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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Entergy Corporation (NYSE:ETR) (New Orleans, Louisiana) officially ended its foray into merchant nuclear generation this week after the company struck a deal with New York State and environmental groups to close the two-unit Indian Point nuclear complex by 2021.
"For 15 years, I have been deeply concerned by the continuing safety violations at Indian Point, especially given its location in the largest and most densely populated metropolitan region in the country," Governor Andrew Cuomo said in a statement released Monday. "I am proud to have secured this agreement with Entergy to responsibly close the facility 14 years ahead of schedule to protect the safety of all New Yorkers. This administration has been aggressively pursuing and incentivizing the development of clean, reliable energy, and the state is fully prepared to replace the power generated by the plant at a negligible cost to ratepayers."
Bill Mohl, president of Entergy Wholesale Commodities, said: "Key considerations in our decision to shut down Indian Point ahead of schedule include sustained low current and projected wholesale energy prices that have reduced revenues, as well as increased operating costs. In addition, we foresee continuing costs for license renewal beyond the more than $200 million and 10 years we have already invested."
"Record low gas prices, due primarily to supply from the Marcellus Shale formation, have driven down power prices by about 45%, or by about $36 per megawatt-hour, over the last 10 years, to a record low of $28 per megawatt-hour," Mohl continued. "A $10 per megawatt-hour drop in power prices reduces annual revenues by approximately $160 million for nuclear power plants such as Indian Point."
The agreement to close Indian Point was first reported by The New York Times last Friday.
Indian Point Unit 2 is a 1,028-megawatt (MW) pressurized water reactor that began operating in 1974. Indian Point Unit 3 is a 1,041-MW pressurized water reactor that came online in 1976. Entergy had been trying to relicense the plants for nearly a decade, over the objections of the state and several intervenor groups. The plant has had numerous safety and operational problems in recent years.
New York's agreement with Entergy calls for permanently ceasing operations at one Indian Point unit by April 2020, and the other would close by April 2021. The agreement also provides for two-year life extensions for Indian Point "in case of an emergency situation," but in any case Unit 2 will not operate beyond April 2024 and Unit 3 will not operate beyond April 2025.
Combined, the two Indian Point units provide about 25% of the electricity needed by New York's five boroughs and Westchester County. But Gov. Cuomo said closing the nuclear plant would not cause reliability problems, and only "negligible" price increases.
The were no details available on where New York City and Westchester County would get replacement power, though Cuomo's statement said "transmission upgrades and efficiency measures totaling over 700 MWs are already in-service. Several generation resources are also fully permitted and readily available to come online by 2021, after the plant's closure, including clean, renewable hydropower able to replace up to 1,000 MW of power. Together, these sources will be able to generate more than enough electrical power to replace Indian Point's capacity by 2021."
Cuomo said the state's Public Service Commission's Indian Point Contingency Plan and other planning efforts "have ensured that more than adequate power resources are able to come online by 2021 to ensure reliability of the power grid. Given these planning efforts and likely replacement resources, the plant's closure in 2021 will have little to no effect on New Yorkers' electricity bills."
The closure of Indian Point, long sought by Cuomo, follows Entergy's decision last month to close its Palisades Nuclear Plant in Michigan by October 2018. Those closure decisions follow earlier decisions by Entergy to close the Vermont Yankee Nuclear Station (located in Vermont) and the Pilgrim Nuclear Power Station (located in Massachusetts).
Entergy had planned to close its James A. FitzPatrick Nuclear Power Station in upstate New York, but decided to sell it to Exelon Corporation (NYSE:EXC) (Chicago, Illinois) after New York State came through with a package of financial support for zero-carbon power generation. For more on that, see August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation. In its package of financial support for three upstate New York nuclear plants, Gov. Cuomo explicitly excluded Indian Point, located on the Hudson River about 24 miles North of New York City.
All of the plants Entergy plans to close operated as merchant plants in restructured state electric markets, meaning there was no captive base of customers obligated to purchase their output. Most state and regional electric markets don't include capacity payments to generators; instead, they are only paid for the electricity they generate.
Merchant nuclear generators have struggled for years as low natural gas prices undercut nuclear's ability to compete. Nuclear operators had hoped their plants would receive financial benefits for the non-emitting characteristics of their generation, but over time state and federal laws and regulations explicitly excluded nuclear form the battle to lower greenhouse gas emissions from the power sector.
Exelon had planned to close two merchant nuclear generators in Illinois until the state last month came through with a financial aid package that compensated that utility for nuclear's zero-emitting properties. For more on that, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants. The Omaha Public Power District (OPPD) (Omaha, Nebraska) last year decided to close its Fort Calhoun Nuclear Plant because it could not compete with low-cost gas-fired power. For more on that, see May 24, 2016, article - Omaha Utility Continues Generation Makeover with Plan to Close Nuclear Plant.
In mid-2013, Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia) closed its Kewaunee Nuclear Power Station in Wisconsin for the same reason. That plant was a merchant generator. Pacific Gas & Electric Company (San Francisco, California), owner and operator of the two-unit Diablo Canyon Nuclear Power Station, last summer struck a deal with the state of California not to relicense the facility, which will close when its licenses expire in 2024 and 2025. Implementing the deal requires the approval of the California Public Utilities Commission (San Francisco). For more on that, see July 20, 2016, article - Diablo Canyon Proposal: A Turning Point for the U.S. Nuclear Industry?
With the exception of Diablo Canyon, utilities closing nuclear generation plan to replace most or all of that lost generation with natural gas-fired generation. But that's not going to happen in New York, as the governor touted the deal's plan to replace Indian Point's generation with other sources that emit no carbon.
Media reports last Friday of Indian Point's potential closure caught Westchester County officials off-guard. Even officials who had advocated for the closure of the nuclear complex criticized the governor for keeping them in the dark about the loss of electricity, jobs and tax revenue should Indian Point close.
"The closure of Indian Point is another unfortunate step backward for nuclear power in the U.S.," commented Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "Vexed by economics, legislation and regulation, nuclear's future remains problematic in the U.S. I doubt this will be the last closure announcement we see in 2017.
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.
"For 15 years, I have been deeply concerned by the continuing safety violations at Indian Point, especially given its location in the largest and most densely populated metropolitan region in the country," Governor Andrew Cuomo said in a statement released Monday. "I am proud to have secured this agreement with Entergy to responsibly close the facility 14 years ahead of schedule to protect the safety of all New Yorkers. This administration has been aggressively pursuing and incentivizing the development of clean, reliable energy, and the state is fully prepared to replace the power generated by the plant at a negligible cost to ratepayers."
Bill Mohl, president of Entergy Wholesale Commodities, said: "Key considerations in our decision to shut down Indian Point ahead of schedule include sustained low current and projected wholesale energy prices that have reduced revenues, as well as increased operating costs. In addition, we foresee continuing costs for license renewal beyond the more than $200 million and 10 years we have already invested."
"Record low gas prices, due primarily to supply from the Marcellus Shale formation, have driven down power prices by about 45%, or by about $36 per megawatt-hour, over the last 10 years, to a record low of $28 per megawatt-hour," Mohl continued. "A $10 per megawatt-hour drop in power prices reduces annual revenues by approximately $160 million for nuclear power plants such as Indian Point."
The agreement to close Indian Point was first reported by The New York Times last Friday.
Indian Point Unit 2 is a 1,028-megawatt (MW) pressurized water reactor that began operating in 1974. Indian Point Unit 3 is a 1,041-MW pressurized water reactor that came online in 1976. Entergy had been trying to relicense the plants for nearly a decade, over the objections of the state and several intervenor groups. The plant has had numerous safety and operational problems in recent years.
New York's agreement with Entergy calls for permanently ceasing operations at one Indian Point unit by April 2020, and the other would close by April 2021. The agreement also provides for two-year life extensions for Indian Point "in case of an emergency situation," but in any case Unit 2 will not operate beyond April 2024 and Unit 3 will not operate beyond April 2025.
Combined, the two Indian Point units provide about 25% of the electricity needed by New York's five boroughs and Westchester County. But Gov. Cuomo said closing the nuclear plant would not cause reliability problems, and only "negligible" price increases.
The were no details available on where New York City and Westchester County would get replacement power, though Cuomo's statement said "transmission upgrades and efficiency measures totaling over 700 MWs are already in-service. Several generation resources are also fully permitted and readily available to come online by 2021, after the plant's closure, including clean, renewable hydropower able to replace up to 1,000 MW of power. Together, these sources will be able to generate more than enough electrical power to replace Indian Point's capacity by 2021."
Cuomo said the state's Public Service Commission's Indian Point Contingency Plan and other planning efforts "have ensured that more than adequate power resources are able to come online by 2021 to ensure reliability of the power grid. Given these planning efforts and likely replacement resources, the plant's closure in 2021 will have little to no effect on New Yorkers' electricity bills."
The closure of Indian Point, long sought by Cuomo, follows Entergy's decision last month to close its Palisades Nuclear Plant in Michigan by October 2018. Those closure decisions follow earlier decisions by Entergy to close the Vermont Yankee Nuclear Station (located in Vermont) and the Pilgrim Nuclear Power Station (located in Massachusetts).
Entergy had planned to close its James A. FitzPatrick Nuclear Power Station in upstate New York, but decided to sell it to Exelon Corporation (NYSE:EXC) (Chicago, Illinois) after New York State came through with a package of financial support for zero-carbon power generation. For more on that, see August 3, 2016, article - Cash on the Barrel: New York Clean Energy Standard Includes Multibillion-Dollar Support for Nuclear Power's Carbon-Free Generation. In its package of financial support for three upstate New York nuclear plants, Gov. Cuomo explicitly excluded Indian Point, located on the Hudson River about 24 miles North of New York City.
All of the plants Entergy plans to close operated as merchant plants in restructured state electric markets, meaning there was no captive base of customers obligated to purchase their output. Most state and regional electric markets don't include capacity payments to generators; instead, they are only paid for the electricity they generate.
Merchant nuclear generators have struggled for years as low natural gas prices undercut nuclear's ability to compete. Nuclear operators had hoped their plants would receive financial benefits for the non-emitting characteristics of their generation, but over time state and federal laws and regulations explicitly excluded nuclear form the battle to lower greenhouse gas emissions from the power sector.
Exelon had planned to close two merchant nuclear generators in Illinois until the state last month came through with a financial aid package that compensated that utility for nuclear's zero-emitting properties. For more on that, see December 20, 2016, article - Exelon Wins Financial Aid for Two Uneconomic Nuclear Plants. The Omaha Public Power District (OPPD) (Omaha, Nebraska) last year decided to close its Fort Calhoun Nuclear Plant because it could not compete with low-cost gas-fired power. For more on that, see May 24, 2016, article - Omaha Utility Continues Generation Makeover with Plan to Close Nuclear Plant.
In mid-2013, Dominion Resources Incorporated (NYSE:D) (Richmond, Virginia) closed its Kewaunee Nuclear Power Station in Wisconsin for the same reason. That plant was a merchant generator. Pacific Gas & Electric Company (San Francisco, California), owner and operator of the two-unit Diablo Canyon Nuclear Power Station, last summer struck a deal with the state of California not to relicense the facility, which will close when its licenses expire in 2024 and 2025. Implementing the deal requires the approval of the California Public Utilities Commission (San Francisco). For more on that, see July 20, 2016, article - Diablo Canyon Proposal: A Turning Point for the U.S. Nuclear Industry?
With the exception of Diablo Canyon, utilities closing nuclear generation plan to replace most or all of that lost generation with natural gas-fired generation. But that's not going to happen in New York, as the governor touted the deal's plan to replace Indian Point's generation with other sources that emit no carbon.
Media reports last Friday of Indian Point's potential closure caught Westchester County officials off-guard. Even officials who had advocated for the closure of the nuclear complex criticized the governor for keeping them in the dark about the loss of electricity, jobs and tax revenue should Indian Point close.
"The closure of Indian Point is another unfortunate step backward for nuclear power in the U.S.," commented Britt Burt, Industrial Info's vice president of research for the Global Power Industry. "Vexed by economics, legislation and regulation, nuclear's future remains problematic in the U.S. I doubt this will be the last closure announcement we see in 2017.
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.
