In a recent op-ed, U.S. Senators Lamar Alexander and Sheldon Whitehouse made a concerted plea to support nuclear power. But is this all-or-nothing approach to protecting nuclear capacity outdated in today’s energy markets?
Wholesale electricity prices are at historic lows, threatening the underlying economics and fate of America’s existing nuclear fleet, just as many facilities are up for re-licensing. GTM’s Julia Pyper recently chronicled the struggles and potential wholesale market changes that may help these plants post-election. This leaves policymakers with tough choices on if -- or how -- they should intervene to save these plants.
Some nuclear plants, consistently in the red in competitive wholesale markets, have driven alarmed owners to call for re-regulation and the abandonment of a free-market approach. Policymakers facing inevitable decisions about how long to maintain America’s aging nuclear fleet are suddenly confronted with additional complexity. For example, Connecticut and Ohio are the latest states to consider additional revenue streams for struggling nuclear plants. So what’s a reasonable policymaker to do when considering nuclear power against the overall need for cheap, clean and reliable power?
Policymakers considering which of these options will drive a cheaper, cleaner and more reliable electric system should consider that outcomes will vary based on individual context and evaluate their options accordingly, rather than saying either “We must save nuclear at all costs” or “We must get rid of it all immediately.”
Complex nuclear considerations
On the surface, understanding nuclear power seems straightforward, as the basic facts are simple. The United States has the world’s largest reliable fleet of nuclear reactors, providing about 800 terawatt-hours of carbon-free baseload power -- approximately 20 percent of domestic electricity generation. Meanwhile, construction of new U.S. plants has virtually ground to a halt due to the large and rising costs and financial risk of building new units, especially due to delays.
But additional challenges underpin these basic facts: What about potentially dangerous nuclear waste? Could plants be cheaper with less onerous rules and passive safety designs?
It's important to take a hard-nosed and pragmatic approach to any decision regarding existing plants -- with a healthy dose of skepticism. Are existing nuclear reactors clean? They have a waste issue but emit no air pollutants, significantly reducing externalities in an otherwise dirty grid. They are also very reliable, running at a 90 to 95 percent annual capacity factor.
The real sticking point is this: Are they cheap? Nuclear power plants tend to have high fixed annual costs, so they must run as much as possible to spread these costs over a maximum number of megawatt-hours. This makes nuclear plants inflexible, meaning they cannot rapidly ramp output, for economic reasons if not technical ones.
In a large market, this inflexibility is not much of an issue -- nuclear generators are price-takers and get paid the average annual locational wholesale electricity price. In this case, megawatt-hours are strictly commodities; nuclear power is cheap if costs fall below those of competing generators. However, in a more constrained market like those with lots of zero-fuel-cost wind and solar variable generation, nuclear power only competes as a commodity up to the minimum level of net load (load minus zero-cost generation). Any more nuclear generation would raise overall system costs.
A pragmatic approach: Two case studies
Because of such complexities, there is no simple answer for how much support policymakers should provide endangered nuclear plants -- arguments to save existing nuclear at all costs, or to get rid of it all immediately are red herrings. Instead, examining each plant on a case-by-case basis in the context of the available alternatives drives better decisions.
California and Illinois provide two recent models with opposite outcomes but equally sound rationales for how policymakers can pragmatically examine other upcoming nuclear cases. At the risk of trivializing other important factors and for simplicity’s sake, we examine just two key technical characteristics in addition to generation costs for thinking about the costs and benefits of retiring or propping up an existing nuclear plant: emissions and grid flexibility.
California: Declining demand in a smaller market with fewer emissions benefits
First, California: On June 21, 2016, Pacific Gas and Electric Company (PG&E) and a number of parties struck a settlement entailing the retirement of the Diablo Canyon nuclear plant.
A report from M.J. Bradley and Associates captures most of the rationale for this decision. It explains how due to improved energy efficiency, distributed generation and load defection through direct wholesale purchases and community choice aggregators, PG&E anticipates its total generation needs for 2030 will decline significantly on an absolute basis. California’s 50 percent renewable portfolio standard (RPS) and the existing hydropower fleet leave room for between 16 and 24 terawatt-hours of remaining annual generation, including valuable flexible gas generators, to meet PG&E’s demand -- putting the squeeze on Diablo Canyon’s annual 16 to 18 terawatt-hours of baseload generation.
According to the report, running Diablo Canyon near its maximum capacity would force renewables to curtail output to accommodate the inflexible nuclear energy. Instead, PG&E projects it can cover any shortfall from Diablo’s retirement by purchasing an incremental 4 terawatt-hours of clean resources (energy efficiency, renewables, demand response and storage) -- 25 percent of Diablo’s full output. Because flexibility is at a premium for balancing variable generation in California, a strictly baseload generation profile loses considerable value.
California’s flexibility constraints mean that legislation or regulatory action to sustain Diablo Canyon wouldn’t necessarily generate any incremental emissions reductions under present assumptions. If California replaced its 50 percent RPS with a broader carbon regime that included nuclear power and targeted equivalent or lower emissions in 2030, then re-licensing Diablo Canyon might be part of a lower-cost portfolio, but this is far from guaranteed.
Additionally, if California were better integrated into a regional grid, this larger grid could more easily accommodate Diablo Canyon’s inflexibility. If PG&E could competitively sell off excess nuclear generation to its neighbors, it could use the remaining power to replace its own dirtier gas generators and lower emissions. At that point, it might be worth tipping the scales toward re-licensing.
To sum up, because Diablo Canyon is generating somewhat expensive power into a shrinking power pool where policy and economics are creating demand for more flexible generation, saving it doesn’t seem worthwhile.
Illinois: Larger markets with greater flexibility and clear emissions benefits
Meanwhile in Illinois, the Exelon Corporation owns a nuclear generating fleet connected to two of the largest power markets in the world, Midcontinent Independent System Operator (MISO) and PJM. These very large systems can more easily absorb the inflexible baseload coming from round-the-clock nuclear generation, apart from some local issues with transmission bottlenecks. Still, two of the plants in this fleet, the Quad Cities reactors and the Clinton reactor, were slated for retirement due to their inability to compete in challenging wholesale market conditions.
On December 1, 2016, the Illinois legislature passed the extensive and complex Future Energy Jobs Bill, which included a rescue package for Clinton and Quad Cities. At roughly $10 per megawatt-hour, the package covers approximately one-third of the plants’ production costs, collected through a 1 percent to 2 percent surcharge on customers’ electric rates. As these plants generate close to 24 terawatt-hours annually, this works out to a $240 million annual customer-funded rescue package. Since system flexibility is not really at issue for these plants, was this charge worth the emissions reduction?
Given the general electricity generation overcapacity conditions in the Midwest that drive low wholesale prices, existing generators could likely replace the lost nuclear generation. According to the U.S. Environmental Protection Agency’s regional emissions factors, replacement power from MISO and PJM would generate roughly 1,500 to 1,600 lbs. of carbon-dioxide equivalent in greenhouse gas (GHG) emissions. Using a social cost of carbon of $36/metric ton, retiring Clinton and Quad Cities would avoid approximately $24 to $26 per megawatt-hour in GHG-related benefits, well in excess of the $10 per megawatt-hour support they will be receiving.
Of course, these GHG social benefits don’t all directly help Illinois citizens, as carbon dioxide is a global pollutant -- but eliminating local air pollution certainly does help local communities. Further combining regional EPA emissions factors with EPA estimates of health costs from pollution-related illness and death, nuclear retirement would also eliminate $48 to $129 per megawatt-hour in health benefits from low-carbon fuels that save 100 to 400 lives per year. On an air pollution basis alone, the Illinois nuclear support is a good deal for its citizens.
Compared to California, the Illinois case is much simpler. The nuclear facilities are in much larger markets that can absorb their inflexibility, and though their generation costs slightly more than prevailing prices, it offers emissions benefits (as well as other local jobs benefits) that significantly outweigh the extra income these two plants require to stay open.
What does all this mean for your state?
Looking at the California and Illinois examples, policymakers accelerating retirement or offering economic lifelines to existing nuclear plants is entirely appropriate. The cost-benefit equation for these large plants includes factors like emissions, system needs, security and jobs impacts, to name a few, so political deals and fixes like the recent New York $7.6 billion nuclear rescue package are to be expected. Nevertheless, if policymakers want to make pragmatic choices they should quantitatively examine the following questions:
- What are the climate and health impacts of closing a given nuclear plant? What resources would replace it if retired? How quickly would replacements be needed?
- What contribution is a nuclear plant making to the reliability and efficiency of running the grid? In an age where flexibility is increasingly at a premium due to low-cost variable resources, can the system efficiently absorb this inflexible baseload easily?
- Even though an existing resource may seem cheaper, is building a new power plant more economical?
- How much will it cost to prop up an existing plant? Is there an equitable mechanism for doing so that properly accounts for the full balance of costs and benefits of an intervention?
Policymakers should only make a decision on support for existing or new nuclear plants after a pragmatic, hard-nosed analysis. And if they decide to support a plant in a wholesale market region, care must be taken to ensure the support mechanism does not undermine the market integrity or run afoul of federal law. Hopefully, we will maintain the plants that are currently most valuable at the mercy of an over-capacity grid. Meanwhile, climate advocates should take heart that not every nuclear retirement represents a step back on the mitigation front.
Eric Gimon represents America's Power Plan.