Can Anything Stop the Decline of Nuclear Power in the Merchant Markets?

On October 12, Entergy ended speculation surrounding its embattled Pilgrim Nuclear Power Station, located in Plymouth, Massachusetts, by announcing its intent to shut down the 43-year-old plant. Though the specific date for shutdown of the 680 MW plant has not been set, the company notified ISO-New England that it would no longer provide capacity into the market effective June 1, 2019. The primary factors cited by Entergy for the closure of the Pilgrim Nuclear Power Station were depressed gas prices and subsidized renewables. These two factors reduced revenues that, when coupled with rising operating costs, made continued operation of the plant uneconomical. Additional cost pressure materialized in the weeks prior to the announcement when the Nuclear Regulatory Commission placed the plant in Column 4, a categorization that requires enhanced inspections over the next several years that Entergy estimates will result in an additional $45M to $60M in operations and maintenance expenses. This estimate does not include the cost of potential capital investment or other costs to address issues that arise during the inspection.

Less than a month later on November 2, Entergy announced that it would also be closing its 40-year-old James A. FitzPatrick Nuclear Power Plant, which is located in Scriba, New York, at the end of its current fuel cycle (late 2016 or early 2017). Much like Entergy’s rationale for the closure of Pilgrim, company leadership determined that it could no longer run the 838 MW plant due to the “continued deteriorating economics.” More specifically, Entergy highlighted reduced revenues associated with current and long-term wholesale energy prices driven by low natural gas prices, a poor market design that fails to properly compensate nuclear generators for their reliability, the higher cost structures associated with single-unit facilities, and a combination of excess power supply and low demand in the local region.

Key Details

  • Entergy’s Pilgrim and FitzPatrick plants will be the third and fourth plants in the last three years to announce early retirement due to negative market factors and rising operating costs; the others being Entergy’s Vermont Yankee Nuclear Power Plant and Dominion’s Kewaunee Power Station
  • According to a UBS analyst report published in late September, it was estimated that Pilgrim would lose $25M in 2015 and approximately $60M over the course of the next four years
  • The closure of these plants, and subsequent loss of more than 1,500 MW of carbon-free generation, may complicate the strategy of Massachusetts and New York for complying with the Clean Power Plan
  • The closure of Pilgrim and FitzPatrick will make the Northeast even more reliant upon a constrained natural gas supply to meet the region’s electricity needs

Key Implications

  • These announcements continue the decline of nuclear power in the Northeast and central regions of the country, even as construction continues on several new units in the Southeast. Many experts see the closure as a clear signal that additional early retirements are on the horizon for other financially challenged nuclear plants
  • Pressure will continue to rise regarding the fate of proposed natural gas pipeline expansion projects in the Northeast (e.g., Kinder Morgan’s Northeast Energy Direct project). Though pressure for increased pipeline capacity in the region is increasing, a recent study conducted by The Analysis Group for the Massachusetts Attorney General concluded the region would be able to meet its energy demand without increased capacity, further complicating the debate
  • New York Governor Andrew Cuomo is said to be working on a new policy that, if approved, would require the state’s utilities to provide at least half of their power from renewable sources (of which nuclear is included), potentially providing a means to force continued operation of the FitzPatrick plant
  • Moody’s views these closures as credit positive for Entergy because continued operations of these facilities would erode profitability and the closures will reduce Entergy’s merchant generation exposure and improve the company’s business risk profile

More Information

This report is part of the Nuclear Minute series. To view all featured Minutes, please click here.

Contributing Author: Ryan Smith and Eric Hanson

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