Economic viability study a 'wakeup call' for US plants: NEI

Potomac Economics, which has 20 years of experience as the Independent Market Monitor (IMM) for four of the USA's regional power markets, was asked to carry out the evaluation by the US Nuclear Energy Institute (NEI). Its analysis, A Review of Nuclear Costs and Revenues in PJM, accurately evaluates "avoidable" costs of PJM's fleet and compares them to "realistic" revenues from PJM's energy, ancillary services and capacity markets, NEI said, as well as recognising operational and market risks that must be considered in accurately assessing the costs of the continued operation of nuclear plants.

Declining energy prices and associated revenues in recent years have substantially reduced the net revenues of all PJM's nuclear resources, the analysis found. "As energy prices have fallen to their lowest levels in decades in 2020, we find it unlikely that any of the nuclear resources in PJM are covering their costs. Although all of the forward energy prices are significantly higher than the prevailing prices in 2020, we find that it is unlikely the market revenues will be sufficient to allow any of the resources to be viable to remain in operation, with the possible exception of very lowest-cost resources," the report says.

If the PJM markets evolve to better reflect the value of carbon emissions, the economic outlook for nuclear resources would improve since they emit no carbon dioxide, it adds.

"These results paint a dim picture for the financial viability of most of the nuclear resources in the PJM region," the NEI said, describing the independent analysis as a "wakeup call".

"Often, there are two key aspects of nuclear economic analyses that get overlooked," NEI Senior Director, Strategy and Policy Development Matt Crozat said. The first of these, he said, is the financial costs and risks associated with operating large plants borne by owners, and the second is the use of unrealistic or optimistic revenue forecasts.

"However, the Potomac Economics report sets the record straight by basing their analysis on realistic market-based prices," he said. "By utilising true avoidable costs and a reasonable revenue estimate, the report demonstrates that nuclear plants are not viable.

"Through Potomac Economics' analysis, it's clear that the economic hurdles facing nuclear plants in PJM are significant. Energy policies can be enacted to overcome these hurdles, but reforms to federal and state policies are needed quickly."

Over the past decade, 10 states in the PJM region and the District of Columbia have instituted policies like renewable portfolio standards or zero-emissions credits to cut emissions, Crozat said. "Yet federally regulated energy markets do not properly value carbon-free energy and thus are pushing nuclear plants out, while policy experts are coming to exactly the opposite conclusion. Policymakers need to enact policies that properly value our largest source of carbon-free energy in order to have any hope of achieving a clean electricity sector and protecting the climate."

PJM is a regional transmission organisation that coordinates the movement of wholesale electricity in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. The region covered by PJM is home to 31 of the USA's 94 nuclear plants.

During the past two years, two nuclear units in the PJM region - Three Mile Island unit 1 and Oyster Creek - have retired, the report notes. Planned closures of units at the Davis-Besse and Perry plants were rescinded in 2019 after the state of Ohio passed a bill providing clean energy credits to zero-emission, but Exelon last year announced its intention to close a total of four units at the Byron and Dresden plants in 2021 because of market conditions. "Based on the results shown in this study, other PJM nuclear units are at risk of early retirement due to deteriorating economic conditions and the fact that carbon emissions are not effectively priced in the PJM region," the report said.