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PSEG seeks nuclear plant ZEC payment extension amid power market 'deterioration'

Highlights

PSEG asking for three-year ZEC extension

Continued state nuclear support expected: Analytics

New York — Investor-owned utility Public Service Enterprise Group said late Oct. 1 that it applied to extend Zero Emission Certificates for two nuclear power plants in New Jersey, citing the state's climate policy, cheaper cost of ZECs compared with solar and offshore wind subsidies and power market weakness.

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PSEG filed applications with the New Jersey Board of Public Utilities to extend ZEC payments for the 2,285-MW Salem and 1,173-MW Hope Creek Nuclear plants in Lower Alloways Creek, New Jersey.

On April 18, 2019, the NJBPU issued an order determining that PSEG's Hope Creek, Salem 1 and Salem 2 nuclear plants were eligible to receive ZECs from April 18, 2019, through May 31, 2022, according to a PSEG statement.

PSEG is applying for a three-year extension of the ZEC program.

The company said the plants are "essential" for New Jersey to successfully reach its goal of a 100% carbon-free energy supply by 2050, as outlined in the state's Energy Master Plan, according to the statement.

"Nuclear energy already is New Jersey's largest source of carbon-free electricity," Rick Thigpen, PSEG's senior vice president for corporate citizenship, said.

"New Jersey can only achieve its ambitious clean energy goals with nuclear energy in the mix," Thigpen said.

Since the plants first starting receiving ZECs, "power markets have deteriorated significantly, thus the financial needs of New Jersey's nuclear plants have continued to grow," PSEG said in the statement.

PJM Interconnection West Hub day-ahead power prices averaged $25.75/MWh in April 2019 and $17.37/MWh in April 2020 when power markets were being impacted by coronavirus pandemic lockdowns.

PJM West Hub day-ahead prices have averaged $20.22/MWh year to date.

Preserving New Jersey's existing nuclear fleet is "considerably less expensive than the cost of subsidizing other carbon-free energy resources," PSEG said in an addendum to its emailed statement. The state is paying more than 20 times the $10/MWh cost of ZECs for solar generation and more than four times the cost of ZECs for offshore wind generation, PSEG said.

The offshore renewable energy credit price awarded to Orsted for its 1.1 GW Ocean Wind project to be built offshore New Jersey is $116.82/MWh.

"While investing in offshore wind and solar as alternatives to carbon-emitting power plants has value, spending to replace well-operated, non-carbon emitting nuclear plants would needlessly cost New Jersey energy consumers billions of dollars," PSEG said.

Asked if PSEG would have to shut Salem and/or Hope Creek if those plants did not continue to receive ZEC payments, company spokeswoman Marijke Shugrue said Oct. 2: "We will cross that bridge if we come to it, but we believe that a careful examination of the facts and following the statute will produce a good outcome in the best interests of the state." She declined to comment further.

Continued support

"This announcement comes as no surprise," Kieran Kemmerer, power market analyst with S&P Global Platts Analytics, said in an email.

"With New Jersey focused on dramatically reducing fossil fuel dependency, we expect continued state support of nuclear in its role in abating carbon emissions," Kemmerer said.

In order for Salem and Hope Creek to retire in accordance with current New Jersey policy goals, a substantial amount of renewables would have to be built out in a short period of time, he said.

"Indeed, New Jersey's Energy Master Plan indicates that New Jersey nuclear is a likely part of the supply mix through 2050, suggesting an incremental 15.5 GW of offshore wind by 2050 (in addition to the expected ~10 GW) would have to be built to replace retiring nuclear generation," Kemmerer said.

While the Energy Master Plan is simply a snapshot of potential outcomes, the inclusion of nuclear in the large majority of scenarios through 2050 seems to imply state support in order to reach NJ's goals, he said, adding the ZEC extension itself is likely a bridge to a long-term solution to New Jersey's future wholesale market structure.

"While it is unclear at this point what New Jersey will pursue, be it using the fixed resource requirement to leave the PJM capacity market or some other alternative (S3000 in New Jersey's legislature instructs the BPU to examine the option of joining the New York Independent System Operator), we see it highly probable that New Jersey leaves PJM's capacity market. Under an alternative structure, we expect that nuclear and offshore wind will be able to recover costs out-of-market," Kemmerer said.