The nuclear industry is starting to question whether persistent low natural gas prices could pose a serious competitive threat to older nuclear plants -- as cheap gas has already done to coal, wind and new nuclear generation.
"That's a very tough question," said David Bradish, manager of energy and economic analysis at the Nuclear Energy Institute. "Are the plants going to be economical to operate in the future, based on gas costs that are coming down?
"No one has said, 'We're going to start retiring all these nuclear plants,'" he added. But the question is getting more attention. "They're chewing on it."
Low power prices are putting "pressure on the margins for nuclear plants," said Judy Chang, a principal with the Brattle Group consultancy, while, following the 2011 nuclear disaster at the Fukushima Daiichi plant in Japan, "their compliance costs are going up."
"I don't see it coming soon, but folks at nuclear plants are doing that analysis," she said.
Susan Tierney, managing principal of the Analysis Group consulting firm and former Energy Department assistant secretary for policy, says the impact of the low gas prices resulting from the shale gas boom varies plant by plant.
"The fleet of existing plants ranges from the extremely well-performing, high-output plants that are humming along" to a relatively few poorer performers, she said. The most efficient plants are seeing their profit margins get scraped, "but it's hard to imagine that they would become uneconomic even in a low-priced natural gas world" with wellhead prices at under $3 per million cubic feet.
Over the past decade, the nuclear industry has spent a lot to increase reactor output, to replace aging components and to complete relicensing certifications with the Nuclear Regulatory Commission to keep the plants running another 20 years, she said. Awaiting the operators of the 104 U.S. commercial reactors are still-undetermined costs for reassessing and dealing with potential earthquake hazards and strengthening plants' defense to comply with the NRC's Fukushima regulatory requirements.
"A plant that has a combination of inherent low performance characteristics, with an exposure to an expensive set of seismic certifications, and which has a design that is similar to the Fukushima facilities, may face a high hurdle rate" for making those investments if gas prices remain at rock bottom, she said.
One senior executive of a nuclear plant operator said the Fukushima costs are less likely to be a major factor in a decision to shut down a plant. "I don't sense that's the straw that breaks the camel's back."
More important in the calculation are the ongoing costs of operations and maintenance, as plants age, and for some plants, the challenge of meeting tougher regulation of the water quality in rivers and lakes that supply the enormous quantities of cooling water the reactors require.
Pressures over retrofits, repairs
In a notable instance of cost pressures, New Jersey Gov. Chris Christie (R) struck a bargain with Exelon Corp. in 2010 that would permit the company's Oyster Creek nuclear plant to continue operating until 2019 without a cooling tower -- a billion-dollar retrofit that is required to lessen the impact of the heated water that is discharged into Barnegat Bay, 30 miles from Atlantic City.
Exelon said the cost of the cooling tower would exceed the value of the plant and could not be economically justified. As its part of the deal, it agreed to shorten the plant's life, closing it down 10 years before its renewed license was due to expire.
Industry experts say Progress Energy's Crystal River nuclear plant north of Tampa, Fla., is an extreme example of a plant facing major repairs after cracks were discovered in 2009 in the 42-inch-thick concrete containment structure that surrounds the reactor and steam generators. If it can be repaired, the costs could reach $1.3 billion, according to company estimates.
Progress Energy's president and chief executive, Bill Johnson, told market analysts in a conference call last week that a decision to undertake repairs has not been made as the company continues negotiations with its insurer, Nuclear Electric Insurance Ltd., over payments for the repairs.
In competitive electricity markets on the West Coast, Great Lakes region and the Northeast, nuclear plant operators facing such major repairs would have to determine whether they could recover the costs if their plants are competing with rock-bottom gas-fired generation, Tierney said.
Nuclear plant operators in these regions offer their output in the daily wholesale electricity markets at very low prices, to ensure that the plants will be called on to run 24/7. (Grid managers schedule the generators that will be needed each day starting with the lowest bidders and moving up the price "stack" until there is enough generation to meet demand. The most expensive plant called on sets the wholesale price that all generators receive for each hour.)
When gas-fired plants are able to set a high price, the nuclear plants catch a windfall, Tierney said. "They were printing money," she said.
The money flow has slowed way down with the drop in electricity prices due to the collapse of gas prices. The spot price for natural gas rose slightly to $2.27 per million British thermal units at the Henry Hub pricing point in Louisiana this week, according to the Energy Information Administration. In 2008, before the market crash, it topped $13.
"I have heard people begin to wonder whether there are any marginal nuclear plants that are really facing financial pressures," Tierney added.
She and other analysts cautioned, however, that the competitive situation for gas, coal and nuclear plants even months from now remains a mystery, let alone where gas prices may go next year and the years to follow. The regulation of coal plants and shale gas production by U.S. EPA and the scope and timetable for mandated changes in nuclear plants by the NRC could turn on the presidential election-year results, and these actions will play out for multiple years.
The only consensus may surround the outlook for natural gas prices, Tierney said. "Nobody really thinks they will stay as low as they are."