With its Clean Energy Standard, New York is leading the way among states considering ways to reduce greenhouse gas emissions while maintaining reliability and affordability of electricity supply. New York is to be commended for demonstrating the leadership to enable these plants to continue contributing to the state’s energy, economic and environmental future. New York has set ambitious goals to address environmental concerns. The state’s nuclear plants are essential for achieving these goals.
The New York Clean Energy Standard includes a zero-emission credit that values the non-emitting attribute of nuclear energy. The value of this credit is based on the social cost of carbon used in federal government cost-benefit analyses. The Clean Energy Standard will allow the continued operation of three plants that had been facing early closure: Ginna, FitzPatrick and Nine Mile Point. Under New York’s CES, the state’s load-serving entities must ensure that a certain amount of their electricity comes from non-emitting, clean technologies including nuclear, solar, wind and hydro.
The Clean Energy Standard promotes renewable use in the state along with the preservation of nuclear energy. Nuclear is a vital component of this plan as it provides the majority of New York’s non-emitting generation. New York’s nuclear plants produce ten times the state’s wind electricity and as much as all of the solar electricity produced by the industry across the entire nation. Including nuclear plants in the Clean Energy Standard enables New York to quickly and cost-effectively reach its environmental goals.
The Clean Energy Standard
On December 2, 2015, New York Governor Andrew Cuomo directed the state Public Service Commission to develop a Clean Energy Standard (CES). The CES was to enable the state to meet the ambitious environmental goals in the New York State Energy Plan, including a 40-percent reduction in greenhouse gas emissions from 1990 levels by 2030.
New York’s Department of Public Service issued a white paper in January 2016 that started the discussion about how a CES could be created to preserve the attributes of nuclear generation in the state. The white paper introduced the concept of zero-emission credits (ZECs) that would provide monetary value for the non-emitting attribute of nuclear plants. Originally conceived as an estimate of the revenue shortfall facing threatened plants, the ZEC concept was refined through the comment period into a more robust price signal that would enable continuing investment in economically challenged nuclear facilities by focusing solely on the non-emitting value of nuclear energy.
On August 1, 2016, the Public Service Commission adopted the Clean Energy Standard including a Tier 3 that addresses nuclear facilities in the state. Under the plan, at-risk nuclear plants in the state will receive a ZEC for each megawatt-hour they produce. The ZEC recognizes that nuclear can help the state meet its emission reduction goals, and the credit provides monetary value to encourage continuing investment and operation. The ZEC is structured to be analogous to the renewable energy credits received by wind and solar under many state policies, like renewable portfolio standards.
A state energy agency, the New York State Energy Research and Development Authority, will conduct the transaction of ZECs. The Authority will pay nuclear plant owners for the credits they produce. The load-serving entities in New York are then required to buy the ZECs from the Authority. Each load serving entity’s share of the payments is determined by its percentage of the electricity consumed in the state.
The value of a ZEC is set for two years at a time, based on a formula set in the policy. The calculation starts with the social cost of carbon, estimated by the federal government to be $42 per ton of emissions. Since New York participates in the Regional Greenhouse Gas Initiative (RGGI) carbon pricing system, a small portion of that avoided emission value is already captured by RGGI, so the expected price of a RGGI allowance is subtracted from the ZEC value. The remaining carbon cost is multiplied by the carbon emission rate for New York to calculate the credit in terms of dollars per megawatt-hour. Under current values, the ZEC value would be worth $17.48 per megawatt-hour (MWh). The value of the credit is expected to grow in the future as the social cost of carbon increases over time and with inflation. The ZEC concept includes a provision that will limit the value of the credit if market prices rebound in the future. If the market revenues for electricity and capacity payments are forecasted to exceed $39/MWh, then the ZEC price will be lowered by that amount.
Analysis of the CES has shown that the cost to provide ZECs is more than offset by lower power prices to New York consumers. The Brattle Group found that electricity costs would be $1.7-billion a year lower by preserving the at-risk nuclear units, since they would be replaced by more costly generation. With the cost of the ZEC program estimated to be less than $500 million a year in the first two years of the program, the net annual savings to consumers are expected to be more than $1 billion annually.
As soon as the Public Service Commission finalized the CES, Exelon, owner of the Ginna and Nine Mile Point nuclear plants, announced its intention to invest $200 million to enable the long-term operation of these facilities. (Exelon had announced that Ginna and Nine Mile Point Unit 1 were facing early closure.) In addition, Exelon and Entergy announced an agreement in principle under which Exelon would purchase the FitzPatrick plant and continue to operate it. Prior to the passage of the CES, Entergy had intended to close the plant in 2017.
New York’s Clean Energy Goals
Governor Cuomo directed the Department of Public Service (DPS) to develop a Clean Energy Standard and provide a program framework that would mandate a 40 percent reduction in greenhouse gas emissions by 2030, in comparison to 1990 levels. This 40-percent reduction is intended to move the state toward a longer-term goal of an 80 percent decrease in carbon emissions by 2050. Additionally, the state aims to have 50 percent of electricity consumed in New York come from renewable sources by 2030. Importantly, however, the state also has specified that it must retain the carbon gains achieved to date and achieve interim target levels.
To meet these decarbonization goals, the state must build on the non-emitting nuclear plants operating in New York. These plants provide more than half of the state’s zero-carbon electricity. Shuttering nuclear plants would require significant expansion of fossil-fueled generation in order to meet the state’s needs for electricity. More fossil-fueled generation would, in turn, mean more carbon emissions. Annual carbon dioxide emissions would increase by roughly 26 million tons without New York’s existing nuclear fleet of six operating reactors, undermining the state’s effort to reduce those emissions incrementally by 40 percent. The Brattle Group has calculated that using the federal government’s estimate of the “social cost of carbon emissions” produces a figure of $1.1 billion for the value of these avoided emissions. Keeping these plants in operation also prevents the emission of other pollutants, including 6,376 tons of sulfur dioxide, 22,429 tons of nitrous oxides, and nearly 4,000 tons of particulate emissions. Using the National Academy of Sciences’ values for the externality costs of these other emissions, Brattle estimates the additional social cost of these pollutants is $105 million.
Indeed, retiring even the single reactor at Ginna would undo all the benefit of the last decade’s investments in RGGI compliance. Preserving New York’s existing nuclear plants is essential to New York’s ability to reach any of its current carbon reduction targets.
Role of Nuclear Energy in New York
New York’s six nuclear reactors provided 42 million megawatt hours of electricity generation in 2016, which was 31 percent of the state’s overall electricity generation. Nuclear energy provided 58 percent of the State’s carbon-free electricity, compared to 37 percent from hydroelectricity and just over 5 percent from wind and solar.
Nuclear plants in New York face economic challenges without a method to internalize the benefits provided by nuclear energy that are not recognized in the wholesale markets. As the Public Service Commission explained: The owners of some nuclear facilities in the State have indicated the intent to retire facilities, stating, among other things, an inadequacy in the wholesale electric market for valuing zero-emission electric energy resources. Those facilities currently provide important contributions towards the baseline of clean energy facilities in the State’s electric power portfolio. Loss of these facilities in the short-term would undermine progress towards meeting the State’s clean energy goals.
Indeed, the Commission went on to emphasize that losing these plants “could possibly lead to an increase of over 12 million metric tons in carbon dioxide emissions alone, a truly unacceptable outcome.” Governor Cuomo has been even more emphatic: “elimination of upstate nuclear facilities, operating under valid federal licenses, would eviscerate the emission reductions achieved through the State’s renewable energy programs, diminish fuel diversity, increase price volatility, and financially harm host communities.”
The Clean Energy Standard will enable the continued operation of three nuclear plants that were facing the prospect of early closure.
FitzPatrick: In November 2015, Entergy announced that it would close the James A. FitzPatrick (FitzPatrick) Plant in Scriba, N.Y. in January 2017 in light of “continued deteriorating economics.” Although the plant’s Nuclear Regulatory Commission license authorizes it to run through 2034, Entergy said that it would shutter the plant at the end of its current fuel cycle. The FitzPatrick plant generated 7.4 billion kilowatt-hours (kWh) during 2015 and had a capacity factor of 89.8 percent during the 2013-2015 timeframe.
In the immediate aftermath of the Public Service Commission approving the Clean Energy Standard, Exelon purchased FitzPatrick from Entergy with the intention of operating the plant beyond 2017. The operating license for FitzPatrick was transferred to Exelon in March 2017 following approval from the Nuclear Regulatory Commission.
Ginna: In 2015, Exelon announced that it was contemplating closing its Ginna Plant, in Ontario, N.Y. Again, depressed energy market conditions and the failure of the markets to recognize the various attributes that nuclear generation supplies meant that the plant was operating at a loss and could not continue, despite being licensed until 2029. Rochester Gas and Electric, the utility in the area, recognized the need to maintain Ginna’s operations for reliability (as did NYISO). In response, Rochester Gas and Electric and New York State negotiated a Reliability Support Services Agreement (RSSA) intended to provide compensation to the plant owner through March 2017. The CES will allow Ginna to continue operation beyond the term of the RSSA.
Without these actions, New York would have lost 582 MW of capacity, which produced 4.8 billion kWh of electricity in 2015. The resulting shift to fossil fuel generation to replace the lost production would have resulted in the release of 2.3 million metric tons of carbon that was avoided by Ginna – the equivalent of the amount released by 400,000 cars each year.
Nine Mile Point: The Nine Mile Point 1 and 2 plants face the same economic pressures as FitzPatrick and Ginna. Without action, they were also at risk of closure, as their operator, Exelon, had conceded. The Nine Mile Point units provided 16 billion kWh of electricity in 2015 and prevent approximately 7.8 million metric tons of carbon emissions per year. Combined with Ginna and FitzPatrick, these plants produce approximately 16 percent of New York State’s electricity. At the same time, they avoid almost 16 million tons of carbon dioxide emissions annually, which equates to a societal value of almost $700 million annually, based on federal estimates.
Economic Impact of Including Nuclear Plants in the CES
Maintaining the nuclear facilities under the Clean Energy Standard will keep power prices down for customers in the state. In a recent update to its analyses, the Brattle Group estimates that electricity prices in New York would increase by 7.2 percent if the upstate nuclear plants were to close as their power would then be provided by more expensive sources. Such a rate increase would increase electricity costs in the state by $1.7 billion per year. As Brattle notes, the initial annual cap on ZEC payments is $482 million per year, “[t]hus Staff’s proposed program to preserve the upstate nuclear plants would actually save consumers money on power costs.”
A separate analysis examined the impact of replacing the nuclear plants covered by the CES with additional renewables above the levels already included in the program. Based upon data collected by the DPS, Brattle estimated that the credit necessary to induce such a deployment would be at least $61/MWh. The zero-emission credit for nuclear non-emitting generation is initially set at $17.48/MWh with an average of $22/MWh over the life of the program. Replacing dispatchable, baseload, non-emitting nuclear generation with intermittent, non-emitting renewables would be about three times as costly as compared to retaining the plants already running.
By preserving existing generating assets, additional infrastructure investments will not be needed to replace the large amount of electricity produced by these plants. If nuclear plants were to be replaced with new capacity, either renewables or natural gas, the electric transmission system would need to expand to integrate these sources. Increased reliance on natural gas would entail the need for additional pipelines in the state.
When nuclear plants in other states have closed recently, the immediate response has been consistent – nuclear generation has been replaced by natural gas with attendant emission increases. For example, nuclear generation in ISO New England declined by 5.3 million MWh in 2015 compared to 2014 when Vermont Yankee was in operation. This was offset by natural gas use increasing by 5.7 million MWh and carbon emissions by 5 percent in New England in 2015 following the loss of Vermont Yankee. The closure of the San Onofre Nuclear Generating Station resulted in higher electricity bills and increased emissions. California consumers paid $350 million more for electricity following the closure and carbon emissions increased by 9 million tons.
Nuclear power plants provide around-the-clock baseload electricity without emitting greenhouse gases and other pollutants. In 2015, the New York’s nuclear plants operated with a 96.5 percent capacity factor, far outpacing the availability of other generation sources. Nuclear stations also provide important benefits to the grid including reactive power and voltage support that keep the entire electricity system functioning.
Beyond the broad impacts on electricity prices and environmental benefits, New York’s nuclear plants are economic anchors for their communities. The plants covered by the CES directly employ 2,300 New Yorkers plus an additional 350 that perform maintenance during refueling outages. The plants drive $5.25 billion in economic activity which adds $3.2 billion to New York’s gross domestic product. This economic activity, in turn, supports an additional 22,000 jobs in the state. Furthermore, this economic activity spurs $144 million in state revenues.
Need for States to Follow New York’s Lead
Multiple factors have aligned to create wholesale energy markets that compromise the economics of nuclear generation, despite the need for this zero-emission, safe and reliable baseload electricity source. First, although New York, like the United States generally, recognizes the need for zero-carbon electricity, the purchase of electricity in the State does not adequately include consideration of carbon intensity. The low cost of natural gas, flat demand growth, and transmission constraints have further eroded wholesale electricity prices. Other market distortions, including out-of-market pricing for some requirements and targeted subsidies for some renewables further exacerbate the problem.
As a result, some nuclear plants are struggling to continue operation and are at risk of being shut down well before their useful life is over. Outside of New York, some plants have already been closed; others have announced that they will soon do so. Dominion Resources closed its nuclear plant in Kewaunee, Wisconsin, in mid-2013 for economic reasons. The Omaha Public Power District closed its Fort Calhoun nuclear station in 2016. Entergy Corporation (Entergy) shut down its Vermont Yankee nuclear plant in December 2014, and announced last fall that it will close its Pilgrim nuclear plant in Massachusetts by June 2019. Entergy has since announced its intention to close the Palisades plant in Michigan and reached an agreement to retire Indian Point 2 and 3 in New York as part of a strategy to exit the merchant generation sector. In Illinois, Exelon Corporation (Exelon) announced its intention to close its nuclear plants at Clinton and Quad Cities but has since reversed those decisions once the state of Illinois passed a Clean Energy Standard that included nuclear energy. Plants in Ohio, Pennsylvania, Connecticut and other states are addressing these issues as well.
Following the lead of New York, policymakers in states have been pursuing approaches that would allow the benefits of nuclear energy to be retained. In December, Illinois passed a law to create zero emission credits that is modeled after the New York program. This legislation recognizes the value of nuclear energy to the state’s clean-air goals by introducing a zero-emission standard. This law will allow the Clinton and Quad Cities plants to avoid closure and preserve the more than 4,000 jobs supported by them.
The zero emission credit conceived by the PSC has provided a template for other states to value the non-emitting attribute of nuclear plants that was being ignored by the market. The bipartisan National Conference of State Legislatures (NCSL) issued a report in 2017 that examines possible policy approaches states could pursue to retain nuclear plants that would be at risk of early closure. This report presents a range of options including implementing a carbon tax, enacting a cap-and-trade program, requiring power purchase agreements, and the development of clean energy standards that include nuclear and renewables. NCSL highlighted New York’s leadership in developing its CES as an example of a successful program to address this challenge.
More states are examining these policy options for their needs. New York serves as an example to other states that effective solutions are possible, even in competitive markets. For example, the Connecticut legislature is expected to consider a clean energy procurement process that would include nuclear energy, placing it on even footing with other non-emitting sources. Policy opportunities are emerging in Ohio, Pennsylvania and New Jersey.
New York has positioned itself as a leader in addressing the role of nuclear energy in meeting environmental goals. By setting an ambitious goal for emission reductions, New York provided a vision for where the nation needs to go. By establishing a Clean Energy Standard, New York has shown that it is serious about realizing that vision. New York demonstrated that policymakers don’t need to wait for Washington to address important issues facing us all.