Why nuclear loan guarantees are not a taxpayer subsidy (Southern Co vs. Solyndra)
Published February 3, 2013
Tags: Loan guarantee, Solyndra
Rod Adams wrote an excellent post explaining why the US taxpayers were subsidizing Solyndra (feels good). But contrary to the anti-nuclear activists claims, the type of loan guarantee available to qualify nuclear utilities is not a subsidy at all. It is a financial market transaction, one where the US federal government can offer a product at a better price than a public corporation (think Treasury bond yields vs. AAA corporate bond yields).
Reading through the many resources that Rod offered I came across the following NEI summary table. This is a simple, but accurate way to quickly understand the fundamental difference.
But first, I recommend you read Rod here: Enormous differences between Southern Co & Solyndra, where you will learn why Southern Co. has not accepted the DOE guarantee offer.
|Nuclear Energy Loan Guarantees
||Renewable Energy Loan Guarantees
|“Skin in the game”: Nuclear energy companies receiving a loan guarantee pay the credit subsidy cost – the fee that covers the risk to the government of providing the loan guarantee.
||“No skin in the game”: Renewable energy companies receiving loan guarantees do not pay the credit subsidy cost. The credit subsidy cost is paid by taxpayers through appropriations.
|Loan Guarantee for Vogtle Nuclear Power Project
||Loan Guarantee for Solyndra Solar Facility
|The Vogtle project is being developed by Georgia Power Co., which has been in business for 100 years supplying electricity to the citizens of Georgia.
||The Solyndra project was a start-up, with no significant corporate track record.
|The Vogtle project uses proven light water reactor technology, which incorporates innovative features to provide even higher levels of safety than America’s 104 operating nuclear plants.
||Solyndra was manufacturing unproven, experimental technology.
|The Vogtle project is a “full recourse” corporate financing. In simple terms, Georgia Power has pledged its $26 billion in assets to ensure repayment of the guaranteed loan.
||The Solyndra transaction was a “non-recourse” project financing. In simple terms, if the project failed (as it has), the Department of Energy has no recourse to any assets beyond the manufacturing facility itself.
|Georgia Power is a profitable enterprise, with net income exceeding $800 million in each of the past three years.
||Solyndra was not profitable.
|Georgia Power is a regulated, fully integrated electric utility. Because it is regulated, it has reasonable assurance that it will recover its costs through rates. This results in stable cash flow. In addition, under state law, Georgia Power can recover its financing costs during construction of the Vogtle project. This relieves stress on cash flow during construction.
||Solyndra had no such assurance of steady, predictable cash flow.
|Georgia Power Co. and Southern Co. (its parent) are both A-rated, investment-grade companies.
||Even before its bankruptcy, Solyndra was not considered investment-grade. Fitch Ratings assigned the company a B+ credit rating in 2008, before it received the DOE loan guarantee.