Areva looks to federal loan guarantees for new reactors

The fate of four power plants that would use Areva’s new nuclear reactor design could depend in part on a decision the U.S. Department of Energy will make soon.

Later this month, the agency will say which nuclear plants are first in line to share $18.5 billion in federal loan guarantees that are in high demand, since at least 19 companies have announced plans to build new reactors.

The guarantees encourage banks to loan money to build nuclear plants by saying taxpayers will pick up the tab if a project defaults.

In the current tight credit market where it’s hard to get a car loan, the guarantees could be crucial to securing loans for multi-billion dollar nuclear plants.

Lynchburg has a lot at stake in the situation. Already one of the region’s largest employers, Areva is undergoing a $25 million expansion and hiring 500 people to finish the detailed designs of its Evolutionary Power Reactor and get several built in the U.S.

The expansion will get $2.5 million in state incentives and up to $1 million from Lynchburg.

Areva officials said they are sure the four announced EPRs stand a strong chance of getting loan guarantees, and that the EPR will play a role in the expanding nuclear industry.

“You can call it an act of faith, or you can call it a business opportunity,” said Ray Ganthner, Areva’s vice president for new plant deployment. “That’s the way we look at it.”

“We believe nuclear energy will be a viable generation source in the United States, and we want to be a part of it.”

Three companies have submitted a total of four applications for a federal license to build EPRs: UniStar Nuclear Energy, AmerenUE and PPL Corporation.

But each company refers to the projects as “potential” new nuclear reactors. They are holding on to the option to not build.

Mitch Singer, spokesman for the Nuclear Energy Institute, said all proposed reactors are in the same boat.

Utility companies “are not ready to make an overall commitment at this point in time.”

Most are waiting to get NRC licenses before they make the final decision. But loan guarantees are playing a role, too.

PPL said in a news release that its decision on whether to build Areva’s EPR in Pennsylvania depends in part on receiving a federal loan guarantee.

Singer said, “We believe that the loan guarantees are necessary because these are new projects.”

The lack of federal backing “would make it very hard,” he said. “Wall Street, especially nowadays, is very conservative in who they loan to, and they do a risk analysis of it.”

The loan guarantee program was authorized by the Energy Policy Act of 2005 to encourage clean electricity sources such as nuclear and wind. Loan guarantees can cover up to 80 percent of a project’s total cost.

This year Congress appropriated $18.5 billion for nuclear loan guarantees. DOE started taking applications on June 30.

It got a lot of suitors. On Oct. 2, it announced that companies had submitted applications for $122 billion in guarantees to support 21 new reactors.

The agency now is looking at those applications to decide which ones are top priorities.

“Each application will undergo a thorough credit underwriting, including technical, market, legal and environmental review,” said Bethany Shivley, spokeswoman for the agency, in an e-mail.

The department will announce its rankings on or around Oct. 29. Companies can then decide whether to spend the money necessary to submit part two of the application, due on Dec. 19.

All four proposed EPRs have a loan guarantee application on DOE’s table.

Ganthner said, “We think that the EPR loan guarantee applications … are good, solid applications that should be viewed favorably by the Department of Energy.”

In addition to loan guarantees, the overall costs of building a new reactor are also on company’s minds.

Constellation Energy (which owns UniStar, along with a French utility company) won’t make a final decision on the EPR until “we’re satisfied that our expectations have been met concerning safety, cost and regulatory support,” said Maureen Brown, company spokeswoman.

Estimates on a new plant’s cost vary, but many are at least $10 billion. Moody’s Investors Services said a nuclear reactor could cost $7,000 per kilowatt-hour of capacity, nearly twice a new coal plant’s cost.

Ganthner said the high price tag is caused in part by the rising price of steel, nickel and copper. But he said the operating costs of a nuclear plant are 10 percent below the costs of other kinds of plants, which helps offset the capital costs.

He’s not worried about the tight competition for loan guarantees or the costs of a plant.

Even if one of the companies interested in the EPR backs out, the technology will catch on, he said. “In the overall scheme of things, we think that enough of those projects will come to maturity that it will be a viable business.”