(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.
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