Are Markets or Subsidies at Issue as Exelon Considers Closing Two Nuclear Plants?

Exelon Corp.‘s hard-pressed nuclear power plants are getting squeezed a bit more: It may need to close two nuclear units in Illinois that are losing money. Why? If you ask the company, it can’t compete with green fuels that are subsidized. So its, instead, looking to federal and state lawmakers to make carbon-free cool.

The Chicago-based utility is the nation’s largest nuclear operator and part of its fleet is comprised of “merchant” facilities that compete on the open market. Exelon has been among the most vocal companies that say that while it is investing in green energies, it opposes the subsidies provided to them because they are giving green fuel sources — specifically wind — a leg up over the competition.

At the same time, the company is unable to go head-to-head with shale gas, which is undercutting not just nuclear power but also green energies and especially coal. From the perspective of corporate America, the low prices mean business. But Exelon counters that thinking by saying that the market prospers by having ample fuel choices while the environment benefits by having lower carbon emissions.

What is Exelon proposing? Well, it’s too late to block the federal production tax credits given to wind and solar developers granted late last year. That’s why it is supporting the Obama administration’s Clean Power Plan that limits carbon emissions while also trying to get Illinois state regulators to examine plant economics. Exelon says that state-sanctioned long-term contracts awarded to wind facilities mean it can’t compete.

Along those lines, it has been petitioning the state to push for limits on carbon releases, which by extension give its nuclear fleet a leg up over fossil-fueled generation, especially natural gas. It would like the state to require that as much as 70 percent of all power purchases come from low-to-no carbon sources — without which Illinois might not be able to comply with the Clean Power Plan that requires 32 percent cuts in carbon emissions by 2030, from a 2005 baseline.

“The problem is that, despite outstanding performance, we are experiencing major financial losses,” says Christopher Crane, chief executive, in a Nuclear Energy Institute statement.

The context: Last week Exelon said it might close its Illinois-based Clinton and Quad Cities merchant nuclear plants in 2018.

The plants have lost hundreds of millions over the last several years. Interestingly, those facilities got a lease on life last year when they competed successfully in auctions where grid managers buy power from competitive utilities. But the prices that Exelon will get may not cover its operating expenses, in addition to a reasonable profit.

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 last June in New Orleans, before reporters.

He has also said 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.

Cheap power is good for corporate America. But if electricity becomes too inexpensive and only a few fuels survive, then long term that can’t help the corporate cause, especially if going green is a primary goal. Just where nuclear winds up will, ironically, be a function of federal and state rules — not necessarily market-focused mechanisms that permeate most competitive industries.