Energy Alert for July 29, 2015

It may not get a lot of headlines, but the nuclear power industry is facing some stiff headwinds these days. Big changes in the utility industry mean some plants might close for financial reasons. In time, that could make the U.S. more dependent on other power sources, increasing the risk of rising rates.

Nuclear Woes

In the electricity world, nuclear power is the ultimate Steady Eddie. America’s roughly 100 nuclear plants reliably churn out enough electricity to meet about 20% of the country’s power needs. Other energy sources, by contrast, vary substantially in their output. That’s especially true of renewable sources such as wind and solar, but it also applies to hydroelectric dams (which ramp up when rain is abundant) and natural-gas-fired power plants (whose output rises and falls with seasonal power demand and the cost of gas).

That makes nuclear a key contributor to the grid’s baseload generation: the power that grid operators count on to be available night and day, whether power demand is weak or strong. And unlike coal- or gas-fired plants, nuclear plants emit no greenhouse gasses, which is an asset as Uncle Sam readies regulations that crack down on such emissions. (Of course, what to do with the radioactive spent fuel from nuclear plants remains an unsolved problem.)

And yet, some nuclear plants are struggling financially. Two plants — one in Wisconsin, another in Vermont — have already closed for financial reasons, and plant operators are warning that others could soon follow. Why? In a word, price.

In certain power markets, nuclear plants are competing with a flood of new power coming from either natural gas or wind. Today’s low gas prices mean gas-fired plants can generate electricity at a lower cost than some nuclear plants. Ditto for wind turbines, which earn a subsidy for each kilowatt-hour of electricity they produce if the facility was built before Jan. 1, 2015. In both cases, the result is the same: Rival generators are undercutting the cost at which certain nuclear plants can sell their power.

That issue is especially acute in states with unregulated power markets, says Dan Lipman, vice president of supplier and international programs at the Nuclear Energy Institute, an industry trade group. In those markets, which are mostly in the northern portion of the country, the lowest-cost source of generation tends to set the market rate for power that generators can sell. Nuclear plants competing with cheap gas and subsidized wind are at a cost disadvantage, says Lipman. And even though nuclear power is arguably more valuable, in the sense that it is highly reliable, plant owners don’t receive any compensation for that unique dependability.

That’s bad news for owners of nuclear plants in unregulated markets such as Illinois, where utility Exelon is warning it may shut down some of its nuclear facilities that can’t earn a profit. NEI’s Lipman says plants facing the most financial risk are those in unregulated power markets that consist of a single reactor. (For a quick rundown of regulated and unregulated power markets, check out this handy map.)

In regulated power markets, the story is very different. There, nuclear plant owners can more easily recoup operating costs and turn a profit, since state public utilities commissions set rates to ensure a reliable supply of power. So it’s no surprise that the handful of new nuclear plants scheduled to come on line in the near term are all in regulated markets in the Southeast: the Tennessee Valley Authority’s Watts Bar project (due in June), Southern Co.’s two new reactors at its Vogtle plant in Georgia, and the South Carolina Electric & Gas Co.’s two new reactors at its V.C. Summer facility (all expected to come on line near the end of the decade). Investors in the companies building those plants stand to gain once the power starts flowing, and don’t have to worry so much about competition from cheap gas or wind power.

Doubling Down on Gas, Renewables

The challenges for the nuclear industry are just one facet of an unprecedented shift taking place in the U.S. power sector. Coal, long the mainstay of power generation, is seeing its share of the electric market shrink. Utilities faced with tough new government air pollution rules are opting to shut down many coal-fired plants instead of upgrading them to meet the new air quality standards. Meanwhile, cheap natural gas offers a way to compensate for the lost coal capacity. And many states are requiring utilities to obtain more of their electricity from wind, solar and other renewable sources.

As a result, coal’s share of the overall electricity mix has fallen to 34% so far in 2015. That’s down from about half in 2005, and 44% as recently as 2010. In April of this year, for the first time on record, natural gas supplied more electricity than coal.

The trend will only continue as more coal plants shut down. For 2015, the Department of Energy is predicting that coal plants with a combined generating capacity of 13 gigawatts will shut down. Granted, those plants tend to be small and run less often than large coal plants, but that still means more reliance on gas and renewables to take up the slack, especially when power demand spikes. DOE sees wind as the largest source of new generation coming on line this year, with new gas-fired capacity in second place.

That means, in the long run, that electric customers will be more at the mercy of volatile fuel sources, namely gas and wind. Gas prices are cheap now, but we expect them to rebound gradually in coming years, as demand keeps rising. And of course, wind will always be an on-again, off-again energy source. With more coal plants likely to close, it’s not hard to imagine a future in which natural gas supplies an even bigger share of power generation than it already does, especially when electricity demand spikes during extremely hot or cold weather and the wind doesn’t oblige by blowing steadily. Figure on some hefty power and gas bills when that day comes.

Tech Alert for July 8, 2015

Fighting off cyberthieves. Growing costs of cybersecurity. Advice from the Federal Communications Commission on new Web services. Lessons learned from the SpaceX rocket fail. The impact of the strong dollar on global information tech sales. Surprising buyers of smart-home technology. Slow-loading websites lose sales.

Continue reading “Tech Alert for July 8, 2015”