Newly derived supplies of natural gas in North America has prompted energy company Exelon to change course. Outlining its reason for withdrawing a permit application for a nuclear plant in Victoria County, Texas, the company – which runs gas as well as nuclear plants – blamed commodities markets.
“The action is in response to low natural gas prices and economic and market conditions that have made construction of new…plants in competitive markets uneconomical now and for the foreseeable future,” Exelon managers stated in a press release. Gas prices in 2012 dropped to below $2 per million Btu for the first time in a decade due to new supplies.
Elaborating on the company’s decision, corporate spokesman Craig Nesbit confirmed the significance of the sharp decline in gas prices, but also drew attention to Exelon’s particular circumstances in Texas, a liberalised energy market.
“Existing nuclear is barely competitive and new nuclear is not competitive at all. Part of the US is on a merchant [liberalised] market, in which companies make competitive bids at the lower cost possible. If you don’t clear the bid, the plant sits idle. Nuclear plants live or die by the low cost of their power. On the other hand in some regulatory markets they have captive customers and stable prices they can charge to them.”
Market disadvantage?
It looks as if nuclear is once again on the back foot. Older arguments in favour of gas have come back with a vengeance: that CGGT plants can come online in a year and are cheaper to build; that they are more easily scalable in terms of output; and that they can shut down more quickly when demand falls or the growing wind power sector produces more than expected.
This more complex situation, explains Nesbit, can drive negative pricing which puts nuclear at a disadvantage. Under those circumstances “we pay people to take power from nuclear,” he explains. “The whole market is not in equilibrium right now,” he states.
Do plummeting gas prices spell defeat for nuclear in North America or a temporary setback? Certainly, leading organisations like the International Energy Agency have drawn attention to freshly competing forces due to the dawn of a new “golden age for gas,” in a report of May 2012. But they point out a number of difficulties that will affect unconventional (shale) gas in particular. Among these are social and environmental concerns associated with its extraction because producing it is an intensive industrial process, generally imposing a larger environmental footprint than conventional gas development. As carbon considerations climb the agenda, thisa energy source could conceivably also arouse mounting opposition.
Carbon pricing
In addition, new carbon pricing policies expected in many regions will make gas production more expensive. A 2009 report by the Massachusetts Institute of Technology demonstrates that nuclear plants become increasingly competitive as the price of carbon increases.
For instance, it shows a $25/ton carbon tax would increase the price of coal-fired generation to $0.083/kWh and gas-fired generation to $0.075/kWh while nuclear remains at $0.066/kWh. Similarly, the Electric Power Research Institute (EPRI) indicates natural gas fitted with carbon capture would be more expensive in 2025, showing an LCOE of $68-109/MWh compared to an LCOE of $76 – 87/MWh for nuclear. Of course, North America is one of the least advanced markets in terms of carbon pricing, so that scenario may only just have become a reality by then.
Ron Cameron, head of nuclear development at the OECD Nuclear Energy Agency, is sanguine: “our view is the gas price won’t stay so low. Shale gas exploration will eventually move to more difficult areas,” he says, suggesting shale gas will suffer from high exploitation costs. Much of it is destined for export, so this will also increase the price. Considered over the life span of a nuclear plant, the present gas prices seem a less significant consideration. “A long term look at the LCOE over 60 years shows nuclear really still looks competitive,” states Cameron.
Nuclear: solid choice?
The nuclear option is then likely to remain solid, but could retreat slightly as the preferred choice over a few years as short term gas considerations dominate North America. As Rob Norfleet, energy analyst at BB&T Capital Markets, points out: “utilities will tell you they want a diversified fuel source (coal, natural gas, nuclear) and base their investment decisions over a long term horizon (20 yrs).”
The problem is utilities’ reliance on external investors has its shortfalls with short horizon results: “It’s hard for them to see a return on investment if the gas price stays so low,” says Ron Cameron. But if evolving nuclear technology successfully matures, its future could look brighter regardless of gas prices.
“I think there is a place for nuclear, and the emergence of small modular reactors (200 MW or below) could prove to be a winner with nuclear over the next decade as they cost considerably less, are scalable and safe,” asserts BB&T analyst Norfleet.
Source: Nuclear Energy Insider
