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Nuclear Energy Operators Say Market Stacked Against Them

Feb 6 2014, 7:05am CST | by

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Nuclear Energy Operators Say Market Stacked Against Them

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Nuclear Energy Operators Say Market Stacked Against Them

When Entergy Corp. made its decision to close its Vermont Yankee nuclear facility,  it opened the door to discussions on how to allow all electric generating facilities fair access to the markets. The utility says that the action it has taken could become more widespread unless system operators make corrections.

Grid operators, or those who order up power and schedule those deliveries across the transmission lines, want to ensure that regions have ample and reliable electricity supplies. The downfall of any facility that runs 24-7 erodes those goals, especially if the energy source is carbon-free and helping the Northeastern states to meet their climate objectives.

“Markets have to address these issues or you will see a fallout of perfectly well-run units such as Vermont Yankee, and potentially others,” says Bill Mohl, who heads Entergy’s merchant nuclear operations in Massachusetts, Michigan, New York and Vermont. “You can’t stack the market with state regulations and environmental policies and expect competitive fuel sources to effectively compete.”

Mohl’s contentions: The abundance of shale gas has resulted in sustained low natural gas and wholesale energy prices while market designs especially in the Northeast have resulted in artificially low energy prices. That’s a vague reference, in part, to wind energy that is subsidized and that does not provide electricity around the clock.

If an electricity market is going to be economically sustainable for investors and consumers, it must be truly competitive, says Mohl, in a phone interview. To that end, he says that fuels that cost more have entered the market and that they are receiving state-sanctioned, long-term contracts. Existing merchant generators that sell their power at market prices, conversely, are unable to compete.

“Our projected revenues were significantly lower than the projected costs,” says Mohl, in reference to Vermont Yankee that will officially close this year. “We could no longer make significant investments.”

Other than market design, Mohl emphasizes that increasing the reliance on natural gas is imprudent. That’s because — especially in the Northeast — there is insufficient pipeline infrastructure to move the gas to where it will be consumed. Natural gas there provides half the electric generation, he adds, noting that nuclear energy provides a hedge against volatile gas prices.

During the polar vortex that gripped parts of the nation in January, including the Northeast, natural gas prices spiked while reliability concerns persisted.

“If you are adding new generation, combined cycle natural gas facilities are clearly the cheapest,” says Mohl. “But when you are heavily reliant on one fuel that you can’t store, you jeopardize reliability, increase price spikes and raise the risk of being unable to meet environmental requirements.”

Mohl says that Entergy has no plans to build any more nuclear facilities, noting that the construction costs are exorbitant. But he says that it is critical that the nation’s merchant nuclear fleet be maintained. As for Entergy, even with the retirement of Vermont Yankee’s 600-MW facility, it still has 4,400 MW of nuclear generating capacity — and it is committed to keeping all of it.

Others with merchant nuclear units include Exelon Corp. NextEra Energy and PSEG Corp. Exelon has been vocal about ending the production tax credit given to wind energy, saying that it creates market inequities. In return, Exelon has been lambasted for pushing nuclear loan guarantees.

Five nuclear units, including Entergy’s have announced closures in the last year. Duke Energy and Southern California Edison closed their Florida and Southern California facilities, respectively, because of persistent technical issues. Meanwhile, Dominion Resources has closed its Wisconsin unit and Exelon will shut down a New Jersey plant because they can’t compete with natural gas.

Beside the current closures and uprate cancelations, of which there are nine, 38 reactors in 23 states are also at risk of early retirements, with 12 of those facing the greatest risk of being shutdown, says Mark Cooper, senior fellow at the Institute for Energy and the Environment at Vermont Law School. Uprates are the increasing of a plant’s current output — a phenomenon that has been put on hold because of current cheap natural gas prices.

The scholar, who is criticized for being an anti-nuclear activist, also says that says that Exelon’s Clinton in Illinois, Entergy’s Indian Point in New York, TVA’s Brown Ferry in Alabama and FirstEnergy’s Davis-Besse in Ohio may go. He is, further, skeptical of the nuclear energy expansions of Southern Company and Scana Corp., saying that ratepayers will either have to eat what has already been spent or shell out millions more for what he says is an uneconomical power source.

“With little chance that the cost of new reactors will become competitive with low carbon alternatives in the time frame relevant for old reactor retirement decisions, we need to start preparing now for more early retirements or the threats of such retirements,” says Cooper.

Nuclear energy has suffered some setbacks in the United States, which have led to increased regulatory scrutiny and current or pending plant closures. But those retirements have come when the nation is emphasizing the use of carbon-free, reliable fuel forms — something for which nuclear energy has a strong track record. Grid operators understand that, which is why they are working with all parties to ensure it remains part of a diverse resource mix.

Source: Forbes


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