Score one for the taxpayers! A $7.5 billion Department of Energy loan guarantee for the Calvert Cliffs nuclear reactor near Lusby, Maryland has been tabled. Constellation Energy has removed itself from contention for the taxpayer-backed loan guarantee, citing concerns with the federal government’s fee for the guarantee. The Department of Energy, the agency charged with running the loan guarantee program, offered to guarantee Constellation financing for 80% of the $7.5 billion project on the condition they pay an 11% fee, roughly $800 million, to cover the risk to taxpayers.
But 11% is likely too low to really protect taxpayers in the event of default. Nuclear reactors have been found to have a 50% default rate and only a 50% recovery rate on DEFAULTED loans. Taxpayers should be protected from the 25% loss that could occur because of loan defaults. While Constellation’s withdrawal from the project does not entirely remove the possibility of the loan guarantee moving forward, it does make it significantly less likely. Other factors, besides the credit subsidy cost, are also a concern in the project’s future including the decrease in electricity demand, natural gas prices and climate legislation.
Statement by Ryan Alexander, President, Taxpayers for Common Sense:
“Taxpayers can breathe a sigh of relief knowing they won’t be stuck with guaranteeing billions in loans to the economically troubled Calvert Cliffs nuclear reactor. It appears that even the relatively cheap fee that the Department of Energy was charging Constellation was too much. This just provides greater evidence that the economic case to build a new reactor is weak and that getting the government to back risky loans will only end up racking up billions in losses to the taxpayer.”
TCS has been closely tracking the DOE loan guarantee program since its creation in the 2005 Energy Policy Act and raised significant concerns with the program’s structure and lack of transparency. Our analysis this summer evaluated the top contenders to receive a loan guarantee which included the Calvert Cliffs project. The project has been riddled in economic concerns and ownership turmoil.
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