Just as Americans are being asked to back the biggest bailout in U.S. history, Senator McCain’s would again put the American taxpayer on the hook for yet another corporate giveaway.
Senator McCain wants to build 100 more nuclear reactors in the U.S., 45 by 2030.
But there’s an important detail that the Senator and his campaign fail to mention. The economics of nuclear power are so abysmal that many nuclear CEO’s will not construct reactors unless the American taxpayer guarantees they won’t lose money.
But the good senator and his campaign should know better. Senator McCain has been around long enough to actually remember the implosion of the nuclear industry. If his recollection has failed, his economic advisor Douglas Holtz-Eakin could refresh his memory. When the notion that the American taxpayer should guarantee loans to nuclear corporations was introduced in the Senate, the non-partisan Congressional Budget Office (CBO) then headed by Senator McCain’s economic advisor Holtz-Eakin found that:
CBO considers the risk of default on such a loan guarantee to be very high—well above 50 percent. The key factor accounting for this risk is that we expect that the plant would be uneconomic to operate because of its high construction costs, relative to other electricity generation sources. (http://www.cbo.gov/ftpdocs/42xx/doc4206/s14.pdf)
Senator McCain’s support for nuclear loan guarantees can not be justified by the nuclear industry’s past performance. According to the Department of Energy, the first 75 reactors built in the U.S. experienced cost overruns totaling over $100 billion and that was before the meltdown at Three Mile Island sent the nuclear industry even further into a tailspin.
U.S. Nuclear Power Plant Construction Cost Overruns
Estimated Overnight Costs
Actual Overnight Costs
(Joskow, Massachusetts Institute of Technology, The Economics of Investment in New Nuclear Power Plants in the U.S, EIA Midterm Energy Outlook Conference, April 12, 2005. Note: Figures are in 2002$/kWe )
It was this economic track record that doomed nuclear power in the U.S. and led Forbes magazine to declare that the "failure of the U.S. nuclear power program ranks as the largest managerial disaster in business history, a disaster of monumental scale." Really, who in their right mind would guarantee loans to an industry with this track record? Obviously, not Wall Street!
Last July, six major U.S. Banking institutions (some of which have been bought or are now bankrupt) including Citigroup, Credit Suisse, Lehman Brothers, Goldman Sachs, Merrill Lynch & Morgan Stanley sent a letter to the Department of Energy (DOE). The bankers told DOE that unless the U.S. Taxpayer backed 100% of the debt incurred by nuclear corporations that they would have difficulty “accessing capital markets.”
We believe many new nuclear construction projects will have difficulty accessing the capital markets during construction and initial operation without the support of a federal government loan guarantee. Lenders and investors in the fixed income markets will be acutely concerned about a number of political, regulatory and litigation-related risks that are unique to nuclear power, including the possibility of delays in commercial operation of a completed plant or “another Shoreham”. We believe these risks, combined with the higher capital costs and longer construction schedules of nuclear plants as compared to other generation facilities, will make lenders unwilling at present to extend long-term credit to such projects in a form that would be commercially viable. (http://www.lgprogram.energy.gov/nopr-comments/comment29.pdf)
The U.S. General Accounting Office (GAO) has also weighed in on these loan guarantees to the nuclear industry. The GAO recently found that the Bush Administration’s DOE does not have the oversight in place to adequately manage the loan guarantee program. But rather than address the inadequacies identified by the GAO, the Bush administration has accelerated the loan guarantee program. http://www.gao.gov/new.items/d08750.pdf
Senator McCain has already been warned by the CBO, the GAO and Wall Street that building new nuclear power plants is an economic meltdown waiting to happen. Even a subsidiary of Warren Buffet’s corporation Berkshire Hathaway has rejected a new nuclear reactor as economically unsound.
Before Americans go to the polls in November, they should know that Senator McCain has abandoned his straight talk when it comes to nuclear power. The Senator needs to explain why the American taxpayer should be put on the hook for new nuclear plants that the industry would never build if they and their stockholders had to bear the risk.
(This is guest post by Jim Riccio, nuclear policy analyst for Greenpeace USA)