Photo: Nuclear Regulatory Commission

5 Reasons Why HB 6, Ohio’s Nuclear Plant Subsidy Proposal, Should Be Rejected

, director of energy research, Clean Energy | May 16, 2019, 10:38 am EDT
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Last November, UCS released Nuclear Power Dilemma, which found that more than one-third of existing nuclear plants, representing 22 percent of total US nuclear capacity, are uneconomic or slated to close over the next decade. This included the Davis-Besse and Perry plants in Ohio that are owned by Akron-based FirstEnergy Solutions. Replacing these plants with natural gas would cause emissions to rise at a time when we need to achieve deep cuts in emissions to limit the worst impacts of climate change.

When we released our report, my colleague Jeff Deyette described how a proposal backed by FirstEnergy to subsidize its unprofitable nuclear plants in Ohio was deeply flawed and did not meet the conditions recommended in our report. By providing a blatant handout to the nuclear and fossil fuel industries at the expense of renewable energy and energy efficiency, ironically, the latest proposal to create a “Clean Air Program” in Ohio (House Bill 6) is bad for consumers, the economy and the environment.

Here are five reasons why this proposal is flawed and should be rejected:

1. HB 6 doesn’t protect consumers

HB 6 would provide incentives to maintain or build carbon-free or reduced emission resources that meet certain criteria. The state’s Legislative Budget office estimates the new program would cost $306 million per year, collected through a dedicated monthly charge on consumer electricity bills. Monthly costs range from $2.50 for a typical residential customer to $2,500 for large commercial and industrial customers.

HB 6 doesn’t require FirstEnergy Solutions to demonstrate need or limit the amount and duration of the subsidies to protect consumers and avoid windfall profits as recommended in our report. It simply sets the starting price at $9.25/MWh and increases that value annually for inflation.  In 2018, Davis-Besse and Perry generated 18.3 million megawatt-hours of electricity, according to the U.S. Energy Information Administration. This means that FirstEnergy Solutions nuclear plants would receive approximately $170 million per year in subsidies, or 55% of the total. As explained below, the rest of the money would likely go to upgrading Ohio’s existing coal and natural gas plants.

2. HB 6 is a bait and switch tactic to gut Ohio’s clean energy laws

But here’s the rub. HB 6 would effectively gut the state’s renewable energy and energy efficiency standards to pay for the subsidies for Ohio’s existing nuclear, coal and natural gas plants. It would make the standards voluntary by exempting customers from the charges collected from these affordable and successful programs unless they chose to opt-in to the standards. This could result in a net increase in emissions and a net loss of jobs in Ohio over time.

This political hit job is outrageous, but not at all surprising. It is just another attempt in a long series of efforts by clean energy opponents to rollback Ohio’s renewable and efficiency standards over the past five years. When combined with stringent set-back requirements for wind projects that were adopted in 2014, these actions have a had a chilling effect on renewable energy development and explain why renewables only provided a paltry 2.7% of Ohio’s electricity generation in 2018 (see figure below). In contrast, renewables provided 18% of U.S. electricity generation in 2018, and wind power provided more than 15% of electricity generation in 11 states.

The sponsors of HB 6 go one step further and make the false claim that their proposal will save consumers money. While the charges appearing on consumer bills might be less, this ignores the much greater energy bill savings consumers have been realizing through investments in energy efficiency. In addition, the cost of wind and solar has fallen by more than 70 percent over the past decade, making them more affordable for consumers and competitive with natural gas power plants in many parts of the country. It also ignores the energy diversity benefits of renewables and efficiency in providing a hedge against natural gas price volatility. Many Ohio legislators continue to put their heads in the sand and refuse to embrace the new reality that renewables and efficiency are cost-effective for consumers.

Energy efficiency programs are especially important for low-income households. By lowering their energy bills, they have more money to spend on food, health care and other necessities. It also reduces the need for assistance in paying heating bills. Unfortunately, legislators like Energy and Natural Resources Committee Chair Nino Vitale are proposing to provide handouts to large corporations at the expense of easing the energy burden for low-income households, which are also disproportionately affected by harmful pollution from coal and natural gas power plants.

3. HB6 creates a false sense of competition

While renewable energy technologies are technically eligible to compete for funding under HB 6, several criteria would effectively exclude them:

  • It excludes any projects that have received tax incentives like the federal production tax credit or investment tax credit, which applies to nearly every renewable energy project.
  • Eligible facilities must be larger than 50 MW, which excludes most solar projects, and wind projects have to be between 5 MW and 50 MW, which is smaller than most existing utility scale wind projects in the state.
  • Eligible projects must receive compensation through organized wholesale energy markets, which excludes smaller customer-owned projects like rooftop solar photovoltaic systems.

When combined with the rollback to the renewable standard, this absurdly stringent criteria would create too much uncertainty for renewable developers to obtain financing to build new projects in Ohio.

4. HB 6 will increase Ohio’s reliance on natural gas

While HB 6 could temporarily prevent the replacement of Ohio’s nuclear plants with natural gas, gutting the renewables and efficiency standards would undermine the state’s pathway to achieving a truly low-carbon future by locking in more gas generation as coal plants retire.  Over the past decade, natural gas generation has grown from 1.6% of Ohio’s electricity generation to more than 34% in 2018 (see figure). A whopping 40,000 MW of new natural gas capacity was added during this time, mostly to replace retiring coal plants. In contrast, the share of nuclear and renewable generation has only slightly increased by 2-3% each.

Ohio’s Increasing Reliance on Natural Gas for Electricity

 

While natural gas has lower smokestack emissions than coal, the production and distribution of natural gas releases methane emissions—a much more potent greenhouse gas (GHG) than carbon dioxide. To achieve the deep cuts in emissions that will be needed to limit the worst impacts of climate change, Ohio will need to reduce its reliance on natural gas. Gutting the state’s renewables and efficiency standards would take away the most cost-effective solutions for achieving this outcome.

5. HB 6 includes no safety criteria or transition plans

HB 6 does not require FirstEnergy’s nuclear plants to meet strong safety standards as a condition for receiving subsidies, as recommended in our report. While Davis-Besse and Perry are currently meeting the Nuclear Regulatory Commission’s (NRC) safety standards–as measured by their reactor oversight process (ROP) action matrix quarterly rating system–both plants have had problems with critical back-up systems during the past two years that put them out of compliance.

The nuclear industry has been trying to weaken the ROP for years. For example, the industry has been advocating for combining the first two columns of the action matrix, which would essentially put all nuclear reactors in the top safety category. My colleague Ed Lyman, acting director of the UCS Nuclear Safety Project, is working to stop the NRC from changing the ROP to make it a less meaningful and transparent indicator of plant safety. Our report recommends that policymakers monitor the situation and adjust subsidy policies if the NRC weakens its standards.

HB 6 also does not include any transition plans for affected workers and communities to prepare for the eventual retirement of the nuclear plants. These plans are needed to attract new investment, replace lost jobs and rebuild the tax base.

A better approach

On May 2, House Democrats announced an alternative “Clean Energy Jobs Plan” that would address many of the problems with HB 6. The plan would modify the state’s Alternative Energy Standard (AES) by increasing the contribution from renewable energy from 12.5% by 2027 to 50% by 2050 and fix the onerous set-back requirements that have been a major impediment to large scale wind development. It would expand the AES to maintain a 15% baseline for nuclear power. In addition, it would improve the state’s energy efficiency standards, expand weatherization programs for low-income households, and create new clean energy job training programs.

This proposal is similar to the laws recently passed in Illinois, New York and New Jersey that provided financial support for distressed nuclear plants while simultaneously strengthening renewable energy and energy efficiency standards. While our report shows that the subsidies for some of these nuclear plants may have been too generous, these policies have prevented plants from closing and resulted in a wave of new investment in wind, solar, and efficiency projects.

With more than 112,000 clean energy jobs in 2018, Ohio ranks third in the Midwest and eighth in the country. Ohio added nearly 5,000 new clean energy jobs in 2018.  While most of the clean energy jobs are in the energy efficiency industry, Ohio is also a leading manufacturer of components for the wind and solar industries.

To capitalize on these rapidly growing global industries, lawmakers in Ohio should reject HB 6 and move forward with a real clean air program that ramps-up investments in renewables and efficiency and achieves the deep cuts in emissions that are needed to limit the worst impacts of climate change.

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