Monday, November 21, 2016

The Future of Nuclear in RTO Areas

RTO areas in North America.  Based on FERC data
FirstEnergy plans to close or sell its nuclear plants

In a recent post at ANS Nuclear Cafe, Will Davis wrote about some changes that may happen  in the nuclear landscape in the near future.  He reported on statements made by FirstEnergy CEO Charles E. Jones at the Edison Electric Institute financial conference on November 7.

Here's a direct link to Jones' presentation: FirstEnergy: Transforming to a Regulated Company As Davis describes in his article, FirstEnergy is attempting to get out of the competitive electricity markets and become a fully-regulated utility. If it cannot support marginal plants in competitive markets, it will sell or shut down those plants.

Looking at the Earnings Per Share slide (slide 12 of the Jones presentation), you can see why FirstEnergy might get out of the competitive market.

  • At a "basic Earnings per Share" level,  Competitive Services are losing around $2.50 per share.  
  • Adjusted with "special items," Competitive Services are earning around $0.50 per share.  
  • Regulated Distribution and Regulated Transmission are always in the black, with or without "special items."  
  • Regulated Distribution, for example, earns around $1.80 per share, overall.

This is a big deal, because FirstEnergy operates in Ohio, Pennsylvania and New Jersey.  Selling its nuclear plants (and coal plants) will be a major change and disruption.  I encourage you to refer to the Davis article for more specifics on this, and for other links.

Is FirstEnergy following the Entergy exit pattern?

In all the excitement about Entergy announcements of Vermont Yankee closing, Pilgrim closing, and the sale of Fitzpatrick to Exelon,  it is easy to overlook the fact that Entergy may be following a similar strategy of exiting the "deregulated" areas.  In December, 2015, Entergy announced the sale of its gas-fired plant in Rhode Island to Carlyle Power Partners.

At this point, except for Indian Point in New York, I think all Entergy power plants in deregulated areas are either slated for closing or slated for sale.  To me, this looks like the same "exit the deregulated areas" strategy that FirstEnergy is now pursuing.  Both companies have extensive regulated operations, as well as operations in deregulated areas.

Oops: I should have said Entergy has been exiting its holdings of plants in the Northeastern RTO areas.  Entergy Wholesale Commodities also owns Palisades in Michigan.

RTO areas

Clearly, there's a lot to say about these exits, and about the implications for our power plants of all kinds. And of course, if you know me, you know my deep and abiding cynicism about the deregulated areas: see The Oddness at the Heart of RTO.  These areas seem to be more about "tweaks R us" than about market forces.

For now, I will reprint my comment on the Davis article. This subject needs far more discussion than is possible in a single blog post.

It's not just about the price per kWh


Thank you for this article. The RTO areas are basically stacked against nuclear and other baseload plants.

People will say: “Yeah, well, those plants just can’t compete with cheap natural gas.” That is not the case. Actually, in RTO areas, many or most natural gas plants get much of their income from selling “capacity” and “ancillary services,” not from selling kWh. Look at this slide from one of my articles: Payments for various types of power plants on the New England grid

As you can see, nuclear gets most of its income from selling kWh (gold bars) while NG/Oil GT (gas turbines) get around 80% of their income from “capacity” and “auxiliary” payments (blue and brown bars). That’s because the gas plants don’t sell as many kWh as nuclear sells, and you can also see that if the price of a kWh goes down but the capacity payments go up…the gas plants are all right. The common description of the “low price of natural gas on the grid” accounts for low-price sales of kWh, which are nuclear energy’s life and breath. It doesn’t account for all the ways the grid supports low kWh prices and makes up the difference…for plants that don’t run very much.

This has also been called the “search for the missing money.” Natural gas plants, without capacity payments, would have to charge more per kWh or go out of business. But…most RTO areas supply the gas plant’s “missing money” in a way that hurts any high-capacity-factor plant on the grid.

(Note: CC is combined cycle, ST is steam turbine, GT is gas turbine.)

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