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Today in Energy

October 7, 2019

Five states have implemented programs to assist nuclear power plants

operating nuclear electricity generating capacity in selected states
Source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory

In late July 2019, Ohio became the fifth state in the United States to enact policies that provide for compensation or other assistance for in-state nuclear generating plants. Connecticut, Illinois, New Jersey, and New York have implemented similar support programs for some of their nuclear power plants since 2017. All five state states have unbundled, retail-choice electricity markets where generators do not receive cost recovery from state regulatory commissions. Nuclear power is a significant source of in-state electricity generation in each of these five states.

Collectively, the 14 reactors at the 10 plants receiving state support account for 9% of the utility-scale generating capacity in those five states and 13% of the nation’s nuclear generating capacity. Because nuclear power plants tend to operate at higher capacity factors than other generator types, these plants’ shares of their states’ or the national electricity generation is larger than their shares of capacity.

Declining prices for electric power in wholesale markets have placed economic pressures on many nuclear power plants in the United States and led to several plant closures. Eight nuclear power plants have retired since 2013. The Three Mile Island nuclear power plant in Pennsylvania closed at the end of September, and another five U.S. reactors are scheduled to retire by the end of 2025.

In states with more traditional state-regulated power markets, the cost of electricity generation is regulated by state commissions, which can offer power plants protection from rising costs. In states with retail choice, plant owners generally do not have that protection, and some owners have indicated that they are unable to recover all costs of operation in today’s relatively low-price wholesale market. The support programs for nuclear power in the five states allow the owners to make up for unrecovered costs, which are usually funded by surcharges to electricity customers or by permission to participate in clean energy markets previously restricted to renewables.

U.S. operating nuclear electric generating capacity by market type
Source: U.S. Energy Information Administration, Preliminary Monthly Electric Generator Inventory

If state support programs for nuclear power are to be expanded in the future, they will likely only apply to about 30% of the nuclear fleet, or those plants located in retail-choice or wholesale power markets. More than half (55%) of the U.S. nuclear fleet operates in markets with state regulation where full cost recovery generally is available through actions from state commissions. Two nuclear plants are selling their output under power purchase agreements (PPAs).

The five states’ subsidy programs vary in structure, especially by the timing and amount of the subsidies. Most programs involve zero emission credits (ZECs) that load-serving entities (i.e., utilities) are obligated to buy from nuclear generators. ZEC prices are largely based on an established social cost of carbon, intended to reflect the environmental costs of carbon emissions, with some adjustment allowed for changes in market trends or power costs. Programs in Illinois, New York, New Jersey, and Ohio show ZEC prices ranging from $10.00 per megawatthour (MWh) to $17.50/MWh.

timing of state subsidies for nuclear power
Source: U.S. Energy Information Administration

Connecticut’s program, which is legislated to begin this year, allows two generating units at the Millstone nuclear power plant to participate in an auction for carbon-free electricity. In 2018, about half of the plant’s capacity cleared that auction, leading to a signed PPA with an in-state load-serving entity.

The timing of subsidy programs ranges from 6 years for the Ohio initiative to 12 years in New York. Owners of nuclear plants must secure approval from state authorities before receiving the subsidy. All of the nuclear capacity in New Jersey and Ohio is eligible for state support programs, and a portion of the nuclear capacity in Illinois, New York, and Connecticut are eligible for some type of support.

The nuclear support programs in Illinois and New York have been challenged in federal court; plaintiffs have claimed that the subsidies interfere with the jurisdiction of the Federal Energy Regulatory Commission (FERC) over rates for wholesale power, exercised through the establishment of Independent System Operator or Regional Transmission Organization electricity markets. The courts have rejected all challenges so far, allowing the programs to remain in place.

Principal contributor: Mark Morey