WILLIAM TUCKER: Matt Wald Parlays One Reactor Closing into the Decline of Nuclear

By William Tucker

The New York Times’ ever reliable anti-nuclear reporter Matt Wald has taken the closing of the 550-MW Kewaunee nuclear reactor in Wisconsin and spun it into a tale of an aging fleet that will soon be seeing lots more closings because of adverse economics. 

“The conventional wisdom about nuclear reactors is that they are expensive to build but cheap to run,” begins the story, entitled “Aging and Expensive, Reactors Face Mothballs:”

But electricity on the wholesale market is so inexpensive, its price depressed by cheap natural gas, that some reactors may not have enough revenue to justify needed capital expenditures. Experts say that as a result, the nuclear industry may be nearing its first round of retirements since the mid-1990s.

This indeed would be depressing news, wouldn’t it?  But is it true?    

Wald’s conjecture rests on three premises:

  1. High maintenance costs to reactors, coupled with low gas prices, are making existing reactors uneconomical.  “According to an internal industry document from the Electric Utility Cost Group, for the period 2008 to 2010, maintenance and fuel costs for the one-fourth of the reactor fleet with the highest costs averaged $51.42 per megawatt hour.  That is perilously close to wholesale electricity costs these days. “
  2. Wind energy is so cheap that it is also undermining nuclear.  “Christopher Crane, the chief executive of Exelon, the nation’s largest nuclear operator, said his company’s reactors sometimes found themselves selling electricity at hours when the market price was negative, driven below zero by a surplus of wind energy late at night during periods of low demand.” 
  3. Reactors are very much like old coal plants now being driven into retirement by gas prices and EPA regulations.  “Bruce E. Biewald, the chief executive of Synapse Energy Economics, a consulting firm in Cambridge, Mass., compared the nuclear plants to old coal plants now facing big capital expenses. The cost of new pollution control equipment has coal companies `writing off hundreds of millions of dollars right and left,’ he said. Much the same is now true for nuclear plants.”

Let’s take that last point first.  The country’s oldest reactors may be turning 40 but almost one-third of the nation’s 600 coal plants are more than 50 years old.  The Sixth Street Generating Plant recently retired in Cedar Rapids was built in 1921.  Another coal burner in the District of Columbia recently converted to natural gas was built in 1910.  Nearly all the coal plants scheduled for retirement are beyond the half-century mark.   

But it isn’t just age that is forcing these plants out of business.  Because they were built so far back, none of them have pollution controls.  Most were grandfathered in under the Clean Air Act of 1970 and have sailed along for 40 years polluting in the same old way.  The Clinton Administration fought a long battle trying to have these plants classified as “new sources” when they made major repairs such as replacing an old turbine.  This would have required them to meet new pollution standards.  For the most part, the Clintonites lost.  Only now that the EPA is enforcing new rules for cross-state pollution, mercury and carbon emissions are they finally being forced to make major improvements.  Not having any emissions to worry about, nuclear has none of these problems.

So what about those gas prices?

Gas prices are indeed extraordinarily low and have forestalled most new reactor construction.  Since building a reactor is still a ten-to-fifteen-year magical mystery tour through the Nuclear Regulatory Commission, there isn’t any point in investing $10-15 billion to compete with $2.50 natural gas.   But these gas prices are temporary one at best.  We are going through a very unusual period where fracking technology has created a glut while major markets have not yet developed.  Natural gas is now fetching $11 per mcf in Japan and companies on the Gulf and West Coasts are scrambling to build export facilities.  This will take at least five years to build and there may be political resistance but at some point the domestic and world prices will come more in line.  Natural gas may also end up powering vehicles.  Several auto companies have models running on compressed natural gas and the Fuel Freedom Foundation is pushing to have all cars converted to flex-fuel so they could run on fuels such as methanol, which can be manufactured cheaply from natural gas.  One way or another, $2 gas is a temporary phenomenon.  There is no chance the huge gap between oil and gas prices will survive the next decade.  If you’re a utility executive you have to think in these terms.  Eight years ago one-third of the nation’s gas generators were sitting idle because gas cost $8 per mcf.  No one is going to retire their nuclear reactors on the bet that it can’t happen again.

So what about those windmills?  Well, wind is certainly causing havoc in the utility industry.  For several years analysts have been predicting that windmills would make life extremely difficult for any kind of generation that couldn’t easily be ramped up and down – which means nuclear.  There are indeed instances where nuclear and other forms of generation are being forced to accept negative pricing because the wind is blowing somewhere.  But any sane system wouldn’t allow this to happen for very long.  Wind should be charged a premium because it is non-dispatchable and can’t be counted on from one hour to the next.  But political pressures to develop more wind – plus the production tax credit, which makes windmills profitable even if they generate no electricity – make this difficult.  All this hurts nuclear and others forms of generation as well. So yes, in a few instances the advantages given to wind may drive one of two marginal reactors out of business.  But people are going to be awfully sorry if major nuclear providers are retired and the wind stops blowing because be nothing to replace them.   

Political pressures may force a few reactors to close in hostile territories such as New York and Vermont.  So will a few plants such as Crystal River, which have suffered major damage.  But when Wald compares reactors to “old coal plants now facing big capital expenses,” it turns out he means capital costs for major uprates, which doesn’t involve major expenses.  Even Matt Wald finally admits this in his closing paragraphs: 

The stress [on reactors] comes after a decade of remarkable stability for the nuclear fleet, which, contrary to the expectations of some of its opponents, has shown some signs of prosperous maturity. According to industry statistics, 71 reactors have received permission to operate up to 20 years beyond their initial 40-year operating licenses and the applications of 15 more are under review. Another 17 have announced their intention to seek renewal, leaving only one with unannounced intentions.

In addition, engineers have reanalyzed existing reactors, made some minor adjustments and coaxed another 6,200 megawatts of capacity out of them, equal the output of another six or so reactors. Another 2,700 megawatts of “uprates” to increase the maximum power level at which some plants may operate are in the Nuclear Regulatory Commission’s approval pipeline. But Mr. Crane [of Exelon] said electricity prices were now so low that his company was re-evaluating whether it was still worthwhile to invest more in uprates.

Postponing an uprate and closing down a reactor are hardly the same thing.  Exelon’s fleet and others still have another few decades left in them.  That’s the real story.

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