A week after PJM Interconnection announced the results of its forward capacity auction, Exelon began planning the early retirement of its Clinton and Quad Cities nuclear plants in Illinois.
Quad Cities was built in 1973, rated for 1,871 MW and is online producing power – carbon free power – 95% of the time. The Clinton plant puts up similar stats: more than 1,000 MW, online more than 90% of the time since it opened in 1987.
But the plants have struggled in interstate power markets. Quad Cities, facing thousands of megawatts of new gas-fired generation fueled by historically-low commodity prices, failed to clear the PJM capacity auction. Clinton had cleared a preliminary reliability auction in neighboring market MISO, but the resulting price was not enough to cover operating costs and returns to shareholders.
When Illinois lawmakers failed last week to pass a carbon emissions standard that would have subsidized the plants, Exelon decided to throw in the towel.
"If anyone was expecting the PJM auction to preserve zero carbon resources, that wasn't a reasonable expectation," said Joe Dominguez, executive vice president of regulatory and public policy at Exelon.
PJM revamped capacity market rules after generators failed to deliver during the Polar Vortex in 2014. While those changes, along with recent price increases in MISO auctions, delivered more revenue to nuclear plants, they were not sufficient to cancel out the consequences of cheap gas and stagnant demand.
"The redesign of the [PJM] rules and the penalty structure is beneficial to highly reliable units like nuclear," Dominguez said. "But as we've been saying for a few years, if nuclear is going to have a significant future the country needs to recognize it for its environmental attributes. And that's not what the auction has ever been designed to do."
It's a similar story in the northeast and New England. Entergy has shut down Vermont Yankee, taking the bulk of that state's carbon-free energy off the table, and plans to close FitzPatrick, in New York, next year. Pilgrim, in Massachusetts, will close in 2019. All of those decisions were made due to economic pressure.
Some would argue that the markets are working: Gas is cheap, nuclear costs are high, and government has decided not to prop up nuclear. Generators naturally take a different view, pointing to renewable credits and questioning whether the country can meet emissions goals if it pushes out nukes.
“Where the market is failing, is in the well-intentioned government intrusions to achieve certain policy objectives that have significant implications for power markets. But people don't think through what those implications are,” said Ralph Izzo, CEO of PSEG.
PSEG's generation subsidiary owns and operates nuclear plants in New Jersey and has interests in Pennsylvania nuclear generation as well. Though Izzo is quick to point out that none of his company's plants are in danger, he said “plants are under pressure from low-cost natural gas. That's the way it is, and we need to make sure we control our costs and operate our plants efficiently. so we can withstand those competitive pressures.”
Plants needed to meet carbon goals?
PJM's analysis of the Clean Power Plan shows the region will need to reduce carbon dioxide emissions by 23% from 2012 levels in order to be in compliance with the federal emissions mandates. Nuclear power will play a part in that.
“You can't get to the type of carbon emissions people want to get to … unless you continue to use aggressive nuclear policy and have the nuclear fleet continue to function,” said former Sen. Judd Gregg (R-NH), now co-chair of industry advocate Nuclear Matters.
Nuclear energy represents about 60% of the non-carbon emitting energy in the country, and makes up almost 20% of energy baseload.
“Carbon will become even more of a concern, so I think nuclear is well positioned to be a contributor to solving the problem,” Gregg said. “When these plants close prematurely, before their useful life is up, their energy is replaced by carbon-emitting energy, which is not as reliable.”
From the standpoint of climate policy, it would seem nuclear's carbon-free energy should be showing up on the grid. But the reality is that large amounts of cheap gas has quickly changed the market landscape, and nuclear's high capital costs and expensive safety requirements leave it struggling to compete.
Exelon's two plants now slated for closure lost a combined $800 million in the last seven years, despite their strong performance records.
Maybe nothing is wrong with nuclear markets
Maybe there's nothing wrong with the markets. That's the view of Tim Judson, executive director of the Nuclear Information and Resource Service, which advocates for non-nuclear clean power.
“If the nuclear plants can't make it, this is the market they've chosen to participate in,” said Judson. “There's no reason to think the markets aren't working.”
According to Judson, the U.S. Environmental Protection Agency made a decision not to support existing nuclear plants in the Clean Power Plan because demand can be met without them. While the agency counted in-construction nuclear plants toward states' baseline emission rates under the finalized plan, it stopped short of including existing nuclear generation to lower baseline emissions rates for each state.
NIRS and Alliance for a Green Economy partnered on a white paper focused on New York's carbon goals, finding the state could meet its targets without nuclear energy.
"FitzPatrick's full electricity generation could be replaced with energy efficiency and wind at less than the current cost of electricity from the nuclear plant," their research argued. "Diverting all of FitzPatrick’s revenue to clean energy could result in additional reductions in greenhouse gas emissions, equivalent to a 264 MW coal plant or 330 MW combined cycle natural gas plant."
And while long-term clean energy policies will have job implications, Judson said nuclear owners overstate employment impacts, noting that they have training and transitioning included in decommissioning costs.
“Generators frequently blame low natural gas prices, but [nuclear operating] costs have been rising for over a decade,” Judson said. With high construction and capital costs, “the problem they're really having is these machines are becoming uneconomic to operate.”
New York's proposed Clean Energy Standard could cost the state up to $4.5 billion he said, “and it's sort of a blank check … the plants just get more expensive to operate.”
Policy changes considered
New York may seem of two minds when it comes to its nuclear plants. Gov. Andrew Cuomo has waged a campaign to shut down Indian Point, which operates within 50 miles of New York City. At the same time, the state proposed a Clean Energy Standard that was designed to save the FitzPatrick plant.
Indian Point is profitable in part because it gets higher prices for its power, due to its location. But it also operates two reactors, generating about 2,000 MW with 1,000 employees. FitzPatrick, by comparison, generates about 850 MW with 600 employees.
"Economies of scale are much better at a two-unit site," said Entergy Vice President of External Affairs Mike Twomey. But "it all comes down to policies that are designed to support clean energy but are not designed to support the biggest source of clean energy: nuclear."
New York's Clean Energy Standard would have credited FitzPatrick, essentially helping make up the revenue differential. Just how large that was, the company won't say. But the state didn't get the standard done in time, and Twomey said now that the decision is made FitzPatrick won't be saved.
"There has been late recognition from folks that policy changes are warranted, but unfortunately those changes are going to come too late," Twomey said. "The shame of this is that unlike a gas plant or a coal plant that can be mothballed until the market comes back, [nuclear plants] are gone … late recognition of the value of nuclear is essentially no recognition."
In Illinois, Exelon was supporting legislation that would have added nuclear energy to the list of fuels eligible for clean energy credits. But the legislation stalled, forcing the company to make a decision on its Clinton and Quad Cities plants.
While the decision to close the plants is "final," Exelon's Dominguez said it is also "reversible."
"We're going to continue to work with policy makers and legislators," he said. "We have critical decisions around fuel purchases that need to be made by December. ... With each passing week it becomes even more expensive." Right now, the company is in the process of canceling fuel purchases and ramping up retention programs to keep employees at the plant.
The state has indicated it is still working on a solution, and Dominguez said the company remains hopeful. "But the reality in Springfield today, is that issues surrounding budget that have been lingering, have sucked up all the oxygen in the room."
Nuclear not being given proper credit
Across the nation's organized markets, nuclear supoorters say nuclear plants are not properly compensated for their reliabile, carbon-free generation.
“The basic, bottom line is this: Power in parts of this country is basically paid for on a spot market basis. Therefore you're paying a price which doesn't reflect the massive capital that goes into a nuclear plant,” said Nuclear Matters' Gregg. “On top of that, nuclear plants don't get any credit for their contribution in the area of non-carbon emitting sources, in the area of reliability, which is critical, and in the area of diversity of supply.”
While Nuclear Matters is agnostic as to a specific policy route, Gregg said trading credits or pricing differentials could be used, though it would all need to be determined on a "state-by-state basis."
“We're very much for all forms of energy,” Gregg said. “But, if you're going to spot price energy in an industry like nuclear where you've got large capital investments that play out over years and you don't give it credit for the positive effect it has on emissions … it's going to be hard for it to be competitive.”
PSEG's Izzo sees a twisted irony in some of the policy decisions in place.
"You cannot, based on the laws of physics – forget the laws of Congress – replace those nuclear plants with more wind," he said. "So you've created a system where, in the interest of reducing carbon, you're going to shut down nuclear plants that you replace with natural gas. They had the best of intentions with a really bad outcome.
"It's bad on two fronts: carbon and economics. The short-run cost of operating those nuclear plants is less than the long-run costs of building a gas plant. So you're paying higher prices for more carbon."