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Last week, the Ontario government announced it is delaying its decision on which reactor design to choose for the planned construction project at the Darlington generating station. What underlies Ontario’s skittishness is the fact that none of the three competing reactor designs is currently in service anywhere in the world. This gives significant pause to prospective project financiers, and hence to prospective buyers like Ontario. The international financial crisis has exacerbated this general uncertainty.
The situation is not unique to Ontario. American utilities are gearing up for a large-scale expansion of nuclear power. To jump-start private sector investment in nuclear power, which produces no greenhouse gas emissions, the U.S. government has set aside $18.5 billion in loan guarantees, together with further funds to cover construction delay insurance and power production tax credits. At the end of September, the government had received applications from nine aspiring builders for $122 billion in loan guarantees alone—six and a half times the allocated amount. Industry says it needs at least the applied-for amount.
That’s not all. According to Nucleonics Week, the U.S. is now working with France and Japan to revise export credit rules for nuclear power plants so that the rules jibe more closely with the U.S. loan guarantee program. The intent is to formalize the situation I described back in August: to allow the French and Japanese governments to add their weight behind the U.S. government guarantees, thereby providing the ultimate backstop to reactor projects in the U.S.
The loan guarantee applications described above involve French, American, and Japanese reactor designs. The Ontario competition also involves French, American, and Japanese firms. Unlike the U.S. applications, though, it also includes a Canadian design: the ACR 1000, from Atomic Energy of Canada Limited (AECL).
What is the prospect of the U.S. government increasing the loan guarantees? The bulk of progress in the Bush Administration’s three major civilian nuclear initiatives—the loan guarantee program, the Global Nuclear Energy Partnership (GNEP), and the deal with India—was made with the cooperation of a Republican congress. Republicans have generally favoured nuclear power; the Democrats generally haven’t, though they have shown recent signs they’re re-thinking their traditional opposition (see article). We’ll soon learn how the new president and congress will deal with nuclear power in America. My prediction is that the loan guarantees will increase, but not to $122 billion. That is, the French, U.S., and Japanese reactor firms will have access to U.S. federal financial support for their new designs. (I’ll discuss the prospects for GNEP and the India deal in upcoming posts.)
So, even if export credit rules are rewritten to allow national export credit agencies to support activities in a second country for a project in a third country, AECL even on its home turf will be at a disadvantage against its competitors. Financiers need to see a reactor design in service for at least two years before they’re satisfied it is worth backing without a government gurantee.
Since AECL’s competitors are eligible for U.S. government guarantees to get to the two-year in-service point, AECL should be elegible for something similar from the Canadian government.
What prospects would there be for further ACR 1000 sales if the design reached the two-year in-service milestone ahead of its non-AREVA competitors? How would AECL then be valued?