Nuclear industry losing its glow. Should government step in?

As Vermont Yankee Nuclear Power Station stops generating power and starts to decommission, the future of the nuclear sector is darkening.

About half of US reactors – so-called merchant nuclear generators like Vermont Yankee that compete head-on in the marketplace – are economically at risk. The rise of power plants that run on cheap and abundant natural gas have the potential to make them obsolete. Even renewables like wind and solar, operating at subsidized rates, are starting to challenge the merchant generators on cost.

Many environmentalists will cheer that development. But if a big chunk of the nuclear industry's operating capacity disappears in the next few years, the United States will become far more reliant on natural gas and it will go backward in its efforts to curb carbon emissions.

“[M]eeting state and national carbon reduction goals, including the Environmental Protection Agency’s proposed 111(d) rules, will be difficult or impossible to do without nuclear,” warns former Sen. Judd Gregg, co-chair of pro-nuclear group Nuclear Matters, in a column for Public Utilities Fortnightly.

In California, the early closure of the San Onofre nuclear power plant and less hydroelectric generation caused greenhouse gas emissions from the state's power plants to surge 35 percent in 2012.

So should policymakers step in or should the energy marketplace rule?

Many environmentalists scoff at the idea that nuclear power is "green." Although it does not create carbon emissions, the industry relies on radioactive material that is inherently more dangerous than other fuels if something goes wrong. It also churns out waste that stays hazardous for decades. If the marketplace is signaling there should be less nuclear, they argue, so be it.

“The crux of the matter is the economic cost of meeting the need for electricity in a low-carbon environment,” says Mark Cooper, senior fellow with the Vermont Law School, in an interview. “We have a number of potential resources: We hear about gas, nuclear, wind, solar, and efficiencies. It turns out when you look at the economic costs of operating aging nuclear reactors, they are significantly more costly than the alternatives in both operating costs and total costs.”

Then again, energy is not truly a market-driven industry. All sources receive help in some fashion. Wind and solar power are subsidized and many states require regulated utilities to include them in their portfolio of energy sources. Exelon, one of the large owners of merchant reactors, argues that nuclear energy should be included in states’ renewable energy portfolios. Nuclear also receives help, such as federal liability protection. And half of US nuclear reactors are run by regulated utilities, which have public utility commissions (rather than the marketplace) set their rates so they can earn a return.

"The bigger, regulated nuclear plants will live on,” says James Conca, energy consultant for UFA Ventures in Washington state, in an interview.

Still, the longer low gas prices persist, the greater the pressure to close the merchant reactors. The 604-megawatt Vermont Yankee plant, owned by Entergy Corp. and which had been in business since 1972, was forced to shut down over the winter holidays. The company will also close another nuclear plant in New Jersey. Exelon says that its merchant nuclear units have lost $1 billion over the last five years.

Dominion Resource’s Kewaunee unit was also forced to shut down in May 2013 because it was unable to compete with cheap gas. Duke Energy and Southern California Edison have closed facilities in Florida and in California, respectively, for technical reasons. This month, Illinois regulators issued a report that discussed the possible retirement of three nuclear units in that state that are owned by Exelon: Byron, Clinton, and Quad Cities plants.

For the next decade at least, that lost capacity will be replaced by carbon-emitting natural gas, causing US emissions to go up at a time when the US Environmental Protection Agency’s proposed Clean Power Plan would mandate a 30 percent cut in carbon emissions by 2030, from 2005 levels.

Nationwide, nuclear produces about 20 percent of the nation's electricity but it represents 60 percent of its carbon-free power. The merchant reactors account for about half of that carbon-free power.

Of course, the economics of energy change unpredictably. Going forward, rising demand for natural gas could push prices up again. Today's uneconomical merchant reactor may be tomorrow's low-cost producer – as was the case in the late 1990s.

If the status quo continues, however, the marketplace – with all of its imperfections – is poised to deliver a drastic solution that will set back the fight against global warming.