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Can Gas Undo Nuclear Power?

 

Can Gas Undo Nuclear Power?

 

The Wall Street Journal

January 29, 2013

Back in the 1950s, nuclear power held out the promise of abundant electricity "too cheap to meter," or almost free. But today, U.S. utilities are encountering something they never expected: Some natural-gas-fired power plants are cheaper to run than nuclear units.

And that is leading some companies to consider shuttering their nuclear facilities.

In much of the U.S., nuclear plants compete head to head with power plants fueled by natural gas, whose price remains near historic lows. That is giving gas-fired plants a cost advantage over some smaller nuclear plants and plants facing costly repairs. About 40% of U.S. nuclear reactors sell power into deregulated markets, where coal-fired plants are also struggling to compete against natural gas.

Associated Press

Vermont Yankee nuclear plant

Among the nuclear plants regarded as vulnerable by UBS UBSN.VX -2.46%Investment Research are Exelon Corp.'sEXC -0.45% 25-year-old Clinton plant in Illinois and its 43-year-old Ginna plant in New York, as well as Entergy Corp.'sETR -0.81% 40-year-old Vermont Yankee and 38-year-old FitzPatrick plants in Vermont and New York.

Plants facing costly repairs includeEdison International's EIX +0.61% San Onofre plant in Southern California and Duke Energy Corp.'s DUK +0.46% Crystal River plant in Florida, both of which are currently idled.

Some companies have already announced shutdowns. In October, Dominion Energy Resources Inc. said it would retire its Kewaunee nuclear plant in Wisconsin in mid 2013 even though it still has 20 years left on its operating license.

Dominion said it would be cheaper to meet its contractual obligations to nearby utilities with electricity bought on the open market than getting it from Kewaunee, which Dominion bought in 2005.

Exelon plans to shut down its Oyster Creek plant in New Jersey in 2019, 10 years before its license expires. An Exelon spokesman said the Chicago-based utility company "has no plans to shut down any other plants based on current market conditions." Exelon operates 17 nuclear reactors, or about 20% of U.S. nuclear capacity.

Early Retirement | Plants vulnerable to closure

  • http://s1.wsj.net/img/orange_bullet.gif); background-position: 0px 5px; background-repeat: no-repeat no-repeat;"> Ginna (Exelon) Near Rochester, N.Y. License Issued: 1969
  • http://s1.wsj.net/img/orange_bullet.gif); background-position: 0px 5px; background-repeat: no-repeat no-repeat;"> Clinton (Exelon) Near Bloomington, Ill. License Issued: 1987
  • http://s1.wsj.net/img/orange_bullet.gif); background-position: 0px 5px; background-repeat: no-repeat no-repeat;"> Vermont Yankee (Entergy) Near Brattleboro, Vt. License Issued: 1972
  • http://s1.wsj.net/img/orange_bullet.gif); background-position: 0px 5px; background-repeat: no-repeat no-repeat;"> FitzPatrick (Entergy) Near Oswego, N.Y. License Issued: 1974

Source: NRC, UBS

A spokesman for Entergy, which operates 12 nuclear reactors, said the company doesn't talk about the financial performance of individual plants. "While short-term prices may be challenging," he said, "it is our point of view that, left alone, power markets will recover."

Low electricity prices benefit energy consumers, but they're hard on those selling electricity. Small nuclear plants make less electricity than big plants, so their relatively high overhead is harder to cover when electricity prices drop.

Fixed costs run about $15,000 per megawatt of capacity for modern gas plants, about $30,000 for coal plants and $90,000 for nuclear plants, according to federal estimates. Nuclear plants also spend heavily on security and other safeguards, and their equipment costs are higher than those for other kinds of generating plants because they handle radioactive material and operate at extreme temperatures.

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Though fuel costs have been rising for nuclear plants, fuel isn't a big factor in their expenses. But at gas plants, fuel is the biggest single expense, and its cost has been plunging. For the U.S. as a whole, average spot prices for natural gas fell 31% in 2012, to $2.77 per million British thermal units from $4.02, according to the federal Energy Information Administration.

When market prices for electricity were higher, nuclear plants could cover their overhead costs and still make a lot of money because they typically ran all the time, shutting down only every 18 months to take on fresh fuel. But lower electricity prices are squeezing them.

Nuclear output is already showing signs of weakness, logging a 2.5% decline in the first 11 months of 2012 compared with a year earlier. Output from plants fired by natural gas jumped almost 24%, according to the EIA.

Cheaper prices for natural gas depressed power prices, which fell between 15% and 47% in U.S. markets last year, with California at the low end and Texas at the high end. Wholesale electricity prices fell 27% in New York last year to the lowest level since the state deregulated its wholesale electricity market a dozen years ago. State officials said wholesale electricity cost half as much in 2012 as in 2008, before gas production boomed and the economy tanked.

Consumers are receiving some of the benefit, but higher costs for things like transmission have blunted the impact.

Some nuclear plants are able to stay profitable because they get special payments for just having power plants available that are ready to run, said Hugh Wynne, senior analyst at Sanford C. Bernstein & Co. These special payments are important revenue sources in the big deregulated market in the mid-Atlantic region, supplementing revenue from actual electricity sales. But they're too low in other places, such as the Midwest, to help much, he said.

If a significant number of nuclear plants shut down in the next few years, it's likely that the electric-power industry will have a harder time continuing to reduce emissions of greenhouse gases. Coal-fired plants produce the most carbon emissions, while modern gas-fired plants produce about half as much carbon dioxide as coal. Nuclear plants, which still produce about a fifth of the nation's electricity, are the nation's biggest single source of carbon-free electricity because they don't burn fossil fuels.

If Congress or the Obama administration limits greenhouse-gas emissions, that would "increase the value of nuclear plants," said Dan Lashof, director of the Natural Resources Defense Council's climate and clean energy program. But, he said, it's far from certain anything will happen soon enough for nuclear-power firms.

Write to Rebecca Smith at rebecca.smith@wsj.com

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