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Has Exelon been crying wolf?
Or should the state intervene to help the Chicago-based corporation’s nuclear plants prevent closures that could hurt the economy and endanger the electric supply?
A 269-page report created by four Illinois state agencies and released Wednesday sheds light on these questions. The multi-faceted findings defy clear conclusions, but they generally support the idea that Illinois can weather nuclear plant closures; and such shut-downs could even bolster clean energy generation and jobs.
Illinois is the country’s top producer of nuclear energy, with six nuclear plants housing 11 reactors run by Exelon, which had $25 billion in operating revenues in FY2013. Nuclear plants emit no carbon dioxide and are highly reliable, as made clear during the polar vortex a year ago when frigid temperatures meant disabled coal plants and interrupted natural gas supplies.
But in a deregulated competitive power market flooded with cheap natural gas, costly nuclear plants are much less profitable. Exelon has said their nuclear plants in Byron, Quad Cities and Clinton are unprofitable and could close soon without state policies that bolster their fortunes. Changes to energy market auctions and policies that put a price on carbon would help Exelon’s troubled plants, which have been operating for 28, 41 and 26 years, respectively.
In May 2014 the Illinois legislature adopted a resolution (HR 1146) outlining Exelon’s woes and calling for a study to examine the environmental, reliability, capacity and economic effects of the “premature closing” of those plants; and to explore “market-based solutions to ensure that premature closures do not occur.”
Becky Stanfield, deputy director for policy for the Natural Resources Defense Council Midwest program, said she appreciated that the state agencies involved in the report describe multiple scenarios and don’t make any explicit recommendations.
“It does say something about the influence of Exelon on the legislative process that the resolution requiring these reports passed overwhelmingly,” she said. “But if lawmakers read the reports required by the resolution, it gives them a lot of reason to slow down and think through the right policies for our clean energy future. What role nuclear power should have in that future, how to create the future we want, as opposed to ‘Oh my god, there’s an urgency, we need to open our wallets.’”
Tim Judson, executive director of the Nuclear Information and Resource Service, a national advocacy group that is critical of nuclear power, said that while he found the House resolution “inordinately biased” in Exelon’s favor, the state report was “remarkable” for its balance.
“Exelon has to be very disappointed at how little the agencies found to support the company’s demands,” he said. “If this is any indication, Exelon is overplaying its hand and people are catching on. About a quarter of Exelon’s nuclear plants (nationally) just aren’t needed, and we are better off phasing them out and ramping up carbon-free, sustainable energy sources.”
Nuclear plants make up about a quarter of the state’s capacity and about half the electricity generated and sold in the state each year.
For comparison, coal and natural gas each make up about a third of the state’s capacity, though coal is used for more than 40 percent of actual generation whereas natural gas – used at times of peak need – accounted for three to five percent of generation in 2012 and 2013, roughly the same amount as wind.
Deregulation in 1997 created competitive markets for electricity, and dismantled the system where utilities charge customers directly for the cost and upkeep of power plants. Since nuclear power plants are expensive to operate and maintain, that made the industry less competitive. Hydraulic fracturing that led to plummeting natural gas prices just as the economic crisis was slashing overall power demand exacerbated the situation.
The spot market prices for electricity garnered by the Exelon plants fell sharply between 2008 and 2012. Prices have since rebounded, though not to previous levels. Exelon’s plants in Illinois make considerably less revenue than its plants outside Illinois, the report shows.
Quad Cities and Dresden are the most expensive of the Exelon plants to operate, costing $29 and $31 per megawatt hour of energy produced in 2011, compared to $23 and $24 for Byron and Clinton. That’s not counting fuel costs, which were a constant $9.26 per megawatt hour for all the plants. (Dresden is not slated for closure, though one reactor previously closed).
Modeling was used to estimate how much power prices would have to rise to make the nuclear plants profitable. Some of them could be profitable even without rising power prices, the Illinois Commerce Commission found. But Quad Cities would need power prices to go up almost 50 percent. Power prices are expected to go up 10 to 20 percent in Illinois to comply with carbon reduction plans, the study noted.
During the infamous January 2014 cold snap in Illinois, nuclear plants accounted for only three percent of the widespread power outages. Problems at coal plants accounted for a third of the outages and natural gas accounted for almost half, because of issues at plants and disruption of pipeline availability.
Nuclear proponents point to this reliability as a reason to keep nuclear energy online, an especially compelling argument as the state suffers another round of frigid temperatures.
The Illinois Commerce Commission and the Illinois Power Agency looked at how electricity reliability and generation capacity would be impacted by retirement of the Clinton, Quad Cities and Byron plants. The Illinois Power Agency, which procures power for the state’s utilities, modeled several possible scenarios: business as usual, a polar vortex, or a hot summer with high energy demand coming after coal plants have been shut down.
The agency found that there would be some impact on generation capacity if the nuclear plants retired. But it would be below industry levels of concern, and less than impacts of plant closures in other states.
The report also found that demand response – reducing the demand for energy especially during peak times – could offset much of the impact. “There may not be sufficient concern regarding reliability and capacity to warrant the institution of new Illinois-specific market-based solutions to prevent premature closure of nuclear plants,” the Illinois Power Agency opined.
MISO and PJM, the regional transmission organizations which oversee the electricity markets and transmission systems covering Illinois, worked with the state in evaluating the nuclear plant closures. MISO found that if the Exelon plants were closed, their capacity would be replaced with natural gas-fired power, and electricity prices would go up between 0.4 to 1.1 percent, depending on the price of natural gas.
Illinois is a net exporter of power, with a capacity of 45,000 megawatts at more than 60 facilities. The closures would likely reduce electricity exports out of the state, especially from the Clinton plant, the report found. But that would not necessarily have an impact on in-state consumers.
Good for the environment?
Nuclear energy can pose a conundrum for environmentalists, since it provides power with zero carbon emissions, yet it also raises serious concerns regarding disposal of nuclear waste and uranium mining. The Illinois report did not analyze these upstream and downstream facets of nuclear energy, but focused on the carbon emission impacts if the nuclear plants were closed.
The Illinois EPA estimated the “social cost” of a ton of carbon emissions going into the future. That cost ranged widely from $12 to $235 per ton depending on the year and other factors. The agency estimated that if nuclear plants closed, their generation capacity would be replaced by 80 percent coal-fired power, 12 percent natural gas and 8 percent renewables.
Calculating the social cost of emissions at around $50 a ton, this analysis showed that an extra $3.7 billion would be spent because of new carbon emissions between 2020 and 2029, if coal and gas were ramped up to replace one closed nuclear plant.
However if new generation complies with the state’s Clean Power Plan, to implement the U.S. EPA’s mandated emissions reductions from power plants, cleaner coal plants and more renewables would be used. That would mean less cost – an estimated $2.5 billion over a decade – from emissions increased because of the closure of one nuclear plant.
Killing or creating jobs?
The Illinois Department of Commerce and Economic Opportunity estimated the closure of the three troubled Exelon plants would mean the loss of 2,500 “good jobs” at the plants, paying over $100,000 on average for a total annual payroll of $350 million. The closures would also mean the loss of 4,431 indirect jobs including at Illinois businesses that sell the plants $193 million worth of goods and services per year.
The department estimated a 10 to 16 percent rise in wholesale power prices if the plants closed, which it said would cause the loss of 896 more jobs as electricity costs pushed businesses to tighten their belts. More than $1.8 billion worth of economic activity would be sacrificed because of the closings, the department found.
However, these impacts could be “largely mitigated” by investment in clean energy. The nuclear capacity could be replaced by the addition of more than 7,000 MW of wind and 1,500 MW of solar by 2020, the model suggested. However, wind energy jobs would taper off drastically as wind farm construction was completed, by 2020 equating to a net loss of more than 5,000 jobs compared to the nuclear plants.
Extra investment in energy efficiency would also create jobs, though the energy efficiency sector creates significantly fewer jobs per dollar invested than most industries, the department noted.
Decommissioning nuclear plants – like the Zion, Illinois plant already closed by Exelon – is a costly and lengthy process that employs people and also creates economic stimulus.
The department also noted the complicated ripple effects of plant closures. Many people might migrate out of the area if plants close, for example, meaning lower costs for governments providing public services. The loss of thousands of well-paying plant jobs would also slash prevailing local wage rates, which could make the area more attractive for new businesses looking to build a factory or warehouse.
“It’s only as bad as the state losing any other large employer,” said Dave Kraft, director of the Nuclear Energy Information Service. “With proper response and planning, Illinois can get through this, and be stronger and further ahead in developing a true long-term energy plan than it otherwise would have done.”
Though the individual agencies’ chapters did not make a clear case that state intervention was warranted, the report also explored market-based solutions that the state could undertake to give low-carbon or carbon-free energy sources like nuclear an advantage.
Proposals included a carbon tax, a carbon cap and trade program, a sustainable power planning standard and a low-carbon portfolio standard, similar in structure to the state’s renewable portfolio standard. The report also considered “reliance purely on the market and external initiatives,” without state interference.
The report noted that policies and initiatives to limit carbon are typically more viable on a federal or regional rather than state level, though states can take action to limit carbon emissions.
By 2016 or 2017 states must submit their plans for reducing carbon emissions from coal plants in keeping with the U.S. EPA’s mandate. Illinois’ Clean Power Plan could incorporate solutions that, intentionally or not, would help the struggling nuclear plants. However Exelon’s warnings indicate the plants could close before such programs would have an effect.
The state report cites the “old adage” that “a rising tide lifts all boats,” and calls for addressing the risk of premature nuclear plant closures with “holistic solutions” that also minimize electricity rate increases and position Illinois as a leader in clean energy.
Environmental Law & Policy Center executive director Howard Learner said in a statement that the report confirms his long-held opinion that the Exelon plants “aren’t economically competitive and can be retired without added costs to Illinois consumers, without hurting reliability, and with more job creation, by growing clean renewable energy and energy efficiency.”
“This report confirms that the competitive power market is working to hold down Illinois energy costs,” he added. “We shouldn’t bail out Exelon’s old, uncompetitive nuclear plants. Instead, we should invest in new renewable energy, like wind and solar, and energy efficiency to grow a cleaner Illinois energy future.”
Kraft said nuclear critics are still furious about the process resulting from the House resolution, which he characterized as “panic-peddling” driven by “half-truths.” He was upset there was no public input or oversight involved in the agencies’ report, but he is encouraged by the result nonetheless.
“Even though Exelon did their best to convince everyone that the sky is falling here in Illinois,” he said, “Even a poorly mandated, non-funded, abstract-model-heavy analysis could not reach that conclusion.”
The NRDC and ELPC are members of RE-AMP, which publishes Midwest Energy News.