Monday, December 14, 2009

Financing the “Nuclear Renaissance” and Why California Should Be More In the Game

Expert attorneys in the finance field at the law firm Latham and Watkins in California have been chewing on ways that advance the thinking and research of how to finance the construction of new nuclear plants in restructured markets (pdf). For the finance nerds out there (me being one of them), the document is definitely worth thumbing through to find some of the latest ideas on how to use project finance (instead of rate-base) to pay for building these large nuclear beasts. Since the authors of the report are from California, they provided insights on how and why the west coast state should be more involved in the nuclear discussion. Below are a few snippets worthy of your attention:

p. 497 - 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.

p. 498 - 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.

p. 506 - This article is written from the perspective of discussing financing structures under which nuclear power can be privately financed applying the Independent Development Model, and what this means for our traditional ways of approaching project finance.

p. 545 - We write this article with a full awareness of the sensitivity that surrounds the nuclear power question. However, we write with an assumption that California’s policy makers will ultimately conclude, in the face of the scientific evidence and policy discussions cited above, that California must inevitably pursue new nuclear energy projects or else fail to meet its goals.

p. 546 - While the energy industry is touting a nuclear renaissance in the United States, there is little evidence of it in California. If California does choose to pursue new nuclear power as part of the answer to clean base load power, then unless California acts quickly, the emergence of the nuclear renaissance may be no more to California than a sign post to read California’s existing moratorium as a lost opportunity to achieve California’s energy goals.

p. 547 - California may well decide that the moratorium on nuclear power development should stay in place because nuclear power as a concept is not an acceptable solution to the state’s power needs. But with high fiscal and energy policy stakes, this decision should not be made inadvertently because of a 1976 legislative moratorium that has effectively forestalled thoughtful discussion in California while the rest of the nation embarks on a nuclear renaissance.

p. 550 - The failure of California to engage in the dialogue on new nuclear power to ensure that federal programs fit the State’s energy market paradigm has the danger of creating a real and enduring shortage of power and a lost opportunity to capture billions of dollars in federal programs at a time when the state is working to develop green industries to meet its economic needs and energy policy goals for reducing carbon emissions.

Don’t let me give you the impression that the 56-page document is all about California. It’s not. The nuggets highlighted above are just some of the more provocative statements in an other-wise dry and detailed subject. Check it out.

1 comment:

Bryan Kelly said...

"The United States may be behind Europe and Asia in the development and deployment of new nuclear technologies for energy production, but it could be at the forefront of harnessing the private sector to build and finance this development." (pg. 507) I could not agree more.

A good start might be by privatizing the "finger-pointing risk(s)" (pg. 505) of cost and schedule overruns using Surety Bonds for Nuclear Energy Facility Construction Cost-Savings.