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First U.S. Nuclear Power Closures in 15 Years Signal Wider Problems for Industry

As the economics of building plants and maintaining old ones erode, some experts see little hope for an industry being touted by some as a climate savior.

Sep 24, 2013
Nuclear industry hangs in the balance

A string of plant closures, project cancellations and other setbacks has raised new doubts about the future of nuclear power in the United States, but there's disagreement about whether the retrenchment will be limited and temporary or the beginning of a broad and permanent decline.  

Renewed safety concerns and reinvigorated local opposition have played a role in the industry's recent troubles. But the most potent foe—and the primary force behind the spate of closures and abandoned projects—is economic.

The industry's run of bad news includes:  

► The early closure of four nuclear power plants. Two of the plants, the Vermont Yankee reactor and Wisconsin's Kewaunee reactor, were felled by stiff competition. One plant, San Onofre in California, was shuttered amid safety concerns and severely damaged steam generators. And the other, Florida's Crystal River, was done in by structural damage.

► An announcement that Électricité de France SA, the world's largest nuclear plant operator, would withdraw from its joint venture with Exelon Corp. The venture's three nuclear plants—Calvert Cliffs in Maryland and New York's R.E. Ginna and Nine Mile Point—will be run by Exelon. The French company had invested billions of dollars to expand into the United States.

► Duke Energy Corp.'s decision to shelve plans for two reactors in Levy County, Fla. (in addition to permanently closing Crystal River).

► A June 2012 court ruling that blocked the federal Nuclear Regulatory Commission from issuing new reactor licenses or renewals until it sufficiently assesses the risks of storing spent radioactive fuel at nuclear plant sites.  

► The cancellation this year of at least five projects that would have boosted the power output of existing reactors.

► Long delays and billions of dollars in cost overruns for ongoing construction of new reactors in Georgia, South Carolina and Tennessee.

(View slideshow: 14 U.S. Nuclear Plants Closing or At Risk—in Photographs and Text)

The blows to nuclear power's prospects have come on many fronts, but it was the surprising spurt of plant closures that laid bare the industry's worsening plight. The plant shutdowns are the first to hit the U.S. nuclear power market in 15 years, and the retirements don't bode well for many of the nation's 99 remaining power reactors.  

Analysts say economic woes make at least 10 other plants vulnerable enough to follow suit. Almost all of those are among the nation's 47 "merchant" nuclear plants, which, unlike regulated plants, operate in open markets and have to beat out other power suppliers to win customers and long-term supply contracts. The especially vulnerable facilities cited by analysts are at greater risk for closure because their power is too expensive to sell profitably in wholesale markets or because their output is too small or too unreliable to support rising operating and retrofit costs.

(Click to enlarge)

An Aging Fleet, and No Plant Is Immune

Wall Street firm Credit Suisse set the tone in February with a report that described the aging U.S. fleet of nuclear power plants as "facing declining performance, higher costs and inevitable mortality." Given the outlook for age-related extra costs, new safety and security expenses, sluggish electricity demand and stiff competition from power plants burning cheaper natural gas, Credit Suisse said, "losing another 1-5 plants in 2013 would not shock us."

Mark Cooper, a senior fellow at the Vermont Law School’s Institute for Energy and the Environment, was more pessimistic. Cooper, a longtime critic of nuclear power economics, argued in a July 2013 paper called "Renaissance in Reverse," that competition from natural gas as well as carbon-free wind and solar power producers could push more than 30 U.S. reactors "to the brink of economic abandonment."

Cooper believes market conditions are so unfavorable that premature closures will not be limited to plants that have to compete for customers. He said closures will also hit nuclear plants that operate in regulated markets, where they are mostly protected from the competitive forces that drove the Kewaunee and Vermont Yankee plants out of business.

Nuclear plants in regulated markets are typically owned by the region's incumbent utility, so they have an automatic buyer for their output and don't have to compete against lower-cost power producers. State regulators decide how much the utility can charge its customers for electricity, not based on market prices, but based on how much it costs the utility to provide the power, maintain the plants and facilities and operate the utility—plus a specified profit margin. What's more, regulated utilities that undertake big-ticket projects, such as replacing a nuclear plant’s steam generators, can pass those costs on to its customers by raising rates.

Increasingly, though, state regulators are questioning the economics of pricey retrofits and upgrades, and some states have begun pressing utilities to pay for cost overruns and expensive mistakes on projects.

"Economic pressures have become so severe that regulators have been forced to take action," Cooper said in his report. More than 50 reactors run in regulated markets, and now that government officials are keeping a closer eye on costs, about three dozen of them are "on the razor's edge," he estimated.

David Lochbaum, director of the nuclear safety project at the Union of Concerned Scientists, added that with so many older plants still operating—20 have been online for more than 40 years—equipment problems and safety issues are becoming inevitable. Increasingly, companies and regulators won't be able to justify the cost of the necessary fixes.

"The underlying factors are similar everywhere. They're not making buckets of money every day, and it's very tight," Lochbaum said. As a plant operator, "you're basically one surprise away—one component [problem] away—from not having the economics favor you."

Bye-Bye Renaissance?

The market setbacks and stark projections have put an emphatic end to talk of the U.S. "nuclear renaissance" that was still being touted by industry supporters as recently as 2010. Just six years ago, the NRC received its first formal application for a new nuclear reactor in decades. It was followed by more than two dozen more, as well as a host of proposals to boost the output of existing reactors, and a steady stream of requests for 20-year extensions on plant operating licenses.

More than half of the 28 proposed new reactors have since been officially cancelled or halted, and most of the others are stalled. Many projects that would have sharply increased power production from existing reactors suffered a similar fate.  Four new reactors are under construction, two at Georgia’s Vogtle plant and two at the Virgil C. Summer plant in South Carolina. Both projects are behind schedule and substantially over budget—and being paid for in large part by taxpayers and electric customers. Construction on a fifth reactor, at Watts Bar in Tennessee, was restarted after an 18-year hiatus and will cost customers of the Tennessee Valley Authority more than $4 billion, up from an earlier estimate of $2.5 billion.   

Officials at Entergy Corp., which surprised the market last month by deciding to close its Vermont Yankee plant in 2014, said the shutdown is necessary because high costs at the single-reactor site cannot be recouped in a wholesale market driven mostly by cheaper power from natural gas plants. Entergy said its Pilgrim plant in Massachusetts and its FitzPatrick facility New York have similar problems, but the company said it hasn't decided their fate yet and it remains committed to its seven other nuclear plants.  

Officials at the Nuclear Energy Institute, an industry lobbying group, remain hopeful.

"It's certainly true that a handful of older, smaller nuclear power plants—like older, smaller coal-fired plants—are vulnerable to weak market conditions," NEI Vice President Richard Myers told a London audience earlier this month. "How many additional nuclear plants shut down, if any, will depend on a number of factors, all difficult to forecast with any confidence."

But Myers stressed that the U.S. industry has weathered tough times before. A similar combination of economic stresses led to the closure of ten reactors in the mid- to late-1990s, prompting the Department of Energy to predict that 50 reactors would be mothballed between 1995 and 2015, he said. Including the recent announcements, 15 reactors have been scrapped since 1995.

"Although the short-term picture is challenging, the long-term prospects for nuclear energy in America remain strong," Myers said, noting that there are many proposals for new reactors at the NRC that have not been cancelled. "No one expects construction on any of them to start anytime soon, and some may never be built,” Myers conceded. “But post-2020, some surely will."

Despite the closure of five reactors (including Vermont Yankee next year), the United States will remain the world’s largest producer of nuclear power, with 99 operating reactors providing about 20 percent of the nation's electricity. Once online, the new reactors under construction will help restore the nuclear output lost with the recent closures.  And even though more than half of the U.S. fleet has surpassed or will soon surpass the 40-year lifespan envisioned when the licenses were awarded—most of them have already secured 20-year extensions.

The glaring exception is New York's dual-reactor Indian Point plant. With costly retrofits looming and intense public opposition to license renewals, the plant's future is being hotly debated. Indian Point Unit 2's operating license expires at midnight on Sept. 28, but a federal rule allows it to continue running on that license pending a decision on its application for license renewal. A host of challenges slowed the renewal process and now the NRC can't issue license renewals until it addresses the nuclear waste issue. The license for Unit 3 expires in 2015.

What Went Wrong   

Things were supposed to be far better than this.

With strong support from the Bush/Cheney Administration, the industry gained a host of benefits through the 2005 Energy Policy Act, including new tax credits, loan guarantees and insurance against regulatory delays. Those and other provisions were intended to restart the nuclear expansion that ground to halt following the 1979 nuclear accident at Pennsylvania's Three Mile Island plant. The stimulus worked, and the "nuclear renaissance" was well underway by late 2005, when natural gas prices topped $15 per million British thermal units (Btu) and electricity customers got socked with sharply higher bills.   

Industry promises of lower power prices, reliable supplies and reined-in costs for plant construction and operations were all appealing to lawmakers and regulators. And with the risk and cost of construction, operation and nuclear waste disposal being borne or subsidized by taxpayers and electricity customers, building new plants appealed to utilities, too.

Around that time, there was growing concern about pollution and the climate-changing effects of carbon dioxide emissions, so industry advocates began touting nuclear energy as a cleaner way to power the economy. When lawmakers started backing the concept of putting a price on carbon emissions through a cap-and-trade system, the clean energy argument seemed poised to turn into an economic advantage over natural gas and coal power plants.

But the good news didn't last. The cap-and-trade plan never materialized, and the concept of a carbon tax never got off the ground. In addition, the price of natural gas fell in late 2008 because of  the recession and an unexpected surge in U.S. production from shale formations. The flood of new supplies drove U.S. natural gas prices down to $1.91 per million Btu in April 2012, the commodity's lowest closing price on the New York Mercantile Exchange since just after the September 2001 terrorist strikes.

"When people were talking about how good nuclear plants looked relative to other technologies, they were talking about that in the context of [high] gas prices, where some people thought gas prices could go [back] above $10," said Paul Fremont, managing director and electric utilities analyst for Jefferies & Co. "It's not just the people who predicted the nuclear renaissance that turned out to have made a wrong prediction. It's everyone who believed that gas prices were high and going higher."

Other factors played a role in undermining the nuclear resurgence, too.

Japan's March 2011 earthquake and tsunami killed 16,000 people and caused a triple reactor meltdown at the Fukushima Daiichi plant. The nuclear disaster led to widespread evacuations and exposed a range of safety shortcomings at the facility. Germany's confidence in nuclear power was so shaken by the catastrophe that it launched a plan to close its 17 nuclear power reactors by 2022. In the United States, it rekindled fears about the safety of nuclear plants and reinvigorated local opposition to license renewals, costly plant projects and new reactors.  Because of the Fukushima plant disaster—and ongoing problems with containment and cleanup—U.S. regulators are expected to require potentially costly upgrades to plant security and safety systems.

The deep recession in this country also cut overall electricity demand, a decline that the tepid economic recovery has yet to fully reverse. At the same time, the push for more wind and solar power generation changed the competitive landscape, lowering wholesale prices in some markets at a time when older nuclear plants began to struggle with rising costs.  

"The nuclear renaissance failed for three primary reasons," said Cooper, the Vermont Law School energy economics analyst. "Nuclear couldn't deliver on the [lower] cost promise, demand slowed, and it couldn't compete against the available alternatives."

Death Knell Rung Too Early?

Lochbaum and others, however, think it’s too soon to write off U.S. nuclear power.

The price of natural gas is historically volatile, and there’s no guarantee that gas costs will stay low. Any number of things—unsustainable production rates, soaring demand, robust exports or new drilling and fracking regulations, for example—could force natural gas prices to revert to previous levels.   

"Supply and demand is now working in favor of natural gas ... but there seems to be an ebb and flow," said Lochbaum, a former nuclear engineer. "Right now, that's the way things are, but that doesn't mean it’s going to be the way things are ten years from now."

With the industry's survival hanging in the balance, nuclear power supporters and equipment makers have focused on overseas markets where growing energy demand is fueling power projects of all stripes. Worldwide, there are 70 nuclear power reactors under construction, with almost 40 percent of those in China alone. Russia has 11 in the works and India has plans for 20 new reactors, with 7 underway. Experts warn, however, that it’s hard to tell how many of those plants will be completed. 

In the United States, the nuclear industry and its backers have begun appealing to the public for support.

Earlier this year, movie director Robert Stone released "Pandora's Promise," a film that makes the case for the broad adoption of nuclear energy as the primary solution to climate change. It primarily features the testimony of former opponents of nuclear power who, like Stone, have become supporters. Some reviewers have labeled it an advocacy film because it lacks balancing voices, sidesteps critical cost questions and largely dismisses concerns about safety and nuclear waste.

The nuclear industry may also look for support among communities where struggling plants are based. Since many nuclear plants operate in less populated areas, they are often a key contributor to the regional economy, providing tax revenue and hundreds of high-paying jobs. They also typically provide large amounts of electricity that can’t easily be replaced on short notice.

"Given the substantial tax base and employment supported by nuclear plants, as well as the material increases in capacity/power prices resulting from a [plant] retirement, we see real potential for regulatory and political intervention to save plants, particularly in Illinois and New York," said UBS Securities analyst Julien Dumoulin-Smith in an early 2013 report.

In the world of energy, however, things are changing so fast and technologies are advancing so steadily that even if there's popular support and the economics of nuclear power improve, other trends could still derail the industry's growth.

A more concerted approach to energy efficiency could lessen the need for new power plants. Fear of storm-induced power outages and other grid problems could accelerate a move away from large, centralized power plants (like nuclear reactors) that supply electricity through long-distance transmission lines.

A small but growing number of corporations, for example, are pursuing large onsite power-generation to cut utility costs and be assured of power in a crisis. A widespread shift toward such small-scale power production closer to homes and businesses would make nuclear power less attractive.  

Watching Japan

Some energy experts are watching Japan closely for clues about the future of nuclear power. None of the country’s 50 nuclear reactors are running now, and it’s unclear if Japan can find long-term replacements for their output. If and when any of the nuclear plants restart depends on the viability of alternative power sources and whether the industry can overcome the public’s deep distrust and safety concerns. Recent news that radioactive water was leaking from a Fukushima storage tank hasn’t help the nuclear industry's cause.

"If Japan's able to replace nuclear power with other sources, then that developing infrastructure will make those alternatives cheaper elsewhere as well," said Lochbaum of the Union of Concerned Scientists. "If Japan can't make that work, and they restart most, if not all of their nuclear reactors, then that will show that the alternatives to nuclear power may not be [viable replacements] in the United States either."

With so many forces at work in this country and abroad, predicting nuclear power's future is a risky endeavor. If you assume things about the future based on what's happening today, Lochbaum said, "you're almost guaranteed to be wrong."

Correction: An earlier version of this article inaccurately reported that Indian Point's Unit 2 reactor is operating on an expired license. That unit's license expires at midnight on Sept. 28. Then it will become the first U.S. reactor to use a provision that allows continued operation under the original license until regulators rule on its license renewal application.

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