Nuclear Subsidies Are Bad Energy Policy
“The nuclear species is going extinct,” Mycle Schneider, lead author, World Nuclear Industry Status Report, September 12, 2017
The “nuclear renaissance” that we have long waited for is falling short. In the wake of the 2011 Fukushima disaster, the number of new projects has drastically dropped. Among other things, they’ve been plagued by huge cost overruns, lower cost competitors, public fear, an aging workforce, rare required materials, and often unmanageable waste problems.
According to the World Nuclear Industry Status Report, the number of construction starts of nuclear reactors worldwide has sunk from a high of 15 in 2010, to 10 in 2013, to 8 in 2015, to 3 in 2016, and to just 1 in the first half of 2017. And most tellingly, premature nuclear shutdowns are occurring in even the richest nations.
Here in the U.S., a massive supply of low cost natural gas from shale, established low and stable cost coal fleets, and mushrooming wind and solar farms have left many nuclear plants unprofitable. Down from 104 just a few years ago, there are now 99 nuclear reactors in the country. It’s a rapidly aging fleet, with the average age for a U.S. nuclear plant now 36 years. This is obsolete by modern technology standards and closing in on the end of 40-year operating licenses. In fact, nearly 20% of our nuclear fleet is over 42 years old.
Even the two states proudest of their anti-CO2 agenda, which as I document here and here are inevitably turning to more natural gas, are joining in. California has shuttered San Onofre Nuclear Generating Station in the South, and Diablo Canyon nuclear power plant in the north will close by 2025. New York will shut down the Indian Point nuclear plant near NYC by 2021.
The push now is for the industry to receive special subsidies to remain economically viable. The idea really started in Illinois, where Exelon said that without subsidies, it would have to shutter three nuclear plants after the company lost $700 million in the last few years operating the plants.
And Exelon has also threatened to close other nuclear units in New York and its Three-Mile Island nuclear plant in Pennsylvania, which became infamous with a partial meltdown in 1979. It’s become uncompetitive: Three-Mile Island didn’t clear PJM capacity auction in May and has lost $300 million over the last eight years.
Legislatures in New York and Illinois have approved as much as $10 billion in special subsidies through zero-emission credit programs to keep older nuclear plants operational. Pennsylvania, Ohio, New Jersey, and Connecticut are considering similar special subsidies.
Naturally, competitors have filed lawsuits claiming that nuclear subsidy schemes intrude on federal authority over wholesale energy prices. Subsidies give an unfair, seemingly manufactured advantage to nuclear generators in regional wholesale markets. Zero-Emission Credits distort energy price formation and increase uncertainty.
And we know that state and/or federal governments “choosing winners and losers” through direct subsidies bring higher utility bills for our homes and businesses. One study here finds that higher utility costs from the nuclear subsidy program in Illinois would eliminate 43,000 jobs in the state by 2030 and slash state revenues by $420 million.
All across our energy space, American homes and businesses win when there’s more free market competition, not less. This helps explain why at 12-13 cents per kWh, we enjoy some of the lowest power rates in the world and why nearly two-thirds of the states have deregulated electricity and/or natural gas in recent years. While gas will continue to remain abundant with low prices (I document that here), nuclear subsidies could continue to grow as plants inevitably age: U.S. nuclear capacity has been flat in the 105 gigawatt range since 1990.
Nuclear power has been doomed by cost escalation, while gas, efficiency, and renewables continue to get cheaper. And subsidizing nuclear plants isn’t popular in the states where ratepayers would have to foot the bill. Recent headlines tell the story:
- “Subsidies for Nuclear Reactor Projects Waste Taxpayer Money,” U.S. News & World Report, August 17, 2017 (here)
- “Poll: Overwhelming majority of Pennsylvanians oppose nuclear bailout by Legislature,” The Beaver County Times, August 16, 2017 (here)
- “Nuclear Subsidies Distort Competition And Increase Power Prices,” Investors.com, May 31, 2017 (here)
- “Manufacturers oppose proposed $7 billion nuclear power subsidy,” Albany Business Review, August 1, 2016 (here)
Simply put, political intervention in the U.S. electric power system distorts the market and is bad energy policy. Carnegie Mellon University’s Electricity Industry Center has documented this fact for years, here. Now our main source of electricity, the fast growing incremental market share of gas is mostly why U.S. CO2 emissions are at their lowest levels in decades (here). Since 2000, gas has about doubled its total generation to 1,200 TWh, while nuclear has stagnated in the 750-800 TWh range. Indeed, the Federal Energy Regulatory Commission’s mission to be “fuel neutral” speaks against nuclear subsidies. This would support gas because it’s the most affordable of the most reliable sources (see Figure below).