New Article Raises Questions
Ed Kee, owner and principal consultant at Nuclear Economics Consulting Group (NECG) and an Affiliated Expert with NERA Economic Consulting, just published a pair of rather depressing forecasts about the future of nuclear power: an article in Nuclear Engineering International entitled, "US Nuclear Industry in Decline," and a piece in the World Nuclear Association's World Nuclear News entitled, "Can nuclear succeed in liberalized power markets?"
In both, he lays out rather clearly and starkly what many of us have been seeing for a long time--just as nuclear power was beginning to make a comeback in a number of countries, it has been hit by a trend toward liberalizing electricity generation and distribution markets.
While it looks good on paper to make electricity generation and distribution more market oriented, it has had a number of unexpected consequences. Basically, the primary organizing principle of a liberalized market is that it minimizes short-term market prices, whereas traditional regulated markets minimize long-term electricity costs to users.
This pressure has been exacerbated by a couple of simultaneous trends--the subsidies for renewable energy sources in many places, and the sudden low price of natural gas. As a result, we have all been left scratching our heads in disbelief when we hear about negative spot prices on local electricity markets.
This in turn is putting pressure on utilities to shut nuclear power plants. We have already seen some closures in the US in the last couple of years due to the economics of power generation in their regions. Numerous forecasts point to several other plants that may be at risk for a similar reason.
It seems particularly criminal to lose an existing asset to economic considerations. The investment in it has been made, so replacing it with anything comes at a cost, and since most of the replacements envisioned in the near term are natural gas plants, the new plants will produce more carbon emissions than the nuclear power plants they replace. And despite new natural gas finds and methods of extraction (i.e., fracking), history teaches us that the price of oil and gas is very volatile and subject to sudden large fluctuations. We ignore that history at our peril.
I found the titles of the two articles interesting--one asks a question about whether nuclear power can succeed in liberalized markets, while the other seems to suggest that the conclusion is negative. Nevertheless, the articles suggest several options that are being, or could be, tried: allowing extended, but temporary, shutdown and mothballing of nuclear power plants during periods of low electricity prices (he mentions the Bruce plants in Canada); some way of externalizing carbon emissions (he mentions the US Environmental Protection Agency's proposed rule and the flaws in the measures proposed); power purchase agreements; contracts for difference; and other models that improve the revenue certainty within a deregulated marketplace.
Although I'm sure that some will say that undercuts the intent of deregulation, I would take a different view. Every institutional measure we impose has multiple ramifications, and often, unequal and unfair impacts on different segments of society or different commercial enterprises. What we usually end up doing in such cases is going back and making "backfits" to fix the problems.
It appears that we need such backfits to assure that liberalized electricity markets don't end up costing us more--much more--in the long term than we are saving in the short term. Ed has laid out a number of options, but aside from the few places he mentions (all outside the US), I am not clear on what may be under active consideration elsewhere. I hope these two articles spur some action.