Congress has until the end of June to decide whether to reauthorize the Export-Import Bank, the official credit export agency of the U.S. government. While the bank’s stated mission “is to ensure that U.S. companies—large and small—have access to the financing they need to turn export opportunities into sales,” Ex-Im has gained a reputation for favoring large, politically connected firms to the detriment of small businesses, the free market, and American families.
Ex-Im’s cronyism can be seen across the economy, particularly in the energy space. Those supporting Ex-Im, including some nuclear energy advocates, see the bank as a necessity. In a recent letter to Congress, the Nuclear Energy Institute (NEI) argued that without support from Ex-Im, it would be difficult to secure financing for the construction of nuclear reactors abroad.
Congress should let the Ex-Im Bank expire. The solution to inadequate nuclear financing is not to extend Ex-Im. Rather, nuclear advocates should focus on addressing regulations, subsidies, and mandates that put nuclear power at a competitive disadvantage in both domestic energy markets and export markets. To name a few specific policies, we recommend: 1) cutting excessive regulations that impede the licensing and construction process for reactors, 2) eliminating the wind Production Tax Credit and solar Investment Tax Credit, and 3) repealing state Renewable Portfolio Standards. Further, insofar as international banking requirements are the real impediment, nuclear advocates should focus on reforming those requirements rather than reauthorizing Ex-Im.
By focusing on Ex-Im instead of the measures outlined above, nuclear advocates miss the root cause of nuclear’s troubles: excessive government intervention. NEI’s letter is a classic example of the observation that each government intervention into the economy begets more intervention. Costly regulations and subsidies do not justify more of the same. Ex-Im supporters would get better results by streamlining regulations and reducing subsidies than asking Congress to fix government-created problems with more government.
Fixing Regulatory Barriers that Stifle a Strong Domestic Industry
One of the main barriers to a thriving nuclear industry that can compete domestically and internationally is the outdated regulatory process at the Nuclear Regulatory Commission. The current system primarily focuses on technologies that have existed in the market place for years—namely large, light water reactors. While light water reactors will likely remain the backbone of the nuclear industry for years to come, the regulatory apparatus makes it nearly impossible for new disruptive technologies to come to market. This effectively stifles the kind of innovations that could alter the domestic and international nuclear markets and make U.S. companies more competitive.
Improving the regulatory process so it moves quicker and is more technology-neutral would go a long way toward reducing costs and increasing U.S. competitiveness. Focusing efforts on Capitol Hill to these problems would do much more for the long-term health of the nuclear industry than Ex-Im ever will or could.
Streamline Permitting Process for Nuclear Exports
NEI argues in its June 4 letter to Congress that “commercial lenders are averse to financing nuclear power projects for regulatory reasons,” puts the U.S. nuclear industry at a disadvantage when competing against foreign firms. This is correct: for example, it takes between 15 to 90 days for Russian, Japanese, or Korean companies to obtain licenses for the export of nuclear materials, components, and technology. U.S. companies are forced to wait 6 months to a year.
However, taxpayer subsidies are not the solution. Instead of reauthorizing Ex-Im, the real problem holding nuclear exports back is onerous and overlapping regulations. The nuclear export licensing process falls under the jurisdiction of four agencies: Department of Energy, Department of State, Department of Commerce, and the Nuclear Regulatory Commission. Each of these agencies has a lengthy review and flawed process that companies must navigate before any proposal is approved.
Take the DOE process. According to the Government Accountability Office, “DOE rarely meets its existing target time frames for processing Part 810 applications, which calls into question whether these targets are realistic and achievable in light of its resources and authorities.” Further compounding the licensing process is the ineptitude of the interagency review process. GAO confirms that “Interagency review times missed DOE’s 30-day target for 85 of the 89 applications approved from 2008 through 2013.” The current process is broken, and no amount of funding from the Ex-Im can fix that.
Removing impediments in the licensing process would encourage lenders to invest in nuclear projects and grow the industry, thereby eliminating the need for the Ex-Im bank. This could be done in a number of ways. First, the Nuclear Regulatory Commission should be the sole agency responsible for regulating the sale of nuclear equipment and technologies, and its review process should be streamlined. Additionally, firm time limits should be placed on the licensing process to avoid overruns on the number of days between submittal and approval. These time limits should be competitive with other nations to ensure that U.S. nuclear companies can compete abroad.
Eliminate Subsidies that Harm Domestic Nuclear Power: Wind PTC and Solar ITC
While permitting delays hurt the domestic nuclear power industry, nuclear is also hurt because the federal government directly subsidizes some of the competition to nuclear. For example, the wind Production Tax Credit (PTC) and solar Investment Tax Credit (ITC) harm nuclear power by making wind and solar appear artificially less expensive. Enacted in 1992, the PTC gives wind developers a lucrative tax credit worth 2.3 cents per kilowatt-hour of electricity produced. The solar ITC gives solar producers a 30 percent tax credit on the cost of installing residential and commercial properties.
The wind PTC is so lucrative that wind producers engaged in predatory pricing because of the federal subsidies. Wind producers who receive the PTC can sometimes pay the electric grid to take their power and still profit—a phenomenon known as negative pricing. This puts existing nuclear power plants—which cannot bid artificially low prices into the grid because they cannot claim the PTC—at a competitive disadvantage to wind. Recent reports have also highlighted the problem of negative pricing when it comes to solar power. Fundamentally, the problem is that intermittent supply from wind and solar facilities simply cannot match demand in real time.
Why does negative pricing particularly harm nuclear producers? As the Energy Information Administration (EIA) notes, “negative prices generally occur more often in markets with large amounts of nuclear, hydro, and/or wind generation.” That is because each of these technologies has an incentive to continue operating even when its facilities are temporarily paying the grid to take their power. Nuclear plants are designed to run at full output and not “ramp” up and down. In times of very low demand, nuclear plants will sometimes take negative prices rather than go through the long and expensive process of lowering their output.
Unlike nuclear producers, the wind industry actually profits from negative prices because the PTC is such a large subsidy. Wind producers receive PTC payments per unit of power produced (even when the power has no value whatsoever to the grid), so they flood the grid with uneconomic power and ignore the distress signal sent by negative prices. It is also important to note that wind and solar subsidies have a draining effect on reliable power plants, whether or not prices actually dip below zero.
The threat to baseload generation from negative prices is very real. Already, Dominion closed its Kewaunee Nuclear Plant in Wisconsin 20 years ahead of schedule and Entergy has retired its . Both companies cited economic considerations as the reason for closing the plants. The DOE’s assistant secretary for nuclear energy referred to this emerging pattern of nuclear plants shutting down early as “a trend we are clearly very, very concerned about.”
Negative pricing caused by the PTC has a chilling effect on private investment. Potential lenders will only assume the financial risk of investing in new nuclear plants if they have a reasonable expectation of earning a return on that investment. Eliminating the wind PTC would send a signal to investors that nuclear power can compete and profit.
Repeal Renewable Energy Mandates
Renewable energy mandates are another government policy that disadvantages nuclear power. Currently, more than half of the states have enacted some form of an energy mandate, or RPS, which requires utilities to generate a certain percentage of their electricity from renewable sources. Though the requirements differ from state to state, the result is the same: intermittent wind and solar benefit at the expense of reliable nuclear, natural gas, and coal—and families foot the bill.
State energy mandates paired with direct subsidies for renewables present a two-pronged threat to nuclear. Energy mandates artificially increase demand for wind and solar, requiring utilities to accept renewable power over reliable power. Then, wind and solar can bid artificially lower prices into the grid since their power is subsidized, and the true cost hidden, by the wind PTC and solar ITC. These two factors combine to depress prices for wind and solar while elbowing out reliable sources of power such as nuclear.
Investors are well aware of this scheme. As long as subsidies and mandates continue to distort the market and hide the true cost of wind and solar, nuclear will remain cost-prohibitive to private capital. Focusing on increasing subsidies through the Ex-Im Bank instead of on these more fundamental impediments to the domestic nuclear energy industry risks losing the forest through the trees.
Conclusion
Nuclear energy is a proven, low-cost, reliable source of energy. Unfortunately, the licensing process for nuclear exports is too long and arduous for many investors to stomach, and other regulatory hurdles here and internationally only make matters worse. Meanwhile, subsidies and mandates for renewable energy make operating some nuclear facilities cost prohibitive, which has a chilling effect on future investment. This is why most of the new nuclear power plants are being built overseas, where regulations aren’t as onerous.
There is no doubt that American nuclear energy can thrive in the global market, but the Export-Import Bank isn’t the answer. Instead of trying to renew Ex-Im to boost their prospects, nuclear proponents should focus on streamlining the export licensing process. Domestically, eliminating subsidies for wind and solar and repealing state renewable energy mandates would help establish a more solid role for reliable nuclear power. Each of these policy changes would encourage more private-sector investment, thus building a stronger U.S. nuclear industry that is able to compete in foreign and domestic markets without taxpayer handouts.