Fitch looks at threat of more nuclear plant retirements

Premature nuclear plant retirements are slowly eroding U.S. nuclear capacity and reducing a major source of carbon free electricity, Fitch Ratings said in a recent report.

This is happening at a time when the Environmental Protection Agency (EPA) is looking to slash CO2 emissions.

The closure of the Vermont Yankee plant in December 2014 follows the retirement of four nuclear units in 2013. The five shuttered reactors aggregate 4.2 GW. A sixth reactor, the Exelon (NYSE:EXC) 615-MW Oyster Creek unit in New Jersey, will be retired by the end of 2019. Five of the six units are retiring before the expiration of their operating licenses, Fitch noted in a Jan. 7 analysis.

The six units to be retired are evenly divided between rate-regulated and merchant facilities. The rate-regulated retirements, including the Duke Energy (NYSE:DUK) Crystal River 3 in Florida and the two Edison International (NYSE:EIX) San Onofre nuclear units in Southern California, follow extended outages where the repair costs exceed cheaper supply alternatives.

The merchant closures are driven by unfavorable market conditions – at the Dominion (NYSE:D) Kewaunee unit in Wisconsin and the Entergy (NYSE:ETR) Vermont Yankee — and, in the case of Oyster Creek, environmental issues.

Market changes needed to stave off more significant retirements

Absent reforms to the current market structure, Fitch considers at least eight more merchant nuclear units with an aggregate capacity of approximately 8,000 MW to be at risk of early retirement.

The eight reactors are primarily small single-unit reactors but also include a twin reactor, where the owner, Exelon Generation, has publicly indicated the plants will be retired if market conditions do not improve or market reforms are not instituted.

The at-risk plants include a half-dozen that are operated and at least partly-owned by Exelon. Exelon’s at-risk plants include Ginna and Nine Mile Point 1 facilities in New York State; Three Mile Island in Pennsylvania; and the Quad Cities 1 and 2 as well as the Clinton plant in Illinois.

There are also two Entergy plants on the endangered list: the Pilgrim facility in Massachusetts and the Palisades plant in Michigan.

Three small units with long-term power supply agreements are also excluded from the list of at-risk plants. The three plants are Point Beach units 1 and 2 (595 MW each) in Wisconsin; and the 601-MW Duane Arnold plant in Iowa; all owned by NextEra Energy (NYSE:NEE).

Reforms to the existing market structure are key to staving off further nuclear retirements. The most promising appears to be a proposal by the PJM Interconnection that would reward resources capable of sustained operations during peak load periods and extreme weather events. Reforms are also being considered in other jurisdictions.

Declining nuclear plant values are symptomatic of the plant closures. The asset value of nuclear power plants has declined steadily in most regions since 2010, primarily due to the low natural gas and power price environment, Fitch said. The declines have been greatest in regions without a vibrant capacity market, including Texas and the Midwest.

Also significant is the fact that many nuclear operators have canceled plans for uprating power capacity at many existing plants.

The most significant was Exelon’s 2012 cancellation of nearly 600 MW of planned uprates at its Limerick and LaSalle generating stations, Fitch said.

“Despite having the lowest production cost (revenue less fuel) of all conventional generation, the combination of relatively low wholesale energy prices and insufficient capacity revenue do not justify the nuclear uprates,” according to the ratings service.

The good news for the industry is the first significant nuclear construction in decades.

There are currently five nuclear units at three sites under construction in the United States that will partly offset the announced and potential retirements. Each of the new units will be rate regulated and is located in the Southeast, Fitch noted.

The Tennessee Valley Authority (TVA) is completing the Watts Bar 2 facility in Tennessee. In addition affiliates of Southern (NYSE:SO) and SCANA (NYSE:SCG) are each leading development of dual-unit AP 1000 facilities at the Vogtle and V.C. Summer facilities in Georgia and South Carolina.

“The five units aggregating 5,648 MW are currently scheduled for operation between 2016 and 2019,” Fitch said.

The Fitch report was drafted by analysts led by Senior Director Robert Hornick.

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