Kewaunee seen as only purely economic nuclear victim for now

Less than a month after news of the first U.S. nuclear plant shutdown since 1998, industry observers seem inclined to view the Kewaunee reactor in Wisconsin as a market victim that’s unlikely to set a trend.

While the future of a few other plants remains uncertain due to protracted and unexpected outages, Dominion (NYSE: D) has said its decision to close the 550-MW pressurized water reactor was purely economic.

Kewaunee is not a troubled plant, officials say. But for a nuclear plant it is very small and it is also a single-unit reactor far from Dominion’s nuclear fleet in the East. Kewaunee was also losing some of its long-term customer base.

Alliant Energy (NYSE: LNT) has indicated that it would not renew its power contract at the end of 2013. Alliant has arranged to receive more fossil generation to meet its demand needs. Those factors, combined with weak power prices, put Kewaunee in a tough spot.

“Small (500-MW) single unit plants start with a competitive cost disadvantage in comparison to larger dual unit nuclear plants which are often more than 2,000 MW,” said Chris Vlahoplus, a partner at the ScottMadden consulting firm.

“In this environment of abundant natural gas, low power prices, and weak demand; a small single unit merchant plant with an expiring PPA forced to compete in a market without capacity payments (except for the voluntary market) would certainly be scrutinized closely as part of a portfolio review,” Vlahoplus went on to say.

Exelon sad to see Dominion nuke retired, but …

Likewise, the head of the nation’s largest nuclear operator, Exelon (NYSE: EXC), indicated in a recent earnings call that Kewaunee faced long odds. Exelon CEO Chris Crane shared his Kewaunee thoughts after a financial analyst suggested Kewaunee could have been purchased “for a song.”

“Dominion has done a lot to improve that plant,” Crane said. “There are good people there.” He said its sad to see a nuke come off, but it’s a small unit and costs are a little bit higher. “It’s tough to compete in the PPA area for that,” he added. “So the economics just don’t work.”

Crane went on to say that Exelon will continue to consider purchase of existing nuclear units with better economic prospects.

Nuclear critics more skeptical of economic future

Dave Lochbaum, nuclear safety program director for the Union of Concerned Scientists, agrees with the industry analysis on Kewaunee’s dim economic prospects.

Lochbaum, however, doesn’t think Kewaunee will be the last U.S. nuclear unit forced to retire for economic reasons.

“Kewaunee may have been most vulnerable to unfavorable economics, but it’s not alone,” Lochbaum told GenerationHub. “Cheap natural gas in the early 1990s closed several nuclear plants. This may be round two in the nukes versus natural gas battle,” he added.

Greenpeace Nuclear Policy Analyst Jim Riccio thinks it’s a bad sign for the nuclear business to see the retirement decision coming less than two years after the plant received a 20-year license renewal from NRC.

On Oct. 22, Dominion announced it would shut down the plant in 2013 and begin the decommissioning process. Dominion purchased the plant in 2005 from Wisconsin Public Service (WPS) and Alliant’s Wisconsin Power and Light (WPL).

Dominion had once hoped to control a number of nuclear units in the Midwest.

During its second-quarter earnings call in August, Dominion officials said they were at the mid-point of their Kewaunee sale effort and hoped to have a buyer by the end of the year. Dominion officials said then that their data room was open and bidders were evaluating the information.

The Kewaunee retirement also poses transmission implications. American Transmission Co. (ATC) has decided to reconsider a plan to build the 345-kV Barnhart-Branch River transmission project as a result of the Kewaunee retirement news.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.