High costs, low power prices making nuclear plant survival tough

Survival has become the name of the game for many nuclear power plants in the United States, Nuclear Economics Consulting Group (NECG) Principal Edward Kee told the GenForum event at POWER-GEN on Dec. 12 in Orlando, Fla.

A combination of high operating costs, flat demand for electricity and low power prices are making it increasingly difficult to keep existing nuclear reactors in business, Kee said.

Entergy (NYSE:ETR) announced recently that it would close its 800-MW Palisades plant in Michigan by the end of 2018. The Omaha Public Power District (OPPD) closed the 475-MW Fort Calhoun nuclear plant in October.

Most nuclear plants cannot lose money for another decade while waiting for some type of carbon tax to be enacted, Kee said.

The Nuclear Energy Institute (NEI) is pushing its members to reduce operating costs, but Kee doubts that cost-cutting alone can turn things around. A “return to regulation” or some other mechanism is needed to help nuclear plants survive financially, he said.

There are a few new nuclear plants being built and a variety of proposals for “advanced” nuclear plants. Most of the latter category might continue to exist largely “on paper” for the near term, Kee said.

If a nuclear plant needs power prices of at least $30 to make money then it’s in tough shape these days, Kee said. Federally-subsidized wind plants can withstand so-called “negative” pricing at night – but nuclear reactors face tougher economics.

Nuclear power currently provides major “public benefits” such as avoiding carbon emissions, Kee said. Nuclear energy provides more than 60% of the carbon-free electricity generated in the United States, the consultant said. It also provides vital baseload power during weather extremes such as the “polar vortex” of a couple of years ago.

But the nuclear benefits are not sufficiently compensated in the marketplace, Kee said.

Market dynamics in the United States need “big changes” or most domestic nuclear capacity will be gone by 2050, Kee said.

There has been serious discussion in Washington, D.C. policy circles about having the federal government purchase some nuclear plants to preserve them for their carbon-free generation, Kee said. Such an effort would face many obstacles, he added.

A more realistic approach might be requiring large federal power buyers buy a certain percentage of nuclear-generated electricity, Kee said

There is also encouraging news on the state policy front. New York has enacted a zero emission credit (ZEC) program that would benefit nuclear power. Likewise, Illinois has just passed clean energy legislation that would benefit financially-hurting Exelon (NYSE:EXC) nuclear plants.

The state of Iowa also recently renewed a power contract for the NextEra (NYSE:NEE) Duane Arnold nuclear plant and the Public Utility Commission of Ohio (PUCO) has approved an order to benefit the FirstEnergy (NYSE:FE) Davis Besse nuclear plant.

Prior to starting NECG, Kee held senior consulting posts at NERA Economic Consulting, CRA International, PA Consulting Group and McKinsey.

Kee has an MBA from Harvard and a bachelor’s degree in engineering from the U.S. Naval Academy. He served in the nuclear Navy before becoming a consultant.

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.