Budget watchdogs see folly in US loan guarantees for nuclear power

President Obama's plans to jump-start expansion of a stagnant nuclear power industry is likely to encounter some resistance – and the most formidable foe may well be Wall Street and cost-conscious fiscal watchdogs rather than environmentalists worried about storing radioactive waste.

For the dollars-and-cents crowd, the big issue is a simple one: Who will pay?

Their evaluation of Mr. Obama's move, announced Tuesday, to back the construction of two nuclear reactors with $8.3 billion in federal loan guarantees is one of caution and skepticism. The same holds for his proposal to expand the budget for loan guarantees for nuclear power from $18.5 billion to more than $54 billion in fiscal year 2011.

"Our opposition is not based on the type of power being planned," says Andrew Moylan, director of government affairs at the National Taxpayers Union, a federal spending watchdog. "It really is the fact that these guarantees could mean taxpayers losing big chunks of money, putting taxpayers on the hook for potentially very risky projects."

Even free-market advocates who favor nuclear power were adamant that Obama's proposed expansion of loan guarantees for nuclear power is a questionable move.

"We are missing a historic opportunity to expand nuclear power the right way [through private financing] and instead settling for a handful of government-subsidized reactors," says Jack Spencer, a research fellow for nuclear energy policy at the conservative Heritage Foundation. Expanding the federal loan guarantee program for nuclear power is "one of the most detrimental subsidies that could be offered."

A troubled history

In 1974, President Richard Nixon announced Project Independence – a plan to build 1,000 nuclear stations. Of the 253 reactors eventually ordered by the US utility industry, 71 were canceled before construction began, according to a tally by the antinuclear group Beyond Nuclear. Of the remaining 182 projects to receive construction permits from government commissions, 50 were abandoned during construction, with billions of dollars in investment lost. Another 28 were shuttered before their 40-year licenses expired, Beyond Nuclear reported.

Obama said, in announcing the loan guarantees, that "investing in nuclear energy remains a necessary step." Indeed, Wall Street investment banks are skittish of nuclear power projects and have expressed little interested in financing them – unless backed by the full faith and credit of Uncle Sam.

But some say the nuclear industry has had plenty of government support already.

Doug Koplow, president of the Boston energy consulting company Earth Track, says his analysis shows $178 billion in public subsidies for nuclear energy from 1947 to 1999.

Against that backdrop, the Government Accountability Office in 2008 reported that the average risk of default on Department of Energy loan guarantees for all energy projects (including nuclear and other power projects) was about 50 percent. More pointedly, the Congressional Budget Office in 2003 said the default risk for new nuclear reactors would be "very high – well above 50 percent."

Even during the heart of the credit boom in 2007, Wall Street's seven biggest investment banks informed the US Department of Energy in a letter that –contrary to the government's expectations – they would require 100 percent federal loan guarantees for any funds they might loan to build new nuclear power plants.

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