WORLD-GENERATION MAY/JUNE 2016
14
PERSPECTIVE
Once again in 2015, U.S. nuclear plant
performance was outstanding – a tribute to
the dedicated men and women who operate
and maintain the 99 nuclear reactors that
produce approximately 20 percent of the
nation’s electricity, and two-thirds of our
carbon-free electricity. And in the next
three years or so, we will commission five
new reactors, representing about 6,000
megawatts of new capacity.
Unfortunately, in the last three years or
so, companies have shut down – or
announced their intent to shut down – eight
nuclear reactors, about 6,300 megawatts of
generating capacity.
We are focused on the efforts under-
way to ensure that we do not lose any more
valuable assets, and that we continue to
build new reactors when Watts Bar 2,
Vogtle 3 and 4 and Summer 2 and 3 are
completed.
There is nothing we can do about low
natural gas prices or low growth in electric-
ity demand, so the industry is committing
substantial resources to things we can con-
trol – correcting weaknesses in competitive
electricity markets; valuing the attributes of
nuclear plants that are not recognized, or
not fully recognized, by the markets; and a
major new industry initiative to drive great-
er efficiency at our plants and reduce costs.
Our goal is obviously to minimize the
number of nuclear plants shut down
because the markets do not recognize their
value.
WHY ARE WE DOINGTHIS?
We’re not doing it because we’re con-
cerned that a few more plant shutdowns in
the short-term have implications for the
industry’s future long-term. Like most
industries, the nuclear energy industry
experiences periods of economic stress.
Ten U.S. nuclear reactors shut down during
the 1990s, and the industry emerged from
that down cycle more productive and more
profitable. The long-term fundamentals
suggest the same will happen again.
So we’re doing everything we can to
preserve our operating nuclear energy
assets because it’s the right thing to do.
And it’s the right thing to do for consumers
of electricity.
The most costly nuclear plants – the
smaller single-unit stations – produced elec-
tricity, on average, for approximately $44 a
megawatt-hour in 2014.
It might be possible to find cheaper
electricity off the grid for a short time – for
as long as there’s spare gas-fired combined
cycle capacity, and spot gas available below
$2 per million Btu, which is clearly not sus-
tainable. Sooner or later, that nuclear
capacity must be replaced and, when it is
replaced with new gas-fired combined cycle
capacity, consumers will pay more on a lev-
elized cost basis.
No-one has yet given us a satisfactory
answer to the question of why it makes
sense to shut down a carbon-free $44-per-
megawatt-hour nuclear plant that provides
600-or-so direct jobs, and replace it with a
$60-70 per-megawatt-hour gas-fired plant
that provides maybe 30 jobs and has rough-
ly one-half the carbon emissions of a coal-
fired power plant.
FERC has developed an exhaustive
record on price formation issues, starting
with a series of technical conferences in
late 2014.
Finally, last September, FERC took a
first step, with a Notice of Proposed
Rulemaking (NOPR) that would revise its
regulations governing how the Regional
Transmission Organizations set prices in
the energy markets.
The agency followed the NOPR with an
order directing the RTOs to report back on
how they manage various price formation
issues, including uplift. And last month,
FERC proposed another change to its regu-
lations in this area. The most recent pro-
posal would change the policy on offer
caps, and would allow the RTOs to use the
higher of $1,000 per megawatt-hour or a
cost-based offer.
FERC’s first step – the NOPR last
September addressing settlement intervals
and shortage pricing – proposed two
changes. The first would require that each
RTO settle energy transactions in its real-
time markets at the same time interval it
dispatches energy. Any misalignment
between dispatch and settlement intervals
may distort the price signal.
The second change would require that
RTOs trigger shortage pricing for any dis-
patch interval during which a shortage
occurs. There’s an obvious problem if
there’s a delay between the time when a
system experiences a shortage and the
time when prices reflect the shortage con-
dition.
Although welcome, the two changes
FERC proposed last September could be
described as “low-hanging fruit.” These are
issues that influence the real-time market,
but revenue to the baseload nuclear units is
determined in the day-ahead market. So
closing the gap between day-ahead and
real-time markets is also essential.
As we’ve said many times, some nucle-
ar plants are struggling because the elec-
tricity markets do not recognize the attri-
butes of nuclear power plants and the dis-
tinct value they bring to the electric supply
system, including their carbon-abatement
value.
Nuclear energy is by far America’s
largest source of carbon-free electricity,
and that attribute should increase in value
as the United States and the rest of the
world grapple with the challenge of climate
change. Regardless of what happens with
the Clean Power Plan, it is clear that nucle-
ar energy is indispensable to any credible
program to reduce carbon emissions.
NUCLEAR OUTLOOK 2016
BY MARVIN FERTEL,CLASS OF 2012
