by Jeff St. John
April 20, 2017

The nuclear power industry is in trouble. Old reactors are struggling to compete with cheap natural gas and rising renewables. Since 2013, six U.S. nuclear reactors have closed, another 12 are scheduled for closure, and several more have warned that they’re on the brink of shutting down, according to this January report from the National Conference of State Legislatures. 

Meanwhile, the Watts Bar facility in Tennessee, which started operations this year, is the first nuclear power plant to come on-line in the United States since 1996. And new plants are burdened by cost and schedule overruns. Things have gotten so dire that the world’s leading nuclear power plant developer, Toshiba-owned Westinghouse, has filed for bankruptcy protection

Something needs to be done. But is the best course to subsidize this carbon-neutral energy resource, or to allow nuclear plants to close, and replace them with green alternatives? 

Across the country, state regulators and utilities are grappling with this choice. Several, such as New York and Illinois, have taken the first steps toward creating a special green classification for nuclear power in the form of "zero-emission credits" (ZECs), which compensate money-losing reactors for their carbon-free power. Other states, including Ohio, Pennsylvania, New Jersey and Michigan, are taking up similar efforts, in support of what Bloomberg Intelligence estimates are a combined 28,000 megawatts of nuclear capacity. 

At the same time, while New York is offering upstate nuclear plants ZECs, it also plans to replace its Indian Point nuclear power plant with a combination of energy efficiency and demand-side energy management, new wind power and new transmission. California has taken the green replacement approach to its limit, with Pacific Gas & Electric’s plan to close the Diablo Canyon nuclear power plant, the state’s last remaining facility, and embark on a decades-long effort to replace it with renewables, efficiency, demand response and distributed energy resources. 

Each approach has its challenges. The states that have propped up nuclear power with zero-emission credits or similar subsidies are facing lawsuits claiming the subsidies constitute an unfair state intrusion into interstate energy markets, as well as facing a backlash over the costs borne by ratepayers. 

Meanwhile, the states pushing green replacements will have to contend with the reality of cheap natural gas as an alternative. Use too little of it, and they may end up facing questions about keeping down costs for ratepayers. Use too much of it, and they’ll end up increasing their energy carbon footprint. While low-cost renewables are being blamed for putting nuclear plants out of business, ever-cheaper natural-gas-fired generation is most often replacing departing nuclear capacity, according to Energy Information Administration data.

So what's a decision-maker to do?

Supporting nuclear as the carbon-free option 

Let’s start with the states that have thrown their support to the nuclear industry. New York and Illinois were the first two states to push this idea. Last August, New York regulators approved subsidies totaling about $500 million a year for the R.E. Ginna and Nine Mile Point nuclear plants owned by Exelon, plus a third plant Exelon is buying from Entergy. The New York Public Service Commission justified the subsidy as part of its goal to get 50 percent of its energy from low-carbon sources by 2030, and in December it rejected challenges to its plan from rival utilities and ratepayer advocates. 

Next to go this route was Illinois. In December, the state legislature passed a law giving Exelon billions of dollars in subsidies to prop up two unprofitable nuclear plants, in the form of a $235 million annual credit for the carbon-free energy they produce. Lawmakers justified the move as part of its  “Zero Emission Standard,” and will require the utility to increase spending on energy efficiency and grid modernization. 

These two successes have spurred similar efforts in other states that are home to struggling nuclear power plants. Legislation has been introduced in Ohio, where FirstEnergy is seeking ZECs to keep two nuclear power plants open. Connecticut has a different legislative proposal to allow the Dominion Resources-owned Waterford nuclear plant to expand its customer base from wholesale markets to direct sales to utilities. Bloomberg Intelligence reports that Exelon is pushing for similar aid for its three Pennsylvania reactors and one New Jersey plant. And Massachusetts, which is facing a mid-2019 closure of its troubled Pilgrim Nuclear Power Station, could follow suit. 

There’s a problem with this option, however -- it’s facing an uncertain legal future. The challenges started in New York, where the plan has been hit with two lawsuits. The first comes from natural-gas and coal-power generators, which said in an October filing in federal court that the credits would artificially depress wholesale electricity prices. The second comes from environmental group Hudson River Sloop Clearwater, which argued in a November lawsuit filed in state court that the commission's plan amounts to corporate welfare, paid for by state ratepayers. 

In Illinois, legal challenges have come from rival power producers including Dynegy, which has itself sought subsidies for the coal power plants it operates in the state. In a February lawsuit in federal court, the groups claimed that Exelon’s credits amount to an unlawful intrusion into federal authority to regulate wholesale energy prices. 

That argument won the support of Mid-Atlantic grid operator PJM’s independent market monitor, which argued in a March filing that Illinois’ plan is “incompatible with the PJM market design, threatens the foundations of the PJM market, and interferes with the federal regulatory scheme.” Notably, PJM released an analysis last month that indicated it could maintain grid stability with a declining share of nuclear and coal-fired power, as long as natural-gas-fired power remained an effective replacement. But it also set an upper bound of about 20 percent on how much renewable energy it could handle -- a lot more than the 6 percent it gets from all renewable resources, including hydropower, at present.

Meanwhile, environmental advocacy groups including the Natural Resources Defense Council and the Environmental Defense Fund are on the side of nuclear power in this case. Last week, both groups filed amicus briefs in support of the Illinois plan, saying that it’s in line with other state incentives for renewable or low-carbon energy that coexist with federal energy market authority. 

But perhaps the biggest challenge facing these plans is the cost to ratepayers. Bloomberg Intelligence reported in March that if the other states considering similar subsidies end up passing them into law, ratepayers would face an annual $3.9 billion hike. 

Finding the green alternatives to nuclear 

Let’s turn now to the states that are taking a different approach -- essentially, letting nuclear die, and finding enough renewable energy, energy efficiency, demand response, and other carbon-free alternatives to make up the difference.

California has already tackled this challenge once this decade. Southern California Edison shut down its San Onofre Nuclear Generating Station in 2012, and announced the next year that it was permanently shuttering it. In response, utilities and regulators put together a complex plan that ended up requiring utilities to procure hundreds of megawatts' worth of preferred resources like solar, energy storage, demand response and energy efficiency. This was a big win for green advocates, and also included the country’s first large-scale deployment of distributed energy resources (DERs) for grid capacity. 

At the same time, the plan from the California Public Utilities Commission (CPUC) also added hundreds of megawatts of new natural-gas generation. Regulators justified this decision on the grounds that utilities needed a certain amount of dispatchable generation to make up for the loss of San Onofre’s 2.2 gigawatts of baseload power. But for environmental advocates and community groups opposed to natural-gas-fired power plants and their carbon emissions and air pollution, it was a bitter pill to swallow. 

California is seeking to avoid this tradeoff with its final nuclear closure plan. Last summer, Pacific Gas & Electric agreed to close the Diablo Canyon power plant by 2025 and replace it with a host of zero-carbon emissions resources over the next nine years. That will include lots of new solar and wind power, as well as other greenhouse-gas-free energy resources. But it’s also going to take a lot more energy efficiency, as well as demand response, energy storage, and other reliable demand-side resources. 

This comes with its own costs. PG&E’s latest plans include an eight-year rate increase to raise $1.77 billion to cover the plan -- a turnaround from promises last year to keep rates neutral through the transition. These costs include about $350 million to support the region and replace jobs to be lost through the plant’s closure, $50 million to replace the county’s loss of property tax revenue, and “undetermined expenses” to replace the lost power generation. 

The CPUC is holding hearings this week on the PG&E plan, and is expected to approve or deny the application this year. But the in-depth plan for replacing Diablo Canyon’s 2.3 gigawatts of always-on, carbon-free power won’t be ready until 2019 -- a timeline in keeping with the multi-decade scope of what the utility and regulators are trying to achieve. PG&E’s plan relies on finding about 2,000 “gross gigawatt-hours” of energy-efficiency savings by 2024, as well as a 2,000-gigawatt-hour procurement of carbon-free energy resources between then and 2030. After that, it’s expecting that power coming from renewable energy resources under the state’s aggressive 50 percent by 2030 renewable portfolio standard will fill in the remaining need.

New York, with its own 50 percent by 2030 goal, has already started supporting nuclear, as we’ve covered. But it’s also taking a more California-esque approach to the plan announced this year to shut down the 2-gigawatt Indian Point nuclear power plant by 2021, and replace it both with demand-side and distributed generation resources downstate, and more transmission capacity to carry upstate wind and hydro power to the south.

This transition will be happening more quickly than PG&E’s Diablo Canyon closure, but New York has been working on a plan for it since 2012. Much of it relies on new transmission, such as the $2.2 billion Champlain Hudson Power Express transmission project, set to start delivering 1,000 megawatts of low-carbon hydropower from Quebec to New York City via underground high-voltage direct current cables by 2021. 

But New York’s plan also relies in part on untested resources, such as its NY-Sun initiative’s goal of bringing more than 3,000 megawatts of solar PV on-line statewide by 2023, or New York City's goal to bring 100 megawatts of advanced energy storage on-line by 2020. It’s also relying on a lot of new energy efficiency, and increasing the reach of demand-side resources beyond the 100 megawatts or so the state called upon in 2016. And in the long term, it's looking to the development of hundreds of megawatts of offshore wind to help it meet its carbon reduction goals. 

DOE's new grid reliability study -- and the politics of nuclear power

This brings us to this week's news that Energy Secretary Rick Perry has ordered a study on how to protect the long-term reliability of the electric grid. The study will examine wholesale market structures, federal policies, energy mandates and tax subsidies, in order to understand the extent to which they're causing the premature retirement of baseload power plants, including nuclear. 
"The results of this analysis will help the federal government formulate sound policies to protect the nation's electric grid," Perry wrote in a letter. "In establishing these policies, the Trump administration will be guided by the principles of reliability, resiliency, affordability, and fuel assurance -- principles that underpin a thriving economy."
Through one lens, the study could be seen as the Trump administration pushing back against wind and solar. Through another lens, however, it could be interpreted as a necessary assessment of the U.S. electricity grid at a time of dramatic change. Can renewables and other green energy technologies replace baseload resources in an affordable way, without causing reliability issues? States at the center of the nuclear debate are in the midst of hashing that out.