Meltdown – can US nuclear compete with shale gas and subsidised renewables?

9 March 2015 (Last Updated July 15th, 2020 23:00)

The US nuclear industry is struggling to survive in tough US electricity markets flooded with cheap natural gas and subsidised renewables. Industry insiders say action must be taken now to reverse this decline or the country will face dire consequences for climate change goals and energy security – but what needs to be done?

Meltdown – can US nuclear compete with shale gas and subsidised renewables?

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The US nuclear industry has seen five reactors shut down in two years; most recently, Entergy Nuclear's Vermont Yankee power plant in Vernon closed at the end of 2014 due to low energy prices and flagging electricity demand.

Although costly to build, once online, nuclear is relatively cheap, has high efficiency, is reliable and, most significantly, is a low carbon energy source that currently provides 20% of America's energy needs.

In South Eastern US five reactors are being built - commissioned before the 2008 financial crisis - however, the country's current nuclear fleet is an aging one, and nearly all existing reactors will be more than 60 years old by 2050.

But whether these reactors remain open at all remains to be seen. According to the Nuclear Energy Institute (NEI), another eight to ten reactors are at risk of imminent closure.

And vice president and head of research and consulting power, gas, coal and renewables at IHS, Jone-Lin Wang says she expects 10% of the US nuclear fleet will retire in a decade.

Tough times ahead

"I'm concerned about the future of a country that allows the shutdown of productive assets that will be replaced with something that produces higher-cost electricity and provide maybe 10 % of the jobs lost when the nuclear plant closes," said NEI vice president of policy development Richard Myers during a presentation last year.



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The US shale gas boom, still in full flow with reserves expected until 2040 at least, is one factor putting pressure on the nuclear industry.

"Low gas price makes building gas-fired power plants the cheapest option; it just beats everything else economically," says Wang.

"If a plant costs $45 per megawatt hour (MWh) to operate but the market price is only $35 -$40 MWh that forces the operator to shut it down," Wang adds. "But three years down the road you have to build a new gas plant to replace it and that costs $70 per MWh to operate and it has a lot more carbon emissions."

Exelon Corp vice president of communications Craig Nesbit says natural gas prices are putting pressure on industry, and several of Exelon's Illinois nuclear facilities, such as Byron, Clinton and Quad Cities, have been experiencing major annual losses in the past few years.

The company will consider shutting them if it doesn't see "a clear path to sustainable profitability emerge". All Exelon's plants operate in wholesale unregulated markets.

Low gas prices are not the only factor affecting the profitability of nuclear power plants.

Craig Nesbit says a sluggish economy and "unintended consequences of current energy policies" that create "market-distorting factors" have a massive impact.

"To meet the president's goals of 30% carbon reduction by 2030 and 80% by 2050, we will need all existing nuclear plants to keep operating and new reactors to be built."

"In competitive markets, a nuclear plant lives or dies based on how inexpensively it can produce a megawatt compared with other power sources," he adds.

Craig Nesbit points to federal wind production tax credit, a subsidy that encourages wind producers to sell their energy output for less than the market price, or even less than it costs to produce, because they can make up for it by collecting the tax credit. This effectively artificially lowers energy prices.

The Vermont Yankee reactor and the Kewaunee reactor in Wisconsin are both now closed due to cost pressures of operating in these deregulated markets.

The other side of America's nuclear story are those nuclear power plants operating in the regulated markets.

New nuclear plants are being built in Tennessee, Georgia and South Carolina. These states have "cost-of-service markets where rates are approved by public utility commissions and the utilities have guaranteed rates of return that can accommodate projects like this [nuclear]," says Steven Kerekes from NEI.

As such, they approve rates that permit the utilities to recoup a reasonable return on their large capital investments; this minimizes the risk associated with these investment decisions.

For example, Duke Energy director of nuclear policy and support Steve Nesbit says because Duke Energy operates in a regulated utility in North Carolina and South Carolina it does not face the same short-term market pressures as utilities operating in a deregulated power market.



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"Our eleven nuclear units are the backbone of our generating fleet," says Steve Nesbit. Although Duke Energy has significantly increased its electricity generation from natural gas, Steve Nesbit says, the company's analysis indicates new nuclear construction and new natural gas construction are competitive with one another.

"The capital costs associated with natural gas plants are substantially lower than the costs of building a new nuclear plant.
"However, even at today's historically low prices, the fuel cost associated with natural gas is higher than nuclear power," Nesbit adds.

What needs to be done to save America's nuclear industry?

"The first step is for governments to introduce policies that prevent existing plants from retiring prematurely," says David Hess, a nuclear analyst at the World Nuclear Association.

"It is far more cost-effective to keep existing plants running than it is to build new ones, and this is no time to be heading backwards with our energy goals."

Steve Nesbit agrees: "Whether it happens at the federal or state level, the most important thing is to implement a cost-effective and market-based solution that properly values the emissions-free, always-on energy nuclear power plants produce...and create fair competition among all clean energy sources."

Hess agrees that it is "naïve" to think new nuclear plants will be built by purely commercial entities without a level of government guarantee. He points to the UK market as "an interesting case study of the kind of structures needed to see new nuclear delivered in a (financially) deregulated market."

"Hess agrees that it is "naïve" to think new nuclear plants will be built by purely commercial entities without a level of government guarantee."

For two reactors to be built at Hinkley Point C in the UK, the government agreed a minimum price of £92.50 for every MWh that Hinkley Point generates, which would be linked to the Consumer Price Index of energy. The figure is almost double the current wholesale cost of electricity in the UK and makes it the first European country to offer a set price over 35 years for a new nuclear project.

Apart from this the most viable solution for nuclear in the US, Meyers says in his presentation, is to build small modular reactors - they may be the only way "we build new nuclear in a merchant market because they can be financed and built in smaller increments," he says.

Another obvious area for improvement would be introducing a way to bring retired nuclear plants back, says Hess.

"This is one troubling difference between fossil units and nuclear. Nuclear plants do not currently have a 'mothball' option in case of difficult economic times. When they close down it tends to be for good."

Hess also says it is time to take the bipartisan politics out of nuclear energy in the US and have some "clear unequivocal support for nuclear power from leaders on both sides, instead of seeing it curiously omitted from certain policy visions and platforms."

He adds: "We want regulation to be effective, but we also need it to be efficient if plants are going to compete in the long run. Other technologies are simply not held accountable to the same environmental and safety standards as the nuclear industry."

Importance of nuclear for the future

"Fuel diversity becomes a major concern as we phase out coal and as we take out some existing nuclear as they age," says Wang.
"On top of that, as we build more gas and close down coal, we do have a short term improvement in the carbon picture, but eventually, when we build more gas, carbon emissions will come back up."

Energy storage is still not advanced enough to manage the intermittent nature of renewables and the carbon capture storage technology for coal is still in its infancy, and while natural gas is still lower in carbon than coal, it remains a fossil fuel. Natural gas also has issues of its own, such as seeking approval for gas pipelines. Therefore nuclear will be vital for the US if it is to hit its clean energy targets and retain a resilient energy mix for the future.

"In many states, the largest supplier of clean air energy is nuclear power. To meet the president's goals of 30% carbon reduction by 2030 and 80% by 2050, we will need all existing nuclear plants to keep operating and new reactors to be built," NEI's president and CEO, Marvin Fertel, said in an interview on 15 January 2015.

"2030 is about the time our nuclear plants begin to reach the end of their 60-year operating licenses ... and, unless we do something about it, we lose a lot of nuclear capacity fairly quickly," adds Meyers.

According to Meyers, even after 60GW of coal retirements, which would be replaced by gas, and an addition of 6GW of new nuclear, and the continued build out of renewable energy, CO2 emissions will still increase between 2014 to the end of the decade, due to the expected retirement of 10.3GW of nuclear energy. By the end of the decade emissions will be higher than they were in 2012 or 2013, he says.

With so many complex issues further muddled by location and federal and state law, where will US nuclear go next?

"Time will tell," says Hess, "There is still enormous untapped potential in nuclear technology which thoroughly deserves to be exploited. Other countries are pursuing this and the USA risks being left behind if it doesn't act. This would be a great shame."

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