Another Flawed Argument for Nuclear, Coal Bailouts

Jessica Lutz
Posted June 25, 2018

The notion that failing coal and nuclear plants need to be propped up by Washington continues to be advanced by some in the administration and, of course, members of the industries that would benefit from bailouts – usually by attacking natural gas and its infrastructure.

In recent months we’ve rebutted their claims that the nation’s electricity grid is at risk and that natural gas has reliability issues as a fuel for power generation, especially during extremely cold weather. We’ve also pushed back on their assertion that there’s a heightened risk of cyber attack for natural gas infrastructure.

Next up: A flawed report about an impending wave of nuclear plant retirements, apparently to stoke anxiety and build support for the cause. More on the report below.

First, let’s be clear: The U.S. power grid is healthy and well supplied. Members of the Federal Energy Regulatory Commission have said there’s no imminent grid emergency to justify bailouts for coal and nuclear. So has regional grid operator PJM. The fact is natural gas is reliable and provides unique attributes supporting grid health.

So why are we still talking about this? Answer: Because folks inside the administration and out keep trying to justify anti-market actions that ultimately could negatively impact consumers.

The latest example is a report from the Nuclear Energy Institute (NEI) that is based on the unfounded assumption that by 2023, 19.4 GW of nuclear capacity will be retired from PJM, the regional transmission organization that operates the electricity grid across all or parts of 13 states and the District of Columbia. That’s a whopping 65 percent of PJM’s nuclear capacity and strains credibility, as we’ll detail below.

The report claims ill-defined “economic circumstances” will drive nuclear plant retirements. Yet, it’s unclear whether the report’s authors simply crafted a scenario in which retirements would occur, or if they randomly selected certain plants, assumed their retirement and used that as the basis for their model.

The U.S. Energy Information Administration — the agency tasked with collecting and analyzing impartial energy data to promote sound policymaking — has run a range of sensitivity cases regarding the viability of nuclear plants while, in contrast, clearly outlining its methodology and reasoning. EIA data shows that in most cases cumulative nuclear retirements in the PJM area only reach just more than 5 GW by 2023. Even in the most aggressive scenario, assuming nuclear power costs are 20% higher and natural gas prices are 25% lower than the reference case, cumulative retirements in the area reach just over 10 GW by 2023 — half the capacity assumed by the NEI report.

Here’s another point: According to recent independent modeling by an MIT researcher, 13.2 GW of the nuclear capacity the NEI report says will be retired is, in reality, expected to remain profitable – based on the causes, consequences and policy options surrounding early nuclear retirements.

What we know for sure is that the capacity of nuclear plants within PJM that actually have announced or threatened closure is roughly 5 GW. Studying the impact of these closures might have provided some substantive results. Instead, we’re left with what appears to be a lot of speculation, drummed up to support a policy outcome.

Again, the national electricity grid is healthy and well-supplied from a fuel standpoint, with natural gas leading the way. U.S. natural gas infrastructure is not vulnerable/more vulnerable to threats. The claims of an emergency with the reliability of the electricity grid are false. Or, put more accurately by the grid operator at the center of this report: What emergency? PJM:

“This is not an issue of reliability. … There is no immediate emergency. Diversity of the fuel supply is important, but the PJM system has adequate power supplies and healthy reserves in operation today, and resources are more diverse than they have ever been. Nothing we have seen to date indicates that an emergency would result from the generator retirements.”

As we’ve said before, federal bailouts for failing nuclear and coal plants would be a mistake. Todd Snitchler, API market development group director, called attempts to subsidize struggling coal and nuclear plants “unprecedented and misguided.” It’s wrong for the electricity market and it’s wrong for consumers.