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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The New York Public Service Commission (NYPSC) (Albany, New York) on Monday, August 1, approved a statewide Clean Energy Standard (CES) under which 50% of the Empire State's electricity will come from renewable and non-emitting energy sources like wind, solar and nuclear by 2030. The CES includes a multi-billion-dollar subsidy to keep three upstate nuclear generators operating.
The three upstate New York nuclear plants eligible for a subsidy are the R.E. Ginna Nuclear Power Plant, Nine Mile Point Nuclear Power Station and the James FitzPatrick Nuclear Power Station. The first two are owned by a unit of Exelon Incorporated (NYSE:EXC) (Chicago, Illinois) and the third is owned by Entergy Corporation (NYSE:ETR) (New Orleans, Louisiana), but Exelon is in discussions to purchase that plant.
Ginna is a one-unit, 581-megawatt (MW) plant that went online in 1970. Nine Mile Point is a two-unit, 1,764-MW plant that began operating in 1969. The FitzPatrick plant is a one-unit, 838-MW generator that came online in 1975.
A fourth New York nuclear plant, Indian Point, is not eligible for subsidies. New York Governor Andrew Cuomo has been trying to close that plant, located about 43 miles north of Manhattan on the Hudson River. Entergy owns the two-unit, 2,074-MW Indian Point facility.
Exelon President and Chief Executive Chris Crane lauded the NYPSC's move. In a statement, he said, "Today is a historic day for New York and the energy industry, and we applaud Governor Andrew Cuomo and his Administration for their leadership. Approval of the Clean Energy Standard makes New York a true leader in terms of support for zero-emissions energy, including both renewables and nuclear power."
"With the Clean Energy Standard, we'll immediately invest hundreds of millions of dollars right back into the upstate economy, which will have a long-term positive impact across the state," Crane continued. Exelon had previously said approval of the program would enable the company to invest approximately $200 million in Ginna and Nine Mile Point in spring of 2017. Approval of the CES means Exelon can continue its discussions with Entergy over potentially purchasing the FitzPatrick plant.
Entergy had decided to close several nuclear plants in the Northeast because they are uneconomic. In late 2015, Entergy said it planned to close FitzPatrick in late-2016 or early 2017. For more on Entergy's decision to close FitzPatrick, see November 3, 2015, article--Entergy Announces Second Nuclear Plant Closure, Reports $723 Million Loss for Third Quarter. Exelon has decided to close two of its Illinois nuclear plants, citing unfavorable economics. For more on that decision, see June 14, 2016, article--Pepco Deal Closed, Exelon Grows and Shifts its Capital Spending Plan.
In adopting a "50% by 2030" clean energy standard, New York took a different approach than California, which last year increased its renewable portfolio standard (RPS) to 50% by 2030. The Golden State decided that nuclear power would not count towards a utility's RPS. For more on California's approach to clean energy, which involves not extending the license of the Diablo Canyon Nuclear Power Station, see July 20, 2016, article--Diablo Canyon Proposal: A Turning Point for the U.S. Nuclear Industry? New York, on the other hand, decided to keep nuclear power as part of its drive for cleaner energy.
The August 1 vote by New York utility regulators follows months of analytic and modeling work by the PSC staff, The Brattle Group (Cambridge, Massachusetts) and the U.S. Interagency Working Group, an umbrella organization involving 13 U.S. federal agencies, including the departments of Energy, Interior, Agriculture, Defense, Commerce, the Environmental Protection Agency (EPA) and the National Aeronautics & Space Administration (NASA). The proceeding attracted nationwide attention among energy companies, environmental organizations, regulators, lawyers and consultants.
New York's CES includes granting subsidies to the three nuclear plants totaling about $500 million per year for 12 years, though some of those subsidies are front loaded. In the first two-year tranche of subsidies, the amount reportedly would total about $965 million. The three nuclear plants eligible for subsidies accounted for about 31% of the power New York generated last year and over 50% of its emissions-free energy, according to a PSC staff analysis.
Some environmental and renewable-energy groups criticized the nuclear subsidies in the CES as a bailout, but the governor said it is an effort to place a value on carbon and the generating technologies that emit no carbon dioxide (CO2). In other words, Cuomo was doing what economists have long recommended: internalize the so-called externalities of electricity production. Until recently, externalities like carbon emissions have not been reflected in the cost of electricity.
The Ginna, Nine Mile Point and FitzPatrick plants produce about 27.6 million megawatt-hours (MWh) of emission-free electricity per year, the PSC staff said July 8. Closing them and replacing their lost generation with gas-fired generation would add an estimated 31 million metric tons of CO2, exacerbating the clean air problem the governor is trying to fix.
"This proposal takes the approach of valuing and paying for the zero-emissions attributes based on a formula that starts with published estimates of the social cost of carbon," the PSC staff wrote July 8. "The result of this proposal is significant economic and environmental benefits for New York."
"Staff's analysis shows that due to low natural gas prices, forecasted wholesale market prices are significantly lower than the average operating costs of the upstate nuclear units," the PSC staff testimony continued. "This circumstance persists in many parts of the country and there is increasing recognition of the important role of nuclear power in reducing carbon in the generation sector."
"The benefits of paying for the zero-emission attributes far exceed the costs," the PSC staff added. "During the first two years of the program, the economic and environmental benefits associated with carbon reductions, supply cost savings and property tax benefits are estimated to be approximately $5 billion. During this same period, the total attribute payments are calculated to be up to $965 million, for a net benefit of $4 billion. Consideration of the carbon benefit alone shows the value of the zero-emission attributes... Staff's proposal attempts to lock-in 12 years of significant carbon emission reductions at a cost that is a fraction of the benefit to be achieved."
The subsidies are not automatic; rather, they will float with the cost of wholesale power. At some point in the future, the PSC staff foresees natural gas prices rising, which will increase the average cost of wholesale power, lessening the need to financially support nuclear generation.
In crafting its proposal, the PSC staff relied on calculations of the "social cost of carbon," ranging from $42.87 per short ton for 2017-2019 to $64.54 per short ton for 2027-2029. The subsidies would be awarded in six two-year tranches, with the first tranche running from April 2017 through March 2019. The PSC staff used The Brattle Group to help create the zero-emission plan. In calculating the social cost of carbon, which sets the level of subsidies, the staff relied on projections from the U.S. Interagency Working Group.
In an unrelated late-July press conference, Governor Cuomo defended the CES, saying, "Nuclear has a role. Unless we're willing to go back to candles, which would be uncomfortable and inconvenient, we need energy generation." Cuomo is also advancing a package of industry restructuring initiatives known as REV (Reforming the Energy Vision), which would accelerate the introduction of energy efficiency and small-scale renewable generation into the market. The governor also has been trying to expedite construction of high-voltage transmission lines to bring inexpensive hydropower from upstate to downstate areas.
"I'm glad to see Governor Cuomo's 'all of the above' energy strategy include nuclear power," commented Britt Burt, Industrial Info's vice president of research for the global Power Industry. "Other politicians have excluded nuclear or coal from their "all of the above" energy strategies. There are a lot of interesting things happening in the New York energy market. The subsidy to nuclear, based on an expected social cost of carbon, is something the industry should be watching."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
The three upstate New York nuclear plants eligible for a subsidy are the R.E. Ginna Nuclear Power Plant, Nine Mile Point Nuclear Power Station and the James FitzPatrick Nuclear Power Station. The first two are owned by a unit of Exelon Incorporated (NYSE:EXC) (Chicago, Illinois) and the third is owned by Entergy Corporation (NYSE:ETR) (New Orleans, Louisiana), but Exelon is in discussions to purchase that plant.
Ginna is a one-unit, 581-megawatt (MW) plant that went online in 1970. Nine Mile Point is a two-unit, 1,764-MW plant that began operating in 1969. The FitzPatrick plant is a one-unit, 838-MW generator that came online in 1975.
A fourth New York nuclear plant, Indian Point, is not eligible for subsidies. New York Governor Andrew Cuomo has been trying to close that plant, located about 43 miles north of Manhattan on the Hudson River. Entergy owns the two-unit, 2,074-MW Indian Point facility.
Exelon President and Chief Executive Chris Crane lauded the NYPSC's move. In a statement, he said, "Today is a historic day for New York and the energy industry, and we applaud Governor Andrew Cuomo and his Administration for their leadership. Approval of the Clean Energy Standard makes New York a true leader in terms of support for zero-emissions energy, including both renewables and nuclear power."
"With the Clean Energy Standard, we'll immediately invest hundreds of millions of dollars right back into the upstate economy, which will have a long-term positive impact across the state," Crane continued. Exelon had previously said approval of the program would enable the company to invest approximately $200 million in Ginna and Nine Mile Point in spring of 2017. Approval of the CES means Exelon can continue its discussions with Entergy over potentially purchasing the FitzPatrick plant.
Entergy had decided to close several nuclear plants in the Northeast because they are uneconomic. In late 2015, Entergy said it planned to close FitzPatrick in late-2016 or early 2017. For more on Entergy's decision to close FitzPatrick, see November 3, 2015, article--Entergy Announces Second Nuclear Plant Closure, Reports $723 Million Loss for Third Quarter. Exelon has decided to close two of its Illinois nuclear plants, citing unfavorable economics. For more on that decision, see June 14, 2016, article--Pepco Deal Closed, Exelon Grows and Shifts its Capital Spending Plan.
In adopting a "50% by 2030" clean energy standard, New York took a different approach than California, which last year increased its renewable portfolio standard (RPS) to 50% by 2030. The Golden State decided that nuclear power would not count towards a utility's RPS. For more on California's approach to clean energy, which involves not extending the license of the Diablo Canyon Nuclear Power Station, see July 20, 2016, article--Diablo Canyon Proposal: A Turning Point for the U.S. Nuclear Industry? New York, on the other hand, decided to keep nuclear power as part of its drive for cleaner energy.
The August 1 vote by New York utility regulators follows months of analytic and modeling work by the PSC staff, The Brattle Group (Cambridge, Massachusetts) and the U.S. Interagency Working Group, an umbrella organization involving 13 U.S. federal agencies, including the departments of Energy, Interior, Agriculture, Defense, Commerce, the Environmental Protection Agency (EPA) and the National Aeronautics & Space Administration (NASA). The proceeding attracted nationwide attention among energy companies, environmental organizations, regulators, lawyers and consultants.
New York's CES includes granting subsidies to the three nuclear plants totaling about $500 million per year for 12 years, though some of those subsidies are front loaded. In the first two-year tranche of subsidies, the amount reportedly would total about $965 million. The three nuclear plants eligible for subsidies accounted for about 31% of the power New York generated last year and over 50% of its emissions-free energy, according to a PSC staff analysis.
Some environmental and renewable-energy groups criticized the nuclear subsidies in the CES as a bailout, but the governor said it is an effort to place a value on carbon and the generating technologies that emit no carbon dioxide (CO2). In other words, Cuomo was doing what economists have long recommended: internalize the so-called externalities of electricity production. Until recently, externalities like carbon emissions have not been reflected in the cost of electricity.
The Ginna, Nine Mile Point and FitzPatrick plants produce about 27.6 million megawatt-hours (MWh) of emission-free electricity per year, the PSC staff said July 8. Closing them and replacing their lost generation with gas-fired generation would add an estimated 31 million metric tons of CO2, exacerbating the clean air problem the governor is trying to fix.
"This proposal takes the approach of valuing and paying for the zero-emissions attributes based on a formula that starts with published estimates of the social cost of carbon," the PSC staff wrote July 8. "The result of this proposal is significant economic and environmental benefits for New York."
"Staff's analysis shows that due to low natural gas prices, forecasted wholesale market prices are significantly lower than the average operating costs of the upstate nuclear units," the PSC staff testimony continued. "This circumstance persists in many parts of the country and there is increasing recognition of the important role of nuclear power in reducing carbon in the generation sector."
"The benefits of paying for the zero-emission attributes far exceed the costs," the PSC staff added. "During the first two years of the program, the economic and environmental benefits associated with carbon reductions, supply cost savings and property tax benefits are estimated to be approximately $5 billion. During this same period, the total attribute payments are calculated to be up to $965 million, for a net benefit of $4 billion. Consideration of the carbon benefit alone shows the value of the zero-emission attributes... Staff's proposal attempts to lock-in 12 years of significant carbon emission reductions at a cost that is a fraction of the benefit to be achieved."
The subsidies are not automatic; rather, they will float with the cost of wholesale power. At some point in the future, the PSC staff foresees natural gas prices rising, which will increase the average cost of wholesale power, lessening the need to financially support nuclear generation.
In crafting its proposal, the PSC staff relied on calculations of the "social cost of carbon," ranging from $42.87 per short ton for 2017-2019 to $64.54 per short ton for 2027-2029. The subsidies would be awarded in six two-year tranches, with the first tranche running from April 2017 through March 2019. The PSC staff used The Brattle Group to help create the zero-emission plan. In calculating the social cost of carbon, which sets the level of subsidies, the staff relied on projections from the U.S. Interagency Working Group.
In an unrelated late-July press conference, Governor Cuomo defended the CES, saying, "Nuclear has a role. Unless we're willing to go back to candles, which would be uncomfortable and inconvenient, we need energy generation." Cuomo is also advancing a package of industry restructuring initiatives known as REV (Reforming the Energy Vision), which would accelerate the introduction of energy efficiency and small-scale renewable generation into the market. The governor also has been trying to expedite construction of high-voltage transmission lines to bring inexpensive hydropower from upstate to downstate areas.
"I'm glad to see Governor Cuomo's 'all of the above' energy strategy include nuclear power," commented Britt Burt, Industrial Info's vice president of research for the global Power Industry. "Other politicians have excluded nuclear or coal from their "all of the above" energy strategies. There are a lot of interesting things happening in the New York energy market. The subsidy to nuclear, based on an expected social cost of carbon, is something the industry should be watching."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
