Japan Clears Way for Loan Guarantees In US

September 26, 2008

Nucleonics Week

A Cabinet-level decision in Japan has opened the way for that country to provide supplemental loan guarantees to companies proposing to build new power reactors in the US, provided those projects have Japanese investors.
One US nuclear industry official said September 23 that he doesn't see a downside to the news and that he expects Japanese investments in any individual project would amount to "a relatively small percentage of the overall project."
Still, given the financial crisis that has shaken Wall Street over the past week, "the amount of finance available in the US may be very limited," the official said. "US power companies will likely be anxious to obtain as much foreign investment and foreign financing as they can get."
The action by the Japanese government makes good on the Statement on Cooperation for the Peaceful Uses of Nuclear Energy that Japan's top energy official, Akira Amari of the Ministry of Economy, Trade and Industry, or METI, and US Energy Secretary Samuel Bodman issued in June. That statement confirmed their "expression of the intention to consult on potential financing support measures that would facilitate nuclear power plant construction" in the US, "incorporating the financial institutions identified by METI (Japan Bank for International Cooperation (JBIC) as well as Nippon Export and Investment Insurance (NEXI)), and identified by the United States Department of Energy (DOE Loan Guarantee Program Office)."
The Japan Atomic Industrial Forum's web-based publication Atoms in Japan reported September 17 that the newly created Japan Finance Corp., a joint-stock corporation owned by the Japanese government, would provide investment credits aimed at nuclear energy projects in developed countries. Japan's Atomic Energy Commission was briefed September 2 on the JFC credits following the Cabinet-level decision in late August, Atoms in Japan reported.
JFC will be officially launched October 1, Atoms in Japan reported. It will be the product of the merger of such financial institutions as JBIC, the National Life Finance Corp., the Agriculture Forestry and Fisheries Finance Corp., and the Japan Finance Corp. for Small and Medium Enterprise.
US industry officials have said the Japanese investment credits are equivalent to a US DOE loan guarantee and would supplement a DOE guarantee, allowing a company building a new reactor in the US to reduce the size of the financial backing it seeks from DOE. That could make the project a more attractive candidate for a DOE guarantee, according to one industry official, who noted last month that DOE's regulation for its loan guarantee program says that a project's ranking as a viable applicant increases as its dependence on a DOE loan guarantee decreases.
France also is said to be considering loan guarantees for new reactors in the US.
Loan guarantees reduce a utility's financial risk by demonstrating government confidence in the technology and the project. That federal backing is expected to lower the financing cost of a new nuclear unit. The government would pay only if a utility defaulted on its loan.
The Japanese guarantees won't be tied to the use of Japanese reactor technology, but the use of that technology potentially could make a project a more attractive candidate, US industry officials have said. However, a new reactor project in the US would have to have Japanese investors in order to be considered.
Market edge?
Some nuclear component companies in the US pulled back from the nuclear business during the decades-long hiatus from the construction of new reactors in the US following the partial core melt accident at Three Mile Island-2 in 1979.
The Japanese program might give Japanese nuclear component suppliers a slight market edge initially and might deter some US companies from jumping back into the US nuclear suppliers' market, according to some US industry officials. However, they said they believed that some US companies would re-enter the market as the demand grew with the construction of additional reactors in the US and overseas.
Tax incentives alone won't lure former US nuclear component companies back into the market; there has to be a "clear, sustained market," one US industry official said September 23. That, he said, is the type of issue Congress should look at during the next administration: how to reinvigorate some of the country's manufacturing capability.
US-based reactor vendors, for instance, try to buy components from US companies, he said. However, there will be some components that aren't manufactured in the US. Or even if there are US suppliers, what happens when they reach their capacity limit? he asked. That's where there's room in the market for new suppliers, he said.
He said that bringing heavy forging operations -- such as those used to manufacture parts for reactor pressure vessels and steam generators -- back to the US might be difficult because of the level of expertise needed. However, machining those forgings into the finished products could easily be done in the US, he said.