I recently returned from a great trip to talk to students at Tulane and LSU. I think there is one thing that still needs to be cleared up. That is the difference between Loan Guarantees and Subsidies. A Loan Guarantee is NOT free money given to a company. A loan guarantee is government backing for a loan that allows companies to access capital at a lower cost.
Let’s compare this with a real life experience I had. Right before my senior year in college my car died. I knew in another year I’d be making good money, but I didn’t have the down-payment or credit required to buy a new car. My father was kind enough to step in and co-sign on my loan. My father didn’t give me any money. He knew of my potential to make money in the future and that I was reliable to make payments in the meantime, so he put his name on the loan along with mine.
In this situation I’m the nuclear industry. Building a new plant is a huge upfront cost that even the largest nuclear companies can’t pay for outright. By getting the government, or in my experience, my father, to co-sign on the load they get a reduced rate which translates to project cost savings and lower rates for the end consumer. Fortunately for me, my father didn’t require me to give him money in return for his signature; however, the government actually receives a fee from companies who participate in the loan guarantee program.
With loan guarantees, everyone wins. The company gets lower loan rates, the consumer gets lower utility rates, and the government gets their associated fee (which we all hope ends up benefiting the tax payers). American workers have more jobs, 1400-1800 jobs during construction and 400-700 permanent jobs. American manufacturers will also benefit because of more demand for concrete and steel as well as thousands of other components required to create electricity. The environment also wins with a large source of base-load clean energy.
One thing to note is that the federal government has 70 loan guarantee programs to ensure investment of critical infrastructure for this company totaling $1.2 trillion. The $78.5 billion allocated to nuclear (2005 and 2009) is a small piece of this pie (6.5%).