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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Scorching summer temperatures across the U.S. have sent wholesale power prices sharply upward in several markets this month. But are these price spikes enough to reverse the long-term outlook for nuclear power?
Judging by the July 27 decision by NextEra Energy Incorporated (NYSE:NEE) (Juno Beach, Florida) to retire the Duane Arnold Nuclear Energy Center in Iowa, the answer appears to be "no." NextEra announced it will close the one-unit, 675-megawatt (MW) plant in late 2020, with 14 years left on its operating license. The plant sells energy to Alliant Energy Corporation (NYSE:LNT) (Madison, Wisconsin), and that utility decided it will contract with NextEra for additional wind generation, saving its customers an estimated $300 million over 21 years.
The Duane Arnold early retirement story is the latest episode in the nuclear industry's struggle to survive in a rapidly changing energy market. For more on that struggle, see March 19, 2018, article - Industry Observers Ask, 'Which Other Nuclear Plants Could Close Prematurely?'
High temperatures have led to surging electric demand in California, Texas, the Northeast and the PJM Interconnection, causing some utilities and grid operators to issue power alerts to customers asking them to use electricity wisely, if not sparingly, particularly during the late-afternoon peak hours of 4 p.m. to 8 p.m. There also have been warnings issued about the potential for rotating brownouts or blackouts.
Earlier this month, the Los Angeles area suffered a heat-related power outage that affected as many as 76,000 customers. In late July, heat-related outages turned out the lights for a few thousand customers in the Dallas-Fort Worth area. Another heat-related outage hit the San Luis Obispo, California, area last week. Prolonged high heat causes utilities to run generators harder for longer periods of time, sometimes leading to equipment failure that shuts down power.
Seasonal spikes in electric demand, such as during a hot summer or a frigid winter, push up wholesale prices and reduce electric reserve margins. In early July, wholesale prices shot up to around $300 per megawatt-hour (MWh) in some sub-markets served by PJM Interconnection. Power prices also surged in the New York market in early July in response to high heat and humidity. The Electric Reliability Council of Texas (ERCOT) (Austin, Texas) earlier this year said coal plant closures and delayed start dates for new generation had cut into reserve margins, placing Texans in a "tight" electric market. For more on that, see March 5, 2018, article -- Texas Faces a 'Tight' Summer, as Electric Reserve Margins Shrink.
Should other areas experience heat-related power outages or prolonged increases in wholesale power prices, the Trump administration's plan to provide financial assistance to uneconomic coal and nuclear power plants could get a boost. That plan was widely criticized by utilities and grid operators earlier this summer, but it does have its supporters in the Power and Mining industries. For more on that plan, see June 12, 2018, article -- Industry Split on Trump's Plan to Rescue Uneconomic Coal and Nuclear Plants.
While high temperatures and rising demand for electricity could generate some short-term financial gain for operators of nuclear power plants, the long-term outlook for many of those plants remains grim, according to reports from Bloomberg New Energy Finance (BNEF) (New York, New York). In a May 15 report, BNEF analyst Nicholas Steckler said more than a quarter of U.S. nuclear power plants don't make enough money to cover their operating costs, raising the prospect that more plants may retire prematurely.
In that May report, Steckler estimated that 24 of the nation's nuclear plants won't be profitable through 2021 or are already scheduled to close. That total covers 32,500 MW of generating capacity. He said the financial shortfall for those plants is about $1.3 billion.
Matters went from bad to worse. In a June 14 report, Steckler said more than half of U.S. nuclear plants were operating in the red. Total annual losses are expected to be about $2.9 billion. He said nuclear plants are being paid between $20 per megawatt-hour (MWh) and $30 per MWh for their electricity, while their generation costs an average of $35/MWh. Plants that are at particular risk for early closures are merchant generators operated by FirstEnergy Corporation (NYSE:FE) (Akron, Ohio), Entergy Corporation (NYSE:ETR) (New Orleans, Louisiana) and Exelon (NYSE:EXC) (Chicago, Illinois).
Nuclear plants in the Midwest appear to be at particular risk, Steckler noted, because of the large amount of wind-power generation that has been built in that region in recent years. Low natural gas prices also have shifted the competitive dynamics of power generation in the U.S.
Click on the image at right to see a map of U.S. nuclear plants, and an assessment of which ones may be at greatest risk for early retirement.
Some states, including Illinois, New Jersey and New York, have enacted financial-support packages to keep nuclear plants in their states operating. For more on that, see May 23, 2018, article -- Pro-Nuclear Legislation in New Jersey Still Unsigned by Governor. That bill subsequently was signed by the New Jersey governor.
Earlier this summer, Connecticut appeared ready to do the same, but at the last minute a bill was blocked in the state legislature, causing Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia), the owner of the 2,111-MW Millstone nuclear plant in Connecticut, to say it is reconsidering plans to continue operating the plant. For more on efforts, since undone, to secure financial aid for Millstone, see December 26, 2017, article -- Connecticut Utility Regulators Assessing Millstone's Profitability.
So far, lawmakers in Ohio and Pennsylvania have remained unmoved by the entreaties of nuclear operators that, without financial support, they will close plants in those states.
"Nuclear operators, utility regulators and policymakers all are caught between a rock and a hard place," said Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "No one likes electricity prices to go up. But even more unpopular is the prospect of customers sitting in the dark, sweating, because heat-related power outages have shut off their air conditioning. Higher spot electricity prices may deliver a short-term financial boost for some nuclear operators, but without a long-term fix, the prognosis is not positive."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 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/.
Judging by the July 27 decision by NextEra Energy Incorporated (NYSE:NEE) (Juno Beach, Florida) to retire the Duane Arnold Nuclear Energy Center in Iowa, the answer appears to be "no." NextEra announced it will close the one-unit, 675-megawatt (MW) plant in late 2020, with 14 years left on its operating license. The plant sells energy to Alliant Energy Corporation (NYSE:LNT) (Madison, Wisconsin), and that utility decided it will contract with NextEra for additional wind generation, saving its customers an estimated $300 million over 21 years.
The Duane Arnold early retirement story is the latest episode in the nuclear industry's struggle to survive in a rapidly changing energy market. For more on that struggle, see March 19, 2018, article - Industry Observers Ask, 'Which Other Nuclear Plants Could Close Prematurely?'
High temperatures have led to surging electric demand in California, Texas, the Northeast and the PJM Interconnection, causing some utilities and grid operators to issue power alerts to customers asking them to use electricity wisely, if not sparingly, particularly during the late-afternoon peak hours of 4 p.m. to 8 p.m. There also have been warnings issued about the potential for rotating brownouts or blackouts.
Earlier this month, the Los Angeles area suffered a heat-related power outage that affected as many as 76,000 customers. In late July, heat-related outages turned out the lights for a few thousand customers in the Dallas-Fort Worth area. Another heat-related outage hit the San Luis Obispo, California, area last week. Prolonged high heat causes utilities to run generators harder for longer periods of time, sometimes leading to equipment failure that shuts down power.
Seasonal spikes in electric demand, such as during a hot summer or a frigid winter, push up wholesale prices and reduce electric reserve margins. In early July, wholesale prices shot up to around $300 per megawatt-hour (MWh) in some sub-markets served by PJM Interconnection. Power prices also surged in the New York market in early July in response to high heat and humidity. The Electric Reliability Council of Texas (ERCOT) (Austin, Texas) earlier this year said coal plant closures and delayed start dates for new generation had cut into reserve margins, placing Texans in a "tight" electric market. For more on that, see March 5, 2018, article -- Texas Faces a 'Tight' Summer, as Electric Reserve Margins Shrink.
Should other areas experience heat-related power outages or prolonged increases in wholesale power prices, the Trump administration's plan to provide financial assistance to uneconomic coal and nuclear power plants could get a boost. That plan was widely criticized by utilities and grid operators earlier this summer, but it does have its supporters in the Power and Mining industries. For more on that plan, see June 12, 2018, article -- Industry Split on Trump's Plan to Rescue Uneconomic Coal and Nuclear Plants.
While high temperatures and rising demand for electricity could generate some short-term financial gain for operators of nuclear power plants, the long-term outlook for many of those plants remains grim, according to reports from Bloomberg New Energy Finance (BNEF) (New York, New York). In a May 15 report, BNEF analyst Nicholas Steckler said more than a quarter of U.S. nuclear power plants don't make enough money to cover their operating costs, raising the prospect that more plants may retire prematurely.
In that May report, Steckler estimated that 24 of the nation's nuclear plants won't be profitable through 2021 or are already scheduled to close. That total covers 32,500 MW of generating capacity. He said the financial shortfall for those plants is about $1.3 billion.
Matters went from bad to worse. In a June 14 report, Steckler said more than half of U.S. nuclear plants were operating in the red. Total annual losses are expected to be about $2.9 billion. He said nuclear plants are being paid between $20 per megawatt-hour (MWh) and $30 per MWh for their electricity, while their generation costs an average of $35/MWh. Plants that are at particular risk for early closures are merchant generators operated by FirstEnergy Corporation (NYSE:FE) (Akron, Ohio), Entergy Corporation (NYSE:ETR) (New Orleans, Louisiana) and Exelon (NYSE:EXC) (Chicago, Illinois).
Nuclear plants in the Midwest appear to be at particular risk, Steckler noted, because of the large amount of wind-power generation that has been built in that region in recent years. Low natural gas prices also have shifted the competitive dynamics of power generation in the U.S.
Click on the image at right to see a map of U.S. nuclear plants, and an assessment of which ones may be at greatest risk for early retirement.Some states, including Illinois, New Jersey and New York, have enacted financial-support packages to keep nuclear plants in their states operating. For more on that, see May 23, 2018, article -- Pro-Nuclear Legislation in New Jersey Still Unsigned by Governor. That bill subsequently was signed by the New Jersey governor.
Earlier this summer, Connecticut appeared ready to do the same, but at the last minute a bill was blocked in the state legislature, causing Dominion Energy Incorporated (NYSE:D) (Richmond, Virginia), the owner of the 2,111-MW Millstone nuclear plant in Connecticut, to say it is reconsidering plans to continue operating the plant. For more on efforts, since undone, to secure financial aid for Millstone, see December 26, 2017, article -- Connecticut Utility Regulators Assessing Millstone's Profitability.
So far, lawmakers in Ohio and Pennsylvania have remained unmoved by the entreaties of nuclear operators that, without financial support, they will close plants in those states.
"Nuclear operators, utility regulators and policymakers all are caught between a rock and a hard place," said Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "No one likes electricity prices to go up. But even more unpopular is the prospect of customers sitting in the dark, sweating, because heat-related power outages have shut off their air conditioning. Higher spot electricity prices may deliver a short-term financial boost for some nuclear operators, but without a long-term fix, the prognosis is not positive."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 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/.
