The enemy of my enemy is my friend, right?
In the power sector, not so much these days.
At first blush, nuclear and renewable energy should be natural allies in the clean energy transition. While the resources sport widely different generation attributes, both of them produce low-carbon electricity, a key feature in the age of global climate change.
But in the aftermath of major nuclear retirements, the two camps often appear to be fighting each other as much as the fossil fuel industry.
Case in point: The Diablo Canyon nuclear retirement.
After Pacific Gas & Electric announced plans to retire the 2.2 GW plant and replace it with renewables and energy efficiency, a number of nuclear supporters blamed solar and wind energy incentives for the closure, saying the plant is only going offline to make room for intermittent generation on the grid.
Activists at the pro-nuclear nonprofit Environmental Progress were among the harshest critics of the deal, saying it was “negotiated by corrupt institutions behaving unethically and perhaps illegally.” The group's President Michael Shellenberger told Utility Dive the plan “completely undermines our climate and environment goals and everybody who negotiated it should be ashamed of themselves."
Renewable energy advocates say replacing Diablo and other plants with wind, solar and hydropower will save both money and carbon compared to their continued operation. They have less to complain about these days, with last year’s tax credit extensions expected to drive substantial growth into the early 2020s, but a few have shown animosity toward the very idea that nuclear has a role in a decarbonizing grid.
Despite their low-carbon qualities, discord between the renewable and nuclear energy camps is nothing new. A legacy of catastrophic nuclear failures around the world has left a segment of the environmental community deeply suspicious of their safety and the costs of their upkeep. Nuclear advocates, meanwhile, remain skeptical toward renewable energy costs — especially when compared with existing nuclear — and reliability impacts.
Combative behavior on both sides could end up hurting the ultimate goal of rapid decarbonization, analysts and industry officials told Utility Dive, and prevents dialogue on important questions regarding nuclear's cost and tradeoffs regarding its retirement.
If both renewables and nuclear will be needed to achieve deep decarbonization at the lowest cost, doing so will require significant changes to generation incentives, wholesale power markets — or both. While some state proposals have already emerged to align nuclear’s continued operation with renewable energy growth, full development and implementation of such plans will require each sector’s backers to cooperate, rather than compete.
Two types of nuclear plight
Today, nuclear plants provide nearly 20% of U.S. electricity generation, more than four times the amount of wind and (utility-scale) solar combined. But that proportion is set to decline significantly in the coming decade due to nearly 9 GW of slated nuclear retirements.
Of the coming retirements, the Diablo Canyon decision stands out, said Alex Gilbert, an energy analyst who studies decarbonization pathways and co-founder of SparkLibrary, an energy research platform.
“Diablo Canyon is very different than all the other retirements that we’ve seen because all of [them] have either occurred immediately or within the next 4 to 5 years,” he told Utility Dive. “All those are directly related to short term issues, where plants are not getting enough revenues in wholesale markets due to low gas prices.”
Diablo Canyon is not slated to go offline until 2025 and its closure is based on a long-term assessment of California’s energy landscape. PG&E forecasted that it would need to run Diablo Canyon less as wind and solar — which get priority in dispatch — grow during the state’s move to meet its 50%-by-2030 renewable energy mandate.
Figuring the plant would only run part-time, the utility calculated it would cost less to replace it over a decade with a mix of renewables, energy storage and efficiency measures, a conclusion that nuclear backers contest.
But outside of California, nuclear closure decisions are based less on long-term planning and more on immediate economics. Historically low prices in wholesale markets are forcing large baseload plants of all types offline, and the most expensive nuclear plants cannot make enough revenue to continue operating.
Renewable energy may be beginning to push down energy market prices in some regions, but the real issue is persistently low natural gas prices, according to PSEG President and CEO Ralph Izzo, whose company operates three nuclear plants.
“Let’s not pick on renewables,” Izzo told Utility Dive. “If I look at the three reasons why our margins have been compressed at nuclear plants, it's first and foremost natural gas, and a close second between increasing operations and maintenance cost and increasing renewables penetration.”
The absence of persistent growth in energy demand also has an impact, Izzo said, but it is difficult to ascertain whether that is due to efficiency upgrades or lingering effects of the 2008 financial crisis.
A recent Bloomberg New Energy Finance analysis provided to Utility Dive supports that conclusion, finding that 55% of the 100 GW U.S. nuclear fleet is at risk of retirement due to insufficient revenues in wholesale markets. The most at-risk units, analysts said, face shortfalls of between $5/MWh and $15/MWh.
Though the Bloomberg analysts did not single out renewables as the cause of nuclear’s plight, some industry backers have jumped on the $5-$15/MWh shortfall statistic.
“The $23/MWh federal Production Tax Credit for wind farms,” Environmental Progress noted, “can be larger than the total wholesale price nuclear plants get for their power in some regions, according to Bloomberg data. (It’s also larger than the $5/MWh-$15/MWh subsidies Bloomberg reckons nuclear plants need to break even.)”
For some critics, however, that perspective masks the massive subsidies given to nuclear generation over decades.
Jim Lazar, a senior advisor at the Regulatory Assistance Project, has observed the nuclear industry since he conducted his Master’s thesis in the late 1970s. He pushed back on the nuclear cost claims, saying “there's no part of the power sector that's been subsidized more than nuclear.”
“The annual subsidies just for the Price-Anderson Act — the cost of acquiring insurance coverage that the federal government is covering under Price-Anderson — would add about $0.03/kWh to the cost of nuclear generation,” he said. “When you look at the cumulative subsidies in the energy industry, those to the renewables industry are pretty small by comparison to those the fossil fuel and nuclear industries have enjoyed.”
Regardless of the lifetime subsidies of each resource, however, most retirement decisions are based on shorter-term factors, leading many to worry they will be replaced with natural gas, rather than zero-carbon resources.
The politics of replacement
In California and elsewhere, the common argument against replacing nuclear with renewables is that it would cost more to do so than to keep the plant running.
In the case of Diablo Canyon, Amory Lovins, cofounder and chief scientist at the Rocky Mountain Institute, thinks otherwise. After the closure announcement, he wrote that given PG&E’s estimates that Diablo Canyon would cost between $69/MWh and $72/MWh to operate post-2025, the utility can expect to save both money and carbon by retiring it.
“[If] you buy $20/MWh or $30/MWh efficiency solutions, or renewables in the $30/MWh range in California, you will get 2 kWh-3 kWh of carbon-free resource for every nuclear kWh you don’t generate,” he told Utility Dive.
Nuclear advocates object to that formulation, arguing that Lovins is comparing subsidized renewables with nuclear, which does not enjoy the same incentives or priority in electricity dispatch. And while solutions like that may work in California, where renewable energy markets are more developed, PSEG’s Izzo said he cannot imagine designing a similar cost-effective package for one of his plants.
“It’s technically possible; I don’t think it’s economically possible,” he said, citing the low capacity factor of renewables in his New Jersey service territory.
“The variable cost of running solar is indeed zero, but that just masks the fact that the capital cost is in our case going to be closer to $300/MWh [including energy storage],” he said. “You can pretend it doesn't cost anything because if you have enough ITC and other subsidies, it's ‘paid for,’ but that’s silly.”
Lazar sees the issue differently. California, which has prioritized energy efficiency and renewables growth, doesn’t have much “low-hanging fruit” with which to replace a retiring baseload resource, he said. Eastern states, by contrast, still have a lot of cheap zero-carbon options.
“The East Coast and most of the country is still at a point where demand response, time-of-use pricing, active load control on water heaters, ice storage — some of these low-cost resources can still provide them all the flexibility they would need to retire some significant portion of their existing baseload resource,” he said. “California ... has exhausted a fair amount of that.”
Jesse Jenkins, an MIT researcher and former director of energy and climate policy at the Breakthrough Institute, agreed with Lazar that efficiency and demand management will be important. But, he said, “we should be doing that already.”
“It's not really a fair comparison to say there's all this low-hanging efficiency fruit and we should do that instead of nuclear,” he said. “We should be doing that instead of running coal plants.”
Better than devising individual plans to address nuclear closures would be to integrate them into existing renewable energy mandates on the state level, he said.
Under Jenkins’s formulation, existing renewables and nuclear plants would make up a “first tier standard” of capacity that can meet today’s power needs. A second tier in the RPS standard would then be created to account for expected renewable energy growth.
In California, for instance, the 50% renewables mandate could be combined with the 9% of the state’s electricity supplied by Diablo Canyon to create a (roughly) 60% renewables and nuclear standard, Jenkins said.
“If we want to be 60% overall, then that 60th percentage point of renewables is what you should be comparing to Diablo Canyon, not the first cheapest renewable plant you build,” he said. “In most cases, those marginal plants are quite expensive.”
If nuclear plants are included in state RPS standards, Jenkins said, much of their immediate competition with renewables can be eliminated, leaving new clean capacity additions to take the place of retiring fossil generation.
“Really the question is what's the overall cost effective path to rapid decarbonization and in that portfolio nuclear is often quite price competitive,” Jenkins said. “Not all the plants — there are some single reactors like Fort Calhoun that are quite expensive — but for the most part these plants are quite cost competitive as part of a low carbon portfolio.”
Strategies to save nukes
Integrating nuclear energy into RPS standards is just one of several policy techniques Gilbert plans to address in a series of posts on SparkLibrary, the online energy research platform he co-founded. The goal, at its base, is to outline proposals that make nuclear plants less dependent on wholesale markets for survival.
“The way we have things structured right now, wholesale market prices are literally dependent on the weather, because that's what determines natural gas prices in the short term,” he said. “That just doesn’t make sense. We should not have revenues tied to that for all these units."
The RPS solution could be a “very powerful option” to help nuclear facilities, he said, because many of the plants at risk for closure in wholesale energy markets are located in states that already have RPS policies.
In a similar move last week, New York regulators announced a new scheme to save their nuclear plants — a zero emission credit program that would support upstate facilities.
“It's under the guise of their Clean Energy Standard, but really what it's doing is providing a price floor based on the social cost of carbon plus a more arbitrary price level,” Gilbert said.
To set that price floor, New York regulators first forecasted the average energy and capacity prices for the next two years, then added the social cost of carbon — an estimate of the health and environmental externalities associated with carbon pollution — to determine the base price for nuclear compensation.
“It's a price floor, so if power prices get high enough in the state — somewhere around $60/MWh, depending on the year — the [zero emission credit] price actually goes to zero, and the subsidy doesn't really have an effect,” Gilbert said. “That’s unique and the way you’re calculating that is very different than a [renewable energy credit] price.”
Other options to preserve nuclear generation include reinstating cost-of-service regulation or preserving it for states that have not deregulated. That, Gilbert said, could provide a lifeline for nuclear facilities, but recent FERC blocks of Ohio coal and nuclear protections and the Supreme Court’s rejection of recent Maryland generator income supports throw that policy into question if it were applied only to nuclear plants.
Grid operators may also look to design longer-term capacity market products that allow nuclear plants higher and more certain returns. A number of organized markets are already reforming capacity markets, but their efforts have not been enough to keep a number of eastern nuclear plants online.
“One of the problems when you start to look at these capacity markets is that it's not just a matter of trying to increase capacity prices, you're going to have nuclear plants competing with natural gas plants in those capacity markets,” Gilbert said. ”Because natural gas revenues are so closely tied to their fuel costs, they don't really need capacity markets to survive unless they are peaking units, so for them they can just keep going into the capacity market and bidding prices down.”
Along with the better-known policy reforms, Gilbert also highlighted a more radical proposal: the nationalization of the nuclear fleet. While “highly unlikely” in the near future, the analyst said there’s some support among energy wonks for the federal government to take over a number of aging baseload plants in the coming decades, keeping them mothballed for reliability or using them as an economic mechanism to protect against gas price volatility.
"Alternatively, with the natural gas and nuclear fleets, you can get it to the point where you dont really need to worry about the economics of those plants," he said. "You can do it reliability must-run situations."
Carbon price primacy
Beyond integrated RPS standards, cost-of-service regulation, price floors and capacity reforms, there is a policy objective both clean energy advocates and utility companies broadly support: a price on carbon. Ironically, it was the last proposal any of the industry officials expected to see the light of day, especially on a national level.
“If we had a $37/ton cost on carbon — that's the EPA social cost of carbon value that federal agencies are required to use — that adds roughly $0.037/kWh to the cost of coal generation,” Lazar said. “It adds a penny and a half to the cost of gas generation and it adds two tenths of a cent to the cost of nuclear generation for the carbon that goes into the fuel supply. I think that could make a difference.”
“Well, what you really want is an international [carbon pricing] program, but I’d be happy with a national program,” PSEG’s Izzo concurred. “We were big champions of a price on carbon. Our preferred method was cap-and-trade but at this point we'd say tell us what mechanism you prefer.”
At the same time, the insiders cautioned that current carbon pricing programs in California and the Northeast U.S. have failed to deliver a price that reflects the costs of pollution and supports clean generation.
“New York plants, New England plants, they're all subject to [the Regional Greenhouse Gas Initiative] and it's not really providing any credit to them,” Gilbert said. “It's not working. So that is definitely an option, but politically it might not be feasible in the short term and even if it does happen there's no guarantee that you'll save all these plants.”
Can’t we get along?
Along with a preference for a carbon tax, Jenkins and Gilbert both emphasized the need for coalition-building between renewable energy and nuclear supporters to move to the most cost-effective path for decarbonization. Right now, they said, there’s a troubling divide between the sectors.
“You have renewables advocates that say, 'Look, all we need is 100% renewable energy, anything else is foolish and just costs more and raises risks,'” Jenkins said. “And then you have nuclear folks who say the same thing — 'nuclear is such a great energy source it makes everything else obsolete, and that's why everyone is threatened by us.'”
“I think both of those positions are quite foolish,” he said.
While wind, solar and energy storage could technically replace all nuclear generation and lead to a decarbonized grid, the bulk of academic research from journals like Applied Energy and Climactic Change suggests "both existing nuclear and potentially new nuclear" can contribute to meeting those climate goals cost-effectively, Jenkins said.
There are those who contest that point, notably Stanford’s Mark Jacobson, who advocates for 100% wind, water and solar energy. Conversely, there are utilities and nuclear backers — notably Exelon, the nation’s largest nuclear operator — who push for the removal of renewable energy subsidies, despite the fact that it would not affect natural gas, seen by many as the main culprit behind their struggles.
The contention is both unproductive and unneeded, the analysts said, especially if the two sides can come together to devise policy solutions that pit clean energy against fossil fuels.
“We're a long way from having to face the decision about whether or not we want only nuclear or only renewables, Jenkins said. “The immediate challenge is how do we grow the share of clean low-carbon generation that we have while phasing out polluting fossil fuels and there is enormous opportunity for common ground between the nuclear plant owners and the renewables industry folks and if we can keep focused on that common goal.”
Additionally, Gilbert said that the timing of inevitable nuclear retirements in the coming decades could be compatible with renewable energy growth. Even if all the aging reactors get regulatory approval to run for 20 or 40 more years, “we’re losing those plants sometime between the 2030s and 2060s … no matter what we do.”
“As you start having these natural technical issues from nuclear and the flexibility versus renewable intermittency,” he said, “that's when the nuclear plants will have to start retiring anyway.”
RAP’s Lazar said policymakers should still be focused on moving to a 100% renewable energy system
“In the long run, renewable energy is our only resource,” he said. “If you're looking to the seventh generation yet to come, you really have to be looking at renewables — wind and solar and tide and wave are resources that will be with us that long.”
But in the interim, while they may quibble over the details, each analyst said market designs that favor the most cost-effective clean resource — whether it's nuclear, renewable or efficiency — should be the priority of policymakers.
“We really should not be so hubristic to think we know the answer is 100% renewables or 100% nuclear,” Jenkins said. “We are a long way from facing that decision and knowing whether that answer is correct and if we’re able to bet the planet on it.”
This post has been updated to clarify quotes from Jesse Jenkins.