ELECTRIC POWER 2011: Japan Nuclear Crisis, Low Natural Gas Prices Drive Generation Decisions

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Federal "cap & trade" legislation may be dead, and carbon taxes may be on life support, but that does not make coal-fired generation more attractive, according to panelists at the executive roundtable at the 13th Annual ELECTRIC POWER 2011 Conference & Exhibition in Chicago on May 10. In fact, the panelists said they plan to close 24 coal-fired units in the coming years.

"If anything, low natural gas prices have made us more aggressive about retiring coal plants," Doyle Beneby, president and chief executive at CPS Energy (San Antonio, Texas), told conference attendees on Tuesday. "The ability of the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) to regulate carbon dioxide is off the table for now, but we assume we will have to account for our carbon emissions. That's why we're aggressively moving to close two of our large coal-fired units by 2018." Last September, CPS Energy began operating the 750-megawatt (MW) coal-fired J.K. Spruce Power Station Unit 2. For more information, see Industrial Info's October 1, 2010, article - CPS Energy Begins Operations at New Coal-Fired Power Plant in Texas.

"By 2020, 20% of our generating fleet will be renewables, and 65% of our fleet will have no or low carbon emissions," Beneby added.

Exelon Corporation (NYSE:EXC) (Chicago, Illinois) plans to close four coal-fired units as part of its effort to eliminate its carbon footprint by 2020, Ruth Ann Gillis, an executive vice president at Exelon, told the ELECTRIC POWER attendees. "We're more than halfway there, and we're working hard to green our supply chain," she added. Exelon operates 17 nuclear power stations and is merging with Constellation Energy Group (NYSE:CEG) (Baltimore, Maryland). For more on the merger, see April 29, 2011, article - Exelon, Constellation Energy Group Announce Merger.

The Tennessee Valley Authority (NYSE:TVE) (Knoxville, Tennessee) is moving forward with plans to retire 18 coal-fired generators as part of its effort to diversify its generation portfolio, according to Robert Fisher, TVA's senior vice president of fossil power. "We don't want to put all our eggs in one basket, because things rarely turn out as planned. So we are aggressively rebalancing our generation portfolio," he told the conference. "We're growing our nuclear and gas generation, and hydropower is our ace in the hole." For more on TVA's long-term resource plan, see Industrial Info's April 20, 2011, article - TVA Decides to Retire 18 Coal Generators, Finish at Least One Nuclear Unit.

TVA's near-term plans for nuclear power include completing the partially built Watts Barr Unit 2 and one or both of the partially built Bellefonte nuclear units, Fisher said. Beyond that, TVA is considering building a small modular reactor (SMR), he continued: "It's hard to get really good at building large nuclear units because you don't build enough of them to get really efficient. But if you add 150 MW of capacity with your first SMR, you can incorporate lessons learned from that into the second SMR, and so on."

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Aside from Fisher, none of the ELECTRIC POWER 2011 panelists expressed interest in building new nuclear generators of any size. Gillis of Exelon said, "Merchant nuclear plants looked good when natural gas cost $13 per million British thermal units (MMBtu). But recent experience has shown us that new nuclear units are not viable outside of ratebase." In announcing its merger with Constellation, Exelon Chief Executive John Rowe said there is no plan to revive Constellation's participation in the Calvert Cliffs Unit 3 nuclear project, which was to function as a merchant plant. Calvert Cliffs Unit 3 has a total investment value (TIV) of $10 billion.

Given that the ELECTRIC POWER event took place in Chicago, several speakers referenced Rowe's recent comment that "King Coal is dead, natural gas is the new queen, and she shall reign for a long time." Staying with Rowe's chess metaphor, Beneby of CPS Energy said: "I'm not sure if gas really is the queen--I'm thinking it's more of a rook or a knight." But he did say that CPS Energy's next generator likely would be an existing natural gas combined cycle unit the utility would buy from another company. "You can buy a 10-year-old natural gas-fired combined cycle unit for less than the cost of installing a flue-gas desulfurization (FGD) unit at a coal plant." He said he's seen some NGCC units being shopped for about $500 per kilowatt of installed capacity, a price that panel moderator Robert Peltier, Ph.D., called "a fire sale." Peltier, editor-in-chief of POWER magazine, remarked that a new-build NGCC cost about $1,300 per kilowatt of installed capacity.

TVA's Fisher also said his utility might try to buy some operating gas-fired generators "as they come on the market." Speakers noted that planned coal retirements, and proposed purchases of gas-fired power plants, are being considered in an over-supplied market, which will help hold down generator prices.

Beneby cast doubt on how much longer gas prices would remain low. "At some point, when EPA starts to regulate hydrofracturing, gas prices will go up because costs will go up. And, when everyone moves to gas, prices will go up like they did a decade ago." But Beneby's view did not prevail among all panelists: "Natural gas will be a bridge to the future," predicted Steve Carter, vice president of regulated generation for Cleco Power LLC, a unit of Cleco Corporation (NYSE:CNL) (Pineville, Louisiana).

Several speakers remarked on how the outlook for nuclear power in the U.S. was damaged by the nuclear crisis at Japan's Fukushimi Daiichi nuclear power station. Extending the licenses of U.S. nuclear power plants "is no longer a given because of Japan," said Cleco's Carter. "What happened in Japan will impact our 2020 plan," CPS Energy's Beneby told attendees. "It has taken 500-600 MW of nuclear off the table for us."

"The nuclear industry will have to give up something as a result of public and political reverberations from Japan," continued the CPS Energy leader. "Maybe it's Vermont Yankee, maybe it's the plants on California's San Andreas Fault, or maybe it's some of the 23 MARK 1 reactors operating in the U.S. that have the same design as the Fukushini Daiichi plant. I don't know exactly what it is, but the industry will have to give up something." Beneby was responding to an audience member who noted that a resolution had been introduced in Marin County, California, to close all nuclear generators in the state of California.

Moderator Peltier closed the session by asking each panelist what kept him or her up at night. Beneby laughed and said, "EPA, EPA, and EPA."

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