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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian has extended experience working in the energy sector. His involvement with the fossil fuel industry as well as renewables makes him an allrounder…

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Will The U.S. Nuclear Industry Finally Get Government Help?

Nuclear energy is a contentious subject in the western world where its future looks increasingly bleak. While nuclear power plants are still the biggest source of carbon-free electricity in most developed countries, the associated risks easily swing voters towards less 'dangerous' sources despite the industry's excellent track record. The new U.S. administration of President Biden needs to develop a clear policy regarding what it intends to do with the country’s aging fleet.

According to S&P Global Platts Analytics, roughly 8 GW is slated for retirement while another 5  GW is at high risk of retirement before license expiration. If these plants were to be closed, the replacement, which most likely would come from gas-fired power plants, could produce 39 million mt/year of CO2, or 2 percent of the emissions in 2016. Last month New York's 59-year-old 1.04 GW Indian Point nuclear power plant was already closed.

The Biden administration's ambitious climate goals could be at risk of failure if these retirements go through. The U.S. intends to decarbonize by having a carbon-free electricity system by 2035 and a net-zero economy by 2050. According to a source engaged in talks with the White House, “there’s a deepening understanding with the administration that it needs nuclear to meet its zero-emissions goals.”

The world’s largest nuclear power fleet is still in the U.S. where 94 reactors in 28 states produce over 20 percent of the country's electricity. The average age of these plants is 39 years and usually, operating licenses are to run for 40 years with possible extensions. While nuclear seems indispensable for reaching the climate goals, their position is increasingly coming under pressure as they are priced out of the market by cheaper carbon based alternatives.

Although renewables have seen remarkable growth over the past decade, it doesn't seem to be enough based on current estimates. According to the EIA, renewables, including hydro, are on track to produce just 40 percent of the country's electricity by 2050. Furthermore, wind and solar have a problem that nuclear could somewhat mitigates: intermittency. The baseline that nuclear power plants produce is a source of stability for the grid and, therefore, for energy security.

In general, two factors are driving nuclear power's decline in the U.S. First, public opinion is not favorable due to the necessity for long-term storage of radioactive waste and the fear of accidents such as the one at Three Mile Island. Second, and more importantly, the fracking revolution in the U.S. and the flooding of the market with cheap natural gas have driven down the costs of power generation.

In an unregulated market, nuclear power plant exploiters find it difficult the make a profit as the price of natural gas has been roughly $2/MMBtu which is very cheap. The Biden administration, however, is looking for ways to support the industry to reach the climate goals. There are two alternatives. First, a nuclear production tax credit could be used similar comparable to the one supporting wind and solar generation. Second, funding could be provided through the American Nuclear Infrastructure act (or ANIA).

According to Alex Gilbert, project manager at thinktank Nuclear Innovation Alliance, "you would spend less overall because the aid would be targeted [trough the ANIA]. There are pros and cons to both, but from my perspective, we at least need one."

With the bill plants which are at risk of prematurely shutting down would receive supportive credit. Also, the supply chain needs to be revitalized, new technologies developed, and the regulatory process for licenses cleared from obstacles to make it more predictable and cheaper. Bipartisan support could lead to the further development of the U.S. nuclear industry that promises thousands of jobs and billions of dollars in foreign trade.

While this seems promising and a no-regret measure, Washington needs to act now. Energy companies are already warning of closures if the support doesn’t materialize in the short term. For example, Exelon Corp. in Illinois might close four reactors at two plants in November if financial support doesn’t materialize. Therefore, expect more news from the U.S. nuclear industry in the coming months.

By Vanand Meliksetian for Oilprice.com

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