By Jim Hopf
Owners of the (556 MW) Kewaunee nuclear plant in Wisconsin recently announced that they will be closing the plant, because it was losing money and they were unable to find another company willing to buy it.
The reason the plant is losing money is that it is in a “merchant” power market, in which the price of electricity is governed by the cost of electricity from natural gas plants (those plants being the last, highest-variable cost, incremental supplier). Due to the current very low cost of natural gas, as well as weak demand due to a sluggish economy, the market price for electricity in those regions is very low. On top of this is the fact that small, one-unit plants like Kewaunee have relatively high operating costs, since many costs (including many of those associated with regulatory compliance, site security, etc.) do not scale down with plant size.
Unfortunately, it is possible that Kewaunee may not be the last plant to close for purely economic reasons. Many experts are saying that several other small plants in merchant power markets (including Vermont Yankee, Fitzpatrick, Nine Mile Point, Cooper, Ginna, Indian Point, and Clinton) are at risk of closing, due to weak demand and continuing low natural gas prices.
In addition to plants that may close for economic reasons, a few other reactors will or may close due to equipment problems. Based on estimates of $2–$3 billion to repair the Crystal River plant’s containment dome, Duke decided to close the Florida plant. Low natural gas prices almost certainly factored into that decision.
Meanwhile, the San Onofre plant in California has been offline for over a year due to tube failures in recently-installed steam generators that were based on a new design (that turned out to be problematic). Apparently (and surprisingly) it will take 4-6 years for new stream generators “that could pass regulatory muster” to be fabricated and installed. The utility is seeking Nuclear Regulatory Commission permission to run one of the two idled reactors at 70% power, based on analyses that show additional tube wear will not occur under those conditions.
Low gas prices likely temporary
Although many voices are saying that low natural gas prices (not much higher than current levels of $3–$4 per million BTU) will last for a long time, there are many reasons why this is unlikely to be true. The four main reasons are summarized below:
- The price of natural gas is 4-6 times lower than that of oil, on a per unit energy (BTU) basis. Given that oil and gas are interchangeable for many uses/applications, such a difference in energy-equivalent price is unsustainable. In fact, plans are underway, as we speak, to use natural gas in the transport sector, mainly for large trucks and fleet vehicles. There are also plans to build Gas-to-Liquids (GTL) refineries that convert natural gas into clean diesel fuel.
- The price of US natural gas ($3-$4/MBTU) is a factor of 3 to 4 times lower than what gas (LNG) sells for abroad, with Europe paying over $12/MBTU and Japan/Asia currently paying over $16/MBTU for LNG imports. Plans to export US gas are being made as we speak. Such exports will even out worldwide gas prices, and lead to significantly higher US prices.
- The price of natural gas is very sensitive to the balance between supply and demand, and demand should increase measurably in the coming years as the economy recovers.
- Finally, and perhaps most significantly, the current price of natural gas is actually much lower than the raw cost of gas production for most US shale fields. This is clearly unsustainable. In fact, there has recently been a major shift in drilling activity (and drilling equipment) from gas to oil, since oil production is so much more profitable, given the much higher price for oil. Given the high decline rates for shale gas wells, any let up in exploration or the drilling of new wells will soon lead to declining production.
In addition to the above four reasons is the likelihood that increased (tightened) requirements will be placed on shale drilling operations, either by the Environmental Protection Agency or the states themselves, in order to protect groundwater and reduce air pollution. Such requirements would also result in somewhat higher production costs. Of course, if a price or limit on CO2 emissions is ever imposed, it would make existing nuclear plants more competitive vs. gas plants. Finally, it must be noted that new EPA pollution regulations are leading to a significant number of coal plant closures. Most of this coal capacity will be replaced by gas generation. The resultant increase in US gas demand will also put upward pressure on gas prices.
Given this, it seems likely that the unprofitability of the nuclear plants in question will be temporary; probably only a few years. For this reason, many nuclear plant owners (e.g., Exelon) have stated that they are not currently planning to close any plants. Thus, some of the plants listed earlier may not close, despite a negative short term situation. Given the likely short term nature of the situation, any such closures would be very unfortunate, and shortsighted.
Can anything be done?
The closure of nuclear plants like Kewaunee and Crystal River will have a devastating effect on the local economy, due to lost local jobs and a greatly reduced local tax base. As a result, some political efforts are being made to avoid closure. In Kewaunee’s case, a local legislator is proposing that nuclear qualify under the state’s renewable (or clean energy) portfolio standard. Depending on the details, and their design, however, many such proposals may not provide the assistance that the plant needs to remain open. As stated by the Kewaunee utility, what the plant really needed was a long-term power purchase agreement at an adequate price.
It would seem that the best solution would be to develop a means to either support the price or reduce operating costs, over the next few years, or somehow arrange (or incentivise) a power purchase agreement that would last for at least a few years.
Power price supports
One option would be for the government (federal, state, or local) to provide a minor level of price support for the plant’s power, with the understanding that such support would be only temporary (i.e., a few years). Given the current financial state of the federal government, any such support may be unlikely. However, given the negative local impacts of the plants’ closures, it may be in lower-level governments’ interest to offer some limited support, if it were enough to keep the plants open. Such governments would have to weigh the cost of any support against the permanent loss of local employment and tax base. The situation is analogous to how local areas offer economic incentives to attract large employers in the first place.
As for how a “price support” would work, one could take a cue from the support given to renewable energy over the years. Such government support has often taken the form of above market prices paid to renewable suppliers, or using “renewable energy certificates” to attain a renewable generation goal, and allowing renewable generators to sell those certificates (at a price determined by the market). In one way or another, the (local) government would pay off the difference between the market price for power and an agreed-upon price that the plant needs.
Another option would be to arrange for some type of power purchase agreement. Either the government would add some type of incentive for a private power consumer to enter into such an agreement with the plant, at least for a few years, or the government itself could enter into such a power purchase agreement with the plant. If the government’s own power demand is not large enough to use all the plant’s output, it could sell off any remaining power to private consumers at market rates (presumably at some loss to the government, that is, until gas prices go back up).
Many may say that such measures would be too expensive, that governments can’t afford it, or that any such interventions in the free market are not justified. It seems to me that the support these plants need is smaller in both magnitude and duration than the support that has been given to many renewable energy projects, in the form of operating subsidies or mandates for their use, regardless of cost (with power consumers being forced to pay the higher costs).
In terms of securing cost-stable, reliable, domestic, pollution-free, CO2-free base load generation for the long term, these may be among the most cost effective measures ever taken. In addition to preserving local employment and tax base, they would reduce the region’s vulnerability to natural gas price swings/spikes in the future. Call it a (temporary) subsidy on all (new or existing) emissions-free generation. It should be easier to justify than much larger renewable generation subsidies.
Another option for keeping plants in operation would be measures to reduce their operating costs (or at least prevent them from increasing) for at least the next few years. Such measures could be removed in a few years, after the market price for power has recovered, and the plants can afford higher costs.
One example would be to delay any expensive Fukushima-related upgrades for plants that are currently barely profitable or (temporarily) unprofitable. After a several-year grace period, the plant would be required to make the upgrades. If the market price for power has still not recovered (due to gas prices not going up), then the plant would close if the upgrades would render it unprofitable.
As I discussed in my last post, requirements that result in the closure of nuclear plants, and their replacement by fossil-fueled generation (even gas) does not reduce public health and environmental risks; it actually increases them. Also, it’s not as though there is no precedent for such policies. After the Clean Air Act passed in 1970, the coal industry managed to get many (if not most) of its existing plants exempted (grandfathered) from the new law’s much stricter requirements. The argument was that it would not make economic sense to retrofit old plants that would only be operating for a few more years anyway. It turns out that they kept operating those older plants (whose emissions of various pollutants are many, many times that allowed by the 1970 Clean Air Act) for 40 more years, and counting….
Note how there is no such thing as a “grandfather clause” for the nuclear industry, with respect to Fukushima upgrades or requirements in general (anything that NRC thinks is important). At a minimum, backfits are required if justified by cost-benefit analysis (something that is not required for grandfathered coal plants, where the benefits of CAA-mandated pollution controls greatly exceed any costs). Another difference is the fact that the overall public health and environmental risk/harm from the grandfathered coal plants is orders of magnitude larger than any from a nuclear plant without Fukushima upgrades (especially given the lack of earthquake and tsunami potential at all the sites in question).
On a more general note, with respect to Fukushima, I definitely agree that many intelligent, cost-effective measures should be taken in response to the lessons learned from the event. However, we’ve also learned that even a worst-case plant accident event (with multiple meltdowns followed by essentially a failure of containment) caused no deaths and is projected to have no measurable health impact. In other words, the public health impacts are FAR smaller than what had been previously assumed, as the basis for current regulatory policy. Given this, while I agree that some specific upgrades should be made in response to Fukushima, I’m wondering what requirements we should also consider paring back, given the much smaller potential impacts. Are any new cost-benefit analyses being performed?
To my knowledge, the NRC isn’t considering taking any steps in that direction. This is unfortunate, since some carefully-considered, strategic paring of certain requirements could possibly prevent plant closures, and may make nuclear more competitive in general, resulting in reduced use of (harmful) fossil fuels in the future. (Note that this would not be analogous to EPA relaxing pollution requirements so that coal plants could remain open, in that any replacement generation for old coal plants would be environmentally superior, whereas when a nuclear plant closes, its [fossil] replacement is environmentally inferior.)
In a similar vein, aside from Fukushima upgrades, one could explore other ways to reduce operating costs at small, vulnerable plants. Apparently, the operating cost for some of these plants (e.g., Ginna) is $40/MWh; much higher than the under $20/MWh operating cost that I was always told applies to existing nuclear plants. This must be due, in part, to their small size and single-unit nature. That said, one still has to ask why their operating costs are so high. I’m guessing that their staffing, per MW, is extremely high; higher than most nuclear plants and much higher than that of fossil plants (the 556 MW Kewaunee plant employed 655 people). In my personal opinion, the industry (e.g., INPO), Kewaunee plant operators, and the NRC should sit down and figure out why the staffing (and operating costs) are so high, and try to figure out a responsible way to reduce them. At least that much effort should be made to keep these plants open, given the impacts on the local economy and the long-term impacts on the environment, energy costs, and energy security. The industry needs to make more of an effort on this.
The Kewaunee plant is only ~5 miles from the larger, two-unit Point Beach nuclear plant. Both are pressurized water reactors. One question I have is why the plants could not be effectively managed and operated like a three-unit site, given the proximity. Are there any jobs/tasks at Kewaunee that could be handled by Point Beach personnel, or vice versa? I realize that this would result in staff reductions and lost jobs, but losing some jobs is better than losing them all. I also wonder if Kewaunee plant staff considered any wage/benefits concessions, or if management considered offering them before closing the plant and laying everyone off.
One other option for temporarily unprofitable plants would be to mothball them for a few years, then reopen them when the market price for power recovers. The problem is that, due to various requirements (regulatory, etc.), it’s expensive to maintain a shutdown nuclear plant. If the owners give up the operating license, and switch over to a (“possession only”) license that applies to a decommissioned reactor state, it would be very expensive to gain permission to restart the plant. As a result, no nuclear plant that has been formally shutdown has ever been restarted.
This is one more thing that seems to be unique to the nuclear industry. Restarting a coal plant is much easier. In fact, while coal’s percentage of US generation has fallen from ~50% to ~32% over the last year or so, due to very low gas prices, utilities (e.g., Southern) have stated that they will switch many of those coal plants right back on once natural gas prices recover (i.e., once it is even slightly less expensive to run the coal plant, regardless of the much greater level of pollution). Some disincentive to pollute, which would at least raise the natural gas price at which utilities would switch old, highly-polluting coal plants back on, is clearly needed.
This is another area where some review of current policies is in order, in my opinion. As things stand, it is far too difficult and expensive to pull a closed nuclear plant back out of mothballs, and/or to maintain a plant in a “mothballed” state. I don’t really understand why maintaining the option of restarting a nuclear plant should make it that much more expensive to maintain a plant in a shutdown state. It’s not as though the risks and potential for release (from stored spent fuel, etc..) are any greater. Reform/scrutiny in this area should be more palatable than my earlier suggestions about paring requirements for operating plants, given the lower potential risks present during the long-term shutdown state.
Anyway, mothballing the plant is another option that should be studied by the local governments, the utility, and the NRC. If local governments want to keep the option of restarting the plant, they should try to find a way to make it happen (i.e., make it worthwhile for the utility).
Crystal River and San Onofre
Unlike plants like Kewaunee, the Crystal River plant is probably a lost cause given the (inexplicably) huge cost of repairing its containment dome. I still have to ask why no cost-benefit analysis is being done on the option of operating the plant in its current state. (It’s likely that the costs of repair greatly exceed any public health or economic risk reduction benefits.) I also feel compelled to point out that even if the plant were operated in its current (unrepaired) state, its overall risk to public health and the environment in the local area would be much smaller than that posed by the four coal units at the same site, that are going to continue to operate.
As for San Onofre, I am not sure what “that pass regulatory muster” means. Does it refer to installing generators of the old design, or does it refer to years of analysis (paralysis)? I have to ask why it will take 4–6 years to replace the steam generators (a piece of industrial heat exchange equipment). Does the replacement of large heat exchangers in any other industry take anywhere near this long?
Also, news reports are saying that the NRC is having some problem allowing the plant (steam generator?) to run at 70% because 100% was the design basis. I’m having trouble understanding how legal (licensing) issues could be a significant impediment. The engineering issues, i.e., the assertion that the steam generators can operate at that power level without further tube degradation, clearly need to be analyzed, but they should (expeditiously) perform the necessary engineering evaluations and move on.
Whatever these issues are, the NRC (and the utility) need to do what it takes to resolve them, in months not years. This is especially true given that to make up for the loss of San Onofre’s generation, they are firing up two old, dirty fossil units in the area; units that had been retired due to the fact that they did not meet current air pollution requirements, among other factors. Thus, the longer they delay, the greater the (real) impacts on public health in the region (as well as CO2 emissions) from those fossil units.
Is this beginning to sound like a theme? Going to the ends of the earth to avoid/reduce small nuclear risks, and ignoring much larger risks from fossil generation; fossil generation that is often being used to replace nuclear generation that is closed due to the relentless quest to reduce nuclear risks to zero.
Jim Hopf is a senior nuclear engineer with more than 20 years of experience in shielding and criticality analysis and design for spent fuel dry storage and transportation systems. He has been involved in nuclear advocacy for 10+ years, and is a member of the ANS Public Information Committee. He is a regular contributor to the ANS Nuclear Cafe.