Dominion Virginia Power has submitted an application to the U.S. Department of Energy for a loan guarantee to help finance construction of a third nuclear reactor at the North Anna Power Station. The DOE loan guarantee program was established by the U.S. Energy Policy Act of 2005 to assist companies pursuing the licensing of new nuclear units to finance the first wave of new commercial reactors in the United States.
If a loan applicant’s project is selected under this program, the federal government could guarantee all of the project’s debt so long as it does not represent more than 80 percent of the project’s qualified construction costs. Congress has appropriated $18.5 billion to support the nuclear loan guarantee program.
“Today’s filing is another important step in the process we began more than seven years ago to position ourselves to be among the first to get a license for a new nuclear unit,” said Mark F. McGettrick, CEO of Dominion Generation.
Dominion is on track to become the first power company in three decades to construct a nuclear power generator in the United States. It would utilize novel technology known as Economic Simplified Boiling Water Reactor, developed by GE-Hitachi Nuclear Energy. Dominion anticipates that the project will incur $500 million on regulatory, engineering and design costs before construction even begins. That up-front cost will be split between Dominion, GE-Hitachi and the Department of Energy. Total project costs will run into the billions of dollars. (Cross-posted from R’Biz.)
Bacon’s bottom line: Once again, we have an example of how embroiled government is in the energy economy. Dominion’s nuke will benefit from at least two government programs: (1) support for the up-front engineering/design costs, and (2) loan guarantees that will lower the cost of capital. No wonder environmentalists feel justified in demanding comparable tax breaks for their preferred energy sources, such as wind, solar and biomass.
I fully support nuclear power — as long as it incorporates the full environmental costs of its technology and meets a market test for economic efficiency.
The problem is that there are so many subsidies, loan guarantees, tax breaks and the like that investments in energy resources are determined as much by government incentives as by underlying economics. Instead of investing in new technology, many businesses will invest in rent seeking (lobbying, campaign contributions, Boone Pickens-style advertising campaigns). It is frightening to contemplate how many tens of billions of dollars the United States will squander on ill-considered schemes like the now-discredited ethanol subsidies.
And we think OPEC and/or the oil companies are the enemy?