Private investors in the nuclear industry could still take advantage of federal tax credits before a 2014 construction deadline, despite permitting delays after the Fukushima disaster.
Alan Lederman of the Florida-based Gunster law firm said yesterday that section 45J, the nuclear reactor tax credit, presents investors with great income potential despite the “cloud” currently over the industry.
“I do think that people can make the deadline even after the Fukushima Daichi incident,” he said. “The Vogtle plant in Georgia, which received a construction loan guarantee from the Department of Energy, I saw they were already grading the land.”
But Lederman told the elite gathering of energy industry executives, analysts, attorneys and academics at the Clean and Green Investment Forum in San Francisco the business risks were also correspondingly large.
The credit, introduced by the Energy Policy Act of 2005 to encourage construction of nuclear reactors in the US, provides a production tax credit of 1.8 cents per kilowatt hour in the first eight years of service. Over this eight-year period the total credits up to $125 million a year multiplied by the “nameplate capacity” of the plant, Lederman said.
For the 24 reactors that applied for approval from the Nuclear Regulatory Commission before the Fukushima disaster, this amounted to between 1.17 GW and 1.7 GW with maximum total credits of $1.17 billion and $1.70 billion, he said. As the national cap for credits associated with new nuclear is set at 6 GW, the investment market could be worth $6 billion.
However, investors should also be made of aware the significant risks associated with the reactor income credit, he said. Tax credits are denied if “pouring of concrete” has not begun by 2014 or if the reactor is not ready for service by 2020.
Lederman said other financial risks could include uncertainties over construction costs, absence of radioactive waste facilities in the US, natural disasters and terrorist attacks. Also, if output drops below 40%, production tax credits are not awarded.
“It’s a combination of placed in service credit and production credit so it has a lot of risk in the sense that if you invest in it and the plant shuts down, if there’s a terrorist incident for example, since it’s production based credit as well you lose the credit. That has been a significant barrier to investors – it’s production limitation and an investment limitation and a placed in service limitation – it’s been a barrier for investment,” Leaderman said.
The Clean and Green Investment Forum was organized by Opal Financial Group.
For more on the future of nuclear energy in the US on Breaking Energy, read:
Fukushima Fallout by Margaret Ryan
US Responds To Fukushima by Shifra Mincer
Questions And Answers With David Crane, CEO of NRG Energy
Fuel, Power Prices Could Rise In Response to Japanese Crisis by Peter Gardett
