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Are Markets or Subsidies at Issue as Exelon Considers Closing Two Nuclear Plants?

Exelon Corp.‘s hard-pressed nuclear power plants are getting squeezed a bit more: It may need to close two nuclear units in Illinois that are losing money. Why? If you ask the company, it can’t compete with green fuels that are subsidized. So its, instead, looking to federal and state lawmakers to make carbon-free cool.

The Chicago-based utility is the nation’s largest nuclear operator and part of its fleet is comprised of “merchant” facilities that compete on the open market. Exelon has been among the most vocal companies that say that while it is investing in green energies, it opposes the subsidies provided to them because they are giving green fuel sources — specifically wind — a leg up over the competition.

At the same time, the company is unable to go head-to-head with shale gas, which is undercutting not just nuclear power but also green energies and especially coal. From the perspective of corporate America, the low prices mean business. But Exelon counters that thinking by saying that the market prospers by having ample fuel choices while the environment benefits by having lower carbon emissions.

What is Exelon proposing? Well, it’s too late to block the federal production tax credits given to wind and solar developers granted late last year. That’s why it is supporting the Obama administration’s Clean Power Plan that limits carbon emissions while also trying to get Illinois state regulators to examine plant economics. Exelon says that state-sanctioned long-term contracts awarded to wind facilities mean it can’t compete.

Along those lines, it has been petitioning the state to push for limits on carbon releases, which by extension give its nuclear fleet a leg up over fossil-fueled generation, especially natural gas. It would like the state to require that as much as 70 percent of all power purchases come from low-to-no carbon sources — without which Illinois might not be able to comply with the Clean Power Plan that requires 32 percent cuts in carbon emissions by 2030, from a 2005 baseline.

“The problem is that, despite outstanding performance, we are experiencing major financial losses,” says Christopher Crane, chief executive, in a Nuclear Energy Institute statement.

The context: Last week Exelon said it might close its Illinois-based Clinton and Quad Cities merchant nuclear plants in 2018.

The plants have lost hundreds of millions over the last several years. Interestingly, those facilities got a lease on life last year when they competed successfully in auctions where grid managers buy power from competitive utilities. But the prices that Exelon will get may not cover its operating expenses, in addition to a reasonable profit.

Already, two merchant units owned by Dominion Resources and Entergy Corp. have retired. As much as 6 percent of the total nuclear capacity is at risk of closure. In total, 99 nuclear reactors generate 19 percent of the nation’s electricity.

“We must compete against the marginal source: natural gas. And we do not see those prices rising. We need diversification. We need a balanced portfolio,” said Chris Crane, chief executive of Exelon at the Edison Electric Institute’s annual meeting last June in New Orleans, before reporters.

He has also said his company’s nuclear plants will remain “economically challenged” but that the Clean Power Plan will give them some breathing room. That rule, he explains, puts a premium on those facilities that are “always-on” and that are carbon free.

Cheap power is good for corporate America. But if electricity becomes too inexpensive and only a few fuels survive, then long term that can’t help the corporate cause, especially if going green is a primary goal. Just where nuclear winds up will, ironically, be a function of federal and state rules — not necessarily market-focused mechanisms that permeate most competitive industries.

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7 thoughts on “Are Markets or Subsidies at Issue as Exelon Considers Closing Two Nuclear Plants?

  1. This is an excellent article. In 2014, nuclear power cost $0.02679/kWh, and in 2013, the subsidies for wind power were $0.03533/kWh. In other words, nuclear power costs less than the subsidies for wind power. How is nuclear power to compete against these big subsidies in such a Free Market?

    Please support Illinois Senate Bill, SB 1585 – “The Next Generation Energy Plan”. Please support cheap Nuclear Power.

    Mills per KiloWattHour (kWh) is the same thing as dollars per MegaWattHour (MWh). The total is the important category in the US EIA link.

    Average Power Plant Operating Expenses for Major U.S. Investor-Owned Electric Utilities, 2004 through 2014 (Mills per KiloWattHour)
    US EIA
    http://www.eia.gov/electricity/annual/html/epa_08_04.html

    Federal Electric Subsidies Per Unit of Production, FY 2013
    (2013 Dollars per MegaWatt Hour)
    Based on US EIA data
    Bar Graph of Subsidies in ($/MWh)
    PNG
    http://instituteforenergyresearch.org/wp-content/uploads/2015/03/Fed-Elect-Subs-mgwhrev1.png

  2. So I don’t get it… How has the nuclear power generation industry been able to quantify the clean up and storage costs for spent fuel rods over the next couple of hundred years and account for it in their cost of nuclear power generation even though we still don’t have a functioning long-term storage option for those spent fuel rods? And at this point, I can understand why we still haven’t been able to figure out the waste storage aspect… the risk of containment or security breaches over the hundreds of years needed before the spent fuel rods are no longer emitting dangerous levels of radiation are incredibly hard to account for, not to mention the issue of “not in my backyard” that something like this can cause. Are we even considering these factors in our plant operation costs, or is this something that future generations to have to figure out on their own? I think most people are all for cheaper power, as long as its byproducts aren’t getting disposed of near them… I also understand that generating power will always have byproducts, but I don’t know if we want to be getting very comfortable with a byproduct that stays dangerous for such a long period of time.

  3. This sentence couldn’t be more misleading.
    “it can’t compete with green fuels that are subsidized.”
    It’s all about the cheap price of natural gas, which is anything but green…and nothing at all to do with the subsidies given to solar and wind, either of which can’t get off the ground.

  4. marty, that’s the whole question: is about cheap natural gas or green subsidies. see the first note by robert.

  5. This sentence couldn’t be more misleading.
    “it can’t compete with green fuels that are subsidized.”

    If you look here, you’ll notice that coal is being phased out and gas is it’s replacement. It’s almost a 1 for 1 swap out in the shift from coal MW to gas MW. Renewables are increasing and besides direct subsidies ($15B in 2013 alone), many states have mandates to purchase renewables. So, yes it’s the renewables that are competing directly with nuclear because nuclear is excluded from the green energy program. It’s only it the mix if it’s new construction.
    Read more: http://www.eia.gov/electricity/data/browser/#/topic/0?agg=2,0,1&fuel=vtvv&geo=g&sec=g&linechart=ELEC.GEN.ALL-US-99.A~ELEC.GEN.COW-US-99.A~ELEC.GEN.NG-US-99.A~ELEC.GEN.NUC-US-99.A~ELEC.GEN.HYC-US-99.A~ELEC.GEN.WND-US-99.A~ELEC.GEN.TSN-US-99.A&columnchart=ELEC.GEN.ALL-US-99.A~ELEC.GEN.COW-US-99.A~ELEC.GEN.NG-US-99.A~ELEC.GEN.NUC-US-99.A~ELEC.GEN.HYC-US-99.A~ELEC.GEN.WND-US-99.A&map=ELEC.GEN.ALL-US-99.A&freq=A&ctype=linechart&ltype=pin&rtype=s&maptype=0&rse=0&pin=

  6. Chris,

    No “cleanup” associated with spent fuel rods. All the waste is contained in the rods (much unlike waste streams from other, e.g., fossil industries, that are released en masse directly into the environment).

    Cost? All the costs of nuclear waste management and disposal are fully covered by a 0.1 cent/kW-hr fee on nuclear generated electricity (i.e., it’s already fully included in nuclear’s price). That pays for waste being handled and disposed of to the most impeccable standards every applied to any other waste stream. The industry must show (through extremely rigorous and conservative analysis) that the waste will remain contained for as long as it remains hazardous, and (essentially) that the waste will never have any impact.

    This is such a far cry to other (e.g., fossil) energy sources’ waste streams that it defies description. Those wastes are simply carelessly shallow-buried or released directly into the environment in mass quantities, the effects being on the order of 10,000 *annual* deaths in the US alone (from fossil power generation pollution) and global warming. In addition to those enormous short-term impacts, over the longer term, those wastes/pollutants will have a far larger impact on public health and the environment than nuclear waste ever will. And, unlike nuclear, NONE of those costs are included in the price of fossil generated electricity.

    Byproduct that stays dangerous for a long period of time? Where do you get the notion that all wastes from all other industries just magically become harmless after some relatively short period of time (exactly how short, you don’t say, you just assume that it’s “not a problem”). That nuclear waste is unique in terms of longevity is a myth. Nuclear waste decays exponentially, and becomes far less hazardous fairly quickly, whereas the infinitely greater volumes of toxic wastes from other (fossil) sources contain many hazardous constituents that remain hazardous *forever*. Over the very long term, those other waste streams will pose a far larger hazard than nuclear waste ever will. But nobody cares…..

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