POWER August 2017 - 56

COMMENTARY
The Impact of Alternative
Energy on Electricity Pricing
Jaclyn Bliss
T
he rise of some sources of alternative energy such as renewables,
storage, energy efficiency, and demand response,
and decline in others-specifically nuclear-will continue
to impact regional gas and electricity prices throughout the rest
of 2017.
In particular, changes in nuclear power generation could
play an important role. Facing economic pressure from cheap
natural gas and renewable energy, roughly one-half of U.S.
nuclear plants in competitive markets are at risk of early retirement.
States
with pending nuclear retirements have taken two approaches
to address this threat to their baseload generation:
subsidize nuclear generators, or embrace substitute fuel types.
Illinois and New York have each legislated financial support
for nuclear power through zero-emission credits (ZECs) in their
renewable portfolio standards. These legislative solutions mean
higher ancillary costs for ratepayers, and these costs will show
up in their supply bills.
Michigan, Massachusetts, and New Jersey are each embracing
substitute fuel types-and natural gas in particular-as a
stand-in for retiring nuclear power. As these states become more
reliant on gas-fired generation, they become more vulnerable
to weather-related price swings, like those we saw during the
notorious polar vortex in the winter of 2014.
Costs Increasing
Nuclear generators have noted a 25% jump in fuel costs during
the past decade. Capital expenses have increased 109%, while
operating costs jumped 13% during that timeframe. Even if nuclear
retirements in Germany and Japan weaken demand for raw
materials and depress fuel costs, significant measures will still
need to be taken to keep nuclear power online.
Both Illinois and New York have passed legislation to protect
their nuclear generation fleet, and in each case ratepayers will
face higher ancillary costs.
Illinois aims to generate 25% of its energy from renewable
sources by 2025. Facing closures from the Clinton and Quad
Cities nuclear power plants, the state government passed a
$235 million annual subsidy for nuclear generators in a Future
Energy Jobs Act last December. The bill created a zeroemission
standard that allowed Illinois to purchase ZECs from
nuclear plants. Under the plan, Illinois utilities pay nuclear
generators for the ZECs, and pass those costs on to their ratepayers
in ancillary services.
Also last December, the New York Public Service Commission
rejected or delayed petitions aimed to derail New York's Clean
Energy Standard. The standard requires New York to source 50%
of its energy from low-carbon sources by 2030, including ZECs.
Natural gas and coal generators are currently suing New York over
the ZEC program and its benefits to New York's nuclear program,
56
which are estimated to cost ratepayers 3.2¢/kWh.
Without Legislation, Natural Gas Could Replace
Nuclear Generation
The Rhodium Group estimates that without legislative action,
more than 75% of the lost electricity generation from at-risk
nuclear plants would be replaced by fossil generation, largely
from natural gas combined cycle power plants.
According to Sue Tierney, former Assistant Secretary for Policy
at the Department of Energy, nuclear retirement means that
" electricity prices rise the next day, and emissions rise the next. "
As Michigan, Massachusetts, and New Jersey eye pending nuclear
retirements over the next two years, ratepayers in those states
should anticipate sharper weather-driven volatility in their electricity
prices. Some market-spurred developments include:
■ Michigan is reeling from Entergy Corp.'s unexpected decision
to close the 725-MW Palisades Nuclear Plant in Covert Township.
To compound matters, Michigan is facing a number of
coal-generating power plant retirements during the next six
years.
■ Massachusetts is preparing for the 2019 closing of the 680MW
Pilgrim Nuclear Power Station in Plymouth, which generates
approximately 13% of the emissions-free power in New
England. The area has become more and more reliant on natural
gas, and because natural gas is still primarily used for
commercial and residential heating, this reliance spells price
volatility for the region.
■ New Jersey expects Exelon's 625-MW Oyster Creek nuclear station
in Ocean City to close in 2019. Oyster Creek, one of the
nation's oldest nuclear facilities, provides baseload capacity
to approximately 600,000 ratepayers.
■ Pennsylvania's 837-MW Three Mile Island nuclear power plant
in Middletown, which services 800,000 ratepayers, has announced
its intent to close within two years.
■ Ohio's 900-MW Davis-Besse nuclear power plant in Oak Harbor
will likely be devalued this fall.
Retiring Nuclear Plants Leading to Price Volatility
Electricity markets dominated by natural gas are subject to sharp
price swings. Over the past 10 years, natural gas prices at Henry
Hub have fallen as low as $1.63/MMBtu and climbed as high
as $15/MMBtu. SparkLibrary estimates that at these natural gas
prices, " dispatch costs for an efficient natural gas plant would
be as low as $18/MWh or as high as $110/MWh. "
When nuclear generation is replaced by a fuel source widely
used for heating, we can anticipate price swings like those experienced
during the 2014 polar vortex to become more routine. ■
-Jaclyn Bliss is general manager for
Global Energy Procurement at EnerNOC.
www.powermag.com
POWER | August 2017
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POWER August 2017

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