For Exelon CEO Chris Crane, there’s never been a more dynamic or uncertain period in his career than right now — particularly when it comes to the future of the nation’s nuclear power fleet.
“When you look at the potential risk on one of the more reliable, baseload generating assets, nuclear assets, there are significant challenges with current market design,” said Crane, speaking earlier this month at the National Association of Regulatory Utility Commissioners’ (NARUC) winter meeting.
The closure of Exelon’s Fort Calhoun Nuclear Generating Station near Omaha, Nebraska last fall marks the fifth nuclear retirement over the past five years. Economic pressures are expected to trigger a wave of additional nuclear plant retirements across the U.S. in the years to come. The Nuclear Energy Institute has reportedly identified 15 to 20 reactors nationwide that are currently at risk of shuttering.
Exelon is the largest nuclear power plant operator in the country, with 23 reactors at 14 facilities located in Illinois, Maryland, Nebraska, New Jersey, New York and Pennsylvania. Several of these plants are now on the brink of retirement as a result of market pressures — and Exelon is losing money. The investor-owned utility saw its profits slide by 34 percent last quarter.
Nuclear power was once a highly profitable business to be in, but the advent of cheap natural gas, combined with increasingly competitive prices for renewable energy projects, is making it more difficult for nuclear to compete. This is especially true in deregulated electricity markets like Illinois, New York and Ohio, where half of all U.S. nuclear reactors are currently located.
But things could change under President Trump.
With a new U.S. energy policy taking shape and new set of commissioners headed to the Federal Energy Regulatory Commission (FERC), nuclear plants could soon see more favorable treatment for the low-carbon and reliable power they produce.
“States and locations we serve want affordable and reliable, but also clean, power,” said Crane. “And how you create a market signal around that to adequately compensate all generators within the stack is very important.”
“Hopefully, with some clarity coming from this administration and some clarity coming from FERC, the states and [regional transmission organizations] can do what they need to do to design a reliable and affordable and, where they want it, a clean [resource] stack,” he said.
Nuclear reboot under President Trump?
There’s reason to believe nuclear generators could catch a break under President Trump — although he hasn’t explicitly called for supporting nuclear power since getting elected.
Trump has called for expanding U.S. nuclear weapons capability, though, which could produce side benefits for the nuclear power sector. If the new administration boosts the Department of Energy’s nuclear budget, nuclear power could see more support for research and development, and potentially more support for power plants through loan guarantees.
In 2014, the Obama administration issued $6.5 billion in loan guarantees for two new nuclear reactors at the Alvin W. Vogtle Electric Generating Plant in Georgia — the first government-issued loans for nuclear reactors in 30 years. At one point, the DOE planned to issue around $50 billion in loans for nuclear power, but backed off amid concerns around safety, delays and cost overruns (which continue to plague the industry). Trump, looking to increase jobs in traditional energy sectors, could reboot those DOE plans.
A leaked questionnaire submitted by Trump’s team to the Department of Energy hinted at greater interest in nuclear power, with questions about how to reduce the bureaucratic burden on exporting U.S. nuclear energy technology and about resuming the Yucca Mountain nuclear waste proceedings. Furthermore, according to Bloomberg, the transition team contacted the DOE about finding ways to help keep nuclear power plants up and running.
The nuclear power industry can also pin its hopes on favorable comments Trump made following Japan's Fukushima Daiichi disaster in 2011. “I'm in favor of nuclear energy, very strongly in favor of nuclear energy,” Trump said in an appearance on Fox News. “If a plane goes down, people keep flying. If you get into an auto crash, people keep driving.” Uranium stock prices shot up after the election due in part to these comments.
There are also plenty of other political stakeholders that support the nuclear industry. Several lawmakers, including Oklahoma Republican Sen. Jim Inhofe and Rhode Island Democrat Sen. Sheldon Whitehouse have addressed the importance of nuclear power. Speaking on a nuclear energy panel at the NARUC winter meeting, Andrew Zach, staff member on the House Energy and Commerce Committee, said: “I think it’s time for us to reassert our leadership in this space.”
Then there’s FERC, a national body that oversees U.S. electricity markets. There are several pending complaints at FERC against the zero-emission credit programs adopted in New York and Illinois to prevent their nuclear plants from shuttering, but the five-member FERC panel has been stalled since the resignation of Norman Bay on February 3. Trump will soon appoint three new commissioners who may take a pro-nuclear view.
FERC Chairman Cheryl LaFleur, who was appointed to the position by Trump last month, announced at the NARUC winter meeting that commission staff would lead a technical conference on how wholesale markets can accommodate state-led initiatives to support particular generation resources (i.e., nuclear), while waiting for FERC to regain a quorum.
“While we can’t issue orders in those [complaint] cases, one thing that [Commissioner Colette Honorable] and I have talked about that we can do is to organize a staff-led technical conference to bring people in before us, build a record and hear from the states, from the environmental community, from others — from the generators and the [independent system operators] — to try to discuss some of those issues,” said LaFleur, during a keynote discussion. “So that’s something we are going to do.”
“Having that discussion about fuel diversity…is really probably first and foremost on your agenda,” said NARUC President and Pennsylvania Public Utility Commissioner Robert Powelson.
“Yes,” said LaFleur, who went on to state that adapting wholesale markets to recognize the benefits nuclear power provides “is by far the best solution.”
The search for wholesale market solutions at FERC comes after several years of energy policy debates closely tied to the success of renewables. State renewable portfolio standards — which mandate increased production of energy from renewable sources, such as wind, solar, biomass, and geothermal — have become one of the biggest targets for nuclear stakeholders.
“Right now we definitely see a considerable issue in a lot of states that are in regions that use competitive markets to price resources, but also have state initiatives to select certain resources,” said LaFleur, in an interview. “And now we’re seeing the market designers try to accommodate that.”
The availability of cheap natural gas has fundamentally reshaped the U.S. energy landscape, and put intense economic pressure on aging nuclear power plants. And yet nuclear generators haven’t framed their enemy as gas, but rather as other low-carbon resources.
One likely reason is that energy companies like Exelon own both nuclear and gas assets. Another is that “there’s so much gas available these days that it’s hard to envision a regulatory change that leads to higher gas prices,” said Prajit Ghosh, head of Americas power and renewables research for Wood Mackenzie. “So the only other way to mitigate some of the impacts on nuclear is to mitigate renewables.”
It’s “clean-energy cannibalism,” he said. More wind and solar is wanted to clean up the grid, but it’s adding pressure to existing nuclear plants.
“In many of our states, there is a desire for environmental benefits from generation assets. To this point it has been looked at as renewables,” said Exelon’s Crane. “Renewables are an important part of the stack, and they should continue to be an important part of the stack…but we need to look at defining outcomes. If the outcome is higher reliability and a diverse fuel stack, how do you create a market design that compensates for that?”
He added: “If the desire is an environmental outcome, then how do you design the market for that outcome versus the technology?”
The case for a carbon-free mandate
Crane and other speakers at the NARUC meeting described the favorable treatment wind and solar receive through state renewable portfolio standards, as well as federal tax credits and the Public Utility Regulatory Policies Act (PURPA), as flawed and in need of reform. In some states, nuclear generators have declared war.
In Illinois, Exelon-owned Commonwealth Edison fought against the state’s 25 percent renewable portfolio standard, while seeking guaranteed income for its struggling nuclear plants. The utility also sought to end net energy metering and implement mandatory demand charges, both of which make distributed solar projects less attractive. Distributed solar is a challenge for utilities like ComEd because it reduces overall electricity demand, lessening the need to build big, new centralized power plants.
Similarly, while seeking guaranteed rates for its nuclear and coal power plants in Ohio, FirstEnergy joined with conservative political groups to lobby against the state’s renewable energy and efficiency mandates. Republican Governor John Kasich ultimately vetoed an attempt to maintain a freeze on the state’s clean energy goals — reinstating more stringent clean energy targets for FirstEnergy to meet.
“Renewable power has mandates, which means in electricity land that they dispatch first, whether they’re economic or not,” said lobbyist Mike McKenna of MWR Strategies, who helped lead Trump’s DOE transition team. Wind and solar will become less competitive as federal tax credits ratchet down, he said, “but the mandates will remain in place.”
“So you’re going to have a situation where you have a renewable mandate but not a nuclear mandate,” he said. “You could have a carbon-free mandate — then they’d all dispatch at the same time.”
Because nuclear reactors can’t easily ramp power up and down, there are times when renewable generation surges and wholesale prices drop so low that nuclear generators have to pay the grid operator to stay on, explained Ghosh. In 2015, there were 125 hours when wholesale market prices in ComEd territory were negative and 365 hours when prices were at or below $10, he said. These losses are exacerbated by the fact that aging nuclear plants are becoming more costly to maintain.
Exelon and other pro-nuclear stakeholders have argued that federal tax credits combined with state renewable mandates are distorting electricity markets in the Midwest, where wind power is growing rapidly. The American Wind Energy Association has pushed back, arguing that these concerns are overblown.
To fix the market distortions it sees, Exelon has advocated for regional grid operators PJM Interconnection and Midcontinent Independent System Operator (MISO) to offer capacity payments that reward reliable baseload resources like nuclear. But those prices are volatile and have proven inadequate to meet the revenue shortfall, according to Ghosh.
That has left nuclear power generators with the option to either retire their unprofitable nuclear facilities or seek a nuclear subsidy.
Credits and bailouts are just “a start”
In Ohio, where FirstEnergy opposed the state’s renewable portfolio standard, the utility sought guaranteed rates for its nuclear and coal plants, which found environmental and consumer groups oddly aligned with big fossil-fuel power producers in opposing what they considered a bailout.
FirstEnergy was ultimately approved last fall to charge customers an additional $204 million per year over three years to keep its plants in operation. But CEO Chuck Jones says that amount is not enough, and is pushing for more funds and re-regulation of Ohio’s competitive energy market.
In Illinois, lawmakers struck a deal in December to keep the renewable policies in place, and pay out $235 million a year for 10 years to keep Exelon’s struggling Clinton and Quad Cities nuclear plants in operation through a zero emissions credit (ZEC) program. The New York Public Service Commission also recently approved a ZEC program for Exelon-owned nuclear plants in the state.
Nuclear advocates are urging more states to amend their renewable portfolio standards to reward all zero-emission resources, including nuclear. But the ZEC model is not a seamless solution.
“It’s a start,” said Crane, “But it doesn’t fix the market issues, and you have to continue to kick ball to the next state to have the conversation.”
The New York and Illinois ZEC programs are also under legal attack. Earlier this month, coal and natural gas power plant owners Calpine, Dynegy and NRG filed a lawsuit at a federal district court in Illinois against the director of the Illinois Power Agency, arguing the new credit system is a bailout for uneconomic assets that undermines the state’s open wholesale market. A group of ComEd customers have also filed a suit against the ZEC system, over concerns that it will force customers to pay higher rates.
Two lawsuits were also filed last fall against nuclear subsidies in New York, and complaints have been filed with FERC that are currently pending review.
Could a FERC-approved carbon price be the solution?
FERC is where nuclear players are now paying extra close attention, and where Trump’s three newly appointed commissioners could play a key role in addressing the industry’s hardships. FERC will not only address complaints about ZEC credits, but could also help reshape wholesale electricity markets to account for the benefits of nuclear power in new ways.
“A lot of the discussion right now is around some of the efforts at the state level to compensate nuclear for its carbon-free attributes, which is not something the markets were designed to price,” LaFleur told GTM. “We’ve seen some cases filed that I can’t comment on, but we’ll be thinking more about ways to adapt energy markets to reflect some of those stated issues, and nuclear is front and center in that discussion.”
LaFleur noted that the reliability benefits nuclear provides are being compensated for in some regions, like through PJM’s capacity market and ISO New England’s pay-for-performance program. However, the environmental benefits of nuclear energy are not currently being priced in wholesale markets. On this front, LaFleur said ISO-NE’s carbon pricing proposals could offer a path forward.
ISO-NE has held several stakeholder meetings to discuss various wholesale carbon pricing proposals, including a carbon-integrated, forward-capacity market; a forward clean energy market; a clean power plant solicitation proposal; and a forward-capacity market two-tiered pricing construct. The grid operator is also considering a carbon price, which Exelon is advocating for.
The New England States Committee on Electricity, the organization representing the interests of the six New England governors, has expressed reservations about carbon pricing, according to law firm Akin Gump Strauss Hauer & Feld. But should the proposal make its way to FERC for approval, it could have support from Commissioner LaFleur, who stated at a December meeting that “Plan A is the region that creates some kind of comprehensive plan that recognizes the state environmental goals and the [role of] pricing in the wholesale market and files it at FERC.”
Wood Mackenzie’s Ghosh noted that a carbon price is the best long-term solution for keeping nuclear plants alive, but that there’s no precedent for creating a market design that rewards environmental attributes in the U.S. The concept has bipartisan support, but it’s difficult to see the idea advancing in a Republican-controlled Congress or under a president intent on rolling back climate regulations.
A recent report from S&P Global paints a grim picture for the future of nuclear power under Trump, with the likely repeal of the Clean Power Plan and a possible revival of coal assets. But pro-nuclear stakeholders remain hopeful.
While the solution for struggling power plants may come in the form of a wholesale market carbon price, the nuclear industry’s federal lobbying is now focused on emphasizing nuclear power’s economic significance. The Nuclear Energy Institute trade group recently sent a letter to the Trump administration urging support through presidential action and the DOE, and for FERC to recognize existing reactors “for all the benefits they bring to the electric system.”
When asked if he thought President Trump would revive the nuclear sector, DOE transition team lead McKenna said, “I hope so.”
McKenna said he’s optimistic that Trump’s picks to lead FERC will allow for market adjustments that favor nuclear, “but until we get new FERC commissioners, we’re not going to have any idea.”