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Charles Kennedy

Charles Kennedy

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Cheap Gas Claims Another Nuclear Victim

Cheap natural gas from U.S. shale claimed another victim this week.

Entergy, a large integrated utility specializing in nuclear power, announced that it will be shutting down its Pilgrim Nuclear Power Station in 2019, citing “poor market conditions, reduced revenues and increased operational costs.”

The Pilgrim plant, located in Plymouth, Massachusetts, has a capacity of 680 megawatts, enough power to supply 600,000 homes in New England with electricity. However, the power plant has been undercut by cheap natural gas, as New England increasingly ties into shale gas from the Marcellus Basin in Pennsylvania.

Cheap gas is putting downward pressure on wholesale power prices, pushing them down to $10 per megawatt hour, levels that are unprofitable for the Pilgrim plant. Entergy blamed flaws in electricity markets, which policymakers have failed to address. For example, nuclear power provides baseload power, 24 hours per day, and is low-carbon. That should theoretically make the plant a key part of the region’s climate change strategy. But since there is no price on carbon, the Entergy plant is not compensated for providing clean energy.

And with an eye on cheap natural gas, the region is supporting the expansion of natural gas pipelines to increase access to the fuel, with the intention of sourcing a larger share of the region’s electricity supply from natural gas. Related: Ludicrous Proposal By Venezuela’s Maduro To Combat Oil Price Damage

At the same time, Entergy blames state policies that support renewable energy, which is further pushing down wholesale power prices.

Entergy expects the move to shut down the plant to be cash flow neutral or positive. However, that highlights the utility’s vulnerability – its portfolio is heavily weighted on nuclear power plants, which are coming under increasing financial pressure. Keeping plants in operation could end up costing Entergy more than shutting them down. Related: Case Builds For Argentina As The World’s Next Shale Hotspot

Entergy’s struggles illustrate the pressure facing nuclear power in the United States. Cheap natural gas, cheap wind power, energy efficiency (leading to low demand), and policies supporting renewable energy are all eroding the business case for nuclear power. The former CEO and Chairman of Exelon (another nuclear-heavy utility) said in July that the “proper market-driven answer” for some utilities is to shut their plants down.

In fact, Pilgrim won’t be the first. Dominion Resources shut down the Kewaunee nuclear power plant in Wisconsin in 2013. The Vermont Yankee nuclear power plant shut down at the end of 2014 (also owned by Entergy). Both cited low wholesale power prices, mostly driven by cheap gas.

As renewable energy continues to make advances, and natural gas prices remain at low levels, there could be nothing but trouble ahead for nuclear assets.

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By Charles Kennedy of Oilprice.com

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