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Nuclear credits could cut nat gas-burn growth

18 May 2017 23:29 (+01:00 GMT)
Nuclear credits could cut nat gas-burn growth

Houston, 18 May (Argus) — The zero-emission credits (ZECs) offered to nuclear power plants in some US states could cut demand growth for natural gas in the power generation sector.

ZECs are tradable credits that represent the environmental attributes of one MWh of energy produced from nuclear plants. The credits are designed to help economically challenged nuclear plants remain operational.

The greatest threat to gas-fired power generation from ZECs may be in Illinois, where a law offering nuclear plants the credits has been passed, although it faces some legal challenged, according to analysts at Morningstar. The Illinois program is scheduled to take effect on 1 June and help Exelon keep its Quad Cities and Clinton reactors open for at least 10 years through an estimated $235mn/yr in payments in the form of ZECs.

Exelon last June said it would shut the 1,078MW Clinton station on 1 June 2017, and the two-unit, 1,918MW Quad Cities station in Cordova, Illinois, on 1 June 2018 as low-cost gas-fired generation weighed on profitability. In May 2016 Exelon said the units had collectively lost more than $800mn over the previous six years.

US rating agency Fitch said other Exelon nuclear plants, including Byron, Ginna, Nine Mile Point and Three Mile Island, face a similar financial crunch.

"Currently, 4,000 MW of nuclear generation is at risk" of early retirement in Illinois, if the subsidy were to lose in court, according to Morningstar. These capacities would most likely be replaced by combined-cycle gas plants, boosting gas demand in that region by 550mn cf/d (15.6mn m³/d).

But some electricity providers are lobbying federal regulators to block states from subsidizing struggling nuclear power plants. Calpine and NRG are among a group of power plant operators who have asked the Federal Regulatory Commission (FERC) for an injunction against the ZEC plans. They argue that favoring specific plants over others leads to higher prices for electric customers and discourages private sector investment.

On 1 April Exelon started earning revenue from the sale of ZECs in New York, Exelon chief executive Christopher Crane said during the company's first quarter earnings report. The New York program should run for 12 years.

Ohio, Pennsylvania, New Jersey and Maryland could also take similar steps to subsidize nuclear plant. About 14,000 MW of nuclear generation are at risk in these states for early retirement which could be replaced by gas generation requiring 1.9 Bcf/d, according to Morningstar.

Ohio state senator John Eklund (R) in April introduced SB 128, a bill that would require the purchase of ZECs from two nuclear facilities owned by FirstEnergy.

Utilities across the US have been relying increasingly on gas-fired power generation with the abundance of the generating fuel at a low cost. Natural gas consumption in the power sector last year averaged 27.28 Bcf/d, 50pc more than in 2008, according to the US Energy Information Administration (EIA).

Power sector gas demand is expected to fall this year to 25.14 Bcf/d with a rebound in gas prices but will still remain the top power plant fuel, according to the most recent Short-Term Energy Outlook from EIA.

Historically nuclear and coal have been the primary sources for Illinois' power generation, with nuclear accounting for about half of Illinois' total electricity since 2010, according to the EIA. But access to cheap natural gas from the growing Marcellus and Utica shale formations led generators to shift to more gas-fired units.

Nuclear plants require a large workforce, costly security measures and are subject to strict regulatory oversight, factors that put them at an economic disadvantage in a low gas-price environment. Coal plants have been subject to tighter emissions controls in recent years under the Environmental Protection Agency (EPA)'s mercury and air toxics standards and the Clean Power Plan for reducing CO² emissions, leading to plant upgrades or shut-downs.

The White House under President Donald Trump has pledged to ease some of these regulations but power generators continue to shift to more renewables and natural gas.

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Illinois net generation by fuel type ’000 MW