Solyndra Fiasco Marks Nuclear Bullseye

 | May 24, 2013 | 7:00 PM EDT
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Solyndra put the proverbial nail in the nuclear renaissance's coffin. Solyndra was a solar company, which used $535 million in government financial guarantees to help them start up a new technology. Solyndra failed financially. Solyndra's shareholders lost all their equity. Solyndra's debt holders called on the government to make good on their guarantees.

Solyndra's government bailout caused the media and politicians to pile on with unrelenting commentary. Solyndra served as an opportunity to belittle the solar and wind power industries to argue for traditional power plants, particularly nuclear power.

It was not just politics. Traditional utility people wanted the government to back off their support of renewable energy. They believed wind and solar power as largely ineffective. Instead, they wanted more coal-fired power plants, more gas turbines and more nuclear power plants.

Many in the political and energy arenas saw government guarantees as an unfair mechanism for policymakers to tilt the scale in favor of one technology over another. The public was led to believe solar has been offered government assistance at the expense of other producers. Some politicians claimed government was engaged in picking the industry's winners and losers.

That argument continues to this day. Last fall, The Heritage Foundation published, "President Obama's Taxpayer-Backed Green Energy Failures" and again argued that the problem as they see it, "begins with the issue of government picking winners and losers in the first place." A few months ago, Heritage reported that Representative Mike Pompeo (R-Kan.) wanted to repeal of all energy tax credits to level the playing field and prevent the government from picking "winners and losers."

Here is a news flash: The government has been picking winners and losers for the last several decades. In fact, every nuclear power plant operating in the U.S. today was picked by government officials as a winner. Every single one of those units was built using government guarantees.

There were more than 100 separate nuclear power plants built in the 1970s to the 1990s. Together they produce some 100,000 megawatts worth of power. At the current cost of approximately $5 million a megawatt, the total amount of government guarantees is something close to $500 billion dollars.

That is just the beginning.

Of the 250 nuclear power reactors originally ordered by U.S. utilities, almost half were canceled. Some of those cancelled projects were in the planning stage, but many others were in the middle of construction. Some of the 90,000 megawatts worth of nuclear plants that were never built include Shoreham, Jamesport and Green County in New York, Black Fox in Oklahoma,  Sundesert in California and Marble Hill in Indiana.

At $5 million a megawatt, the amount of cancelled projects equates to $450 million dollars. Of course, not all of that money was spent. Nevertheless, government backed most of that money and there were some spectacular failures.

Just ask Duke Energy (DUK). One of their subsidiaries attempted to build a nuclear plant in southern Indiana. Their nuclear project was nearly complete when the previous owners had to abandon an $8 billion investment (1985 dollars). That decision required the federal government to step in as a guarantor of $948 million (1985 dollars) and protect bondholders.

The point is that for decades, government picked winners and losers. In the case of the winners, we know government was willing to guarantee the financial success of each project up to a staggering trillion dollars. Nobody knows what the upper limit might have been, but there was only little resistance at the trillion-dollar level.

Not all guarantees came from the federal government. A bulk came from individual state governments. Some states were more willing than other states. In the end, government guarantees dried up and, consequently, new nuclear projects evaporated.

Today, no utility will build a new nuclear power plant without a government guarantee. Southern Company's (SO) $15 billion nuclear construction project at their Vogtle site is guaranteed by the Georgia. Not only does Southern requires the state to go all in, they also want the federal government to guarantee the project's debt using similar rules offered Solyndra.

 SCANA's (SCG) $15 billion nuclear construction project at their Virgil Summer site is fully guaranteed by South Carolina. Tennessee Valley Authority's Watts Bar project is a federal investment.

For a nuclear renaissance to remerge, government guarantees will be essential. If there are no government guarantees, there will be no new nuclear power projects. It is that simple.

The Solyndra media frenzy has the unintended consequence of killing any chance of new government guarantees. Pardon the pun. But Solyndra has become too radioactive for any politician to introduce legislation that would pick nuclear power as a winner and guaranteeing them financial success. Until there is a national emergency, nuclear power will remain in a state of decline.

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