Some U.S. states are trying to save money-losing nuclear plants — and disrupting America’s electricity markets in the process.
New York and Illinois have cleared the way for nuclear power to be subsidized with higher fees on buyers — aid normally reserved for renewable energy like solar and wind. One reason policy makers gave was to protect jobs at aging plants teetering on closure. Another was nuclear’s emission-free electricity, because states are trying to address climate change by relying less on fossil fuels like coal and natural gas. Connecticut and Ohio are considering similar moves, and pressure is mounting in New Jersey.
But federal regulators and gas-fueled generators including Dynegy Inc. and Calpine Corp. say the states are fundamentally altering the way wholesale power markets work. Armed with billions of dollars in new clean-energy benefits, higher-cost nuclear generators can now compete with companies that get no aid. The first test comes next month when PJM Interconnection LLC, the biggest grid, takes bids to supply power from Chicago to Washington.
“Markets only work if everyone’s competing evenly,” said Joseph Bowring, president of Monitoring Analytics, the company that oversees PJM’s electricity market. “If some get subsidies, then other people are going to want subsidies. And then pretty soon, we’re going to be competing for subsidies instead of competing in the market.”
For a primer on pressures generators face in PJM auction, read this.
While nuclear power has kept its share of U.S. electricity at around 20 percent over the past decade, it’s become a high-cost supplier with the emergence of gas-fired turbines burning cheap shale fuel, as well as more-efficient wind farms and solar panels. The country now gets more electricity from gas than from coal, which has seen its market share plunge.
Nuclear-plant owners Exelon and FirstEnergy Corp. defend the incentives, saying they keep emissions down and layoffs at bay. Illinois is promoting “zero-carbon energy just as states have done for years to promote wind, solar and other forms of clean energy,” said Paul Adams, an Exelon spokesman.
For its part, Illinois says it’s just picking up where power markets leave off. Credits promote the state’s environmental goals “completely apart from energy and capacity markets” that don’t place a value on low-carbon power, the Illinois Commerce Commission said in a Feb. 3 filing.
Operators of cheaper gas-fired power plants, including Dynegy, Calpine and NRG Energy Inc., describe the credits as “bailouts” that threaten to kill competitive markets at the expense of electricity customers. Electricity customers would pay $3.9 billion more if all nuclear plants competing in PJM’s and New England’s wholesale markets were part of programs like New York’s, a Bloomberg Intelligence analysis shows.
“It’s the equivalent of going out to buy a new car and finding out they’re giving them away down the street,” said Abe Silverman, deputy general counsel at Princeton, New Jersey-based NRG. “How are you supposed to compete with that?”
In Connecticut, consumer advocates are fighting the credits and accusing nuclear-plant owners of a money grab.
“Single-state solutions are going to screw up the entire deregulated market,” said John Erlingheuser, advocacy director for the AARP in Connecticut.
PJM acknowledges the subsidies will be disruptive. The grid is considering a market for states that want to include the social cost of heat-trapping carbon dioxide in energy bills, Stu Bresler, who runs the power market, said in a Bloomberg Intelligence webinar Thursday. Nothing’s concrete, and more discussion is needed, he said.
The federal agency that regulates power markets is so concerned that the acting chairman called for both sides to meet and figure out a compromise.
“The markets weren’t designed to” compensate nuclear resources for carbon-free power, “and that’s something those state programs are seeking to do,” said Cheryl LaFleur, acting chairman of the Federal Energy Regulatory Commission. “That’s something that we have to work out.”