Ontario has delayed the nuclear reactor competition yet again, citing the international financial crisis and the tightening of credit markets. According to Energy and Infrastructure Minister George Smitherman, Ontario’s need in these circumstances for assurance against construction cost overruns is even more emphatically underlined.
This is about two main things. First, Ontario needs to know that a proponent has staying power. Can the proponent get the financing it requires to do the project? And second, Ontario wants to know the rules that say whose fault it is if and when a construction project goes over schedule and over budget. Establishing these rules, the minister told the Toronto Star, is “intensely discussed and negotiated point by point by point.”
On the financing question, the tightening in international credit markets makes it yet more difficult for nuclear projects to get private financing. Ironically, the same market whose participants spent the last few years racking up trillion-dollar mortgage backed liabilities—almost falling over themselves to invest in instruments which were triple-A-rated by supposedly reliable rating agencies—remains hesitant about backing nuclear projects. This even though major firms like France’s EDF and Warren Buffet’s MidAmerican Energy and John Rowe’s Exelon have obviously seen the profit potential of atomic power (see article).
The uncritical groupthink that created the international credit crisis shows that credit market participants have a lot to learn about their own business. When they show willingness or unwillingness to underwrite something, we should take their justification with a large grain of salt, because it is probably based on something other than cold analysis. The crisis has made one thing clear. The only truly bona fide triple-A credit rating is a guarantee by a major government. This guarantee must represent the unconditional commitment of the full faith and credit of the government
The U.S. government has established a program that addresses exactly this issue (see article) by offering federal loan guarantees and construction delay insurance. As I pointed out, both of the non-Canadian competitors in the Ontario competition, Areva and Westinghouse, have access to the U.S. support. The Canadian competitor, Atomic Energy of Canada Limited (AECL), doesn’t.
It is therefore legitimate that the Canadian government provide something similar for AECL. This is what George Smitherman’s point-by-point-by-point negotiations are ultimately all about.