The U.S. nuclear renaissance coming to an end already?

August, 4 2010 - While the United States nuclear industry is continuing on its path to expand, there seems to be a roadblock for some companies. Cost. The capital cost for nuclear power plants is not cheap and this had led to some companies cutting back spending and even looking at canceling planned new nuclear development.

NRG Energy Inc. said it would cut spending on two new reactors planned at the South Texas Project from $7.5 million a month in July to $1.5 million a month. But NRG isn’t alone. Constellation Energy Group announced in late July it would cut spending on the planned Calvert Cliffs III reactor in Maryland. Both are waiting on a decision from the Department of Energy for a federal loan guarantee. Constellation has even stated it could completely shut down operations in Maryland by the end of the year if it hadn’t received a federal guarantee.

“This shows you the difficulty in this market and how important the loan program is to supporting the projects and getting them off the ground,” said Leslie Kass, Nuclear Energy Institute senior director of business policy and programs.

Since the DOE awarded Southern Co. an $8.3 billion loan guarantee in February for the Plant Vogtle project, NRG Energy, Constellation and Scana Corp. have been in competition for the remaining guarantee. DOE only has about $10 billion remaining of guaranteed money, enough for only one project.

“There is a challenge since they only have the funding for one project and it is very difficult to select just one when they are all so good,” said Kass. “And splitting it (the only current remaining loan guarantee) three ways does nobody any good.’

But Southern Co.’s loan was awarded almost six months ago. Why the holdup for the next announcement?

The DOE said that before a conditional commitment can be offered each project is thoroughly reviewed by the DOE’s Loan Program Office from a financial, environmental, legal and feasibility standpoint. While the DOE reviews each project, each company waits.

And those companies are waiting on the conditional commitment, not the money. But Kass thinks that a conditional commitment is enough to give them faith to go forward but “if they don’t have a clear path to financing, which is extremely difficult in a merchant market right now, they simply have to be prudent.”

And the DOE said their first priority is to minimize risk to taxpayers.

But being in a rate regulated market, Scana is different form NRG and Constellation. Scana can recover financing costs and return on equity as they go through the public service commission. The loan guarantee program improves cash flow and helps with ratings and its can give them another mechanism for support that is not available in the merchant markets.

“This is a good program for them because it can help save money for rate payers, but it is not as essential as it is for merchant plants,” said Kass.

Having already spent about $1 billion, Kass said Scana is going to continue to move forward with the already in progress construction as they wait on both DOE’s decision on the loan guarantee and NRC’s decision on a license.

As stated, NRG will continue to spend, but just not a much. If Constellation does not receive the loan guarantee, could this be the first company to put the brakes on the nuclear renaissance in the U.S.? Or will Congress increase funding levels for the loan guarantee program?

As the industry as a whole waits to see what happens next, DOE did tell me “we hope to make a nuclear loan announcement soon.”