Will You Pay to Prop Up Jersey’s Nuke Plants?

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New Jersey’s four nuclear power plants generate almost half the state’s energy.
But they’re losing money.

Back in April, one of four nuclear plants in New Jersey, the Salem 2 reactor, was shut down to begin the process of refueling and maintenance. First powered up in 1981, Salem 2 puts out 1158 megawatts of electricity for New Jersey rate payers. According to PSEG, the plant owner, during the outage PSEG Nuclear employees and an additional 1,000 contractors will perform over 21,000 tasks at the plant, including inspections, repairs, and upgrades.

To be sure, it’s going to cost a bunch —which is part of problem nuclear power has competing against cheap electricity generated by natural gas. Nuclear plants are too expensive.

Beast of a Bygone Age

Broadly speaking, the large nuclear plants built between the late 1950s and the late 1970s were expensive to build but cheap to operate. They were long term investments with long lead times and financing their construction was easy for regulated monopoly utilities that could pass the costs onto their “captive” customers.As long as these plants could crank out a steady baseload supply and did not have to compete in a demand market against an cheaper generation system, they would be able to pay for themselves.

Of course, that’s all changed now.

Generators now compete to meet demand on the wholesale market. While nuclear generators are really great at steady, long term baseload supply, the current market system is designed for load-following systems. Load-following means supplying electricity when it’s needed, then cutting back on generation when the demand falls. It’s just the type of market for quickly starting natural gas plants. Because natural gas is so inexpensive and since natural gas plants are more flexible to meet dispatch requirements, they are used to meet peak demand hours and so they set the price of electricity.

How much less is natural gas compared to nuclear? A levelized comparison breaks down this way:

Fuel: nuclear —$7/mWh; natural gas (combined cycle plant) — $31

Fixed operation and maintenance: Nuclear- $14; Natural gas — $3

Capital costs average: Nuclear – $92; Natural gas — $39

Nuclear plants face enormous costs when there’s major repairs to be done. After all, they use nuclear fission to run and they must be made safe. But major repairs cut deeply into keeping them profitable. For example, in 2014 Salem 2 was shut down for an extended period that wound up costing PSEG $33 million. The year before in 2013, Salem 1 was shut down for widespread problems that cost PSEG $120 million.

Factoring in these kind of costs with the need to repay their capital costs, it’s no wonder nuclear power plants are unable to meet or beat the prices of natural gas generators. As Ralph Izzo, chairman and president of PSEG, observed, “We will not operate those plants long term if they are not earning their cost of capital.”

The Right Color Green

With New Jersey’s four nuclear plants losing money but making 50% of the state’s electricity, PSEG has begun lobbying for the state to enact subsidies to support the plants. Similar plans have already been put in place in Illinois and are underway in New York. The argument is that because nuclear plants do not produce greenhouse gasses and represent zero-carbon energy; opponents argue the contrary. Either way, New jersey customers will likely find themselves either paying to prop up an expensive money-sponge or paying for the consequences of letting it go. If the plants are left to shut down permanently, the process of decommissioning could take a decade and hundreds for millions of dollars and new natural gas and renewable plants would need replace it.

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