For decades, nuclear power has provided most of the United States’ carbon-free electricity.  In 2017, nuclear represented 20 percent of total U.S. electricity generation and 56 percent of the country’s carbon-free electricity. However, in recent years many plant operators have shut down nuclear plants or announced plans to close them well before their operating licenses are set to expire.  A recent study from the Union of Concerned Scientists (UCS) demonstrated that more than a third of existing nuclear plants, representing 22 percent of total U.S. nuclear capacity, are unprofitable or scheduled to close.

Policymakers are increasingly recognizing that to halt the steady march of climate change, net emissions of greenhouse gases need to go to zero. And policymakers are increasingly talking about that as the goal through instruments like the Green New Deal,which would seek to achieve zero net emissions in the United States by 2030.

Whether nuclear power has a future in decarbonization, however, is an open question. Certain sectors of the environmental movement oppose the current nuclear fleet, not to mention its growth. And recent nuclear failures give us little reason to think that new nuclear is a low-cost option. But what to do about all the large reactors currently in use? In the context of this uncertainty around nuclear power, it is worth considering what we have to lose.

Profitability outlook and drivers of uncompetitiveness in U.S. markets

In the United States, commercial nuclear power is in trouble. Using projections from S&P Global Market Intelligence, the UCS study estimated the annual operating margins (revenues minus costs) for 92 nuclear reactors at 55 plants for the period 2018-2022. On average, the projected operating costs exceed revenues for 21 nuclear plants, which account  for 22.7 GW (22 percent) of operating capacity in 2018. Eight additional power plants were found to be marginally profitable ($0-$5 per megawatt-hour, or MWh), representing 15 GW of installed capacity. The study found that the Midwest and Mid-Atlantic regions have the most plants at risk, with roughly 17 GW of nuclear capacity predicted to be unprofitable soon. The economics of nuclear power are deteriorating rapidly, and structural changes in the wholesale power market are at the root of this distress.

Power providers sell electricity into regional wholesale power markets. Since 2008, the wholesale price of electricity has been declining just about everywhere in the United States, which has directly impacted the profitability of nuclear power plants. Nuclear plants supply baseload electricity, meaning they run close to 100 percent of maximum output continuously to meet a minimum level of electricity demand. Nuclear power plants, as well as coal plants, have traditionally acted as the main baseload power plants and rely heavily on wholesale power markets for their revenue, making them especially vulnerable to low wholesale electricity prices. If wholesale prices dip below average for prolonged periods of time, then it becomes extremely difficult for nuclear plants to cover their high fixed costs.

The short run marginal costs of a nuclear plant relatively low, and mostly fluctuate with the price of uranium, while their fixed costs, specifically the upfront capital costs, tend to be relatively high. Over the same time period that wholesale prices have declined, nuclear generation costs have increased very modestly since 2006, with the exception of a peak in 2012. Thus, a drop in revenue is the main source of economic malaise for the nuclear industry.

study by MIT’s Center for Energy and Environmental Policy Research found that for both the Midwest and Mid-Atlantic regions, the drop in the marginal cost of production for gas-fired power plants has been the most significant driver of low wholesale electricity price, followed by a drop in total electricity demand. These structural changes in the wholesale power market have been central to nuclear power’s diminishing role as a competitive baseload power source. The plummeting natural gas prices have pushed efficient natural gas plants into a baseload role, replacing coal plants and even competing with nuclear power for these baseload generation revenues.

Revenue can also come in the form of subsidy. In New York, Illinois, and New Jersey, existing nuclear plants receive financial support through zero-emissions credits (ZEC), which compensate nuclear plants for providing carbon-free electricity. Credits are created through the generation of zero-emissions electricity, and utilities are required to purchase a certain percentage of their electricity from these non-emitting power sources. The price of the ZEC should relate to the value of the avoided emissions, however as of now New York’s program is the only ZEC tied to the EPA’s social cost of carbon.  The program essentially prices the value of clean energy, and incentives zero-emitting resources to participate in the electricity market.

New York, which gets nearly a third of its power from nuclear sources, has a ZEC program that runs through March of 2029 with credit prices beginning at $17.48 per MWh. Illinois has 11 nuclear reactors that provide 50 percent of the state’s electricity and their ZEC begins at $16.50per MWh. New Jersey gets about 40 percent of its electricity from nuclear plants and has recently approved plans for a ZEC program that will start at around $4 per MWh.

Implications of premature nuclear retirements

A massive wave of early nuclear retirements will have significant consequences for the price of electricity as well as the nation’s emissions-reduction potential. With our current generation mix, the immediate retirement of nuclear power plants would result in a significant increase in CO2emissions, and customers would see a hike in their electricity bills.

Geoffrey Haratyk, the lead author of the MIT study, modeled three different scenarios to better understand the impact of a hypothetical retirement of 30 GW (roughly 242 TWh) of nuclear capacity, about a third of total U.S. nuclear capacity. Scenario 1 is a situation where retired nuclear generation is replaced by increasing generation from existing sources. Scenario 2 represents a situation where retired nuclear generation is replaced by new, gas combined-cycle plants, and a third scenario sees retired nuclear generation replaced solely by renewable energy coming from new wind turbines.

Impact on carbon emissions and climate policy

Unless it is replaced solely by renewable energy, the immediate retirement of 30 GW of nuclear generation from the grid will result in an 8.7 percent increase in CO2 emissions from the power sector. This hike in emissions is due to the fact that the reduced generation from early nuclear retirements is being replaced through the current generation mix, primarily the increased generation at natural gas plants. Aggressive goals such as an 80 percent emissions reduction by 2050 require a wide technology set, and nuclear generation would have to play a dominant role in a decarbonized power grid.

At a social cost of carbon of $41.8/MT CO2 and the 2015 carbon intensity of .695 MT CO2/MWh for the make-up generation and .389 MT CO­2/MWh for scenario 2, the cost of carbon damage avoided by 30 GW of nuclear power is roughly $7.0 billion per year for scenario 1 and $3.9 billion per year for scenario 2.

Impact on electricity price

In the short-term, the retirement of nuclear power plants creates an immediate supply shock, shifting the supply curve to the left and leading to an increase in the price of electricity. Haratyk’s paper simulated the immediate retirement of 30 percent of nuclear capacity in Midwest and Mid-Atlantic wholesale markets, giving market actors very little time to respond to these changes. He finds that, in order to meet electricity demand with fewer generator, “other generators will have to augment their electricity production which would lead to a yearly average price shock of +$0.8 and +$1.3 per MWh in the Midwest and Mid-Atlantic regions respectively.” This would translate to roughly $561 million and $840 million per year in increased costs for consumers in these regions.”

In the long term, the effect of these early retirements is much milder, as the energy grid can add more resources to meet electricity demand. If the added capacity replacing nuclear plants comes from renewable energy or cheap natural gas, then there would be nearly a zero price effect of early nuclear retirements.

Cost of subsidies

According to the study, the cost of preserving 30 GW of nuclear capacity would be roughly $0.6-$2.4 billion per year. This is well below the $7 billion and $3.9 billion per year in carbon damages estimated for scenario 1 and 2, respectively. Although replacing nuclear power with renewable energy would have a neutral effect on emissions, doing so would be costlier than preserving the existing nuclear plants considering the subsidies given to the renewable energy industry.

The federal Production Tax Credit, which is set to expire at the start of 2020, for wind power was $23 per MWh in 2016 and the Renewable Energy Certificates, traded at about $13 per MWh in 2016. Thus, replacing 242 terawatt-hours per year of nuclear with wind electricity would come at a policy cost of roughly $8.7 billion per year, much greater than the estimated policy cost of preserving all struggling nuclear plants. These results demonstrate that supporting unprofitable nuclear plants is the least costly policy option compared to the three scenarios modeled in the MIT study.

Policy options for maintaining the nuclear fleet

The fundamental cause of the economic distress encompassing the nuclear power industry is that its zero-emissions attribute is not valued in power markets. There are three ways for policymakers to place value on the fact that nuclear power plants do not emit.

Carbon priceA carbon price, in the form of a carbon tax or cap-and-trade program, internalizes the environmental and societal damage caused by carbon emissions. While it does not reward low-carbon production, it raises the relative prices of gas and coal power. Haratyk found that a carbon price as low $10 per megaton of CO2would provide enough revenues to keep struggling nuclear facilities afloat in the Midwest and Mid-Atlantic regions. This would translate into a minor price increase for consumers, limited to $2 and $4.60 per MWh respectively for the two regions.

Low-Carbon Energy StandardA portfolio standard requires load-serving utilities to sell a certain percentage of their electricity from a specific type of resource. Currently, the most common form of portfolio standard is the Renewable Portfolio Standard (RPS), with 29 states and Washington D.C., imposing binding RPS standards. Expanding RPS standards to Low-Carbon Portfolio standards would create market demand for zero-emissions technology, such as nuclear, and would make it more feasible to ramp up emission reduction targets.

Targeted subsidiesCurrently, the nuclear energy industry is undermined by the failure to value emissions-free attributes of its energy in the same way we do for wind and solar energy sources. A study from the Congressional Budget Office found that renewables received 94 times more in federal subsidies in 2016 than nuclear per unit of electricity generated. Making financial support available to the nuclear industry could help alleviate some of the economic stress being felt by the industry. The zero emissions credits program discussed earlier is one form of that. The Public Service Commission of New York found that the ZEC program at $17.48 per MWh would avoid roughly 15 million metric tons of CO2 emissions each year in the state, and would just cost an additional $2 per month on customers’ electricity bills. Similarly, the Illinois Legislature passed SB 2814, which includes financial support for two at-risk nuclear facilities. The legislation would provide $235 million per year in ratepayer subsidies. Due to Illinois’ ZEC, the Clinton Power Station and the Quad Cities Generating Station reversed their decision to shut down, and continue to support roughly 4,200 jobs and $1.2 billion in economic activity for the state.  These targeted subsidies could be expanded so that ZEC’s become commonplace in regions with large nuclear resources.

Carbon pricing, transitioning to more inclusive low-carbon portfolio standards, and expanding financial support for at-risk nuclear facilities will help level the playing field to make nuclear energy a more competitive source of electricity. Ensuring that nuclear power remains a key part of the decarbonization of the power sector will enable the United States to achieve greater emissions-reduction targets at relatively affordable levels.