A fight that’s been unfolding for years over how to value electricity and fairly compensate those that generate it has drawn in Appalachian natural gas producers, which stand to lose if the competitive power markets are diminished with subsidies that favor some fuel sources over others.
In Ohio, Republican state Sen. John Eklund this month introduced SB 128, which would create a multi-billion dollar program to pay for zero emissions nuclear credits for two plants owned by FirstEnergy Corp. Meanwhile, last month in Pennsylvania, a nuclear energy caucus was formed in the General Assembly, which has since attracted more than 70 lawmakers focusing on a wide-variety of issues confronting nuclear generation.
The Ohio bill and the new caucus have coalesced around the theory that nuclear energy should be supported because it is reliable, affordable, good for the economy and even better for the environment.
Illinois and New York have already implemented plans to subsidize struggling nuclear facilities, while states further to the east are considering them as well, threatening a trickle down effect in the PJM Interconnection and NE-ISO markets.
Some experts fear the plans could leave independent power producers and the exploration and production companies that sell to them with the short end of the stick. In PJM alone, there are more than 50 gas-fired power projects underway that include maintenance, expansions and newbuilds, according to the grid operator. Many of those are taking place at the heart of the Appalachian Basin in Ohio and Pennsylvania, where several plants are under construction.
“I don’t know what the nuclear folks were thinking, but they started to pick a fight with other fuels,” said Electric Power Supply Association (EPSA) CEO John Shelk. He talked with NGIon Wednesday.
“They’re openly saying, ‘we’re nuclear, we’re clean and green, and these other people opposing our subsidies are just a bunch of dirty fossil fuel generators.’ Well, guess what? You’re basically telling the gas producers in Ohio and Pennsylvania ‘to go pound sand,’ and they’re fighting back.”
While EPSA represents nuclear, coal and renewable generators, more than half of its member assets are gas-fired. On any given day, Shelk said, EPSA members are typically the single largest purchasers of gas in the country. Indeed, issues in the power markets are important for the upstream sector. Over the last decade, U.S. power generation has accounted for more than a quarter of gas demand.
A coalition was formed this week to push back against any possible nuclear subsidies in Pennsylvania, which is home to five nuclear power stations, making it the second largest state for such capacity in the country. Independent power generators, business groups and even the AARP came together to form Citizens Against Nuclear Bailouts. The Marcellus Shale Coalition, which referred questions to the group’s organizers, is also a member.
“We believe in market-based energy production,” said David Taylor, president of the Pennsylvania Manufacturers’ Association, a member of Citizens Against Nuclear Bailouts. “Like every other industry, nuclear power providers should be free to compete for customers in the electricity market, but they shouldn’t benefit from a taxpayer or ratepayer bailout.”
The electric industry finds itself in the midst of a seachange. Since the 1980s, when the industry was liberalized, power generators have faced stiff competition in the open market, but that has only intensified in recent years with an increasing resource mix and the technological developments that have undermined some fuels. Low-cost gas has also put a dent in the cost-competitiveness of nuclear and coal.
Driven by gas and renewables, the U.S. power grid added more than 27 GW of electric generating capacity last year, the largest amount added since 2012, according to the Energy Information Administration. Over the last 15 years, gas made up most additions, accounting for nearly 228 GW, but 2016 was another year that saw renewables gain significant ground.
Since 2002, the power industry has retired more than 53 GW of coal capacity. And since 2013, five nuclear stations have stopped producing power and another seven plants have announced that they plan to close by 2019.
“Though nuclear power is among the cleanest, most reliable and most efficient forms of energy generation in the United States, nuclear plants across the country have begun to close prematurely, largely due to circumstances beyond their control,” Eklund said in announcing SB 128. “Wholesale electricity prices are artificially and unsustainably low, making it nearly impossible for nuclear plants to operate in Ohio and nearby states.”
In Pennsylvania, the nuclear energy caucus will focus for now on starting a conversation about what, if anything, needs to be done to staunch the bleeding. FirstEnergy already has indicated it plans to close its only nuclear facility in the state next year and has said current market conditions don’t ascribe enough value to the base load reliability of nuclear power.
In a way, EPSA’s Shelk agrees. His group, along with investor-owned utilities, gas stakeholders, nuclear generators and others have pushed market reform for years. The EPSA maintains that the focus should not be on subsidizing single market participants, but on fuel-neutral wholesale market reforms.
A wide variety of issues make it difficult, though. For example, renewables have continued to benefit from subsidies, while they have minimal relative operating costs: the wind and sun are free. This can depress wholesale prices, yet they’ve become increasingly reliable. Similarly, gas-fired plants have become more instrumental because they can ramp-up quicker to serve as capacity backup for variable output renewables.
“Gas plants suddenly become valuable not just because they can turn out a MW of electricity, but because they can do it quickly,” Shelk said. “They’re not being compensated for those attributes.” EPSA and others have argued that a broader universe of power plants should be able to set prices, they’ve pushed for more capacity market reform and they want ancillary services like capacity backup to be better compensated.
The Federal Energy Regulatory Commission (FERC) is expected to discuss these issues at a technical conference next month, including the clash between federal market policy and state policies that would decide winners and losers, address climate change or try to save jobs and preserve the tax base.
“We’ve said this to the White House, we’ve said this to Congress, FERC needs to take some real leadership — even more than they have to date — to fundamentally decide if they want competitive markets or not,” Shelk said.
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