Since the recent cancellation of one of only two new nuclear reactor projects in the United States, the fate of nuclear power has received significant attention.
With cheap natural gas, decreases in energy demand and an increase in renewable energy, nuclear power’s high capital costs, technological challenges and massive accident and waste liabilities make it too risky for private investors. As a result, taxpayers have been the backstop keeping the industry afloat for years.
But as industry representatives actively seek further government handouts amid their current struggles, it’s time for policymakers to stop the subsidies.
As I noted at the time, the bankruptcy of Westinghouse Electric Co. in March was a bad omen for the nuclear projects it was contracted to complete. Since then, the full extent of just how far behind schedule and over budget the two projects are has come to light. Upon realizing this, and faced with the decision of whether or not to press on with the costly construction of their respective nuclear reactors, the two sets of co-owners and their industry allies (read: lobbyists) turned to Washington for help, surprising no one. In addition to seeking aid directly from the administration, one of their chief legislative askshas been the extension of the nuclear production tax credit.
In the Energy Policy Act of 2005, Congress created or expanded billions of dollars in subsidies for the energy sector, among which was a tax credit for the production of electricity from “advanced nuclear” facilities. As originally enacted, the law allows any nuclear plant with a new design that starts operating before 2021 to receive a tax credit of up to 1.8 cents for every kilowatt hour of electricity it generates and sells in its first eight years. That may not sound like much, but it adds up quickly, and the credit could cost taxpayers as much as $750 million per year, or $6 billion in total.
The production tax credit was added to other existing subsidies meant to help overcome the financial hurdles to realizing what project boosters called the nuclear renaissance. But 12 years later, excessive capital costs, technical challenges and cheap natural gas left only two large-scale nuclear reactor projects standing at the beginning of 2017.
In July, the owners of the first project, at the V.C. Summer Plant in South Carolina, reported that their estimated total capital cost of constructing two reactors there had increased to around $18 billion, up from the original $11 billion. The two reactors’ expected start-up dates had also slipped more than five years from the initial schedule. After unsuccessfully seeking a $3 billion direct grant from the Department of Energy, and turning down a counter-offer of $1 billion in loan guarantees, the owners terminated the project on July 31.
In the same week, Georgia Power – a subsidiary of Southern Company and the largest owner of the second project– announced that its estimate for constructing two reactors at Plant Vogtle had increased to as much as $10.9 billion. Altogether, the total project cost has increased from $14.3 billion in 2008 to roughly $25 billion now. The scheduled start-up dates, meanwhile, have slipped to as late as 2023.
While Georgia Power and the other Vogtle owners decide whether to continue construction, they’ve begun actively campaigning for additional funds from taxpayers by inviting members of Congress down to Georgia and meeting with Department of Energy officials in Washington. And certain legislators seem keen to help.
Recognizing that the delays at the Vogtle and V.C. Summer plants have made it impossible for either to qualify for the production tax credit, the House of Representatives passed a bill in June that would effectively nullify the credit’s 2021 operating deadline for eligibility. If the Senate follows suit, Georgia Power could be rewarded with roughly $1 billion in tax credits over eight years, despite the enormous failures of the Vogtle project.
The bill, as written, would also allow non-taxable entities to receive the tax credits, and then transfer them to project partners who actually have to pay tax. That would, conveniently, make the other Vogtle owners – the Municipal Electric Authority of Georgia and Oglethorpe Power Co. – eligible. It’s not too difficult to imagine which project partner they might transfer the credits to. And that provision alone would mean taxpayers would be handing out up to $1.2 billion more for the Vogtle Project.
The president and Energy Secretary Rick Perry have said they are committed to helping nuclear power, but forcing taxpayers to further subsidize nuclear power’s failures is simply fiscally irresponsible.
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