. And it should also set up a carbon cap-and-trade system. This, plus the local support, is why Constellation has decided to take the plunge.


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