Small and Single – It’s a Tough World Out There

Merchant power generators must continually evaluate the competitiveness of the plants in their portfolio. In today’s power markets, with historic low natural gas prices and the slow recovery of power demand from the “Great Recession,” this evaluation takes on greater importance. The difference between profitability and shutdown has become razor thin for an increasing number of plants, particularly small, single-unit nuclear plants whose cost structures were challenged even with stronger power prices.

  • Hydro-Quebec (HQ) recently confirmed that it will close its sole nuclear facility, the 675-MW Gentilly-2, at the end of 2012. HQ cited the high costs of refurbishment and projected electricity costs of the plant as being drivers. In addition, a new Quebec government is now controlled by Parti Quebecois, which has opposed the continued operation of the plant.
  • Exelon announced in 2010 that it would close its single-unit Oyster Creek (NJ) plant by the end of its current license period (2019). Exelon management determined that continued operation would require installing cooling towers, and recovery of those costs in the bid-based PJM market would be uncertain. As of 2010, Oyster Creek generated about 6% of New Jersey’s electricity.
  • Dominion announced in November 2012 that it would close its 550 MW, single-unit Kewaunee plant in Wisconsin. Although it had been granted a license extension, the economics were not sufficient to keep the plant operating when its PPA expired. Failing to find a buyer for the plant, Dominion announced it would shut down in 2013.

Small, single-unit plants are at a significant disadvantage in comparison to dual-unit plants, which are often greater than 2,000 MW. With a significant amount of fixed costs and fewer MWh over which to amortize these costs, smaller plants will have a higher cost per MWh than dual unit plants. In a merchant environment, these plants are often “on the bubble”. Add to that an unexpected capital investment (e.g., cooling tower), a major change in market conditions (e.g., loss of PPA in a down market), or a required strategic decision (e.g., nuclear relicensing), and it becomes more difficult to justify continued operation.

When a well-running nuclear plant like Kewaunee closes, there is a temptation to look for broader implications on the nation’s nuclear fleet, particularly in the post-Fukushima environment. However, the better analogy may be with smaller fossil plants that cannot justify the cost of upgrading to required environmental standards. These smaller plants “on the bubble” would no longer be economically viable with such major capital requirement regardless of whether the fuel type is nuclear or coal.

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