It was a surprise to many of my pro nuclear friends, but Dominion’s recent announcement that it had decided to close its Kewaunee nuclear power plant was the almost inevitable result of current market and political conditions. The conditions bring back many memories of the mid 1990s, which were a rather dark time in my life. Way back then, I was failing to attract capital investors for my project to design and build Adams Engines.
Many of the factors that prevented investor interest in any nuclear projects in 1996 faded away for a while, but most of the financial disincentives have risen again – sort of like a phoenix. Back in the 1990s, there was active discouragement from the federal government, active discouragement from state agencies, low natural gas prices, ratcheting regulations, and plenty of more interesting places to invest risk capital.
Not only did the situation make it difficult for a tiny company like mine to attract any investors, but it made it extremely difficult for large companies to economically justify major capital investments to keep existing nuclear power plants running. If the plants were working well, they provided a reasonable return on investment, but if they needed new steam generators, required a major effort for refurbishment before an uncertain relicensing effort, or had any other significant challenge, it was better for the company to shut them down instead of to invest to keep the clean power coming.
A decision to “write off” a significant capital asset can be a money-maker, especially when the asset is a relatively small, isolated nuclear power plant that has a fully funded decommissioning escrow account. Dominion’s decision to close Kewaunee brings an immediate return in the form of a nice tax deduction. It also reduces annual expenditures by allowing the owner to reduce staff, stop fuel purchases, stop waste fund payments, reduce maintenance expenses, reduce property tax payments, and to eventually reduce the annual cost of federal licensing; an operating license costs about $4.7 million per year – for all operating plants no matter how large their output – while the fee for a permanently shut down reactor is just $210,000 per year.
Of course, the company will also have to forgo the revenue that it would have received by operating the plant, but at a time of low natural gas prices and in a service territory where occasional periods of wind turbine overproduction forces the market price of electricity to a level approaching zero, that revenue is too small and too uncertain to cover the predictable and unpredictable costs that seem to rise far more often than they fall. (In the nuclear world, there are people both inside and outside of the business that the fact that costs keep going up – one man’s cost is another man’s revenue.)
In the Dominion press release about their decision to shut Kewaunee, CEO Thomas Farrell provided a brief explanation that included a mention of a failure to achieve scale economies with its single Midwest unit.
“This was an extremely difficult decision,” Dominion CEO Thomas F. Farrell II said in a news release. “This decision was based purely on economics. Dominion was not able to move forward with our plan to grow our nuclear fleet in the Midwest to take advantage of economies of scale.”
Not only was Dominion unsuccessful in its planned acquisition of the nearby Point Beach nuclear station, which was purchased in 2006 by FPL Group (now known as NextEra Energy) for just a little under $1 billion, the company was also not able to help convince the state of Wisconsin to overturn its virtual moratorium on new nuclear plants.
That virtual moratorium, like the laws in about 20 states, does not put an outright ban on new nuclear plants; it just says that no new nuclear plants can be built until the federal government has a functional long term waste storage facility. Though there was a time in the early 2000s when it looked like the federal government was actually making progress on that front, the current “plan” is less advanced than it was way back in 1996.
If there was any hope of someday building a new nuclear power plant in Wisconsin, the potential value of having an existing operating plant site might have made a difference in Dominion’s economic calculation. Under current conditions there is no reason to assign any value to the site as a potential home for any new production facilities. (That fact might also have discouraged any potential purchasers from coming forward.)
I believe that Dominion is being completely honest about the fact that Kewaunee is worth more dead than alive right now. It will not have to commit to new power purchase agreements at a time of low natural gas prices, it will not have to spend money for whatever overreaction the NRC mandates with regarding the Fukushima Frenzy, it will not have to continue maintaining a largely separate nuclear fuel operation (courtesy of a Jon Wellinghoff-led FERC decision – docket #ER11-2774-000 – that substantially prevented the company from consolidating that facet of its operating program), and it will have immediate access to the decommissioning fund to pay for whatever stabilization it and the NRC decides needs to be done to the plant.
I’m saddened, but certainly not surprised. The forces of evil that are determined to make nuclear energy uneconomical are currently stronger than those of us who are determined to ensure that the world’s current and future population has a viable, clean, abundant and reliable alternative to burning the earth’s stored hydrocarbon wealth as quickly as possible.