McCain's nuke proposal has $315 billion price

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By Elliot Blair Smith BLOOMBERG NEWS

Sen. John McCain's plan to revive the U.S. nuclear power industry with 45 new reactors may cost $315 billion, with taxpayers bearing much of the financial risk.

The Republican presidential nominee and Arizona senator wants the plants built in time to help the United States meet a 29 percent increase in electricity demand by 2030. Industry estimates put their cost at $7 billion each, and investment bankers, citing the industry's cost overruns in the 1980s, say they won't finance its long-sought "nuclear renaissance" without federal backing.

Global warming and the rising cost of fossil fuels have raised interest in using atomic energy to supply more U.S. electricity. Public concerns remain about reactor safety and disposing of waste that stays hazardous for millenniums. Sen. Barack Obama, Mr. McCain's Democratic opponent, is less specific about his plans, saying he wants to "find ways to safely harness nuclear power."

Congress in December authorized $18.5 billion in guarantees that cover as much as 80 percent of the costs of nuclear plant construction - enough to fund three typical reactors. Three power companies already have applied for the aid.

"Loan guarantees get reactors built, simply put," said Kevin Book, senior vice president and energy specialist at the Friedman, Billings, Ramsey & Co. investment banking firm in Arlington.

The Nuclear Energy Institute, a trade group in the District, says it will ask the next president to expand and extend the loan guarantee program, which is set to expire next year. The guarantees require no upfront public spending.

Taxpayers are on the hook only if borrowers default. A 2003 Congressional Budget Office report said the default rate on nuclear construction debts might be as high as 50 percent, in part because of the projects' high costs.

"The nuclear industry has been aggressively going after taxpayer-backed loan guarantees because nuclear technology cannot stand on its own two feet in the marketplace," said Allison Fisher, an energy policy analyst for the nonprofit consumer group Public Citizen in Washington.

No new nuclear plants have opened in the U.S. since 1996. The 1979 scare at Three Mile Island near Harrisburg, Pa., and the 1986 explosion at Chernobyl in the former Soviet republic of Ukraine dampened support for the technology.

Constellation Energy Group Inc. of Baltimore was the first to apply for the loan guarantees, on July 31. Its vice chairman, Michael Wallace, said in an interview that although the company hasn't decided whether to build a new reactor, securing the guarantees is "the last large obstacle in our path."

Dominion Resources Inc. in Richmond also applied, as did a joint venture between Princeton, N.J.-based NRG Energy Inc. and Toshiba Corp. of Tokyo. Chicago's Exelon Corp. will ask for the guarantees by month's end, said Thomas O'Neill, the company's vice president of new plant development.

A building boom would benefit developers of nuclear plants, including Paris-based Areva SA; Toshiba's Westinghouse Electric Co. subsidiary in Monroeville, Pa.; and GE-Hitachi Nuclear Energy, a joint venture of General Electric Co. in Fairfield, Conn., and Tokyo's Hitachi Ltd.

The Energy Information Administration estimated last year that adding nuclear power capacity would cost $2,143 a kilowatt before financing and inflation. That compared with $1,434 to $2,302 for clean-coal technologies.

Over the past year, the expense has more than doubled to $5,000 a kilowatt, or $7 billion for a typical reactor, according to utility filings and company statements. The increase in part reflects rising prices for commodities such as steel and cement.

At the same time, uranium prices have dropped. The Standard & Poor's Global Nuclear Energy Index has lost about a third of its value since November.

Mr. McCain called for the 45 reactors by 2030 during a June campaign appearance, citing "the ultimate goal of 100 new plants." The 104 U.S. reactors now operating produce 20 percent of the country's electricity.

Mr. Obama, an Illinois Democrat, qualifies his support.

"It is unlikely that we can meet our aggressive climate goals if we eliminate nuclear power as an option," his energy plan states. "However, before an expansion of nuclear power is considered, key issues must be addressed, including security of nuclear fuel and waste, waste storage and proliferation."