Two more nuclear plants in Illinois, run by Exelon, the nation’s largest nuclear utility, are slated for closure due to the combined effects of record low natural gas prices and a sputtering US economy.
Exelon Corp. has announced that it will close its Clinton and Quad Cities nuclear reactors in Illinois after losing $800 million over the past seven years. The firm said that the failure of the State of Illinois to give nuclear energy credit in electricity pricing for its carbon free generation contributed to the decision.
While Exelon has said it may reconsider its decision to close the plants, if the state legislature changes its mind, lobbying by wind, solar, and natural gas interests make the likelihood of that outcome problematic at best.
Four other reactors elsewhere in the U.S. have also closed or are slated for closure due to their inability to compete with low natural gas prices in the generation of electricity. The price of the fuel has dropped from over $7/Mbtu in 2008 to between $2-$ in 2016. The so-called “nuclear renaissance” that occurred in 2007-2010 was throttled by this development.
Of the nearly two dozen new license applications for new reactors filed with the NRC during that time, only four are being built – two in Georgia and two in South Carolina. Both states have regulated electricity markets that provide for stable pricing that supports the long lead time to build new reactors, and the even longer time, 60-80 years, to operate them in the black.
The response from the federal government mostly consists of useless hand wringing. Energy Secretary Ernest Moniz told an energy conference taking place in California this week that his agency “has limited tools” to keep the nation’s reactors open. It should come as no surprise that Moniz would temper his angst about the reactor closures in a state which has a high index of anti-nuclear sentiment.
If the federal government was serious about using nuclear energy as a tool to stop the increase of greenhouse gases in the atmosphere, it would change its policies at FERC and work with states to give reactors credit in electricity markets for their carbon free contributions to the supply of power to customers.
Economics Play a Key Role
There is another side to the closure of the high cost reactors. The U.S. economy is still in the dumps. The nation’s employment outlook, as measured by the record low number of new jobs reported by the Labor Dept. on Friday, is a clear indication the U.S. and the global economy are still in the grips of the great recession. It is the lowest monthly report of jobs growth since July 2012.
According to the Bloomberg wire service, another reason that reactors are closing is that demand for electricity, which would boost prices in unregulated markets, is stagnant. Plus, add in the combination of subsidized wind energy projects taking advantage of baseload electricity on the grid from gas, and you have an unforgiving environment for nukes.
There is so much excess capacity that the PJM Interconnection LLC, which manages the Midwest’s electricity grid, as well as portions of the Mid-Atlantic and Northeast. told the Bloomberg wire service on 6/2 that even if Exelon goes ahead with its plan to close the two reactors in Illinois, there will be more than enough generation capacity to keep the lights on.
Electricity demand follows the growth or decline of the nation’s economy overall. In the seven years since the onset of the great recession, US economic growth per year has averaged around 2%. That’s hardly enough to produce the kind of competition for electricity in unregulated markets to keep reactors competitive with other fuels.
Larry Summers, the former Treasury Secretary under President Obama, told the New York Times May 17 that the growth we have experienced has been held down “bv a massive cyclical tailwind.” In other words, the dead weight of the recession is still with us.
He added that the economy is facing two major challenges. The first is that the workforce is shrinking as a share of the overall population. According to the Labor Department’s May 2016 jobs report, about 458,000 people gave up looking for work in May, pushing the percentage of working-age Americans in the labor force to near a four-decade low of 62.6%. About 362,000 people dropped out of the labor force in April. That was the first shrinkage since September.
Second, the biggest population cohort, baby boomers, is moving out of active employment either by choice or through unemployment.
The decline in the size of the labor force has a direct effect on demand for electricity. Fewer people working means fewer lights on and machines running in all kinds of industries.
Another factor has economists struggling to explain it. The effect of a decline in the growth of productivity is the key factor.
Typically, when manufacturing growth occurs, it comes from investment in new plants which require more electricity. What’s happening in the US is that new manufacturing plants, and related infrastructure, are not being built. The result is that the growth of the labor force is stifled as a result.
US tax laws, which impose a double burden on profits companies earn overseas, keep that money in other countries. It makes more sense to build a new semi-conductor plant in Southeast Asia than it does to bring those profits home and invest them in American factories. Once of the solutions is to change the tax laws so that the money can be reinvested in this country. It will also take a change in our trade policies which have pushed US manufacturing overseas.
What you have now is that while there is some hiring taking place, it is at pitiful levels, and does not leverage new manufacturing or other high multiplier economic activities including new nuclear reactors and the types of manufacturing that would use the electricity generated by 1000 MW plants. Just look at the auto industry and then ask DTE why it has put its plans for FERMI III on long-term hold.
And Congress is doing mostly the wrong things to bring the economy back to life. In 2013 the Congress shifted from investment spending to austerity and even shut down the federal government for three weeks. The alternative, given how low interest rates are today, would be to borrow money to invest in new infrastructure to replace our crumbling bridges, highways, and housing.
On the consumer side, with the massive numbers of foreclosures due to the great recession, you have a huge hit on demand for electricity as these homes no longer run their air conditioners, dishwashers, or TV sets. Yes, there are investments in the foreclosed homes as rentals, but the upkeep and maintenance of these units is not on a par with owner-occupied dwellings.
So bottom line is that the nation’s growth rate is shot to hell and with it comes declining demand for electricity. If you want to know why the nation’s nuclear plants are closing, look past the dynamics of Exelon’s immediate decision and worry about whether the economy will ever stop scraping the bottom of the barrel.
# # #