Bioenergy, Geothermal, Hydropower, Solar, Wind Power

Department of Inactivity?

Issue 5 and Volume 2.

The U.S. Department of Energy needs to streamline its process for considering and either approving or rejecting applications under loan guarantee programs designed to stimulate renewable energy and nuclear power plant projects.

To date, some loan guarantees have been made, but not enough. As Rhone Resch points out in my interview with him elsewhere in this issue, as many as 80 solar energy projects are still being reviewed by DOE. One of the only loan guarantees that has been approved for the solar industry was a $530 million package for Solyndra. And that was done back in March 2009 for a project that sought funds from a 2005 DOE program.

Resch told me that DOE and the Office of Management and Budget appear to have developed rules for loan guarantee applications that are at least partly to blame for the delays. Just as bad, the flow of information back to applicants isn’t what it should be.

Congress in August used DOE inactivity on renewable energy loan guarantee programs to redirect funds elsewhere. Congressional leaders and the White House both said money would be reallocated to renewables at a later date. But the point is that DOE needs to move faster.

It isn’t just renewable energy projects that are slowed by the DOE bureaucracy. Things looked promising last February when DOE awarded a loan guarantee for a new nuclear power plant proposed by Southern Company. Since that announcement, however, DOE has been silent on further guarantees. As a result, Constellation Energy and NRG Energy both cut spending related to their proposed nuclear projects. At a time when carbon emissions and jobs are both top priority issues, it’s hard to understand the delays at the federal level.

Now comes word that new U.S. nuclear development will depend on federal support such as loan guarantees, especially as natural gas prices remain depressed. Standard & Poor’s said in a report released in mid-August that federal loan guarantees “significantly” improve the economics of reactor construction.

According to the report, a nuclear plant that costs $6,500/kW to build is likely non-competitive without a federal loan guarantee at prevailing forward natural gas prices. Under the best-case scenario, which includes government subsidies and carbon costs of $20/ton, the cost of reactors can be as low as $3.90/MMBtu, compared with natural gas prices in the $5/MMBtu range. In a carbon-constrained world, nuclear power has a role.

For regulated utilities, reactor construction may be easier to pursue, since they can make a case to regulators that nuclear costs are more stable than gas-fired units and argue that emissions regulations favoring nuclear may be forthcoming.

However, S&P said in the report that it expects unregulated companies that do not receive loan guarantees to defer or abandon the projects because they are too expensive or uneconomic to build.

Renewable energy and nuclear power projects need to be encouraged. They reduce fossil fuel consumption, ease the nation’s carbon footprint, create construction jobs and foster a greener, more environmentally friendly power generation profile.

To be sure, the federal government needs to ensure that tax dollars are spent wisely. It’s always distressing to see reports of bogus or wasteful projects funded on the taxpayers’ dime. But DOE seems glacially slow in considering these projects. The Department of Energy needs to show some.