Exelon plans to retire 4,192 MW of Illinois nuclear capacity in 2021

New York — Exelon plans to retire its 1,845-MW Dresden and 2,347-MW Byron nuclear power plants in Illinois in fall 2021, citing declining power prices and capacity market rules that disadvantage the plants, the company said Aug. 27.

"Dresden and Byron face revenue shortfalls in the hundreds of millions of dollars because of declining energy prices and market rules that allow fossil fuel plants to underbid clean resources in the PJM [Interconnection] capacity auction," Exelon said in a statement.

Dresden is licensed to operate for another decade and Byron for another 20 years, Exelon said.

Dresden, Byron, and the 2,386-MW Braidwood nuclear plant, also located in Illinois, are "showing increased signs of economic distress" which could lead to early retirement, Exelon said in its most recent annual Securities and Exchange Commission filing.

The investor-owned utility also added the 2,320-MW La Salle nuclear plant, located in the same general area to the list of at-risk nuclear plants, according to the statement.

"As a result of these market rules, Exelon Generation's LaSalle and Braidwood nuclear stations in Illinois, each of which house two nuclear units and together employ more than 1,500 skilled workers, are also at high risk for premature closure," Exelon said.

The May 2018 PJM capacity auction for the 2021-22 planning year resulted in the "largest volume of nuclear capacity ever not selected in the auction," including all of Dresden, and portions of Byron and Braidwood, according to the SEC filing.

Subsidies, power prices

Exelon's Clinton-1, Quad Cities -1 and Quad Cities-2 reactors in Illinois are currently receiving state-level support through zero-emissions credits that generated revenue of $373 million in 2018.

PJM is significantly revising its capacity auction process to strengthen the minimum offer price rule, or MOPR, ordered by the Federal Energy Regulatory Commission and aimed at countering state subsidies for clean energy, such as Illinois's ZEC program.

Illinois had been contemplating leaving the PJM capacity market through the Fixed Resource Requirement option that would require load-serving entities to procure their own capacity, but a recently released plan from Governor J.B. Pritzker questioned the viability of the FRR path.

"The proposed FRR has been the centerpiece of current energy discussions, but the first step in that FRR is to annually pay each of Exelon's nuclear plants an amount equal to three times the current taxpayer subsidy that two Exelon plants already receive without any strings attached and without Exelon showing us their math as to why this is necessary," according to the plan released Aug. 21.

Exelon's retirement announcement is likely related to the recent plan by the governor that reduced the likelihood of PJM FRR in Illinois, Morris Greenberg, S&P Global Platts Analytics' senior manager of North American power analytics, said in an email.

Taking the Byron and Dresden units out "will definitely make the PJM Northern Illinois Hub/ComEd region quite tight from a capacity perspective. They together form about 16% of ComEd LDA capacity," Greenberg said.

Though planned generation from Jackson Generation Energy Center (1.2 GW planned for April 2022) and CPV Three Rivers (1.25 GW planned for January 2023), both gas-fired plants, could help fill the supply gap somewhat, neither have started construction yet it seems, he said.

The retirement announcements could also be related to the subsidy issue.

"Exelon's announcement follows a consistent pattern of threatening plant closures soon before the Illinois legislature convenes, for the purpose of extracting subsidies from Illinois consumers," Travis Kavulla, vice president of regulatory affairs at NRG Energy, said in an email.

"Exelon has never offered a transparent financial disclosure of these supposedly unprofitable plants. Additionally, the PJM Independent Market Monitor has opined that these plants have in general turned a profit, and that they will do so again in 2021," Kavulla said.

"FERC's reforms do not even establish a minimum offer price for Byron and Dresden," he said adding "the contention that federal regulators are allowing other power plants to underbid them is simply false."

The PJM NI Hub September weighted average price trading on the Intercontinental Exchange is $25.90/MWh, NI Hub October bid/offer is $25.15/$26.10 and NI Hub December bid/offer is $29.45/$30.20.

The historical three-year average daily real-time NI Hub price is $22.89/MWh.

If Byron does not clear in the next PJM auction, Exelon will file a deactivation notice with PJM, and if PJM determines that there are no reliability issues associated with the retirement of the unit, Exelon will proceed, an Exelon spokesperson said in an email.

"If necessary, we will cover our Byron 21/22 capacity commitments in accordance with PJM rules," the spokesman said.

PJM confirmed that Aug. 27 it received the deactivation notification for the Dresden plant with a target date of Nov. 1, 2021.