By Sharryn Dotson, Editor
“How can you have a top performing power plant and still see it shut down?” This is a question that many people are still asking a year after the 556-MW Kewaunee nuclear plant in Wisconsin shut down for good. Kewaunee was considered industry wide as a well-run power plant, one that rarely had operational or regulatory issues. Yet, it still permanently closed on May 7, 2013 after 39 years of operation. It wasn’t regulations or public opposition that shut it down, but economics.
The Numbers Behind Kewaunee
Virginia-based Dominion owns three U.S. nuclear power plants: North Anna and Surry in Virginia and Millstone in Connecticut. The utility acquired the Kewaunee plant in Carlton, Wisconsin in July 2005 from joint owners Wisconsin Public Service Corp. and Alliant for $192 million. Kewaunee was run as a merchant power plant that sold its generated power to two companies, but when those companies did not renew power contracts, and Dominion was unable to buy other nuclear plants in the region to help make the purchase of Kewaunee economical, the utility put the plant up for sale in April 2011. No buyers took the deal, so Dominion made the decision to close the plant in October 2012.
“This decision was based purely on economics,” said Thomas Farrell II, chairman, president and CEO of Dominion in a statement released at the time the closing was announced. “Dominion was not able to move forward with our plan to grow our nuclear fleet in the Midwest to take advantage of economies of scale.”
Mark Kanz, local affairs manager at the Kewaunee plant for Dominion, said the utility estimates decommissioning to cost a total of $937 million, which includes the costs for license termination, spent fuel management and site restoration. The process also allows the decommissioning fund for Kewaunee to continue earning interest.
Despite losing a major tax provider, the economy and employment levels in Carlton have not yet been negatively impacted. The town is still receiving the state utility tax, but that will be phased out over a five-year period.
“Employment levels in the town are still fairly high and the state utility tax that has come back to the township has not been cut,” Kanz said. “For 2014, the utility tax payment is still at 100 percent.”
|Steam is dumped from the Kewaunee plant as it is shutdown on May 7, 2013. All photos courtesy of Dominion.|
However, the tax payment will gradually decrease by 20 percent each year until 2019. Kanz said Dominion is also working with the municipalities to appraise the buildings so the values can be used to determine property tax bills for 2015.
Employment at the plant has decreased, but there is still staff on hand performing decommissioning activities. At the time of the plant’s closing, there were 632 employees. Currently, there are 260 on-site, but that will go down to 140 by the end of October.
“These are the workers who will be needed in 2015 and 2016 to empty the spent fuel pool and move it to dry storage,” Kanz said. “They will continue to do those things to put the plant into SAFSTOR.” SAFSTOR is an option that essentially mothballs the plant for 50 to 60 years until decommissioning is completed. It allows the radiation to decay to safe levels for workers to dismantle equipment and to restore the land.
“We are continuing to do what we can for those employees who are leaving,” Kanz said. “Our U.S. congressman held a job fair, and the 120 people who know they are done in October were given time off to go there and make connections. We will also be holding our own job fair in the future.”
Kanz said there is no negative stigma attached to seeing Kewaunee on someone’s resume.
“Employers know the people here are good workers and do the job right,” Kanz said.
Markets and the Industry
Many in the industry say the biggest financial issue affecting the nuclear industry in certain power markets is that the electricity generated from nuclear is not paid according to the services it provides, such as for generating low-carbon, around-the-clock energy and frequency support for renewables being added to the grid.
“Basically, if you’re not paying people correctly for the capacity that they have there – and this was true in Wisconsin with Kewaunee – you’re basically going to lose some units and you’re not going to be replacing them very easily,” said Marv Fertel, CEO of the Nuclear Energy Institute (NEI) during the Nuclear Executive Roundtable in November. “Right now, with the way the market treats them for the capacity that’s there all the time, it makes it hard for single units to survive, so there are dysfunctions in the market.”
Observing the shut down of Kewaunee due to its inability to compete with cheap natural gas, and the announcement that Entergy will shut down its Vermont Yankee nuclear plant by year-end 2014 for the same reason, has made the industry take notice, according to Daniel S. Lipman, Executive Director of NEI.
|The last fuel assembly is moved from the reactor to the spent fuel pool.|
“Even with the best running nuclear plants, the prevailing market conditions, especially not valuing of nuclear plants’ ability to operate more than 90 percent of the time – known as capacity factor – couldn’t sustain price levels that make it economic to run,” Lipman said. “It’s fair to say those conditions are still in place a year later.”
David Bradish, Manager of Energy & Economic Analysis with NEI, agreed, saying change will be necessary to keep the industry going. “The fundamental aspects of the market has not changed,” he said. “The markets will have to have some other forces out on it, in which system operators or utilities will have to get together and agree to value baseload electricity differently.”
“That falls squarely on state regulators,” Lipman said. “There is a federal role involved because FERC (Federal Energy Regulatory Commission) regulates electricity, but in rate-based states in which the price of electricity is set by the state utility commissions, the primary responsibility for governing utilities in the states is with the regulators.”
Lipman points to the recent polar vortex in the U.S. as an example of how nuclear can generate reliable electricity and not be properly compensated for it. Many fossil fueled and renewable power plants had problems with operating in the extreme cold and had to shut down. In addition, the price of natural gas in the Northeast skyrocketed to $8 or $9 per MMST, compared to the Henry Hub that had natural gas priced around $0.50, Lipman said.
“So what did they do? They operated oil-fired units that are destined to be shut down due to market conditions,” Lipman said. Coal piles froze, so other units had to come on.
“A lot of energy sources go away, so you end up having to energize units that are marginally economic,” Lipman continued. “If they go away and this polar vortex happens again two or three years down the road, those units we had to crank up won’t be there.”
“Many people always ask us if we will reopen, but we certified to the NRC that we will not reopen as a nuclear plant,” Kanz said. “Anybody who comes in here to operate another power plant on the site would be starting from scratch, and that would be difficult to do with a 40-year-old facility. It has to be brought up to meet today’s standards.”
Kewaunee’s closure, along with the announcements that Entergy’s Vermont Yankee and Exelon’s Oyster Creek will close in 2014 and 2019, respectively, have made the industry take notice.
“Just four or five years ago, people in the industry would say this would never happen,” Kanz said. “Kewaunee may be the first, but there are others behind us. It’s cause for concern in the industry and we are trying to make sure there aren’t too many more than follow along behind us.”
|In this photo from the 1970s, barges from KPS Construction help in the construction of Kewaunee.|
NEI’s Lipman agreed. “It was a bit of a wake up call. Kewaunee was always seen as tip-top of its class in terms of safety and economic performance,” he said. “It shows there is no guarantee that you can have a normal licensed lifespan for your unit in an unlevel competitive playing field in which nuclear energy’s attributes of low fuel costs, reliability and high capacity factors aren’t properly valued.
“That’s sort of a negative learning,” he continued. “There are nuclear operators who continue to turn the numbers every few hours on what prices are necessary below which they have to shut down. We learned there are more nuclear units that are on the bubble in order to survive.”
NEI’s Bradish said there is more than just the economic benefits of keeping nuclear in the future energy mix.
“The electricity markets don’t value the diversity here that has clearly paid off for nuclear as was shown during the polar vortex,” Bradish said. “There are a lot of attributes that aren’t quite valued.
“The last thing is grid stability. Baseload plants like nuclear, in general, provide a great service by always being on,” Bradish said. “There are more requirements for renewables, and the intermittent nature can make it tough on grid operators, or it may not always be available, and that can cause grid reliability issues. Nuclear is always there for you in the market.”
Dominion is not giving up on nuclear all together, Kanz said. “Dominion is looking to apply for license extensions for some of our other plants to make sure they are operational into the future, and they are conducting preliminary internal reviews for additional licenses for the units in Virginia, so I think they’re demonstrating that they’re in this for the long haul,” he said. “The other thing Dominion’s got going is we’re looking at building a new unit at North Anna, which proves that the company sees the benefit of nuclear and is looking forward to continuing that into the future.”
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