Electricity

PSEG's Izzo talks policy, market changes affecting baseload generation

As the grid modernizes and becomes more flexible, what role should larger units play in a utility's energy mix? During today's OnPoint, Ralph Izzo, chairman, president and CEO of Public Service Enterprise Group Inc., explains why he believes nuclear should continue to play a large role in New Jersey's energy portfolio. He also discusses his company's plans to expand solar production.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Ralph Izzo, chairman, president and CEO of PSEG. Ralph, it's great to have you back on the show. Nice to see you.

Ralph Izzo: Thank you, Monica. It's nice to see you.

Monica Trauzzi: So, you recently received the Utility of the Year award from the Smart Electric Power Alliance. Most of New Jersey's clean energy comes from nuclear, but you've received this award for your Solar 4 All program. So, talk about how you've worked to expand solar's reach in your state.

Ralph Izzo: Yeah, so we've been long-standing advocates for solar power, and New Jersey, as you know, is a highly urbanized state. It's the most densely populated state in the nation, so land comes at a premium. And despite the many wonderful attributes of solar, it is fairly land intense in its use.

So, we've opted for putting solar farms on old industrial sites, reclaiming some land on top of landfills, and even on top of utility poles. That hasn't been the most economic choice, but certainly, the landfills and the industrial sites have worked out quite well. So, we like to make the most out of the precious land resources we have with this fabulous technology.

Monica Trauzzi: So, it's a unique model. Are you looking to further expand it?

Ralph Izzo: Yeah, so our approach will be mostly on large rooftops, so warehouses, public buildings. We'll look for more industrial sites to be able to reclaim them to have a beneficial reuse. We're looking at a recent coal plant that we retired as a site for a possible solar farm as well.

Monica Trauzzi: So, what percentage are you hoping solar will make up?

Ralph Izzo: So, the state has a renewable portfolio standard, and I'm pretty certain it's about 6 or 7 percent of the total supply. Right now, we're at about the 2, 2.5 level, and it's important that we feather that in, right? We're making great progress in lowering the cost of solar. It's not quite at the level right now where you'd want to do massive amounts of solar. So, to the extent that we can continue to have the market pull solar forward by installing through various government incentive programs, we can continue to push that price down. And I think that the future is quite attractive for solar.

Monica Trauzzi: Well, so, the policy landscape — the federal policy landscape — has certainly changed dramatically for utilities over the last six months. How has the Trump administration's work to roll back the Clean Power Plan impacted your planning and your operations?

Ralph Izzo: Yeah, so we take a very long view of the environmental regulatory system that we will be confronted. I mean, our nuclear plants, as you know, are relicensed and they should, with the right economic circumstances, run for 60 years. When we build a solar farm, we price that over a 25-year period. When we build a gas plan, we model it for 30 to 40 years.

So, we're of the opinion that climate change is a real problem, it's a challenge, and that eventually there will be either an explicit or an implicit price put on carbon. So, we think of it in those terms. States are at the forefront right now of policy decisions around renewables, around energy efficiency. So, our behavior hasn't changed a lot.

Probably the bigger issue for us going forward is tax reform and how will interest be treated, how will various financing mechanisms be treated as we make these big capital decisions.

Monica Trauzzi: You mentioned the economics of your nuclear facilities. The economics are not quite there right now.

Ralph Izzo: Right, right — that's right.

Monica Trauzzi: And so you are looking for subsidies to help make that work. How much do you need?

Ralph Izzo: Yeah — what we're looking for is fairness in the market. Right now, we think there are certain attributes that nuclear possesses that are either being ignored by the market or are not being fairly priced.

So, for example, in times of fuel scarcity, like in the polar vortex, we put caps on the price of electricity. Well, that could be a time where nuclear could really enjoy some big economic rents. That's not a slam on natural gas, right? Natural gas is plentiful, it's clean, but the delivery system isn't designed for an all-natural gas electric system in the middle of a polar vortex.

Similarly, we have certain incentives that we put in place for renewables, which are well-deserved and well-justified — but nuclear has many similar attributes, yet we don't have a price on carbon, we don't have a price on its air emissions-free nature. Lastly, we don't have a price on fuel diversity.

So, I think that there are certain imperfections in the market that right now are putting some tremendous pressure on nuclear that you didn't notice when gas prices were higher.

Monica Trauzzi: And nuclear is facing similar battles in several states around the country, it's not just New Jersey.

Ralph Izzo: That's correct, that's correct, that's correct.

Monica Trauzzi: Do you think this is something that you'll weather and get through?

Ralph Izzo: No, if you believe the current forward price curve, our plants would be in serious trouble in about three years, and the forward price curve has consistently, for the past five to 10 years, been overstating what prices will be in 10 years. So, we've been trying to inform policymakers at the federal and the state level that the premature retirement of nuclear plants because of these imperfections in the market is not good public policy.

Monica Trauzzi: The grid is modernizing, though, and as it modernizes, across the board, it'll become more flexible. So, will nuclear continue to need to play as big of a role as it is? These are big facilities, clunky facilities, some would say inflexible.

Ralph Izzo: Right.

Monica Trauzzi: So, do you see long-term value?

Ralph Izzo: So, the average nuclear plant costs about $35 per megawatt-hour to operate. Nothing can replace it at that lower price or less, right? All of the replacements, in our part of the country, are more expensive than $35 a megawatt-hour. So, we see existing nuclear as a great bridge to an increasingly clean power portfolio, which will be a combination of solar, wind, natural gas, and it seems foolish to remove that prematurely because of these imperfections in the market and to replace a $35 megawatt-hour supply with something that's more expensive.

Now, to the extent that research and development can make nuclear even more competitive through advanced fuel cycles or small modular reactors, then that could be something that would be added to the mix. Right now, that's not our focus. Our focus is fair pricing for existing plants.

Monica Trauzzi: Alright, we're going to end it right there. It's always nice to have you on the show when you're in town. Thanks.

Ralph Izzo: Thank you, Monica.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]

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