Among climate advocates, energy experts and now the Biden administration, there is a growing consensus that the nuclear energy is critical to address the challenges of climate change.
Earlier this month, President Biden released his American Jobs Plan, an infrastructure investment package that includes a major focus on addressing climate change. A key provision of this plan is a clean energy standard that relies on the nation’s largest source of carbon free energy, nuclear power, to help decarbonize electricity by 2035.
But at the moment when climate change is recognized as an urgent problem and nuclear is viewed as an important part of the solution, a new study shows that we also face the prospect of well-running nuclear plants shutting down, right when they’re needed the most.
The report, from Potomac Economics, assesses the economic realities facing nuclear plant owners today in PJM, the largest electricity market in the U.S. serving 65 million customers in 13 states across portions of the Mid-Atlantic and Great Lakes regions, as well as Washington, D.C. PJM is home to 31 of the nation’s 94 nuclear plants, including many that are currently or have been financially threatened.
Potomac Economics has a unique standing to help understand electricity market forces, serving as the independent market monitor (IMM) for four other U.S. electricity markets, a role that requires deep knowledge of the economic incentives facing companies in these markets. Their analysis concludes that most of the nuclear plants in PJM will not produce enough revenue to remain economically viable in the coming years. This finding is consistent with numerous other analyses and nuclear operators who have been warning that flaws in the wholesale markets are driving always-on, carbon-free nuclear plants to close prematurely.
Often, there are two key aspects of nuclear economic analyses that get overlooked. First, critics of policies to support nuclear power often do not account for the financial costs and risks associated with operating large plants that owners must bear. These costs, as well as their ability to be avoided through a shutdown, are often neglected by critics when assessing the financial outlook for the plants. It seems clear to me, however, that they are well-accepted considerations in any boardroom or stock analyst report. Often, shutting a plant down will be more economically appealing because all future costs and risks will be avoided and any remaining post-shutdown costs will be covered through a trust fund the U.S. Nuclear Regulatory Commission requires all nuclear owners to establish.
Second, critics often utilize unrealistic or optimistic revenue forecasts. However, the Potomac Economics report sets the record straight by basing their analysis on realistic market-based prices. By utilizing 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, state policymakers and energy customers have very clearly demanded more carbon-free electricity.
In that time, 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. Customers in these states represent over 90 percent of the electric demand served by PJM.
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.
