Tuesday, November 29, 2016

Nuclear vs. Gas Economics, a Three Year Projection. Guest post by Nick Escu

Nuclear Power vs. Natural Gas Power 
A Three Year Projection
By Nick Escu


The power industry continually looks for a stabilized grid demand to operate profitably, economically and reliably.

There are several key factors the power industry looks at to determine these needs are met.

Profitability is determined by how much generation costs, plus outstanding production and grid costs are entailed. Factors affecting generation are fuel costs, labor costs, parts costs, plus new regulations, plus changes in overall demand.

Costs

We’re going to look at current nuclear power costs and three-year projected nuclear power costs, as well as current natural gas power costs and three-year projected natural gas costs.

We are not going to look at the huge increase in air pollution and power production costs caused by natural gas versus nuclear. These facts are readily seen in Germany which eliminated nine of its nuclear plants in favor of natural gas and a little wind and solar.  It has shown a 25% increase in power costs. Similarly,  Japan has at present, shut down all of its nuclear plants, with a huge increase of air pollution and power costs. Similarly in California which shut down two nuclear plants with subsequent air pollution increases and rising power costs. Enough has been written  about these examples, and will continue to be written in the future.

Let’s begin our analysis.

Selling price

We will first look at basic selling price of nuclear power per megawatt hour versus natural gas power per megawatt hour.

The EIA actual selling prices as of January 2013 for Mid-Atlantic generators were $32.00/ megawatt hour, and for the Midwest were $25.00/ megawatt hour.

Nuclear power plants are base load plants. They operate at 100% of their capacity for over 90% of their operating time. So when a nuclear plant is contracted to produce power to maintain the electricity grid in their region, they must operate. For most nuclear plants, the breakeven costs for power production are between $32.00 and $35.00 per megawatt hour. Anything less and that plant is losing money. And most businesses, unlike the federal government, do not operate on a loss revenue basis. They are in business to make money.

Natural gas

Now let’s look at natural gas power production costs.

In February of 2003, according EnergyOnline  the electric production costs were $990 per megawatt hour in Texas and New York City costs were $175 per megawatt hour.

But because of the tremendous fracking, current natural gas electric power production costs have dropped to $28.50 per megawatt hour in November, 2013, according to 4 Traders.

So we can see that if you have a nuclear plant that runs very economically producing power at $32.00 per megawatt hour and you also have a natural plant that generates power at $28.50, the logical choice would be to turn off the nuclear plant and make $3.50 for every megawatt hour.

Let’s put it in simpler terms. A 1000 megawatt power plant should run 8760 hours per year (the total hours in a year 365 X 24 =8760). Normal maintenance is about 10% of that time, so let’s subtract 876 hours for a net total of 7884 operating hours. Now let’s multiply that $3.50 more money the gas plant makes over the nuclear plant, times those hours, and those megawatts.

$3.50 X 7884 X 1000 =$27,594,000. This is the yearly gross profit a natural gas plant has over the nuclear plant.

If that was all we had to determine profitability and future projection, it would be a No Brainer. We’d shut down the nukes today, as long as we had plenty of natural gas plants.

But there another factor we must consider for the bottom line.  Short term versus long term.

Short term and long term

I’m an electrical contractor working in the power industry. A few years ago someone came to me and offered me $100 per hour to work, and the work involved 80 hours per week. Since I was between contracts, I took the assignment for a 2 month period of time, and made a nice chunk of change.

Shortly thereafter I took a 2 year assignment at $65 per hour, for a 60 hour work week. In the middle of that assignment the contracting group I’d previously worked at attempted to get me to go on an assignment to the same place, for a 3 week assignment. If I had known they were going to call me back, I could have let the new group know I’d be away for 3 weeks.

My decision was simple. I stayed with the 2 year assignment. Why? Because for the long haul, it was more profitable.

Sometimes short term profits cloud our judgment over the long haul.

Fuel cost trends

Back to natural gas.  I began this section by stating that in 2003 natural gas production costs were between $175 to $990 per megawatt hour.

So now let’s look at the consistent biggest cost to nuclear plants, the cost of nuclear fuel.

In 2003 nuclear fuel costs averaged $57,000,000 for a 2 year fuel cycle for a 1000 megawatt power plant. 2013 average cost for the same fuel is $60,000,000, or a 5% increase over the past 10 years or an average of 0.5% per year increase for nuclear fuel.

Natural gas prices decreased from $990 to $28.50 or a 97.2% decrease in power production cost.

But is that price of $28.50 per megawatt stable or is it changing?

The World and Us

Let’s look at the world prices. The prices vary from $57.00 per megawatt hour in Europe to $116.00 per megawatt hour in Asia. Why? Because of fracking here in the US, our prices are so low. That guy on TV says “We have enough natural gas for 100 years” remember him?

But a new factor has risen, LNG exporters. The President has signed 17 permits to now export liquid natural gas to all those places willing to pay a little less than what they have now. So what will that do to our US prices of natural gas??? Do you really believe our gas prices will decrease?

No, all of you are realistic. Our prices will increase.

A good example is that gasoline in the Emirates was a few years ago $0.25 per gallon, but today it’s about $0.70 per gallon. Why? Exporting your home product raises your costs locally. In the Emirate’s case, almost 300% increase.

Let’s be conservative and say our natural gas prices will only double here in the US after we start exporting. How long will that be?

The LNG export sites are even as we speak, running new power lines for the 11,000 and 12,000 horsepower compressors that turn the gas into a liquid. Estimates at present are 3 years (or 2020) for the last permit construction completion and production beginning and exporting.

Cheniere began production and first export happened in mid-February, 2016. Natural gas price in late February, 2016, was $1.71/MMbtu (Henry Hub). As of the end of September, 2016, the price for nat gas had risen to $2.99/MMbtu, a 75% increase in less than 9 month.

So do we really want to completely shut down a minimum producer like a nuclear plant today, when in 2 years it will be worth twice its value?  It’s a penny wise pound foolish decision.

Nuclear and Us

The optimum plan would be, pay for, build and use the gas generation now, and temporarily place the minimal nuclear plants in a hold status, much like had been down at Brown’s Ferry and Bellefonte. The stability we’ve seen with nuclear power far outmatches in price fluctuations what we’ve seen in natural gas.

Let’s see how a closed nuclear plant power production has been supplied.

Vermont Yankee closed December, 2014. VY was a 620 MWe plant supplying most of the electricity generated in Vermont (72%). Gets a little tricky here. So what replaced the nuclear baseload power?

Right, natural gas.  The rise of gas on the grid almost exactly replaced the fall of nuclear on the grid.  Green Mountain Power distributes most of the power in Vermont, and they are wholly owned by Gaz Metro of Quebec.  Gaz also distributes nat gas through Vermont Gas Systems.  This is a company that is always happy to see more gas on the grid, and more energy imports from Canada.

Additionally, the Vermont government and Green Mountain continue to purchase power produced by YES, You Guessed It, Seabrook Nuclear Plant.

Now most all of Vermont is dependent on nat gas. And everyone is begging for larger natural gas pipelines, because no nat gas, NO POWER! Great move ecologically minded Vermont. 200,000 Vermont homes using electricity from natural gas instead of nuclear produce the following: 38,000 tons of NOx, 78,000 tons of SO2, 96,000 tons of CO2, and 104,000 tons of particulates. But all those numbers were at or near ZERO tons with Vermont Yankee Nuclear plant????

How about Connecticut? What’s their gas situation like? Legislators were just denied new nat gas lines, because under FERC guidelines, all required consumption must be contracted prior to build out of pipelines. Sorry Connecticut. No contracts, no new nat gas pipelines.

To be continued

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Nick Escu is the pen name of a person with long experience in the power industry.

6 comments:

Gary Kahanak said...

Please explain how natural gas electricity production cost could drop from $990 to $28.50/MWh? Is the $990 really correct? If so, it makes a strong case for natural gas getting much more expensive.

Otherwise, it's a strong argument for mothballing nuclear reactors in the current unprofitable economic environment, as opposed to permanently decommissioning them. All relevant state Public Service Commissions need to be made aware of this before approving nuclear station decommissioning due to short-term unprofitability. Natural gas WILL get more expensive.

Meredith Angwin said...

Gary, I didn't check the numbers. I admit it.

Looking at my old blog post, you can see that electricity prices track natural gas prices closely. A $6 natural gas price is a $40 MWh electricity price, and a $15 natural gas price is $100 MWh electricity price.

http://yesvy.blogspot.com/2010/10/inconvenient-truth-about-vermont-yankee.html#.WD4u3DKZMUE

(chart for New England near the bottom of the post.)

Looking beyond New England: Henry Hub prices also show natural gas prices spending several years bouncing between $5 and $8, and down around $2 now.
https://www.eia.gov/dnav/ng/hist/rngwhhdd.htm

To me, that $990 does look high. I think the point is that we shouldn't assume $2 gas is here to stay.

Meredith Angwin said...

Hi Gary

The author got in touch with me with some references. Prices did indeed soar to $990 MWh on the Texas grid for a relatively short time in 2003. More relevant (to me at least) is that prices were $300 to $500MWh on the grid at that point, not counting the $990 spike. The author sent me some excerpts from ERCOT data (ERCOT is the Texas grid).

To me, the message isn't about $100, $300, or $990 MWh. These are all dramatic numbers, of course. For me, the message is that gas prices are volatile, and beginning to export gas can definitely push them. We should also note that gas prices have stayed high for days, or months, or even years. And that exporting LNG can be another force that makes "cheap abundant natural gas, no problems" into a thing of the past.

It's always "difficult to make predictions, especially about the future, " as Yogi Berra supposedly said. I wanted to publish this because I think that the effects of LNG exports on domestic gas prices are never discussed. Their effects may well be significant.

Todd De Ryck said...

Thanks for this important post! I find this point critical, especially for environmentalists, but I am unclear of the timeframe? per year? since Vermont Yankee closing? "200,000 Vermont homes using electricity from natural gas instead of nuclear produce the following: 38,000 tons of NOx, 78,000 tons of SO2, 96,000 tons of CO2, and 104,000 tons of particulates"

Meredith Angwin said...

Todd,

Basically since Vermont Yankee closed. Vermont has 600,000 people, and Vermont Yankee made about 70% of the power produced in the state. Looking at it from the point of view of the grid, the grid used 5% more gas-fired power than it used when VY was running...lots of articles on this, some on my blog. Mike Twomey guest post on the gas substitution is very readable.

Or you could say, 600,000 people in Vermont could be seen as 300,000 households. Then, 2/3 of the power (70% of power) switching to gas would be 200,000 households. As I said before, I trust this author and didn't check his figures, but that would be about right.

Meredith

Meredith Angwin said...

Another short note: I linked to this post on FB, and a comment pointed out that we are already shipping much more gas to Mexico than we did a few years ago. The new pipelines leading to Mexico are probably helping stabilize or raise natural gas prices in the U.S.
http://www.theenergycollective.com/todayinenergy/2394314/new-u-s-border-crossing-pipelines-bring-shale-gas-to-more-regions-in-mexico
The bottom graph in that article shows Mexican imports of U.S. gas have increased from approx 1.8 Billion Cubic Feet (bcf) a day in 2013 to 4 bcf per day in 2016.