|By Jason Willan, Director of Risk Management & Research, Fellon-McCord|
The March 2011 Fukushima disaster in Japan thrust the issue of nuclear safety back into the social consciousness. A magnitude-9.0 earthquake and subsequent tsunami exposed the susceptibility of nuclear generation to forces of nature, heightening global sensitivities around security and emergency responsiveness. Less than six months later, a much smaller earthquake in central Virginia brought the issue to the doorstep of the U.S. nuclear industry.
On August 23, an earthquake centered less than 100 miles from Washington, D.C. forced the shutdown of the North Anna nuclear power plant in Virginia and led other U.S. nuclear facilities to report “unusual events,” the lowest level of emergency classification from the Nuclear Regulatory Commission (NRC). The shutdown at North Anna was the result of outside electricity to the plant being cut off following the earthquake, and backup systems effectively prevented any breach in reactor security. However, this was a relatively small earthquake – a magnitude 5.8 on the Richter scale – and it took place in an area that would not be considered high-risk for seismic activity, as the last quake with a greater-than-4.5 magnitude in the Virginia Seismic Zone previously occurred in 1897.
The eastern U.S. in general experiences limited earthquake activity, with the August 23 tremor equaling the largest quake east of the Rocky Mountains in more than 100 years. As such, many buildings in the eastern half of the country are not specifically constructed to withstand earthquakes. While the North Anna plant was designed to resist a magnitude-6.2 quake and would not be considered a high-risk location, the experience in Virginia and surrounding areas has heightened public sensitivity and will therefore likely bring additional scrutiny even for nuclear facilities outside of active seismic zones. Beyond highlighting potential risks in non-traditional areas, the Virginia quake and North Anna shutdown certainly shine the spotlight on U.S. nuclear facilities that are considered the most susceptible to earthquakes.
Nuclear reactors are currently operating at 65 locations across the nation, and 18 of those reside in areas identified by the U.S. Geological Survey as medium-to-high risk zones for seismic activity. Those facilities are located in nine different states from California to the Carolinas, and account for almost 26,000 MW of generating capacity. Among the sites at the greatest risk for an earthquake are Diablo Canyon and San Onofre in California; the Columbia generating station in Washington state; Clinton in Illinois; Callaway in Missouri; Arkansas Nuclear One; and several facilities in South Carolina. Diablo Canyon is often considered the highest-risk nuclear plant in the U.S. because of its proximity to four seismic fault lines: Los Osos; Hosgri; San Andreas; and Shoreline.
Given the heightened level of scrutiny over U.S. nuclear safety, it would not be surprising to see the displacement of a portion of at-risk facilities in the coming years. In addition to location relative to active seismic zones, another factor in determining the safety risk of nuclear plants is likely to be age. Of the nation’s 104 operating nuclear reactors, 47 are greater than 35 years old. Furthermore, there are eight reactors with operating licenses up for renewal in the next three years. Collectively, the nuclear facilities in these categories – active seismic zones, greater than 35 years old, and with expiring licenses – should be considered the most likely targets for retirement or decommissioning. In the next three-to-five years, as much as 20 percent of the generating capacity at these locations could be taken offline.
As nuclear generating capacity is potentially lost in the coming years, the most likely replacement fuel is natural gas. The domestic production of gas has experienced a renaissance in the last five years, due to technological advancements in horizontal drilling and hydraulic fracturing. The resulting shale-gas boom has led to successive annual production records in 2008, 2009 and 2010. The availability of the fuel source and a proven track record for quickly building out gas-fired generation makes natural gas the most viable replacement to nuclear power in the future.
Natural gas, however, is not without its own negative perceptions regarding safety. The hydraulic fracturing process, or “fracking,” has for years drawn concerns about potential contamination of groundwater, and the drilling industry has come under increased scrutiny this year as a succession of fracking-related accidents and the release of several controversial studies have brought the practice back into the public’s attention. The U.S. Environmental Protection Agency has gone so far as to propose the first-ever federal regulations aimed at emissions of hazardous air pollutants from fracking-related activities. Any limitations placed on the use of hydraulic fracturing or additional costs incurred by producers to continue to drill in shale formations could significantly impact the domestic production of natural gas. But despite the risk of a rebalancing of natural gas supply and demand in the future, the growing needs of the U.S. power grid would likely look to gas in the event that nuclear generation is reduced.
On the surface, the August 23 earthquake in Virginia may have seemed like a minor event for the U.S. nuclear industry. But in the larger context of safety concerns and framed against the not-so-distant memories of Fukushima, the event likely served as an accelerant to the debate over at-risk nuclear facilities across the country. While the U.S. is not likely to enact a change as dramatic as Germany’s decision earlier this year to shut down half of its nuclear reactors practically overnight, some level of forced retirements is almost inevitable, as is the likelihood of extended maintenance outages for safety inspections and upgrades. Natural gas generators will be called upon to pick up the slack, and the additional volume of gas needed to fuel those generators has the potential to exert significant upward pressure on natural gas prices, and by extension, power prices as well.
About the Author:
After joining Fellon-McCord in 2005, Jason Willan currently serves as director of risk management and research. His team oversees the monitoring and analysis of the energy commodity markets. Jason specializes in market intelligence, price forecasting, risk mitigation and strategy development. Previously, Jason worked with a large energy consultant focusing on analysis of natural gas and oil prices, market publications and account management.