Financing the Nuclear Renaissance: The Benefits and Potential Pitfalls of Federal & State Government Subsidies and the Future of Nuclear Power in California
Ben-Moshe, Sony, Crowell, Jason J., Gale, Kelley M., Peace, Breton A., Rosenblatt, Brett P., Thomason, Kelly D., Energy Law Journal
Synopsis: Amidst increasing concerns of global warming and greenhouse gas emissions and predicted growth in energy demand over the long term, legislative, and public support for clean alternative energy is rapidly increasing. Nuclear power is garnering attention in political and scientific circles as a potential critical part of a green energy policy that will keep up with future growth in energy consumption. Although nuclear power is now included within the legislative and financial incentive frameworks established by the federal government and certain state governments for the development of other alternative energy projects, several distinct aspects of financing nuclear power projects should be more carefully considered in connection with those policy efforts. The financing of nuclear power projects is unique relative to financing traditional renewable energy projects on account of the vast size and capital costs of nuclear power projects and the accompanying construction budget and schedule risks, and political and regulatory risks. Existing federal incentive programs aimed at promoting nuclear power plant development do not account for these differences. As a result, unless changed, the existing federal subsidies are likely to disproportionately benefit development of new nuclear power plants by public utilities in rate-regulated states that have other avenues available to them to mitigate the unique construction, political and regulatory risks that face new nuclear projects-i.e., by shifting those risks onto public ratepayers in the form of increases in the utilities' rate bases. To effectively promote private financing of what some have termed the "nuclear renaissance" under a financing model that internalizes these unique risks rather than relying on ratemaking for risk mitigation, federal incentive programs should be re-evaluated in accordance with these structuring considerations and state level programs should be implemented to fill in the gaps in federal incentive programs, particularly in restructured energy markets. States such as California, with moratoria on nuclear energy development, should reconsider the issue of nuclear power or else risk being left behind without a say in the development of federal programs designed to promote the construction of nuclear power projects or a share of the financial incentives for such development that are paid for by all United States taxpayers. Engaging California in the policy debate over new nuclear power could have significant implications for the focus of federal programs. Because of the structure of California's energy market, under which power generation and transmission have been largely separated, California's involvement in the nuclear dialogue could focus part of that conversation on a principal topic addressed in this article: how to best structure federal and state programs to promote the development of new nuclear power facilities by both utilities and independent power producers under a project finance model that does not necessitate the ability to pass developing costs on to ratepayers irrespective of cost overruns or failures to successfully commission a new project.
Federal and state policymakers in the United States are promoting "clean energy" as a principal solution to the problem of increasing greenhouse gas emissions that contribute to global warming in the face of predicted long term increases in the demand for energy.1 While these policymakers almost universally promote renewable energy generation, such as wind farms and solar projects, as a key part of that solution, many express reservations about the viability of new nuclear power as another important part of a green energy policy. Part of the reluctance to embrace nuclear power stems from doubts among policymakers about the appetite of banks and other private financiers to fund the enormous development and construction costs required to build new nuclear reactors in the face of political and other risks unique to nuclear projects. …