October 7, 2008 / 3:49 PM / 11 years ago

TEXT-S&P on nuclear power subsidy estimates

 (The following statement was released by the rating agency)
 Oct 7 - On Oct. 3, 2008, the U.S. Department of Energy (DOE) announced it
has received 19 Part I applications from 17 electric power companies for
federal loan guarantees to support the construction of 14 nuclear power plants
in response to its June 30, 2008 solicitation. A total of $122 billion in loan
guarantees has been requested, which is many multiples of the $18.5 billion in
loan guarantees available under the solicitation. The aggregate estimated
construction cost of these 14 projects is $188 billion. The DOE will review the
Part I submissions and assign initial rankings to the projects, which will help
applicants determine whether to complete and submit to DOE a Part II
application, due Dec. 19, 2008. If all projects were to be built, they would
add 28,800 MW of capacity. The deadline to file detailed applications for Phase
I of the loan guarantee program, for which 16 projects were selected in October
2007 to receive loan guarantees up to $4 billion, is Nov. 17, 2008. The DOE
issued its final solicitation under currently approved limits on Sept. 22, 2008
for up to $8 billion to support clean-coal technologies.
  In light of these developments, Standard & Poor's Ratings Services has
updated our article on our approach to the loan guarantee program credit
assessments (see "Update On The U.S. Dept. of Energy Loan Guarantee Program
And Standard & Poor's Rating Considerations," published today on
RatingsDirect). We have also updated the subsidy cost matrix table at the end
of the article to make certain refinements to the calculations. These
refinements, which are explained in the article, generally increase the
expected subsidy cost, which is expressed as a percentage of the total debt
from the DOE for any given rating and recovery expectation. Our revised
calculations indicate that new nuclear plant subsidy costs could range in the
hundreds of millions of dollars.
  For example, if a 1,000 MW nuclear unit built at $6,000 per kilowatt,
with 80% financing from the Federal Financing Bank (FFB) is rated 'BB-' with a
recovery of 70%, we estimate that the Office of Management and Budget's (OMB)
subsidy cost model could result in a substantial $288 million payment, while a
'BB' rated project at the same recovery may have to pay about $192 million.
Given the publicly expected range of capital costs and the substantial
economic advantages in terms of low dispatch costs that nuclear plants enjoy
in the wholesale markets, and which will only strengthen with the passage of
carbon legislation, we expect that nuclear plants should generally have
recovery expectations in the 60% to 90% range. We emphasize that our
calculations are only rough estimates and should only be used as a guide to
arrive at the possible range of costs, not as an exact prediction of the
result that would be produced by the OMB's model, which is proprietary.
  The reports are available to subscribers of RatingsDirect, the real-time
Web-based source for Standard & Poor's credit ratings, research, and risk
analysis, at www.ratingsdirect.com. If you are not a RatingsDirect subscriber,
you may purchase copies of these reports by calling (1) 212-438-9823 or
sending an e-mail to research_request@standardandpoors.com. Ratings
information can also be found on Standard & Poor's public Web site at
www.standardandpoors.com; select Ratings in the left navigation bar, then
Credit Ratings Search. Alternatively, call one of the following Standard &
Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office
(44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225;
Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4017.
 (New York Ratings Team)


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