Natural Gas is Undermining Pennsylvania’s Nuclear Plants—And That’s Bad News for the Climate

November 8, 2018 | 12:01 am
Beaver Valley nuclear in PA. Photo: United States Nuclear Regulatory Commission
Jeremy Richardson
Former Contributor

Today the Union of Concerned Scientists released a report that assesses the economic viability and safety records of nuclear power plants in the United States. The report asks what happens to carbon emissions if a significant number of those plants were to retire abruptly—given their high risk of being replaced by natural gas and coal—and seeks to inform both state and federal policy makers about how to address the issue. Ultimately, it argues that policymakers at the national and state level should implement climate-smart policies that value all types of low-carbon electricity generation and include stringent safety standards for all nuclear plants.

Why did we write this report, and what are the implications for Pennsylvania, which has five nuclear power plants that in total provide the second highest nuclear operating capacity of any state?

We must correct market failures to decarbonize the US economy

The Intergovernmental Panel on Climate Change (IPCC) recently drove home the point that we collectively need to reduce emissions as much as possible—and quickly. The IPCC special report underscores the urgency of the climate crisis: keeping global temperature increase to below 1.5 degrees C requires global net CO2 emissions to decline by about 45 percent from 2010 levels by 2030 and reach net zero around midcentury. The US must lead this effort, meaning it must go further, achieving net negative emissions by 2050.

One major obstacle in achieving this result is the market failure currently facing low-carbon sources of electricity like nuclear and renewables—specifically, the fact that in most of the country, it’s free to emit unlimited amounts of carbon dioxide (and other greenhouse gases) into the atmosphere, even though these emissions are the primary driver of climate change and its impacts on people and ecosystems everywhere.

To overcome that obstacle, we recommend a well-designed carbon cap or price, or low-carbon electricity standard. Our new report also provides information and recommendations for states that may be considering policy actions to address this problem on their own because the federal government is unable or unwilling to act on climate. Although a national carbon price would be most effective in addressing the market failure, we also recommend that states consider implementing a carbon price, similar to leading states like California and the nine states that participate in the Regional Greenhouse Gas Initiative (RGGI) have done. A carbon cap (such as that imposed by RGGI) can help reduce emissions and send a market signal favoring low-carbon resources.

Pennsylvania is one of those states evaluating policy options. Policymakers there are actively considering how to respond to calls from some stakeholders for financial support for the state’s uneconomic nuclear power plants. But as our report details, we do not support blanket financial support for any nuclear operator that comes looking for it—we detail specific conditions that must be met. And as my colleague writes, not all proposals are good ones: FirstEnergy’s proposal in Ohio, for example, is deeply flawed and they’ll be looking for something similar in Pennsylvania.

Pennsylvania’s electricity mix

In 2017, nuclear provided 39 percent of Pennsylvania’s electricity—more than any other fuel source—but natural gas was not far behind at 34 percent, and almost all the rest of the state’s electricity (22 percent) came from coal, with non-hydro renewables remaining a tiny portion of Pennsylvania’s generation at less than 3 percent. That represents a huge transition over the past decade—natural gas increased from 15 percent in 2010, and coal fell from 48 percent in 2010, while nuclear increased only slightly from 34 percent. Given the dramatic growth of the natural gas industry in the state over the past decade with the development of the Marcellus shale (and with more gas plants under development in Pennsylvania and the surrounding region) and the state’s relatively weak policies to support renewable energy and energy efficiency, under current conditions, any decline in nuclear power in Pennsylvania would be made up by an increase in natural gas and coal power—without thoughtful and strong policies. And that would mean that carbon emissions would go up if nuclear plants retire, posing a threat to our climate goals.

Part of the reason gas prices are so low is the lack of a price on carbon; the growth in gas is in part a response to that market failure.

Our report lends credence to this assumption. At the national level, we modeled a set of early retirements of nuclear power plants and found that in the aggregate, most of the loss in nuclear generation was made up by existing power plants powered by natural gas and coal.

Evaluating profitability

To assess the economics of nuclear power plants, we looked at the projected average annual operating margin over the period 2018—2022. That sounds like a mouthful, but it just means projected revenues minus projected costs over the next five years. The net result, calculated in dollars per megawatt-hour, is how we assessed the economic viability of each plant. Plants with negative operating margins were deemed unprofitable. To get a sense of which plants might be at risk of becoming unprofitable, we identified which plants had operating margins between $0 and $5 per MWh, which we label marginal. Plants above $5 per MWh are classified as profitable.

Nationally, we found 16.3 GW of unprofitable nuclear capacity. Not surprisingly, the results are very sensitive to the assumption about future natural gas prices.

Using the insights from assessing the profitability of the entire set of nuclear power plants, we then evaluated which ones might be at risk of abrupt retirement over the next eight years. We then modeled the impact to the electricity system through 2035 of the closure of those plants, which represent between 14 and 27 GW of nuclear capacity. We found that at the national level, cumulative CO2 emissions would be about 6 percent higher in 2035 compared to the reference case.

That might not sound like a lot, but keep in mind that abruptly losing a significant portion of low-carbon generation: 1) takes us in the wrong direction at a time when we need to be rapidly reducing CO2 emissions, and 2) would be magnified greatly in Pennsylvania, which relies heavily on nuclear power and does not currently produce very much electricity from renewables.

Meeting stringent safety standards

An accident or terrorist attack at a US nuclear reactor could severely harm public health, the environment, and the economy—and it would also jeopardize the prospects for US nuclear energy for decades and limit available options to meet near-term carbon reduction targets. It is thus essential that policymakers and other stakeholders consider financial support only for nuclear reactors that meet or exceed the Nuclear Regulatory Commission’s highest safety standards.

The Keystone State’s nuclear plants

The results of our profitability analysis for Pennsylvania’s nuclear plants are shown below in the table. According to our analysis, Three Mile Island is unprofitable, while Beaver Valley and Susquehanna are marginally profitable. Exelon plans to shut down the remaining reactor at Three Mile Island in 2019, and FirstEnergy plans to shut down the Beaver Valley plant in 2021, along with two other plants in Ohio. For our early retirement cases, we assume that these plants are retired in those years, along with Susquehanna.

Pennsylvania’s five nuclear power plants provide almost 10 GW of capacity.

Plant Name Number of Reactors 2018 Operating Capacity (MW) Deactivation Notice UCS Assessment
Beaver Valley 2 1,867 2021 Marginally Profitable
Limerick 2 2,386 Profitable
Peach Bottom 2 2,584 Profitable
Susquehanna 2 2,593 Marginally Profitable
Three Mile Island 1 827 2019 Unprofitable

Although all of Pennsylvania’s nuclear power plants are currently meeting or exceeding the Nuclear Regulatory Commission’s highest standards, there are other reasons it may not make sense to keep every nuclear plant online, such as high operating costs or major safety problems. Or as Exelon’s CEO recently said:

“I will be the first one to tell you that some of the nuclear plants are small, uneconomic and they won’t make it and they probably should not make it. Let’s not save every one.” –Chris Crane, Exelon CEO

Policies matter

Exelon is already receiving financial support for five nuclear plants in Illinois and New York. FirstEnergy has similarly submitted deactivation notices for its Davis-Besse nuclear plant in 2020 and its Perry plant in 2021, both of which are in Ohio. Following the bankruptcy of one of its subsidiaries, FirstEnergy continues to search high and low for a handout to make up for its bad financial decisions, including to the federal government and to the Ohio legislature.

PJM and other grid operators have shown that retiring these plants does not threaten electricity reliability and resilience:

“Our analysis of the recently announced planned deactivations of certain nuclear plants has determined that there is no immediate threat to system reliability. Markets have helped to establish a reliable grid with historically low prices. Any federal intervention in the market to order customers to buy electricity from specific power plants would be damaging to the markets and therefore costly to consumers.”

The possibility that these plants will be replaced with natural gas and coal rather than low-carbon sources raises serious concerns about our ability to achieve the deep cuts in carbon emissions needed to limit the worst impacts of climate change.

Recommendations for Pennsylvania policymakers

Three states—Illinois, New York, and New Jersey—have taken policy actions to value the low-carbon attributes of nuclear power. As part of legislation providing financial support for some nuclear plants, each state simultaneously strengthened policies to support renewable energy and energy efficiency. New York and New Jersey both increased their Renewable Portfolio Standards (RPS) to 50 percent by 2030, and Illinois fixed problems with its RPS that will allow the state to reach 25 percent by 2025. All three states also set higher energy efficiency targets as part of the legislation.

While a few of the Keystone State’s nuclear power plants may be facing economic headwinds in the immediate future, policymakers should carefully weigh the evidence and consider the big picture before simply writing a check on behalf of ratepayers—since many residents face economic hardship and high energy burdens.

UCS offers the following recommendations based on our analysis:

  • Require transparency: Companies should open their books and demonstrate need. Our analysis is based on the best available cost data, but it cannot replace a thorough examination of a given plant’s financials, because this information is proprietary. Transparency ensures that impact to ratepayers is limited.
  • Limit and adjust support: Any financial support to struggling plants should be limited and adjusted over time, as market conditions change.
  • Ensure safe operation: Any plant receiving financial support should be required to meet strong safety guidelines. The need for low-carbon electricity absolutely does not trump safety.
  • Strengthen support for renewables and efficiency: If policy support for nuclear power is done based on its low-carbon attributes, policymakers should simultaneously invest in renewables and efficiency in order to transition to a low carbon future. Pennsylvania’s Advanced Energy Resource Portfolio (AEPS) is relatively weak and has not been updated since 2008. The state’s energy efficiency standard is not achieving cost savings realized by leading states. Policymakers must include actions to strengthen standards to drive greater deployment of renewable energy and energy efficiency.
  • Plan for the transition: Nuclear power plants will close eventually as they reach the end of their safe operating lives. Companies should be required to develop transition plans for communities and workers that will be negatively impacted by the closure. With adequate time, adverse economic impacts can be mitigated.