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US nuclear units shut as low power prices threaten more retirements

Washington — When Exelon's Oyster Creek nuclear unit disconnects from the grid at the end of September and permanently shuts, it will mark the start of a busy period of US nuclear power plant closures driven by low power prices that are placing dozens more units at risk.

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As utilities threaten to shut nuclear units, a patchwork of state subsidies has emerged, and DOE and the US Federal Energy Regulatory Commission are mulling separate actions to prevent reactors from closing. The result is a confusing amalgam of measures that could benefit nuclear units in some locations but not others.

"We're seeing these plants close, and the next question seems to be 'Is anyone going to step in and stop it,'" said Tim Fox, a vice president at ClearView Energy Partners, in an interview Friday.

In 2012, the US had 104 nuclear units with total gross capacity of 107.6 GW. A series of retirements for technical and economic reasons shuttered 6 units with 4.7 GW of capacity by 2016.

But in recent years, continued low power prices and the competition from subsidized renewable energy and lower-cost natural gas-fired generation has accelerated the pace of nuclear plant retirement announcements. Thirteen additional units with combined capacity of 12.1 GW will shut permanently between September and 2025. The bulk of the announced retirements will be coming in 2019 (2 units), 2020 (3 units) and 2021 (4 units).

An estimated 12.4 GW in nuclear capacity is at high risk of retiring before its operating authorization ends, said Manan Ahuja, senior director of North American power analytics for S&P Global Platts Analytics. As many as half of all US nuclear units are at some risk of premature retirement, Platts Analytics said in an annual report on the topic in January.

"The biggest issue is plant economics," Ahuja said in an interview Friday. Factors such as the existence of power purchase agreements, which can provide higher revenue for plant operators, plant-specific costs and the prices in capacity markets are important in determining the risks, he noted.

State, federal actions

The figures for early retirements would be higher had states not enacted subsidy programs, known as zero-emission credits, aimed at keeping nuclear units from shutting.

DOE and FERC are separately considering whether and how to compensate nuclear and coal plants for the benefits they provide to the grid.

The program in New York provides payments to three Exelon-owned upstate nuclear plants for 12 years. ZECs paid to generators increase from $17.48/MWh in the first of six two-year periods to $29.15/MWh in the final period through March 2029.

In Illinois, Exelon's Quad Cities and Clinton nuclear plants, totaling nearly 3,000 MW, are receiving ZECs. The program could provide $235 million annually to the plant owners.

Power producers separately challenged the Illinois and New Jersey ZEC programs in federal court, saying they violate federal authority to regulate wholesale power markets. After courts ruled in favor of the states, power producers appealed those decisions.

A ZEC-like program was approved by New Jersey lawmakers this year. Plants that are approved for payments could receive 0.4 cent/kWh from retail customers.

In Connecticut, the two-unit 2,113-MW Millstone nuclear plant has been declared eligible to participate in a competitive solicitation for power payments to zero-carbon generating units for the first time. Ohio and Pennsylvania have debated supporting nuclear units, but no action has been taken by lawmakers.

DOE's effort to consider using its authority to enact emergency measures relating to the power grid to support coal and nuclear plants remains underway and is expected to result in action, although the scope is unknown, said Christine Tezak, managing director at ClearView Energy. "It doesn't seem imminent today, but it certainly hasn't fallen off the radar screen," she said Friday.

Helping save several dozen nuclear units could cost billions of dollars, according to a study by the Brattle Group last month. If all coal and nuclear plants were to receive an out-of-market annual payment of $50 per kilowatt of capacity, roughly the average operating shortfall for plants with a deficit, the cost would be $16.7 billion a year, or about $34 billion over two years. The amount would be somewhat lower if only plants in financial trouble received the support, Brattle said.

Market exposure

While all nuclear plants face competitive pressure, the units that are shutting for economic reasons are almost exclusively in deregulated electricity markets. Those in regulated states face fewer challenges because state rate-setting commissions have generally allowed them to recover their costs.

The Nuclear Energy Institute, a trade association of nuclear vendors and operators, has directed an effort to cut industry costs, and says those costs peaked in 2012 and have fallen 19% to $33.61/MWh. NEI says nuclear plants are not being compensated for the benefits they provide in terms of availability of fuel, high capacity factors and zero carbon emissions.

Market participants and the owners of natural gas-fired generating units have said markets are doing a good job of providing a steady flow of electricity at the lowest cost to consumers, and subsidies will distort those markets and raise customer costs.

In fact, the trend to provide support to nuclear, and potentially, coal units will keep generators online that would otherwise retire, and does nothing to curb the market's biggest issue, that of overcapacity, Tezak said. It is hard to see wholesale power prices rising if more generators are encouraged by out-of-market subsidies to remain online, she said.

--William Freebairn,