Recently, we have seen a spate of older nuclear reactors shut down by their owners for economic reasons. One of the first bellwethers of this trend was the Kewaunee power plant closure. While the public at large may not be aware, nuclear power plant owners are aware of the increasing costs of aging reactors and have responded accordingly. A recent quote from the head of Dominion following the Kewaunee closing tells the story. Thomas Farrell II, chairman, president, and CEO of Dominion, stated:
“This decision was based purely on economics. Dominion was not able to move forward with our plan to grow our nuclear fleet in the Midwest to take advantage of economies of scale.”
This story has been repeated as a succession of older nuclear power plants have announced closure, among them: Diablo Canyon, Crystal River, San Onofre, Fitzpatrick, Fort Calhoun, Vermont Yankee, Clinton, Quad Cities, and Pilgrim.
Wall Street Wakes Up
The deteriorating profits of aging reactors has also not gone unnoticed among investor and financial groups, such as Moody’s, which commented as such in a report titled Low Gas Prices and Weak Demand are Masking US Nuclear Plant Reliability Issues.
“As the country’s nuclear fleet becomes older and plant lives are extended 20 years beyond their original life-spans, plant reliability issues could become more common and costly,” Moody’s Senior Vice President said.
Details of the economic challenges aging reactors face are outlined in a paper titled, Nuclear Renaissance in Reverse, by Mark Cooper, senior fellow for economic analysis at the Institute for Energy and Environment at Vermont Law School. A number of risk factors were extracted from Wall Street analyses, including from Moody’s, UBS, and Credit Suisse.
In the analysis that first sounded the alarm about early retirements of specific reactors, UBS explained the situation as follows:
“Following Dominion’s recent announcement to retire its Kewaunee nuclear plant in Wisconsin in October, we believe the plant may be the figurative canary in the coal mine. Despite substantially lower fuel costs than coal plants, fixed costs are approximately 4–5 times higher than coal plants of comparable size and may be higher for single-unit plants. Additionally, maintenance capex of ~$50/kW-yr, coupled with rising nuclear fuel capex, further impede their economic viability….
“We believe 2013 will be another challenging year for merchant nuclear operators, as NRC requirements for Fukushima-related investments become clearer in the face of substantially reduced gas prices. While the true variable cost of dispatching a nuclear plant remains exceptionally low (and as such will continue to dispatch at most hours of the day no matter what the gas price), the underlying issue is that margins garnered during dispatch are no longer able to sustain the exceptionally high fixed cost structures of operating these units. Nuclear units… have continued to see rising fuel and cost structures of late, with no anticipation for this to abate. Moreover, public policy initiatives, such as Fukushima-related retrofits and mandates to reduce once-through cooling (potentially requiring cooling towers/screens for some units) and new taxes on others (Vermont Yankee, Dominion’s Millstone) have further impeded the economics of nuclear.”
Nuclear Fixed Costs Rise
Aging nuclear power plants must pay for fixed costs and fuel costs. While fuel costs are low, fixed costs rise as nuclear power plants age. A number of sources have pegged these costs at over $50/MWh (5¢/kWh) and some as high as $70/MWh (7¢/kWh), depending on age and the specific reactor. Fixed costs include retrofits for newer safety and health standards. New wind has come in as low as $25/MWh (2.5¢/kWh) and at unsubsidized costs in the $35/MWh (3.5¢/kWh) range.
At those costs, new wind can produce more GHG-free electricity cheaper than keeping aging nuclear power plants running.
Some of the risk factors include smaller reactors, older units, standalone operation, merchant market, failures, reliability, long-term outages, safety issues, and Fukushima retrofits. The Diablo Canyon reactor had a once-through cooling design that needed to be replaced.
Post-Fukushima retrofits call for new vents on some reactors.
Facing the Music
Mark Cooper sums up the prospects for nuclear this way:
“The lesson for policy makers in the economics of old reactors is clear and it reinforces the lesson of the past decade in the economics of building new reactors. Nuclear reactors are simply not competitive. They are not competitive at the beginning of their life cycle, when the build/cancel decision is made, and they are not competitive at the end of their life cycles, when the repair/retire decision is made. They are not competitive because the U.S. has the technical ability and a rich, diverse resource base to meet the need for electricity with lower cost, less risky alternatives. Policy efforts to resist fundamental economics of nuclear reactors will be costly, ineffective and counterproductive.”
Decommissioning fund shortfalls have added another unwelcome surprise.
While this analysis appears bleak, all is not lost. The cost of new renewables has been falling to new lows. Wind has been noted for its lower costs, but the big surprise recently has been the falling costs of solar. Throughout the world, unsubsidized solar costs have plummeted.
But what about the silver lining?
We can build and operate new renewables at lower cost than we can pay for aging reactors, and we can lower greenhouse gases even faster than if we continue operating older reactors. With the money we save on reactor operating costs, we can reduce carbon faster and cheaper. It is better to recognize the high operating costs of aging reactors and plan closures in a smooth way than wait for costly unplanned failures like San Onofre and the attendant sudden emergency increases in greenhouse gases.
The Diablo Canyon closure is a better way, with a commitment to add new renewables over the 9-year closure time. An estimate of the amount of solar capacity required yields about 8 GW. Given that California added most of its current total of 10 GW utility-scale solar and 4 GW rooftop solar in a little more than 3 years, the challenge of replacing Diablo Canyon’s output is achievable and will result in both cost savings and lowered greenhouse gas emissions.