WORLD-GEN_Vol_27_No_2 - page 9

WORLD-GENERATION MAY/JUNE 2015 V.27 #2
9
PERSPECTIVE
Last year we lost the Kewaunee nuclear
plant in Wisconsin to adverse market con-
ditions. We knew the Vermont Yankee plant
would close at the end of 2014 for the same
reasons. We also knew that other nuclear
generating assets in Illinois and in other
competitive markets are at risk.
The electricity markets have changed
significantly since they were restructured.
Grid operators today must balance a
dynamic and complex set of circumstances:
low gas prices, which result in reduced
energy market revenues; slow (or, in some
regions, zero) growth in electricity demand;
state policies that mandate production from
certain sources of electricity; growing reli-
ance on renewable and intermittent
resources, which creates operational chal-
lenges; growing reliance on out-of market
revenues; and greater reliance on demand
resources, which represent a challenge to
the definition of the capacity product.
This combination of factors has led to
sustained economic stress on some existing
generating capacity, particularly baseload
capacity. At a time when the surplus of gen-
erating capacity in the eastern United States
is decreasing, as existing capacity retires,
effective and efficient market design and
operating practices in the capacity and ener-
gy markets are more critical than ever.
First, there was nothing wrong with
any of the plants at risk. Kewaunee,
Vermont Yankee and others at risk were all
solid performers – all of them highly reli-
able plants with high capacity factors and
relatively low generating costs. When
Vermont Yankee closed last month, it had
just completed a 633-day continuous run.
Second, it made no economic sense to
allow these facilities to close because
replacement generating capacity, when
needed, would likely produce more costly
electricity, fewer jobs paying less, and more
pollution.
Third, goods and services will only be
produced in a competitive market when they
are priced and valued in the market. This is
straightforward, practical economics.
We are accustomed to thinking of
electricity as an undifferentiated bulk com-
modity. That is a mistake. Every kilowatt-
hour of electricity on the grid has a unique
pedigree or set of attributes, and all
resources are not equal. Demand resources
that can be called only on limited occasions
for short periods of time do not have the
same reliability or resource value as a gen-
erating plant. And all generating capacity is
not the same. Each source of electricity has
its own set of attributes that provide vary-
ing degrees of value to the grid, and those
attributes must be reflected in the total
compensation provided to each generator.
Nuclear generating capacity has its own
set of attributes, starting with production of
large quantities of electricity around the
clock, safely and reliably. Nuclear power
plants have fuel on site and will run when
needed. They also provide price stability,
and portfolio value, and clean air compli-
ance value. All these attributes are valuable.
Many are not paid for.
Fourth, and finally, sustainable market
design demands consideration of all the fac-
tors that constitute a robust and resilient
market. Among other things, those factors
include short-term price, long-term price
stability, the value of fuel and technology
diversity, environmental factors and others.
Short-run cost is an important and neces-
sary metric, but solving this complex equa-
tion for that one variable only – lowest pos-
sible short-run electricity price – will not
produce a reliable, resilient and affordable
system for the long-term.
POLAR VORTEX
Although we know the Nuclear Matters
campaign and our other advocacy programs
have had an impact, two other events last
year had as much – if not more – impact on
the policy-making process. One was the
succession of five periods of extreme cold
in January, February and March that we
refer to collectively as the Polar Vortex.
The other was the proposal by the Obama
Administration’s Environmental Protection
Agency to reduce carbon emissions from
operating coal-fired power plants under sec-
tion 111(d) of the Clean Air Act.
Both focused attention squarely on the
value of our nuclear power plants. One
served as a reminder that assured fuel on
site – or, in our case, 12 to 24 months of
fuel in the reactor core – is a valuable attri-
bute, and that the nuclear plants run when
needed, whether or not the wind is blow-
ing, or the sun shining, whether or not fuel
arrives just in time through a pipeline.
EPA’s proposed 111(d) rule shone a
bright light on the fact that nuclear energy
is our largest carbon-free source of electric-
ity, and that any credible program to reduce
carbon emissions would be seriously com-
promised if we lose operating plants.
As you know, the Polar Vortex uncov-
ered some significant vulnerabilities in the
electric supply system. In PJM, during the
extreme cold in early January 2014, a little
over 40,000 megawatts – 22 percent of
PJM’s installed capacity – was forced out of
service because coal piles and coal-han-
dling equipment froze, gas wells froze at
the wellhead, fuel oil deliveries and barge
traffic were interrupted, or gas-fired plants
simply could not get natural gas at any
price. Almost 10,000 megawatts of gas-fired
capacity in PJM could not run for lack of
fuel. In MISO, approximately 33,000 mega-
watts of capacity was forced out of service
NUCLEAR ENERGY EXPANDS
BY MARVIN FERTEL,CLASS OF 2012
(continued page 10)
President and CEO
Nuclear Energy Institute (NEI)
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