Energize Weekly, February 14, 2018
The prospects for coal-fired and nuclear electricity generation got off to a shaky start in 2018 with a projected record number of coal unit closures and three nuclear power plants set for shutdown.
The Trump administration has been trying to find ways to bolster the two sectors. It proposed giving subsidies to plants in wholesale markets, contending they added to the resiliency and security of the grid. In January, the Federal Energy Regulatory Commission rejected the plan.
Energy Secretary Rick Perry is reportedly weighing the use of emergency orders to keep some coal-fired plants online.
Despite these actions, about 15,000 megawatts (MW) of coal-fired capacity will close this year, more than double the closures in 2017, according to an analysis by the Institute for Energy Economics & Financial Analysis (IEEFA), a non-profit, foundation-funded group.
“In electricity generation—the key market for coal—the industry is increasingly uncompetitive and is losing market share,” David Schlissel, lead author on the report and IEEFA director of resource planning analysis, said in a statement.
In major wholesale electricity markets, coal-fired generation has slipped since 2009 to 32 percent from 70 percent in the PJM, which covers Mid-Atlantic and Midwest states; to 46 percent from 64 percent for the Midcontinent Independent System Operator (MISO), which serves all or parts of 15 states and Canadian provinces.
The federal Energy Information Agency (EIA) in its February Short-term Energy Outlook projects annual consumption of coal by the utility industry dropping by 15.5 million tons between 2018 and 2019 to 646 million tons.
The EIA said that the coal plants retired since 2008 were relatively old and small, averaging 52 years and 105 MW. But the IEEFA analysis identifies eight plants ranging from 1,184 MW to 2,308 MW slated to close between 2017 and 2020, with most closing this year.
As for nuclear plants, in January, NextEra Energy said its 647 MW Duane Arnold nuclear plant in Palo, Iowa, will be shuttered when its contract to supply Alliant Energy runs out. FirstEnergy Corp. said its Davis-Besse nuclear plant in Oak Harbor, Ohio, may also be headed for early closure.
In February, Exelon said it would close its Oyster Creek plant in Lacey Township, N.J., the oldest operating commercial nuclear plant in the U.S., in October, a year ahead of schedule.
The pressures on coal-fired and nuclear generation are much the same. The IEEFA listed them as increased competition from low-cost renewables, low natural gas prices and competition from natural gas-fired generators, low energy market and capacity market prices and nearly flat demand for electricity.
An analysis released in January by Massachusetts Institute of Technology researcher Jesse Jenkins placed most of nuclear power’s problems at the foot of natural gas. Jenkins analyzed the impact of flat demand, wind power and natural gas on the 19 nuclear plants in the PJM market.
Jenkins noted that due to new drilling techniques, market prices for natural gas dropped 72 percent between 2008 and 2016.
“The drop in the price of natural gas appears responsible for the majority of observed declines in electricity prices across the 19 PJM nuclear plants over this period . . . 50 to 86 percent of the observed changes,” Jenkins said.
There appears to be little relief. The EIA projects the spot price for natural gas, at the Henry Hub, a major distribution point, to remain below $3.50 through 2050.
In January, NextEra announced in its quarterly earnings that it was taking a $258 million after-tax impairment on the Duane Arnold facility, Iowa’s only nuclear plant, “reflecting the company’s belief that it is unlikely the project will operate after 2025.”
The plant has a license to operate through 2034, and NextEra said it will continue to seek a contract extension.
Alliant, however, is hedging its position. “The cost of wind energy right now has really dropped as well as the cost of natural gas to be at levels where they are competitive and have never been before,” Justin Foss, a spokesman for Alliant told the Cedar Rapids Gazette. “We are continuing to pursue different options for our customers to make sure that they get the best value.”
FirstEnergy also said that unless bolstered by state subsidies, its Davis-Besse plant would also likely close. James Pearson, the company’s chief financial officer, told the Toledo Blade the plant cannot cover its costs in the PJM wholesale electricity market.
Illinois and New York State have already approved as much as $10 billion in subsidies to keep nuclear plants in those states open for the next decade.
On Feb. 2, Exelon announced that it had reached an agreement with New Jersey state regulators to close Oyster Creek this coming October.
“The plant faces a unique set of economic conditions and changing environmental regulations that make ending operations in 2019 the best option for the company, employees and shareholders,” Chris Crane, Exelon’s chief operating officer, said in a statement.
In addition to low natural gas prices, nuclear and coal face as much as 100 gigawatts of wind and solar coming online by 2022, according to S&P Global Market Intelligence, as prices decline and performance rises.
The squeeze placed on coal and nuclear in the wholesale markets was underscored by an IEEFA analysis of bids into the PJM capacity market. PJM operates the market to ensure it has adequate generating capacity.
In the May 2017 auction PJM conducted for the 2020-2021 delivery year, prices were about 23 percent lower than those set in the 2016 auction. Some of the bids were 54 percent below the capacity prices set in the 2015 auction for the delivery year 2018-2019.
So, the capacity price dropped from $100 a MW-day in 2019-2020 to $76.53 MW-day for 2020-2021.
“This means that a typical 600 MW coal-fired plant that will receive $33 million in capacity revenues during the 2018-2019 delivery year will earn only $15.4 million in the 2020-2021 delivery year. This represents a sharp drop in revenues and could render unprofitable previously profitable units,” the IEEFA analysis said.
