On Friday, we were talking about why the nuclear industry isn’t satisfied with the $18.5 billion in loan guarantees that the Energy Department is opening up for proposals. And that reminded me of a meeting I slipped into on Capitol Hill in mid-May that was organized by the Heritage Foundation, whose nuclear energy expert, Jack Spencer, used to work for Babcock and Wilcox, a maker of nuclear plant equipment. He had invited Michael Metzner, senior vice president and treasurer for Exelon Corporation, and Caren Byrd, executive director of Morgan Stanley's investment banking division, to speak. There were two or three dozen congressional staff members there.
"The economics have never been stronger," Metzner said about the nuclear business, "but they are not strong enough to incentivize what this country needs with respect to nuclear." He noted that a single 1,500 megawatt nuclear plant could cost anywhere from $6 billion to $8 billion and take a decade to build. For many companies, that's half their market capitalization. "No management team is going to bet the company on a single project," Metzner said.
Byrd chimed in, saying that banks are very wary about sinking money into new nuclear plants. During the last wave of nuclear plant construction, she noted, about 100 units were cancelled and she said that investors "have very long memories." Unlike Metzner, she was cautious about putting a price tag on new nuclear plants, saying she had seen numbers ranging from $3,000 a kilowatt hour to $8,000. The upper end of that range would make Metzner's model 1,500 megawatt plant a $12 billion project.
The answer to this problem? The federal government, of course. The federal loan guarantees - which the DOE noted were "backed by the full faith and credit of the United States" - would move all the financing risk from the banks and put it on the federal government. How much that will cost taxpayers depends entirely on how many of the plants end up going bankrupt. (While the loan guarantee number is huge, taxpayers would be on the hook only if projects went bankrupt or were never completed.) As Byrd noted, last time that included 100 units. Will the industry be smarter this time around?
Metzner said that the nuclear industry doesn't expect the federal government to underwrite all of the plants the industry hopes to build.
Only "the first dozen or more." Then, he said, financial markets "will step up" and start lending on their own to build new nuclear plants.
What he didn't mention was that the first dozen nuclear plants would require a minimum of about $75 billion in loan guarantees, and perhaps as much as $150 billion depending on the cost of the plants.
I wish I had a nickel for every person with a great solution to the nation’s energy needs who just needed a few billion dollars of federal support to get going.