Why Should the US Invest in Nuclear Power

The question isn’t should the US invest in nuclear power. It more appropriately is why should the government invest in an energy source that the private sector won’t invest in and utility owners believe is too risky to invest shareowners money?

For decades, nuclear power has been tomorrow’s energy of choice. But until the cost of nuclear power can become more competitive, it will remain tomorrow’s choice and not today’s. Because the cost of a nuclear facility can easily run $10 billion or more and regulatory and legal risks can be high, private funding sources have been unwilling to step forward without government guarantees. In the last several years there have been shut-downs of nuclear facilities, construction cancellations and a history of major cost overruns. That reality is telling and explains why private investors look elsewhere.

These problems exist in spite of the preferential treatment that favors nuclear power within the Price Anderson Act. The Act socializes accident insurance, requirements to purchase power, and special treatment for the recovery of construction costs. If nuclear power cannot compete on a level playing field with other forms of power generation, why should the government use loan guarantees to prop it up?

Loan guarantees create a moral hazard that can lead recipients and lenders to take risks that they otherwise would not take. That is not in the tax payers best interests. Loan guarantees have been the subject of significant and widespread criticism. GAO and CBO in particular have issued reports that have been damning. CBO put the risk of default for a federal loan guarantee at 50 percent. DOE regulations provide that guarantees can provide loans for up to 80% of project costs. Its

Inspector General found that providing such a high percentage will” result in significant risk to the government.” Others have concluded that the potential cost of a bailout of nuclear defaults would make the bailouts of Solyndra and Beacon Power look like “chump change.”

The latest effort to jump start nuclear power appears to be more about the administration’s war on coal and carbon and its fixation with climate change rather than with a new “nuclear renaissance.” The administration in recent weeks has become shrill on climate change. The President blames every major weather event on “carbon pollution” and Secretary of State Kerry went off of the deep end by equating climate change to weapons of mass destruction and calling skeptical scientists members of the flat earth movement. Actually it is the President and Secretary Kerry who belong to the modern equivalent of the flat earth society. They believe an illusion that is contradicted by facts and reality. That illusion is the results of climate models that are demonstrably unsuited for guiding policy in that they all grossly overstate temperature increases and over estimate climate sensitivity.

Nuclear power needs to stand on its own as an efficient and cost-effective way of meeting our electric power needs. The industry has to solve the problem of driving down the cost of construction. Standardized designs have been suggested as helping to do that. Smaller modular units might be another way. Steps have been taken to streamline the permitting process but an effort should be undertaken to determine whether even more can be done. Construction projects that take on the order of a decade or more are almost guaranteed to incur cost overruns.

For its part, the government should conduct a regulatory review to determine if the regulations that apply to the nuclear industry can be streamlined and rationalized without increasing safety risks. But the biggest action that the government can take is to solve the waste disposal problem. There was no reason to abandon Yucca Mountain but since it has, the Administration and Senator Reid have an obligation to find another alternative. It makes no sense for the Secretary of Energy to give loan guarantees at the same time the Administration prevents the safe disposal of wastes.

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