Nuclear facing vexing energy economics, B&V says

Unlike the early retirements of San Onofre in California and Crystal River 3 in Florida, the 2013 retirement of Dominion’s (NYSE:D) Kewaunee nuclear plant in Wisconsin was “strictly economic” and a troubling sign for merchant reactors in the United States, according to a recent analysis by two Black & Veatch consultants.

The retirement San Onofire, run by an Edison International (NYSE:EIX) subsidiary and CR3, operated by a Duke Energy (NYSE:DUK) unit both followed outages that were both protracted and unplanned.

But “who would have thought that a well-run, mature plant wouldn’t be economic?” write Steve Rus and Mike Wadley, in a recent Black & Veatch publication. Rus is executive director of nuclear while Wadley is nuclear business development director for B&V’s energy practice.

“It shows that economics trumps well-run,” the analysts said.

“The U.S. has a bifurcated electricity market – merchant and regulated,” the B&V officials said. Nuclear units take years to build and require a massive capital commitment. “Building one requires a great deal of certainty over time, not achievable in the current merchant market, according to Rus and Wadley.

 About 40% of the nuclear fleet are merchant plants, mostly concentrated in Illinois, Ohio, Pennsylvania, New York and New England. “Some of those plants in that mix are also feeling market pressures,” the B&V officials said.

The Black & Veatch officials noted that electricity prices are down because of cheap natural gas. They also note that the five nuclear units now under construction domestically are all in regulated markets.

Two are being developed by Southern (NYSE:SO) in Georgia, two by SCANA (NYSE:SCG) in South Carolina, and the partially finished Watts Bar 2 plant is being brought out of mothballs by Tennessee Valley Authority (TVA) in Tennessee.

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.