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Study: Nukes at risk due to operating costs and congestion, not markets

Seven nuclear power plants may have to retire early becauseof large capital expenses and transmission congestion costs, not low wholesalepower prices brought on by cheap and available natural gas, according to a newanalysis.

The R Street Institute, a Washington, D.C.-based think tank,on Oct. 6 published a "sober assessment" of the risk exposure of 29merchant nuclear power plants in competitive wholesale markets. The studyexamined the operations and maintenance, or O&M, costs and day-aheadpricing of those plants and five other nuclear power plants that recentlyclosed or have announced their retirements.

"[W]hile natural gas certainly has affected theindustry by putting a ceiling on prices, the facilities that are closing areones located in areas with considerable transmission constraints, that haverequired significant and unexpected capital investments to extend theiroperational life or where closure has been a response to heightened regulatoryoversight," R Street energy policy director Catrina Rorke found.

Rorke did not find any substantial risk that 's tworemaining nuclear plants that have not yet announced plans to shutter may haveto do so, nor any "widespread closure risk" for 's 16 remainingnuclear plants.

However, she did find that four out of the five nuclearplants in the MidcontinentIndependent System Operator Inc.'s market already have O&Mcosts above day-ahead price signals and are at risk of closing. Those plantsare NextEra EnergyInc.'s majority-owned Duane Arnold Energy Center in Iowa and its wholly-ownedPoint Beach unitin Wisconsin, as well as DTEEnergy Co.'s Fermi plant and Entergy's Palisades plant, both of which are in Michigan.

In ElectricReliability Council of Texas Inc.'s market, 'sComanche Peakplant and the South TexasProject, which is partially owned by NRG Energy Inc., CPS Energy and others, are also at risk of closurebecause of a narrow margin between O&M costs and the hub price. However,the report said ERCOT's use of scarcity pricing during supply shortages couldprovide enough payments to keep them operational.

In addition, the analysis singled out and 's jointly-owned in the as operating at aloss for every megawatt-hour generated. Ginna is one of three nuclear plantsthat are expected to be subsidized under Gov. Andrew Cuomo's clean energystandard.

The study's findings questioned if industrywideinterventions, such as creating subsidies or including the price of carbonwithin electricity markets, are needed to prevent further early retirements asmany within in the nuclear energy industry desire. New York earlier this yearapproved a subsidy for three at-risk nuclear power plants that could amount toalmost $7.6 billion over 12 years. Supporters claim that the alternative ofallowing those plants to retire early would still be more costly for bothratepayers and the environment.

As for the recent closures or announced retirements, Rorkefound that those nuclear power plants also had "substantial additionalfinancial challenges beyond natural-gas prices."

"Transmission congestion and large capital expenditureshave been the two factors that tip the scales in favor of retirements,"the study concluded. "With better geography or lower costs, the facilitiesthat have announced or completed their retirements may still be operational."

For instance, the analysis showed that Exelon's plant and itsmajority-owned QuadCities plant, both in Illinois, have lower-than-average O&Mcosts and could weather lower electricity prices spurred by cheap natural gasif it was not for "unfortunate geography" and transmission congestiondevaluing their electricity. Exelon has said it will Clinton by June 1, 2017, and QuadCities by June 1, 2018, though they are licensed until 2026 and 2032,respectively.

Quad Cities, for example, in 2015 fetched prices $7.89/MWhlower in PJM's Northern Illinois Hub that it would have if it traded in PJM'sWestern Hub. Clinton is in the MISO region, but it trades into MISO's IllinoisHub, where in 2015 average prices were nearly $2/MWh lower than in MISO'sMichigan Hub.

Likewise, Entergy Corp.'s Vermont Yankee plant shut in 2014, andthe Pilgrim plantin Massachusetts is set to close in 2019. The analysis said the two New Englandfacilities had O&M costs well below market prices to use as a "cushionto recover capital costs on a continuous basis." However, negative publicsentiments and mounting capital investments brought on by unexpectedinfrastructure problems and tightening U.S. Nuclear Regulatory Commissionregulations drove these plants into early retirement. "Nonetheless, ownerEntergy bemoaned structural market problems and what they viewed asinsufficient compensation for the facilities' reliable, cleanelectricity," the study recounted.