Protecting Taxpayers from a Financial Meltdown

Calculating the Credit Subsidy Fee on a Loan Guarantee for a New Nuclear Reactor

A few weeks ago, Obama tripled the budget for the nuclear loan guarantee program,  though there hasn’t been a single promising application in two years.   CAP Policy Analyst Richard W. Caperton explains what that risky move means for American taxpayers in this repost.

President Obama has made two major announcements in recent weeks regarding loan guarantees for nuclear power. Loan guarantees commit the government to repaying a loan if the original borrower can’t pay back the loan. His proposed fiscal year 2011 budget would triple nuclear loan guarantees to $54.5 billion. And on February 16, the Department of Energy issued an $8 billion guarantee for two proposed Southern Company nuclear reactors in Georgia. Both of these measures will help utilities finance new nuclear reactors, but the underlying terms of the guarantees will determine the risk to American taxpayers and the number of new nuclear plants that will be built.

Building a nuclear reactor today will involve dealing with tremendous financial uncertainty. Cost projections for nuclear plants keep going up because of variability in material costs, a new licensing process, limited suppliers for key parts, and inevitable delays in construction projects. The projected cost for two new reactors in Canada shot from $7 billion to $26 billion in just two years. And in the United States, costs for two new reactors at the South Texas Project have ballooned from $5.4 billion to an estimated $18.2 billion since 2007. Neither of these reactors has been built, so there’s no way to predict what the final cost will be. But cost overruns are virtually certain in nuclear construction, which greatly increases the risk the nuclear companies will default on their loans. Private lenders are well aware of the risk of building new reactors, which is why they’re unwilling to finance the projects without government support.

The huge cost of nuclear power means that taxpayers will have to provide nuclear loan guarantees to finance new projects if the president and Congress are serious about building new reactors. The terms on these guarantees must include adequate protections for taxpayers. Most important, the so-called “credit subsidy cost” must be calculated accurately. The credit subsidy cost represents the price tag of the guarantee to the government, and in the case of new reactors, must be paid by the utility company borrowing the money. Estimates of what this cost should be run the gamut from 1 percent or less to 30 percent of the total guarantee. If the cost is too low, then it will increase risks for taxpayers. If the cost is too high, then it will unnecessarily decrease the number of reactors financed. Surveys of outside estimates and calculations detailed below indicate that the cost should be at least 10 percent and possibly much more.

Loan guarantees, a valuable tool for borrowers

When the government issues a loan guarantee, taxpayers are assuming the risk if the borrower is unable to pay back the loan. Most borrowers under the nuclear loan guarantee program will get a loan from the Federal Financing Bank, which will now charge a much lower interest rate and provide more favorable terms. In exchange for this valuable service, the guarantor (the federal government) has to account for the risk of default. They do this by calculating the “credit subsidy cost.”

The exact credit subsidy cost is impossible to project because it is determined by an Office of Management and Budget model that is not made public, but it is essentially the present value of the expected payouts that the government will have to make on the loan. This is determined by estimating a likelihood of default””the “default rate”””and the amount that the lender will recover in bankruptcy proceedings””the “recovery rate.” The government makes up the difference so the lender receives all that is due. The pay out is then discounted back to present dollars, taking account for the time value of money. The total cost is usually quoted as a percentage of the guarantee.

The mechanics of a nuclear loan guarantee

The nuclear loan guarantee program

There were no loan guarantees available for nuclear reactors until 2005. Title XVII of the Energy Policy Act of 2005 provided significantly more protection for lenders. According to the program rules, the government can guarantee up to 80 percent of the cost of the project, and the borrower has to find at least 20 percent elsewhere. This remaining 20 percent can either come from 1) raising equity, potentially through utility customers who pay higher rates before the reactor is actually built, known as “construction work in progress” or 2) debt financing, potentially via French or Japanese Export-Import Banks that will provide loan guarantees and/or loans for the portion not covered by the U.S. government.

Debt holders get paid first in bankruptcy proceedings, but DOE has changed its loan guarantee rules and no longer requires the U.S. government to hold a “right of first lien,” which means that the U.S. government doesn’t necessarily get paid before other debt holders. The result is that in the event of a default, taxpayers would have to share proceeds from a liquidation with other creditors, such as the French or Japanese Export-Import Banks.*

Just like under other loan guarantee programs, the government has to have the credit subsidy cost in hand before issuing a loan guarantee. This cash can come from one of two places: an appropriation from Congress or a cash payment from the borrower, known as a “credit subsidy fee.” U.S. government rules require the government to have the credit subsidy fee on hand before it can issue the loan guarantee. And the nuclear loan guarantee program mandates that because there hasn’t been a congressional appropriation to cover the credit subsidy cost, the Department of Energy must charge a credit subsidy fee.

Since this fee must be paid upfront, it can add significant costs to the project. Utilities that borrow money obviously want to keep this fee as low as possible, but responsible government management dictates that the fee must reflect the true likelihood of default. Not surprisingly, the nuclear industry wants the fee to be 1 percent or less, while the Congressional Budget Office has estimated that it should be 30 percent, which reflects the CBO’s 2003 determination of “risk of default on such a loan guarantee to be very high””well above 50 percent.” In a blog on March 5, CBO declined to refine this estimate to reflect any specific projects, but reiterated that “it would be difficult to set the fee so as to entirely cover the estimated cost to the government.”

These two are bookend estimates, but they are hardly the only ones. For example, Standard and Poor’s thinks it should be at least 4 percent to 6 percent, with the potential to be much higher, depending on the borrower’s credit rating. The Government Accountability Office has estimated the loss rate at 25.42 percent. This loss rate is different from a true estimate of the credit subsidy cost in important ways””primarily, it doesn’t involve discounting to present values””but it does give some guidance in calculating the true cost. Unfortunately, none of these estimates is perfect:

  • The nuclear industry’s 1 percent doesn’t seem to be based on any calculation that includes all appropriate risks. If this estimate reflected the true risk, utilities would probably be able to get traditional financing without the guarantee. Indeed, the added benefit of the guarantee probably wouldn’t outweigh the transaction costs of getting the guarantee.
  • The Congressional Budget Office assumptions on recovery and default rates aren’t clear, but appear to be extremely pessimistic. And the assumption of very low construction costs is extremely optimistic. This estimate was constructed while analyzing a bill that never became law and assumes the guarantee only covers 50 percent of the project””today’s program allows for loan guarantees to cover up to 80 percent of the project. Because none of these assumptions fully represent today’s financing or regulatory environment, this estimate needs to be updated.
  • The Government Accountability Office helpfully estimates the loss rate, but hasn’t discounted the payouts or otherwise constructed an estimate of the credit subsidy costs.
  • Standard and Poor’s assumes lower capital costs than current construction costs, and assumes a 70 percent recovery rate on bankrupt plants. This is not only higher than other estimates, but seems especially unrealistic given that some reactors will likely default while under construction and may have no salvageable value.

None of these estimates is the “right” credit subsidy cost, but each gives helpful guidance in calculating a credit subsidy cost that more accurately accounts for the risk of default and the value of any unfinished reactor.

A new model for estimating the appropriate credit subsidy fee for a nuclear loan guarantee

Steps to estimate a credit subsidy fee

These are the key steps in estimating a credit subsidy fee. Our spreadsheet-based model performs calculations based on these inputs to estimate the fee.

1. Determine the likelihood that the builder of the reactor won’t be able to pay back the loan””the “default rate.”

2. Determine the percentage of the total reactor cost that will be covered by the loan guarantee.

3. Determine the amount of the total cost that will be recovered in the event that the borrower defaults and the reactor is sold in liquidation””the “recovery rate.”

4. The first three steps give a total payout that the U.S. government will have to make. Spread these payouts out over the lifetime of the loan, based on when defaults will occur.

5. Discount payouts in future years to determine a “present value” of the total payouts. This is the credit subsidy fee that the borrower must pay the government.

Each of these steps requires an input that can vary widely, which makes precise estimates very difficult.

Our new model employs a simplified framework for estimating the appropriate credit subsidy fee for a nuclear loan guarantee. The model doesn’t give a precisely correct fee that a borrower should pay, but it provides a ballpark estimate and is useful for showing how the fee is sensitive to changes in major inputs.

The model is based on a series of assumptions:

  • Every project is different and should be evaluated independently, but the generic default rate is 50 percent. This serves as a proxy for the credit rating of the borrower, which will vary dramatically from project to project.
  • The recovery rate in liquidation is 50 percent. This is the GAO estimate, and it is also implied by Standard and Poor’s.** But this may be optimistic since DOE no longer requires that the U.S. government have a right of first lien.
  • The loan term is 30 years, the maximum term allowed under the law; the discount rate is 4.7 percent, based on current yields on 30-year Treasury notes; and the guarantee covers 80 percent of the project, the maximum amount allowed under the law.
  • The default risk is spread evenly over the life of the loan, even though it’s more likely that a project would default early in the loan rather than later. This has the effect of underestimating the actual credit subsidy cost.

These assumptions indicate that the credit subsidy fee on a nuclear loan guarantee should be at least 10 percent. The fee goes up as the guarantee is for a greater portion of the total project cost, as the default rate goes up, as the recovery rate goes down, as the discount rate goes down, and as the risk of default is concentrated earlier in the loan. For example, just changing the recovery rate to 40 percent leads to a fee of about 13 percent. If the projected recovery rate is 40 percent and projects only default in the first year of the loan, the appropriate credit subsidy fee would be about 24 percent.

The following table illustrates how the credit subsidy fee depends on both the default rate and the recovery rate. Estimates in this table assume that the guarantee is for 80 percent of the cost of the reactor, that DOE does maintain a right of first lien, and that the risk of default is spread evenly over 30 years. These last two assumptions have the effect of lowering the credit subsidy cost, so these are low-end estimates.

Low-end estimates for credit subsidy fees

To put this in perspective, if a developer gets a guarantee for 80 percent of the cost of a $10 billion plant, the loan guarantee is for $8 billion. A 10 percent credit subsidy fee means that the utility has to pay an extra $800 million to the government at the start of the project.

There are very serious questions about a developer’s ability to pay that sort of fee. If the administration decides to explore financing options for the fee, it must make absolutely certain that the financing doesn’t place the guarantee’s cost back on taxpayers.

Without looking at details of specific nuclear projects, it’s impossible to say with 100 percent certainty what the credit subsidy fee on these loan guarantees should be. But based on these calculations, the credit subsidy fee should be at least 10 percent, which would be $800 million for a loan guarantee for a $10 billion reactor.*** The administration must keep in mind, however, that credit subsidy fees should be set at a rate that protects taxpayers, not at an artificially low rate as a handout to big utilities.


*If the United States guarantees either the only creditor or a creditor with a right of first lien, taxpayers will not have to pay any money for the defaulted loan if the reactor brings in 80 percent of the value of the reactor in a liquidation sale. Another way to think about this is that even if there’s a 100 percent chance of default, the credit subsidy cost would be 0 percent if selling the reactor would generate more money than the value of the loan.

**Standard and Poor’s assumes a 70 percent recovery rate on a reactor that costs $6,000 per kilowatt, or a liquidation value of $4,200 per kilowatt. Recent estimates of new nuclear construction are roughly twice that liquidation value, ranging all the way up to $10,800 on the high end (implying a 40 percent recovery rate).

***Assuming a loan guarantee for 80 percent of the reactor, $10 billion x 80 percent guaranteed x 10 percent credit subsidy fee = $800 million.

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26 Responses to Protecting Taxpayers from a Financial Meltdown

  1. FishOutofWater says:

    The whole reason for these guarantees is that they are a hidden subsidy with no immediate cost to the taxpayer. Politicians love this kind of deal because they apparently get something for nothing. Future costs are always discounted by politicians. At least this subsidy is merely financial. The uncosted effects of CO2 pollution will be paid for generations.

  2. _Flin_ says:

    10 Billion dollars for a reactor? Whow. By that comparison the ITER experimental fusion reactor is rather cheap with 12 billion euros.

  3. mike roddy says:

    The nuclear industry is a doomed and jerry rigged superstructure, propped up by large corporate interests, including fossil fuels (who love weak competition).

    All of the cost trajectories for nuclear are going up. All of the costs for solar thermal are headed down. Solar has close to zero emissions and no safety issues. Time for DC to wake up and invest in the future.

  4. prokaryote says:

    How can one justify the burning of oil, while we running out of it? Doesn’t this fact ask for reassessment of the usage – unsustainable burning of oil? We need oil to create technology.

  5. prokaryote says:

    And what is more, disposable products are invading the marketplace. Now I know the sharks that patrol my blogs, ready to jump on me for my alleged socialist leanings will smell blood in the water and no doubt remind me that all those disposable products make jobs, but hear me out first. There’s something bigger than creating jobs through waste. It’s called creating an environmentally and economically sustainable society. We can have jobs and the environment. It’s not a trade off … but we have to create jobs that makes sense in the long term from all three perspectives: social, economic and environmental.

  6. darth says:

    This is Obama throwing a bone to republicans who are historically big pro-nuke people. I think an effective political strategy would be to convince pro-big-business republicans that industrial solar (CSP) can be large-scale money making industry like nuclear. If they invest in it, they’ll be on board with subsidies to make $ out of it and we’ll all be better off. Sell it as win-win for business, greedy people and the environment.

    CSP has far less risk than nuclear as Joe has pointed out here many times.

  7. fj2 says:

    The scientific reality is immediate design and development closely integrated with the natural environment. The political reality will comply with the right mix of self-interest, practicality, morality, and pure inspiration.

  8. Chris Dudley says:

    “If the projected recovery rate is 40 percent and projects only default in the first year of the loan, the appropriate credit subsidy fee would be about 24 percent.”

    This seems like a logical problem. I don’t think you can spend 60% of the loan in the first year so the recovery rate should be higher in this situation. If we assume costs double during construction then the loan might be entirely spent in 5 years and the recovery would be about 0% at default when no new financing can be found and construction is not completed. So, I think that the early years of the loan have to be treated in a more nuanced way.

    Even in regulated markets, the bordering unregulated markets should pretty much guarantee a 100% default rate because the high cost of new nuclear power will drive deregulation of the regulated markets and the new power plants will end up with no customers. This means that recovery rates will have to look like the future cost of solar power which will likely be about a penny per kWh plus storage which is also looking to be cheap with the new 9000 plus cycle batteries that are coming out now. So, we might expect a 10% or lower recovery rate. It is possible that at that recover rate, the transaction cost of keeping the plant open will not pencil out so a 0% recovery will still be a better deal. It was the cost of keeping a white elephant that was so ruinous.

    With all new nuclear power defaulting and old plants facing large escalations in decommissioning costs owing to more than a quarter of them already leaking tritium and other radioactive fission products, we face a situation similar to Japan’s demographic problem. There won’t be new funds to pay for waste disposal or higher decommissioning costs as the industry decays. We face a closing window to charge much higher rates for existing nuclear power to cover these costs. We should be forcing at least a $0.10/kWh fee on nuclear power now to recover these costs.

  9. _Flin_ says:

    Actually Obama isn’t throwing a bone towards Republicans. The problem is that there is no way to seriously lower CO2 without nuclear power. Regenerative power has the base load problem as well as not being able to producing at the time that the energy is needed. Furthermore regenerative energies produce rather randomly, and the energy is really hard to store.

    So there is need for powerplants. Gas, Coal, Nuclear. Considering the amount of CO2 coming from the energy producing sector, the most significant reduction can be achieved with nuclear energy.

    @Mike Roddy: Solar Thermal has nothing to do with electricity, but with heating. And solar electricity is expensive. Still.

  10. SecularAnimist says:

    Flin wrote: “… there is no way to seriously lower CO2 without nuclear power … Solar Thermal has nothing to do with electricity, but with heating.”

    Your apparent complete ignorance of the use of Concentrating Solar Power, a.k.a. Solar Thermal, for utility-scale baseload electricity generation, explains why you are able to make the blatantly false assertion that there is “no way to seriously lower CO2” emissions from electricity generation “without nuclear power”.

    You know what nuclear power plants do? They heat water. That’s it. Does that mean that nuclear power plants have “nothing to do with electricity, but with heating”?

    Educate yourself a bit before you embarrass yourself by lecturing other people on subjects about which you know nothing.

  11. paulm says:

    Lets face it there are huge hidden cost not presented in the price of these reactors.

    Our whole economy is structured on this. This is a good example :

    Externalized Costs and the $4.99 Radio

    Can you imagine what the hidden cost is for nuclear!

  12. Mark says:

    Thank you very much for this post providing the financial background behind the proposed nuclear loan guarantees.

    It is very helpful and much appreciated.

    Is there any indication whether the loan guarantees contemplated by the administration will require the nuclear industry to pay the credit subsidy fee discussed in this post?

    I am attempting to compare and contrast an apples-to-apples levelized cost of energy (LCoE) per kWh between wind, solar and nuclear. I would appreciate any references that take into account the value of the various direct and indirect subsidies provided for each source of energy.

    I am also attempting to compare the time it takes to complete the development and construction of a major wind, solar and nuclear plant.

  13. Dean says:

    There is a bias in parts of government and industry towards large-scale, highly concentrated and capital-intensive technology. The fiscal disaster of nuclear energy has caused some segments of industry (like banking) to walk away from it, but the other segments are getting their way now, it seems.

    This is also why governments finance hugely expensive colliders. You don’t think they would pay that money if it just paid for labor for scientists, do you?

    And if this is a bone for Republicans (and some Democrats), then what is the quid pro quo? Have any of them told Obama (or climate bill supporters in Congress) that they will change their vote with this?

  14. Richard Caperton says:

    @Chris Dudley: Thanks for your insights. You’re correct that the early years of a loan need some more nuance. My analysis is fairly simplified to demonstrate the point that if the default risk is loaded on the early years of the project, the credit subsidy fee needs to be higher.

    @Mark: Gerald Metcalf has a good paper out now about the production tax credit that provides some interesting perspective on LCOE and the impacts of various subsidies across generation types.

  15. Mark says:

    @Richard Caperton: Did you mean Gilbert Metcalf at Tufts? Is this the paper you were thinking about?

  16. David Lewis says:

    A South Korean consortium of Korea Electric, Hyundai, and Samsung just signed a contract with Abu Dhabi to supply them with 4 reactors totalling 6 GW for $20 billion. Assume a 90% capacity factor, which is lower than the US nuclear industry achieves, and this means Koreans think they can build reactors for $4000 per available kW.

    To compare to solar thermal I looked up the figures for Nevada Solar One. NREL (National Renewable Energy Lab) data states that this is a 65 – 70 MW nameplate maximum output 134,000 MW/yr actual output plant, which cost $266 million when finished in June 2007. This makes the cost per average available kW $17,385.

    Now as I understand it, there is an investment tax credit of 30% available for solar thermal in the US now, and also an accelerated writeoff. If this adds up to a 30% subsidy, the US taxpayer would pay $5215 per available kW of the capital cost of a solar thermal plant like Nevada Solar One. That’s more than the entire cost per available kW Koreans are willing to sign contracts to supply.

    We might as well build nuke plants and give them, absolutely free of charge, to the utilities rather than continue on with this solar thermal subsidy – we’d get more reliable and cheaper electricity out of it.

    And Nevada Solar One only has 0.5 hours of salt storage. Add 7 hours such as Andasol 1 in Spain and you find that they built that plant for more than $19,000 per available kW. The electricity from Andasol 1, according to the head of the firm that designed it, costs 37 US cents per kWhr to produce. The plant exists because Spain guarantees it will buy the electricity for the next 25 years paying the owners more than that. As far as the argument goes that they will learn how to build these more cheaply, duh, check NREL figures for Andasol 2, 3, and 4. They’re all the same. Someone is just cranking them out to take advantage of the subsidy program.

    But if we tell ourselves something often enough and long enough, it becomes the truth. Like nuclear power costs too much to use. If we keep on with this mantra, maybe we can make US electricity cost so much that added on to US labour costs nothing will ever be made here again.

  17. Richard Caperton says:

    @Mark: Right, he’s at Tufts. This is the paper I was thinking of, although all of his work is interesting:

  18. Mark says:

    @Richard Caperton: Thank you!

    @David Lewis: The numbers you’ve calculated for solar thermal do not reflect the current market price for solar thermal. The DOE EIA reports that the capital cost for a solar thermal electricity plants in 2008 (in 2007 dollars) was $5,021 / kW. And those numbers are a couple years old.

    Since we are considering loan guarantees, perhaps we should look at the most recent announcement regarding loan guarantees for solar thermal projects. The US government has announced willingness to provide $1.37B in loan guarantees to Brightsource Energy for a 400MW solar thermal plant. If the loan guarantee is for 100% of the project, then the cost of capital is $3,425 / kW. If the loan guarantee is for 80% of the project, then the cost of capital is $4,281 / kW.

  19. mike roddy says:

    David Lewis,

    Whatever a South Korean consortium is bidding for in the Middle East has nothing to do with what’s going on here. In San Antonio, the $18 billion price tag is for 1200 megawatts, if I remember correctly. If you want to pick an overseas company, how about Canada’s $26 billion price? These are real numbers.

    Solar thermal is less than that, by a lot. And there are no costs for fuel, meltdown insurance, or decommissioning.

  20. David Smith says:

    Flin #9 – Your comment to Mike Roddy; You are incorrect in that it has everything to do with electricity; Sun heats water into steam, turns turbines, generates electricity. What do you think the heat is for?

  21. Atz says:

    Many thanks to David Lewis for writing an excellent post.

    Mike Roddy – The San Antonio project is actually for 2 units of about 1.3 GW each. If you use the $18 B price tag which has been making the rounds recently for thr project, that corresponds to about $6,900 / kW. As for the $26 B price tag for the Canadian project, please keep in mind that this particular estimate included not just construction costs but also the cost of the fuel for the life of the plant.

    We need to be careful in order to avoid comparing apples and oranges; only an LCOE analysis such as the one detailed in David Lewis’ post allows for an apt comparison between different technologies.

    As a side note, the very same ABWR plant which will be built by NRG in Texas for $6,900 / kW was built in several locations in Japan, on schedule and on budget, for about $2,000 / kW to $3,000 / kW. It really makes you wonder what explains such a difference. Labor costs and labor productivity probably account for part of it; but I suspect that legal obstructionism to new power plant construction in the US, especially nuclear, is also at fault.

  22. fj2 says:

    Most likely, by the time one of these things are even close to being built the Arctic Circle will be ice free on the Fourth of July.

    And, the cost would have paid for an awful lot of protected bike lanes.

  23. sailrick says:

    David Lewis

    You quote NREL but you haven’t read all their reports on CSP, it would seem.
    They acknowledge that the first CSP plants will be expensive, but expect construction costs to fall dramatically after the industry is up to scale and the initial learning curve is over. Their estimates for power from CSP are 3.5-6 cents/kWh after economy of scale is achieved and under 10 cents/kWh long before that.

    They say the added cost of storage comes out as a wash in the big picture. CSP plants are more cost effective as their size grows.

    You are comparing to Nevada Solar One which was a pilot plant, not a commercial plant.

    Flin might want to pay attention here too.

    Arizona alone has the equivalent in CSP potential that far exceeds the generating capacity of our existing 104 nuclear power plants.

    The following exclude national parks, rivers, lakes, inhabited areas, roads, railways, watersheds, environmentally sensitive areas, etc., all with buffer zones.

    From NREL

    Premium solar resource = over 7 kWh/square meter
    Excellent solar resource = 6.5 7 kWh/square meter
    Good solar resource = 6-6.5 kWh/square meter

    And here’s Arizona’ potential for CSP

    Premium 172 GW 376,912 GWh
    Excellent 89 GW 176,496 GWh
    Good 23 GW 41,897 GWh
    Total 285 GW 595,305 GWh

    Using a tiny percentage of the deserts would produce enormous power supplies.

    Here are the numbers for other states. I’m mostly skipping the GWh for sake of brevity.

    New Mexico

    Premium 94.1 GW
    Excellent 51.9 GW
    Good 73.3 GW
    Total 219.4 GW


    Premium 81.9 GW
    Excellent 46.1 GW
    Good 37.6 GW
    Total 165.8 GW


    Premium 61.6 GW
    Excellent 14.8 GW
    Good 21.7 GW
    Total 91 GW

    Indian Lands ( Hopi and Navaho reservations)

    Premium 48 GW 105,337 GWh
    Excellent 9 GW 18,039 GWh
    Good 4.6 GW 8,209 GWh
    Total 61.9 GW 131,585 GWh


    Premium 28.9 GW 63,384 GWh
    Excellent 24.9 GW 47,661 GWh
    Good 21.2 GW 37,168 GWh
    Total 74.3 GW 148,213 GWh


    Premium 2.5 GW
    Excellent 13.1 GW
    Good 22.5 GW
    Total 38.2 GW


    Excellent 1.7 GW
    Good 10.5 GW
    Total 12.3 GW


    Good 4.8 GW


    Excellent 2 GW
    Good 4.7 GW
    Total 6.7 GW

  24. Stephen Gloor (Ender) says:

    David Lewis – “A South Korean consortium of Korea Electric, Hyundai, and Samsung just signed a contract with Abu Dhabi to supply them with 4 reactors totalling 6 GW for $20 billion. Assume a 90% capacity factor, which is lower than the US nuclear industry achieves, and this means Koreans think they can build reactors for $4000 per available kW. ”

    You left out a very significant cost. A further 20 billion will be paid over 20 years to the South Korean consortium making the total cost of the reactors 40 billion which is pretty much in the ballpark. The UAE seem to be doing some creative accounting to keep the intial cost lower.
    “A primary area being reviewed is the optical illusion generated by bid announced by the KEPCO consortium, which has projected 40 billion dollars as the projected cost for the UAE order. The issue is linked with the profitability of nuclear power itself. The only definitive figure in the order is the 20 billion dollars required for the plants’ design and construction. The plant’s operation, which accounts for the remaining 20 billion dollars, requires an additional contract with the UAE. An official with the Ministry of Knowledge Economy says this includes the cost for nuclear fuel supplies, plant repairs, maintenance and equipment supplies, and that the announced 20 billion Won figure was an estimate.”

    My guess is that they have put some of the construction costs into the repairs and maintenance budget. When plants are built they often have faults and defects that have to be fixed. This is normally budgeted in the intial cost however you can see how these could be moved to the repairs etc budget once the plant is near completed.

  25. I agree to what said by Stephen Gloor in the last paragraph. Its better to put costs into repairs.

  26. Atz says:

    Joe – NEI just published an extensive and thorough rebuttal of your claims, here:

    Stephen Gloor – Your interpretation of the UAE cost structure is incorrect. In fact, that their statement says it all – construction will be $20 B, and an extra $20 B will go to KEPCO for running the plant (operations, maintenance, nuclear fuel). This is because at this time, the UAE does not have the trained workforce required to operate and maintain the plant themselves.