By Brian Schimmoller, Contributing Editor
Edward Kee, CEO of Nuclear Economics Consulting Group, is an expert on nuclear economics. Kee believes that nuclear power plants provide public benefits, including zero-emission electricity, for free. With no compensation for these public benefits, nuclear power plant owners are retiring these plants early. Losing the public benefits from these nuclear power plants is a case of market failure. I asked Kee to share his perspective on issues related to this nuclear power market failure. Kee, an ANS member, is on the ANS Special Committee on Nuclear in the States.
Q: The 1 August 2016 New York State Public Service Commission Clean Energy Standard Order includes Zero Emission Credits (ZEC) for nuclear power. Will this be a catalyst for legislative/regulatory actions elsewhere?
Kee: The New York ZEC approach is something new. ZEC sales will provide additional compensation to New York nuclear power plants for the clean electricity they generate. ZEC revenue will mean that New York nuclear power plants will be profitable and will not be retired early for economic reasons – thus solving the market failure problem in New York.
The ZEC approach is similar to the renewable programs that were allowed in the Hughes v Talen Supreme Court decision earlier this year, increasing the probability that the ZEC approach will not be rejected by the courts.
States such as Ohio and Illinois are interested in preventing early and permanent retirement of existing nuclear power plants and these states should use the New York ZEC approach as a model.
The New York ZEC approach may also encourage the Obama administration and Congress to consider a federal clean energy program with similar features.
Q: You have stated that carbon pricing won’t be enough to save nuclear power. Can you expand on your rationale there?
Kee: Nuclear plant owners see revenue from carbon pricing regimes as too little, too late, and too uncertain. As an example, the Clean Power Plan (CPP) may help the United States meet the 2030 goal for electricity industry carbon emission reduction and place a price on carbon emissions, but the CPP provides no revenue for existing nuclear plants. Another example is the United Kingdom, where the existing carbon trading scheme and carbon price floor do not provide financial support for new nuclear plant investments.
Clean energy mandates that explicitly provide nuclear power with long-term, predictable compensation for zero-carbon electricity will be appropriately recognized by nuclear power plant owners and investors. Like the New York ZEC approach, this would help prevent more early retirements of existing nuclear power plants.
Q: How do you answer someone who says we shouldn’t be picking winners…we should be picking outcomes?
Kee: Compensation for zero-emission electricity does not “pick winners,” but makes payments for outcomes that increase public benefits.
Current renewable energy mandates and other incentives explicitly pick renewable technology “winners,” regardless of the actual impact these renewable technologies have on total electricity system carbon emissions.
New York’s CES Order has separate sections for renewable mandates and for nuclear ZECs. This separation reflects the state and federal renewable incentive programs already in place.
In an ideal world, a national clean energy standard that includes nuclear power could be a technology-neutral way to replace current state and federal renewable energy incentives and compensate nuclear power plants.
Q: You have proposed government ownership of nuclear power plants as a way to address market failure. How viable is that idea?
Kee: Government ownership would be difficult in the United States. However, U.S. government purchase of coal-fired power plants in order to close them has been proposed by an adjunct professor at New York University’s Center for Global Affairs. Using the same logic, we should also consider U.S. government purchase of nuclear power plants to keep them in operation. Both actions would lower carbon emissions.
A more feasible approach is for the U.S. government to enter into power contracts with nuclear plants. The “contracts for differences” for nuclear plants offered under the UK Electricity Market Reform program are an example. Contracts for differences are financial contracts that provide price stability for nuclear plants when electricity market prices are low, but prevent windfall profits for nuclear plants if electricity market prices are higher.
Q: Can the U.S. nuclear industry’s Delivering the Nuclear Promise initiative save at-risk plants?
Kee: Delivering the Nuclear Promise may help nuclear power plant operators lower nuclear power plant operating costs, increasing merchant nuclear plant profits or decreasing losses at these nuclear power plants. Meeting DNP operating cost reduction goals may help some merchant nuclear units survive, but may not be enough for merchant nuclear units in regions with very low electricity market prices.