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Analysis: US markets, politics drive nuclear power expansion in the South: industry observers

Highlights

TVA decision contrasts with competitive markets

Expansion fits with zero-carbon goals

Houston — The expansion of nuclear capacity in the US Southeast may contrast with its contraction elsewhere, especially in competitive wholesale power markets, but the reasons, in effect, remain tied as much to supply and demand as they are to politics.

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For example, last week's announcement that the Tennessee Valley Authority had ramped up its Browns Ferry Unit 3 to full power contrasts with claims from nuclear power operators in competitive market areas, who have either shut down nuclear plants or threatened to do so without state subsidies.

The TVA's announcement involved the addition of 155 MW to the 1,155-MW unit, while two other plants of similar size are slated to receive by next summer similar upgrades, bringing the nuclear power plant site up to more than 3,900 MW of capacity, at a cost of about $475 million.

The expansion of nuclear capacity is partly designed to achieve the TVA goals of expanding low- or zero-carbon power capacity. The TVA website maintains that 54% of its current capacity is from zero-carbon resources such as nuclear and hydro, and TVA plans to raise that percentage to 59% by fiscal year 2027.

"This is one of the last gasps of increasing the capacity of the nuclear fleet through improvements rather than building new nuclear capacity," said Jim Carson, CEO of the RisQuant Energy consultancy based in St. Paul, Minnesota.

Over the past 20 years, nuclear plants have already completed such upgrades in northern and competitive areas where supplies are shorter and natural gas prices have been higher.

"In the South, they are a little behind, because the worst over-capacity in the has always been that SERC Corp. area," which includes much of TVA's footprint, Carson said Wednesday.

Today, in the Mid-Atlantic states, the Midwest and the New England, cheap natural gas and the proliferation of subsidized renewables have made nuclear power much less economically viable, Carson said.

'BELLYACHING ... IS JUST SILLY'

"I think the bellyaching that is going on in the whole area of nuclear and coal is just silly," Carson said. "They should get used to the fact that power driven by $3/MMBtu gas is going to be the norm."

In the South, renewables are not so prevalent as they are in the Midwest, natural gas capacity is not as common as it is becoming in PJM, and the TVA has been shutting down coal-fired capacity.

Manan Ahuja, senior director for power at S&P Global Platts Analytics, said TVA faces less risk on this investment, because at least some of it can be passed on to ratepayers, and the Browns Ferry units have had a license extension until the mid-2030s, which "would allow for time to recoup investments," and the large size of the Browns Ferry complex gives the TVA economies of scale not found in some of the less economic nuclear plants in the North and Midwest.

"There also has been load growth in the South," Ahuja said in an email Wednesday. "For example, an upcoming Toyota-Mazda manufacturing facility (est. 2021) will require 50-75 MW of power."

The TVA nuclear plants also benefit from not having "excessive amounts of solar or wind power" to diminish their role in the system's dispatch stack, said Matthew Cordaro, a former Midcontinent Independent System Operator CEO who now resides in New York.

But politics may also play a role in TVA's nuclear capacity expansion, according to Cordaro.

"The TVA is king of the valley," Cordaro said Wednesday. "All these facilities support from an economic standpoint all of the areas around them."

--Mark Watson, markham.watson@spglobal.com

--Edited by Matt Eversman, matthew.eversman@spglobal.com