Addressing the Plight of Existing Nuclear Retirements, Part 2 RSS Feed

Addressing the Plight of Existing Nuclear Retirements, Part 2


Although the economic struggles of the existing US nuclear fleet are clear, potential solutions to these challenges remain somewhat undefined and unanalyzed.
Any solution must provide sufficient incentives to generators, reduce uncertainty, and be politically feasible.
This is a clear situation where a one-size fits all approach will not work – instead, planners will likely have to consider many different policy and regulatory avenues.
Short term policy fixes may be sufficient to protect the most vulnerable nuclear reactors but more systemic policy reforms are needed for the long-term sustainability of the entire nuclear power fleet.
Nuclear Retirements Under Increased Scrutiny

In the last several months, the announcement of planned retirements at 5.1 GW of nuclear capacity in Illinois and California underscored the challenges facing the U.S.’s nuclear fleet.

While there are many factors at play there are four dominant issues:

Restructured electricity markets structurally favor short run marginal costs and largely ignore long term considerations
Low natural gas prices reduce electricity prices in these markets and also challenge the cost effectiveness of nuclear plants in regulated markets
Continuing growth in renewable energy, especially solar, will only exacerbate these two issues in the long term
The nuclear fleet is aging, leading to multiple issues including the need for large additional capital expenditures
Unless market or policy design changes, a large portion of the existing nuclear fleet faces retirement in the short term, resulting in increased national carbon emissions. As renewable energy continues to grow rapidly and plants continue to age, the rest of the fleet will also face retirement risks if current market design persists.

Although policymakers are increasingly recognizing these issues, questions remain about how to address them.

Assuming that we want to maximize generation from existing nuclear units, what are the policy or regulatory mechanisms to do so?

This article profiles the design, implementation, and risks associated with three prominent and noteworthy solutions at the state government level:

Maintaining or reinstating cost-of-service regulation
Including nuclear in state renewable portfolio standards
New York’s recent proposal for a carbon value market adjustment
Key Considerations to Regulatory and Policy Solutions

Any solution to keep existing nuclear power plants online will have to manage several considerations:

Increase nuclear revenues sufficiently to maintain profitability
Reduce regulatory and market uncertainty for existing nuclear plants
Be politically feasible
Of these considerations, numbers 1 and 2 deal with largely technical issues: how does the policy function and what design issues does it pose?

The third consideration, politically feasibility, may be the most challenging. The economic struggles of the U.S. nuclear fleet are occurring against the backdrop of sweeping regulatory changes in the power sector.

In large portions of the country, states have enacted regulatory restructuring during the last twenty years. This is a major cause of the economic challenges facing nuclear units but also has ramifications for regulatory solutions. In many regions, regulatory power is shifting from state legislatures and PUCs to the quasi-independent ISOs overseen by FERC.

Any solutions to nuclear’s challenges are thus constrained by the distribution of regulatory power: policymakers, industry, and nuclear advocates need to know which levers are best suited to addressing challenges at specific facilities and at what times they should employ each lever.

This part of our series specifically addresses the options available at the state level. Critically, it highlights how the recent shift of power from the states to FERC may legally constrain how state’s exercise those options.

There are several important temporal aspects to all potential solutions:

Some plants face short term challenges while many face long term competitiveness issues.
All of the existing nuclear fleet will inevitably retire when the plant’s reach their lifetimes and their licenses expires. The question is when.
Considering that reactors will face different retirement risks at different times, policy solutions at the state, regional, and federal levels should be sequenced.
As usual with the U.S. electricity system, many different approaches are likely to be pursued by different states and regions. One solution may not fit all circumstances – understanding the pros, cons, and feasibility of each solution is essential to develop the best solution for different parts of the electric system.

Maintain or reinstate Cost of Service Regulation

Of the U.S.’s existing 99 reactors, 50 operate in states with cost-of-service regulation, reducing their retirement vulnerability in the short term.

Of the five reactors that retired in the last five years and the nine reactors plan to retire in the next ten years, only two were in regulated states. Even these two plants are outliers compared to the entire nuclear fleet:

The 860 MW Crystal River unit closed due to a crack in its containment dome
The 478 MW Fort Calhoun unit was the smallest in the fleet with generating costs above $70/MWh (much higher than the ~$44/MWh average for single-unit plants)
The most pressing economic headwinds for the U.S. nuclear fleet result primarily from marginal price-based compensation in competitive wholesale electricity markets. The 50 reactors operating in regulated states still compete indirectly with natural gas but are much less likely to retire than reactors in deregulated states.

Read full article at The Energy Collective