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Power Producers Could Use Less ZECs

ZECs, or zero emission credits, aren’t exactly titillating. But in the power business, they definitely get people worked up.

On Friday, a district judge in Illinois dismissed a case brought against a state law passed late last year establishing ZECs. These are effectively subsidies for struggling nuclear power plants. Apart from Illinois, similar measures have been passed or are being considered in other states such as New York, Connecticut, Ohio, and New Jersey. More than half of U.S. nuclear power plants are losing money, according to a recent analysis by Bloomberg New Energy

Ostensibly, lawmakers want to keep these plants open because they don’t emit carbon dioxide — zero emissions — and provide reliable power supply. Both of these things are true.

Equally true is that nuclear power plants employ a lot of people. New York’s FitzPatrick nuclear plant, for example, may require 15 times as many employees per megawatt of capacity as a large, modern, natural-gas-fired plant (adjusted for how much each one runs), according to Bloomberg Intelligence. Jobs at nuclear plants pay better, too.

It is no accident that when Exelon Corp. announced plans to close the Illinois plants that spurred the state to establish ZECs, employment featured prominently in the press release. The same goes for the announcement it made at the end of May about its intention to close the Three Mile Island plant in Pennsylvania:
Like New York and Illinois before it, the Commonwealth has an opportunity to take a leadership role by implementing a policy solution to preserve its nuclear energy facilities and the clean, reliable energy and good-paying jobs they provide.

(Hint, hint.)
On one hand, ZECs are just another addition to the ungainly edifice of subsidies encircling the U.S. power sector in the absence of a more straightforward approach like a carbon tax.

On the other, zero emission credits are another blow to merchant power producers struggling to survive in what has become a zero-sum game. Subsidies for rival nuclear-power producers would always rankle these firms, but possibly less so if the electricity market was expanding overall. The problem is, in general, it isn’t:

This is a problem for companies such as Dynegy Inc. and Calpine Corp., which produce power to sell into wholesale markets (and were part of the coalition that brought the case in Illinois). Less demand generally means lower prices. Making this worse are the effects of lower natural gas prices and the expansion of renewable energy sources such as wind power, both of which tend to depress wholesale electricity prices. With the overall pie barely growing, traditional forms of power are struggling to secure a slice of incremental demand:

Read full article at Bloomberg