Lightbridge Corporation (LTBR)

[boominator]

Nuclear Energy Market Avoids Major Disruption

....For Now http://tinyurl.com/p8aawjy

A funny thing happened on the way to buy electricity: the Clean Power Plan, which requires cuts in heat-trapping emissions. Its creation, in fact, may have kept alive some struggling nuclear energy plants and in doing so, helped certain states meet their carbon restrictions under the new regulations.

Absent a successful legal challenge, the United States must come to terms with the Environmental Protection Agency’s carbon regulations finalized in August, which mandate 32 percent cuts in carbon emissions by 2030, from a 2005 baseline. Nuclear energy is a major benefactor, especially those facilities that are now under construction as well as any existing plants that upgrade to increase output.

Exelon Corp., which owns nuclear plants that sell electricity at market rates, is the first to benefit. Simply, the PJM Interconnection that orders up electric generation and schedules the flow of electrons across the wires in 13 states agreed to buy its nuclear output for a few years.

That futures contract has enlivened its unregulated — or “merchant” — nuclear operations, for now: Exelon’s plants, actually, had a competitive bid, well below the auction cap. Until now, the running theme has been that the shale gas boom, which has created sustained low electricity prices, has made it too difficult for nuclear plants to compete in this new and unforgiving merchant world.

Already, two merchant units owned by Dominion Resources and Entergy Corp. have retired. As much as 6 percent of the total nuclear capacity is at risk of closure. In total, 99 nuclear reactors generate 19 percent of the nation’s electricity.

“We must compete against the marginal source: natural gas. And we do not see those prices rising. We need diversification. We need a balanced portfolio,” said Chris Crane, chief executive of Exelon at the Edison Electric Institute’s annual meeting in New Orleans, before reporters.

He subsequently added in a news release that his company’s nuclear plants will remain “economically challenged” but that the Clean Power Plan will give them some breathing room. That rule, he explains, puts a premium on those facilities that are “always-on” and that are carbon free.

Between cheap natural gas and green energy that receives state-sanctioned, long-term contracts, Exelon has said that its merchant nuclear units can’t compete.

Now, though, the Clean Power Plan has changed the economic calculus. And with that, Exelon is the subject of attacks that say it is now on government’s gravy train. Along those lines, it has been petitioning the state of Illinois where it is domiciled to push for limits on carbon releases, which by extension give its nuclear fleet a leg up over fossil-fueled generation.

The contract that PJM and Exelon inked will run through the middle of 2018. That’s why Exelon is still pushing the Illinois state legislature to require that 70 percent of all power purchases come from low-to-no carbon sources. For its part, the utility has cited Illinois environmental officials, who point out that the loss of just two nuclear plants would cause the state’s carbon emissions to double and to make it extremely difficult to meet the U.S. EPA’s thresholds.

“From a cashflow perspective, we see (Exelon’s) reactors still struggling to cover their all-in cash operating expenses, but their official operating licenses do not being expiring for another 10 years,” says the credit rating agency Moody’s Jim Hempstead, as noted by SNL. “We think power prices will rise during this period, which will quickly result in some sizable margins for the reactors.”

Still, existing nuclear plants are not out of the woods yet. Balancing public policy and the free market is thus tricky. If reducing carbon is a national priority, then nuclear energy now has a competitive head start — an ironic twist, given the fuss that the merchant nuclear generators have been making over green energy subsidies.

Think of it this way: Southern California Edison was forced in 2013 to close its San Onofre Nuclear Generating Station (SONGS) after it was unable to resolve persistent problems with radiation leaks. SONGS had provided 17 percent of Southern California Edison’s electricity load, at 2,200 megawatts. Now, natural gas is stepping in, causing greenhouse gases to rise by 35 percent since 2012.

“With gas plentiful and cheap, it puts stress on the other kinds of generation,” said Edison International Chairman Ted Craver, speaking earlier on the phone with this reporter. That said, he added, “nuclear is unique: It is the one large central base-load plant that exists that is not a fossil fuel.”

Given the changing tide — pardon the global warming reference — will the new carbon regulations give better odds to the existing merchant nuclear fleet? Will it encourage the building of new nuclear units?

Industry sources tell this reporter that Dominion Resource’s and Energy Corp.’s merchant nuclear units will remain unplugged — despite the PJM’s contract with Exelon that has kept its plants in business. At least half of all U.S. nuclear reactors, by contrast, are run by regulated utilities and monitored by public utility commissions. Those are considered economically secure.

Meantime, the U.S. marketplace is watching the build-out of four new reactors going up in South Carolina and Georgia, where Scana Corp. and Southern Co., respectively, are each constructing two plants that will crank out about 2,200 megawatts per utility.

If they can come in on-time and on-budget, then it might encourage new investment. 2020 is the rough timetable, with cost that now run well into the billions. For Southern Co.’s part, it is getting a federal loan guarantee and it is able to put the cost of construction into its current rate base.

Going forward, “Regulatory changes are necessary to recognize the advantages of nuclear over natural gas,” says former New Jersey Governor Christine Todd Whitman, in an interview. Otherwise, the co-chair of the pro-nuclear CASEnergy Coalition says that nuclear-dependent states like Illinois would miss the administration’s carbon reduction targets.

Natural gas, which is also getting the country to its carbon goals, will remain the fuel of choice and the default selection for utilities. But cleaner options exist, which will get helped along by the Clean Power Plan. Just ask Exelon, whose unregulated nuclear fleet has averted a major disruption, at least for now.