The Impacts of Nuclear Retirements on the Electric System and the Coal Fleet

By Rob Fisher, Charlie Choe, and Ken Ditzel

FTI Consulting recently released a white paper on the economic impacts of accelerated nuclear retirements under the Clean Power Plan (CPP). The analysis found that wholesale electricity prices in the Eastern Interconnect would increase by 6 to 8 percent from the start of the CPP in 2022 through 2030 and would increase by 15 percent by 2035. Why are these findings important to coal producers, transporters and terminal operators, power sector coal consumers, and suppliers to the coal value chain?

The reason is that maintaining generation from nuclear plants would actually lower the cost of CPP compliance and would preserve more coal. Nuclear’s carbon-free baseload generation offsets carbon emissions from coal plants, so if nuclear output is lowered due to accelerated retirements, natural gas combined cycle plants must make up the lost generation. That would create more CO2 emissions, raise CO2 emissions prices under the CPP, and decrease demand for coal-fueled generation.

The nuclear industry, though, is facing the same economic challenges as the coal industry – low natural gas prices, tax credits for renewables, and market design issues – in addition to regulatory and political pressures. Therefore, EPA’s assumptions about how much nuclear power would be available under the CPP were too optimistic.

FTI applied the PLEXOS electricity model to assess these nuclear challenges. We examined a scenario where no new nuclear license extensions would be pursued, announced nuclear plant closures would occur as planned, and nine reactors considered at risk of closing for economic, regulatory, and political reasons would shut down.

In addition to the electricity price increases described above, the accelerated nuclear retirements scenario resulted in average annual reductions in coal generation of 61,300 GWh from 2022 through 2030 and nearly doubled to 118,600 GWh by 2035. These reductions translate roughly 34 million tons less coal consumed on average from 2022 to 2030 and 65 million less tons of coal consumed by 2035. The results show the impact of maintaining nuclear generation in preventing further decline in coal demand under the CPP.

It’s worth emphasizing that nuclear and coal-fired generators are facing market design issues in competitive markets. Valuable services provided by these generators – fuel reliability via on-site storage, generator reliability, price stability, and fuel diversity – are not taken into consideration when prices are established in competitive markets as they are in vertically integrated markets.

State and federal policy makers along with market operators still have a lot of factors to weigh when considering the CPP, nuclear and coal retirements, and the resulting impacts to electricity prices and grid reliability. Let’s hope they get it right.

13. September 2016 by Ingrid Shumate
Categories: Energy, Environment, Policy, Power Generation, Regulation | Tags: , , , | Comments Off on The Impacts of Nuclear Retirements on the Electric System and the Coal Fleet