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December 11, 2017

Premature nuclear plant retirements are slowly eroding U.S. nuclear capacity


New York, Jan. 8: Premature nuclear plant retirements are slowly eroding U.S. nuclear capacity and reducing a major source of carbon free electricity, according to Fitch Ratings.

The closure of the Vermont Yankee plant in December 2014 follows the retirement of four nuclear units in 2013. The five shuttered reactors aggregate 4.2 gigawatts (GW). A sixth reactor, the 615-MW Oyster Creek unit, will be retired by Dec. 31, 2019. Five of the six units are retiring before the expiration of their operating licenses.

The six units to be retired are evenly divided between rate-regulated and merchant facilities. The rate-regulated retirements follow extended outages where the repair costs exceed cheaper supply alternatives. The merchant closures are driven by unfavorable market conditions that limit recovery of rising non-fuel operating and capital costs or, in the case of Oyster Creek, environmental issues.

Absent reforms to the current market structure, Fitch considers at least eight additional merchant nuclear units with an aggregate capacity of approximately 8,000 MW to be at risk of early retirement. The eight reactors are primarily small single-unit reactors but also include a twin reactor, where the owner, Exelon Generation Co., LLC (Exgen), has publicly indicated the plants will be retired if market conditions do not improve or market reforms are not instituted.

Reforms to the existing market structure are key to staving off further nuclear retirements. The most promising appears to be a proposal by the PJM Interconnection LLC that would reward resources capable of sustained operations during peak load periods and extreme weather events. Reforms are also being considered in other jurisdictions.

Declining nuclear plant values are symptomatic of the plant closures. The asset value of nuclear power plants has declined steadily in most regions since 2010, primarily due to the low natural gas and power price environment. The declines have been greatest in regions without a vibrant capacity market, including Texas and the Midwest.

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