Reports: Future Coal and Nuclear Prone to Market Forces, Gas Expansion

Two federally sponsored reports submitted to the Eastern Interconnection States’ Planning Council (EISPC) suggest that the rapid expansion of natural gas could force the closure of between 35 GW and 60 GW of U.S. coal power capacity over the next five years and weaken market forces that now bolster existing nuclear plants.

An Energy Department–funded 200-page document from consulting firm ICF International, “Assessment of Coal-fired Capacity in the Eastern Interconnection” suggests nearly 18% of the nation’s coal-fired power capacity will be retired because installing control equipment to become compliant with new environmental regulations will not prove cost-effective—particularly as the sector grapples with low natural gas prices and potential future greenhouse gas (GHG) restrictions.

Meanwhile, Navigant Consulting concluded in a separate 220-page report titled “Assessment of the Nuclear Power Industry” that changing regulations have been the largest cause of unpredictable costs that have hindered the nuclear sector’s economic performance. It also projects that deregulated electric markets will require future nuclear plant designs to have greater operational flexibility to complement the operating characteristics of intermittent renewable generation sources.

Both reports were submitted this June (but only made public this week) to the EISPC, an entity that represents 39 states, the District of Columbia, the City of New Orleans, and eight Canadian provinces located on the Eastern Interconnection electric transmission grid, and to the National Association of Regulatory Utility Commissioners (NARUC), whose members represent all 50 U.S. states.

60 GW of Coal Could Close and 50 GW More Is “On the Margin”

About 40 GW of coal-fired capacity retirements have already been announced, notes the ICF report. But by the 2015 compliance deadline for the Mercury and Air Toxics Standards (MATS), more than 60 GW could be shuttered “given the persistence of low gas prices,” and beyond that, another 50 GW of coal-fired capacity is “on the margin,” the report projects. Those units “will have some tough decisions regarding whether to retrofit to meet the new rules in light of low gas and power prices, or to retire.”

The report also warns that a bulk of coal plants likely to close are in the Eastern Interconnect—which hosts 84% (269 GW) of total U.S. coal capacity (320 GW)—though most will be smaller and have low capacity factors. Even so, it cautions that local capacity constraints could complicate retirement plans and requires new capacity and/or transmission investments to maintain reliability.

At the same time, development for new coal plants will be murky given their necessary large capital investments and long lead times. “This makes these plants a difficult investment for merchant generators to fund while also being difficult for regulated utilities to gain cost recovery approval in a changing policy and fuel market environment.”

Developers of new coal plants are also wary of more stringent (though still to be finalized) environmental regulations, including the risk and uncertainty posed by the Environmental Protection Agency’s (EPA’s) proposed New Source Performance Standard (NSPS) for GHGs. That rule requires the inclusion of carbon capture and storage (CCS) for new coal plants at some points in its life—but it “effectively prohibits new coal plant construction until the technology and infrastructure for CCS can be more fully developed and demonstrated,” the report says.

The shale gas boom and subsequent decline in natural gas prices have, meanwhile, skewed interest towards construction of more gas-fired plants, which tend to have lower capital costs compared to coal plants. And, overarching these challenges is a barrage of opposition to coal plant construction from environmental or local citizen groups, notes the report.

Coal generation’s share in the Eastern Interconnect dropped from 60% over the past 30 years to 41% in 2012. Natural gas generation’s share rose to 20% from 10%, and nuclear generation rose from 15% to 23%, mostly from uprates, over the same period.

Over the near- to medium-term (2012-2020), nuclear generation is forecast to increase by 10% due to new plants under construction in Georgia and South Carolina. Significantly, renewable generation will increase 31% driven by capacity expansions to meet state renewable portfolio standard goals. Natural gas generation, meanwhile, is projected to rise only moderately as coal generation will contract.

An interesting table summarizing the benefits and challenges for each major technology type also determines that renewables, including hydro power, wind, solar, and biomass, pose “low” to “very low” risks to coal dispatch compared to natural gas and nuclear.

Nuclear Sector Must Adapt to Remain Competitive

Navigant Consulting’s report, which was also funded by the Energy Department, concludes that the U.S. nuclear industry must adapt quickly enough to remain economically competitive and relevant to future electric market needs—particularly in the face of resurgent natural gas industry and increased penetration of wind energy, the report says.

“In analyzing incentives and disincentives for new nuclear power construction, it is apparent that [s]tates with deregulated electricity markets will not be attractive to merchant nuclear power plant developers,” said Don Harker, a director with Navigant. “It is also apparent that there is no guarantee that existing nuclear plants will prevail over the market forces fostering the rapid expansion of natural gas.”

The report notes that five new nuclear power plants are currently under construction in the U.S. However, it says, “significant additions of new nuclear baseload generation envisioned as little as five years ago are unlikely to be built unless [carbon dioxide] emissions fees are enacted.”

For existing reactors, long-term operations for relicensed nuclear plants could advance the body of knowledge with respect to material science, nuclear fuel design, accident analysis, and asset management. “Past experience with ‘backfits’ has shown that such advances in knowledge can have significant cost implications for nuclear plant operators,” the report says. Four reactors (not including permanent closure of Entergy’s Vermont Yankee announced on Tuesday) have been closed this year. Three of the four, San Onofre 2 & 3 in San Diego, California and Crystal River 3 in Florida, were shut down “due to the prohibitive cost of repair associated with damage to vital pieces of equipment essential to long term operations,” it notes.

According to the report, the single most contentious issue facing all nuclear stakeholders is policy uncertainty affecting nuclear waste yet “its resolution is out of the hands of the industry regulator.”

Licensing of new plants and relicensing of existing plants has been suspended by the Nuclear Regulatory Commission (NRC) until it revises its Waste Confidence Rule in 2014. That will mean “stranded spent nuclear fuel will remain at closed sites for the foreseeable future.” However, long-term storage of spent nuclear fuel is pegged to the Energy Department’s recent decisions to proceed with consent-based siting of spent fuel and high-level radioactive waste repositories.

Among problems highlighted by the impasse on nuclear waste is that the federal government is in default on a contractual obligation to dispose of spent fuel from nuclear utilities and estimates its financial penalties at $20 billion through 2020. Meanwhile, expenditures of about $32 billion in the dedicated utility-funded Nuclear Waste Fund are now limited to discretionary appropriations and are cut off from use for their intended purpose.

The report notes that 10 states have enacted moratoriums against new power plant construction until a spent nuclear fuel repository is operational, but even if the decision to abandon Yucca Mountain is reversed, “the legislated capacity of Yucca Mountain is inadequate to handle today’s waste until a second geological repository is opened or current legislation is modified.” Yet another pressing problem is that “railroads cannot currently support shipment of spent nuclear fuel,” it says.

Sources: POWERnews, ICF International, Navigant Consulting, NARUC

Sonal Patel, Senior Writer (@POWERmagazine, @sonalcpatel)

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