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Subsidies for nuclear power losers disrupt electricity markets

Paying Nuclear Losers for ‘Clean’ Power Upends U.S. Markets, Bloomberg by Jim Polson

April 22, 2017,

  • States permit higher fees to protect jobs, cut fossil-fuel use

Some U.S. states are trying to save money-losing nuclear plants — and disrupting America’s electricity markets in the process. New York and Illinois have cleared the way for nuclear power to be subsidized with higher fees on buyers — aid normally reserved for renewable energy like solar and wind. One reason policy makers gave was to protect jobs at aging plants teetering on closure. Another was nuclear’s emission-free electricity, because states are trying to address climate change by relying less on fossil fuels like coal and natural gas. Connecticut and Ohio are considering similar moves, and pressure is mounting in New Jersey.

But federal regulators and gas-fueled generators including Dynegy Inc. and Calpine Corp. say the states are fundamentally altering the way wholesale power markets work. Armed with billions of dollars in new clean-energy benefits, higher-cost nuclear generators can now compete with companies that get no aid. The first test comes next month when PJM Interconnection LLC, the biggest grid, takes bids to supply power from Chicago to Washington.

“Markets only work if everyone’s competing evenly,” said Joseph Bowring, president of Monitoring Analytics, the company that oversees PJM’s electricity market. “If some get subsidies, then other people are going to want subsidies. And then pretty soon, we’re going to be competing for subsidies instead of competing in the market.”

For a primer on pressures generators face in PJM auction, read this.

While nuclear power has kept its share of U.S. electricity at around 20 percent over the past decade, it’s become a high-cost supplier with the emergence of gas-fired turbines burning cheap shale fuel, as well as more-efficient wind farms and solar panels. The country now gets more electricity from gas than from coal, which has seen its market share plunge.

All that cheap fuel has cut electricity prices, creating financial problems for aging nuclear plants. Five have closed in the past five years and more shutdowns are planned, primarily for economic reasons, according to the Energy Information Administration.

The industry calculus began to change in August when New York handednuclear plants so-called credits for supplying carbon-free power to the state, which means the generators can raise an additional $500 million a year from higher rates. Four months later, Illinois created similar credits to keep money-losing reactors open and 1,500 people employed.

Extra Fee

The way the incentives work is similar to what states have been doing for years to encourage emission-free power. Generators get “credits” for a designated amount of electricity. When that is sold to utilities, the buyers pay the generators an extra fee, which can be recovered in the form of higher bills to customers.

Nuclear incentives saved two plants in Illinois and three in New York, according to Kit Konolige, a senior utilities analyst at Bloomberg Intelligence. If subsidies were used to keep open all the nuclear plants in PJM, which doesn’t include New York, electricity supply in the region would be 10 percent higher than otherwise, depressing prices, he said.

On May 10, generators will begin bidding to supply a year of electricity in the PJM region starting June 2020, in return for fixed payments. It’s going to be one of the most closely watched events in the industry this year. Exelon Corp.’s Quad Cities nuclear plant was priced out of last year’s auction. This time, it can expect a subsidy from Illinois customers.

Only the newest and largest nuclear plants can sell power for $25 a megawatt hour, which is the price offered by most gas plants, according to Bloomberg Intelligence. With the help of credits, nuclear power narrows the gap, and generators can offer electricity at close to that price. Wholesale power at a major trading hub within PJM averaged $23.90 a megawatt-hour at 11:28 a.m. Friday in New York, grid data compiled by Genscape show.

Keep Running’

“If you’re getting revenue from one source, you don’t need as much from the auction, so you’re willing to accept less to keep running,” Konolige said.

As a result, prices in this May’s auction for a region covering Chicago may plunge about 16 percent from a year earlier, according to industry consultant Wood Mackenzie Ltd.…….

Operators of cheaper gas-fired power plants, including Dynegy, Calpine and NRG Energy Inc., describe the credits as “bailouts” that threaten to kill competitive markets at the expense of electricity customers. Electricity customers would pay $3.9 billion more if all nuclear plants competing in PJM’s and New England’s wholesale markets were part of programs like New York’s, a Bloomberg Intelligence analysis shows.

“It’s the equivalent of going out to buy a new car and finding out they’re giving them away down the street,” said Abe Silverman, deputy general counsel at Princeton, New Jersey-based NRG. “How are you supposed to compete with that?”

In Connecticut, consumer advocates are fighting the credits and accusing nuclear-plant owners of a money grab.

“Single-state solutions are going to screw up the entire deregulated market,” said John Erlingheuser, advocacy director for the AARP in Connecticut…….https://www.bloomberg.com/news/articles/2017-04-20/paying-nuke-losers-for-clean-energy-upends-u-s-power-markets

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April 22, 2017 - Posted by | business and costs, USA

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