A version of this article was originally published on March 6th, 2017 on Greentech Media.
By Eric Gimon
In a recent op-ed, U.S. Senators Alexander and Whitehouse made a concerted plea for the support of nuclear power. Their plea comes when wholesale electricity prices are at historic lows, and the fate of the existing fleet of nuclear plants, many up for re-licensing in the near future, has been called into question as their underlying economics are threatened. Policymakers are faced with tough choices as to whether and how to intervene to save these plants. Some nuclear plants consistently in the red in competitive wholesale markets have driven some to call for re-regulation and the abandonment of a free market approach. What’s a reasonable policymaker to do when thinking of nuclear power against the overall need for cheap, clean, and reliable power?
With an aging nuclear fleet, policymakers will inevitably face decisions about how long to support existing plants and how to avoid capacity shortfalls when shutting them down at the ends of their lives. Which of these options drives a cheaper, cleaner, and more reliable electric system will vary based on context. Policymakers should consider that context rather than axiomatically saying, “we must save nuclear at all costs,” or, “we must get rid of it all immediately.”
At first, understanding nuclear power seems straightforward, as the basic facts are simple. The U.S. has a reliable fleet of nuclear reactors, the largest in the world. U.S. nuclear plants provide about 800 terawatt-hours (TWh) of carbon-free, reliable power representing 20 percent of all domestic electricity generation. Meanwhile, construction of new U.S. plants has ground to a virtual halt due to the large and rising costs and financial risk of building new units, especially due to delays.
Going beyond these basic facts reveals challenges: What about potentially dangerous nuclear waste? Could plants be cheaper with less onerous rules and passive safety designs? And so forth.
The first step to wading through the morass of facts and opinions is to take a hard-nosed and pragmatic approach to any decision regarding existing plants, with a healthy dose of skepticism. Are existing nuclear reactors clean? They have a waste issue, but they emit no air pollutants. This significantly reduces externalities in an otherwise dirty grid, as we will see below. They are also very reliable, generating 90-95 percent of their capacity annually. The real sticking point is: are they cheap?
Nuclear power plants tend to have high fixed annual costs, and so they need to run as much as possible to spread these costs over a maximum number of megawatt-hours (MWh). This makes nuclear plants inflexible, meaning they cannot rapidly ramp their output, for economic reasons if not technical ones.
In a large market this inflexibility is not much of an issue, nuclear generators are price takers and get paid the average annual locational wholesale electricity price. In this case, the MWh are strictly commodities; nuclear power is cheap if its costs fall below competing generators’. However, in a more constrained market, for example one with lots of zero-fuel-cost variable generation like wind and solar, nuclear power only competes as a commodity up to the minimum level of net-load (load minus zero-cost generation). Any more nuclear generation would raise overall system costs.
A pragmatic approach: two case studies
Because of such complexities, there is no simple answer for how much support to provide for endangered nuclear plants. Beware arguments to save existing nuclear at all costs, or to get rid of it all immediately. Instead, it will pay to examine each plant on a case-by-case basis, in the context of the available alternatives. Two recent cases with opposite outcomes but equally sound rationales in California and Illinois serve as models for how policymakers can look pragmatically at other upcoming nuclear cases. At the risk of trivializing other important factors and for simplicity’s sake, we examine just two key technical characteristics in addition to generation costs for thinking about the costs and benefits of retiring or propping up an existing nuclear plant: emissions and grid flexibility.
First, California: On June 21, 2016, Pacific Gas and Electric Company (PG&E) and a number of parties struck a settlement entailing the retirement of the Diablo Canyon nuclear plant. A report from M.J. Bradley and Associates captures most of the rationale for this decision. Due to improved energy efficiency, distributed generation, and load defection through direct wholesale purchases and community choice aggregators, PG&E anticipates that its total generation needs for 2030 will decline significantly on an absolute basis. After taking into account California’s 50 percent renewable portfolio standard (RPS) and the existing hydropower fleet, this leaves room for somewhere between 16 and 24 TWh of remaining annual generation, including valuable flexible gas generators, to meet PG&E’s demand. In turn, this puts the squeeze on the annual 16-18 TWh of baseload generation from Diablo Canyon.
According to the report, running that plant near its maximum capacity would force renewables to curtail their output to make room for the inflexible nuclear energy. Instead, PG&E projects it can cover any shortfall from the retirement of Diablo by purchasing only an incremental 4 TWh of clean resources (energy efficiency, renewables, demand response and storage) – 25 percent of Diablo’s full output. Because flexibility is at a premium for balancing variable generation in California, a strictly baseload generation profile loses a lot of value.
These flexibility constraints mean that legislation or regulatory action to sustain Diablo Canyon wouldn’t necessarily lead to any incremental emissions reductions under present assumptions. It is possible that if California replaced its 50 percent RPS with a broader carbon regime that included nuclear power, and targeted equivalent or lower emissions in 2030, then re-licensing Diablo Canyon might be part of a lower cost portfolio, but this is far from guaranteed.
Additionally, if California were better integrated into a regional grid, this larger grid could more easily accommodate Diablo Canyon’s inflexibility. If PG&E could competitively sell off excess nuclear generation to its neighbors, it could use the remaining power to replace its own dirtier gas generators and lower emissions. At that point it might be worth tipping the scales towards relicensing.
To sum up, because Diablo Canyon is generating somewhat expensive power into a shrinking power pool where policy and economics are creating demand for more flexible generation, it is doesn’t seem worthwhile to try and save it.
Meanwhile, in Illinois, the Exelon Corporation owns a fleet of nuclear generating stations connected to two of the largest power markets in the world, Midcontinent Independent System Operator (MISO) and PJM Interconnection. These very large systems can more easily absorb the inflexible baseload coming from the round-the-clock nuclear generation, apart from some local issues with transmission bottlenecks. Still, two of the plants in this fleet, the Quad Cities pair of reactors and the Clinton reactor, were slated for retirement due to their inability to compete in challenging wholesale market conditions.
On December 1, 2016, the Illinois legislature passed the extensive and complex Future Energy Jobs bill which included a rescue package for the Clinton and Quad Cities plants. At roughly $10/MWh, the package covers roughly one-third of the plants’ production costs and is collected through a 1-2 percent surcharge on customers’ electric rates. As these plants generate close to 24 TWh annually, this works out to a $240 million annual customer-funded rescue package. Since system flexibility is not really at issue for these plants, was this charge worth as far as emissions are concerned?
Given general conditions of electricity generation overcapacity in the Midwest that drive the low wholesale prices, existing generators could likely replace the lost nuclear generation. According to the U.S. Environmental Protection Agency’s regional emissions factors, replacement power from MISO and PJM would generate roughly 1,500-1,600 lbs. of CO2e greenhouse gas (GHG) emissions. Using a social cost of carbon of $36/metric ton, retiring Clinton and Quad Cities would avoid approximately $24-26/MWh in GHG-related benefits, well in excess of the $10/MWh support they will be receiving.
Of course, these GHG social benefits don’t all directly help Illinois citizens, as carbon dioxide is a global pollutant. But eliminating local air pollution certainly does. Further combining regional EPA emissions factors with various EPA estimates of health cost from pollution-related illness and death, nuclear retirement would also eliminate $48-$129/MWh in mortality and morbidity reduction benefits! (Of course, this figure depends on how one values the 100-400 lives saved per year.) Just on an air pollution basis, the Illinois nuclear support is a good deal for its citizens.
Compared to California, the Illinois case is much simpler. The nuclear facilities are in much larger markets that can absorb their inflexibility, and though their generation costs slightly more than prevailing prices, it offers emissions benefits (as well as other local jobs benefits) that significantly outweigh the extra income these two plants require to stay open.
What does this all mean for your state?
Looking at the California and Illinois examples, it seems entirely appropriate for policymakers to intervene in the case of existing nuclear plants, either to accelerate retirement or to offer an economic lifeline. The cost/benefit equation for these large plants brings in many factors like emissions, system needs, security, and jobs impacts to name a few, so political deals and fixes like the recent New York $7.6 billion nuclear rescue package are to be expected. Nevertheless, if policymakers want to make pragmatic choices they might examine the following questions quantitatively:
- What are the climate and health impacts of closing a given nuclear plant? What resources would replace it if retired? How quickly would replacements be needed?
- What contribution is a nuclear plant making to the reliability and efficiency of running the grid? In an age where flexibility is increasingly at a premium due to low-cost variable resources, can the system efficiently absorb this inflexible baseload easily?
- Even though an existing resource may seem cheaper, sometimes building a new power plant is more economical. How much will it cost to prop up an existing plant? Is there an equitable mechanism for doing so that properly accounts for the full balance of costs and benefits of an intervention?
Only after a pragmatic, hard-nosed analysis should a decision on support for existing or new nuclear plants be made. And if the decision is to support a plant in a wholesale market region, care must be taken to ensure that the mechanism for support does not undermine the integrity of the market, or run afoul of federal law. Hopefully, we will maintain the most valuable plants currently at the mercy of an over-capacity grid. Meanwhile, climate advocates should take heart that not every nuclear retirement represents a step back on the mitigation front.