Energy Study Highlights Potential for Nuclear

By Llewellyn Jones

An Energy Department study of baseload energy could be an opportunity for federal subsidization of the nuclear power industry, according to Tyson Slocum, Public Citizen’s energy program director.

But the nuclear industry’s response to the memo has been relatively mute as the Nuclear Energy Institute is biting its tongue until the actual study is complete.

The nuclear industry has been struggling in recent years because of competition from renewable energy and low natural gas prices, and it regularly depends on state level subsidies such as zero-emission credits (ZECs) to stay financially afloat.

Perry Memo

In April, Secretary of Energy Rick Perry called for a study of electric markets and grid reliability, and Environmental Protection Agency head Scott Pruitt recently warned that a diminishing fuel diversity mix puts the country's energy grid at risk.

The Perry memo came soon after a major utility grid operator, PJM Interconnection, released a study claiming natural gas could provide 90 percent of its fuel needs.

After that study, the coal-trade organization American Coalition for Clean Coal Electricity sent a letter to PJM asking it to ensure the viability of coal and prevent any further coal generator retirements.

Potential for Federal Subsidies for Nuclear, Coal

Slocum believes that the Perry memo hints at creating a federal protection for coal and nuclear power as a backstop for baseload power.

“The memo is building on something that has been percolating for a while related to federal support for baseload reliability,” Slocum said, but baseload reliability would have to be considered an emergency situation for the federal government to intervene.

Muted Support from Nuclear Industry

Public response from the industry following the announcement has so far been restrained. John Keeley, a representative for the trade organization Nuclear Energy Institute, said that they are waiting for the release of the results of the study before commenting.

Nuclear utilities like Duke Energy and Exelon said that they were encouraged by the administration’s focus on baseload power but neither would speak to why response from the industry has been rather tepid.

FirstEnergy released a statement in April soon after the study was announced, calling it a “step in the right direction.” But the statement also didn’t think the study would lead to a definitive solution for the company, and the company is simultaneously seeking state-level support in Ohio and Pennsylvania.

Baseload Power and Renewables

Christina Simeone, director of policy and external affairs at the University of Pennsylvania’s Kleinman Center for Energy Policy, criticized the focus of the study on renewables, saying that “the number one threat to baseload coal and nuclear is the price of natural gas.”

Prajit Ghosh, head of power and renewables research for the Americas at the risk analysis firm Wood-Mackenzie, said that there is a growing need for reliable baseload power with the increasing reliance on renewable energy.

According to Ghosh, there are often checks and balances in place for fuel-related deficiencies that might risk grid reliability, but the picture is more complicated than just power outages.

"There are financial consequences for generation failures. For renewables, they are referred to as shadow costs, like when California leans on natural gas generation for periods of peak demand around 7 p.m.," Ghosh said by phone.

The combination of more renewables and the loss of 15 percent of coal capacity in recent years has had unintended consequences on energy costs that could affect utilities, he added.

Struggling Nuclear Industry

Currently, nuclear power plants are heavily reliant on state-based subsidies like ZECs to operate since many struggle to compete with cheap natural gas and renewables.

But even with various subsidies the industry is not faring well.

Exelon recently decided to shut down the nuclear power plant at Three Mile Island in Pennsylvania, which had struggled to compete with lower natural gas prices and a lack of subsidies from the state.

And the company was also unable to sell off its Illinois Quad Cities plant at auction, even after the state passed a $235 million in credits for the industry in December.

Westinghouse recently decided to exit the nuclear plant construction business following its bankruptcy filing because of the industry's high costs and high risks.

Ghosh said that if decarbonizing is the ultimate goal, then nuclear power needs to be kept around, but he described the situation as complex.

“Markets don’t like the distortions created by subsidies, and right now there is a race to the bottom for energy prices,” he said.

The House recently passed a bill for the nuclear industry that would extend tax credits to nuclear facilities that are under construction, not just those that are already operational.

Oil and Gas Receive Lion's share of Federal Subsidies

Roger Bezdek, economist and president of the research firm Management Information Systems Inc., said that historically, oil and gas have received the vast majority of federal subsidies.

According to Bezdek, oil has received approximately 40 percent of all subsidies since the 1950s in constant dollars even though only a small portion of oil goes to energy generation.

While renewables have received more recently, for nuclear it's only around 8 percent Bezdek added.

Published: October 29, 2018