Wednesday, July 13, 2016

New York bringing hope back to US nuclear operator

New York state is acting to keep existing nuclear generators operational in an important power play that's interesting for a number of reasons.

July 8th (Friday afternoon, as policy announced) NY regulators propose generous Upstate nuclear subsidies |
SYRACUSE, N.Y. – State utility regulators today released a proposal to subsidize Upstate nuclear plants with annual payments totaling an estimated $482 million a year.
The proposal from the Public Service Commission staff seems likely to please nuclear plant operators, who say their facilities deserve subsidies for providing carbon-free power, and to infuriate anti-nuclear advocates who want more resources devoted to wind and solar.
The public has a brief opportunity to comment -- until July 18 – an indication that the PSC is likely to rule on the proposal at its Aug. 1 meeting.
Exelon Corp., which owns three of the four Upstate nuclear reactors, recently told the commission that the oldest two facilities might close unless subsidies were approved by September.
Exelon had said similar things about a proposal put to the Illinois legislature to incent existing nuclear units there by guaranteeing a $42/MWh rate for the generators. Illinois' legislature didn't act, and Exelon announced the closure of Illinois units.

The initial story embedded Public Service Commission staff's recommendation - knows at POLITICO as Cuomo's nuclear subsidy plan. From the recommendation:
Replacement of the zero-emission attributes with equivalent amounts of fossil-fueled attributes would result in an increase of approximately 31 million metric tons of CO2 emitted into the atmosphere over the next two years, according to a report issued by The Brattle Group.
Staff is proposing to subsidize zero-emissions attributes from Zero Carbon Electric Generating Facilities when there is a public necessity to encourage their preservation. Payments for zero-emissions attributes would be based upon the U.S. Interagency Working Group’s (USIWG) projected social cost of carbon (SCC). This approach is consistent with the Commission’s approach in setting guidelines for Benefit-Cost Analysis. 
This may be the first payment scheme designed to price energy by the social cost of carbon. The formula is:
RGGI is the Regional Greenhouse Gas Initiative - so if it was trading carbon at what the USIWG considers the social cost of carbon the ZEC would be zero. If the combination of the RGGI credit costs, expected market pricing and capacity payments (in the "rest of state", or ROS zone) was equal to, or greater than, the USIWG's social cost of carbon, the price would be zero.

In reality, I see a trade-off in the math. If nuclear would mostly be replaced by natural gas-fired generation (plausible) avoided emissions are only about 40% of the Social Cost of Carbon which is presented as a rate per ton - but then a gas generator would bid into the market at a minimum of the cost of fuel to generate with, so the subtracting of the energy price (and capacity payment) should balance out the exaggeration on the SCC.
According to estimates provided in the proposal, the subsidies would start at $17.48 per megawatt-hour for the first two years and rise gradually to $29.15 per MWH in years 11 and 12.
... The subsidies are based on wholesale electric prices of about $39 per MWH.
It's worth wondering if New York creating the arrangement to avoid the closings of Fitzpatrick, Ginna and Nine Mile 1 nuclear reactors will have an impact in Illinois, perhaps motivating legislators to rekindle a deal to keep Clinton and Quad Cities generating. The two plans are not strictly comparable as (if I understand correctly) the New York state arrangement deducts a capacity payment (this summer about $3.50/kW-month, which should work out as approximately $5/MWh) while Illinois' deal left the capacity payments out (for 2016/17 $72/MW-Day, which should be less than $3/MWh). Nonetheless, it's clear Illinois is headed for seeing nuclear units close because the dysfunctional legislature won't address a proposal that would maintain more efficient plants than New York State is keeping open, at lower costs than New York is guaranteeing.

The expectations of success may be mixed. This morning the owner of the Fitzpatrick upstate New York nuclear generating station, Entergy, announced they were in talks with Exelon to sell the plant, which they'd previously announced would close.

I've seen commentary about whether the nuclear operators require subsidies on this scale attempting to calculate how profitable the nuclear operators will be with the rate guarantees as offered. My realpolitik senses wonder if that's not a secondary calculation for negotiations. Once a nuclear operator has sufficient decommissioning funds, I'd assume they could, and should, calculate the prospective profits of their other generators selling into a higher priced market as part of the decision whether to continue operations.

Also dated Friday, July 8th, are comments from the New York Independent System Operator (NY-ISO) submitted to Public Service Commission (PUC) on a motion to "Implement a Large-Scale Renewable Program Case 15-E-0302 and a Clean Energy Standard." The comments begin,
The New York Independent System Operator, Inc. (“NYISO”) supports Governor Cuomo’s public policy objectives associated with serving 50% of the State’s energy with renewable resources by the year 2030 (“50% by 30”).
but ends...
The NYISO respectfully requests that the Commission consider the structure and benefits of the wholesale electric markets and the bulk power system ramifications outlined above while developing its Clean Energy Standard order. The CES should be structured to enable the NYISO to maintain bulk electric system reliability after increased renewable energy penetration. The NYISO supports the Commission in this matter and looks forward to future collaboration.
The translation of the conclusion: nobody considered the ramnification of 50% renewable by 2030.

It appears that when they did, they then cut a deal with the nuclear units.

A side note from the NY-ISO commentary regarding the province of Ontario, which is named twice.
  1. Much of New York’s renewable energy capability is located in upstate New York, with additional potential in the Canadian provinces of Ontario and Quebec, requiring upgrades to the bulk power transmission system to deliver the renewable energy to load. 
  2. The [Department of Public Service Supplemental Environmental Impact Statement] projects that a mix of approximately 12,000 MW of renewable resources will be developed in response to the CES, bringing New York’s total renewable generation capability to over 19,000 MW (including generators in New York State and imports from Ontario and Quebec)
A cited report notes,
Resources located within the PJM, ISO-New England and Quebec Control Areas may qualify as Installed Capacity Suppliers to the NYCA [New York Control Area]. Currently, the Independent Electricity System Operator of Ontario (IESO), which operates another Control Area directly interconnected to the NYCA, does not meet the NYISO requirement relating to the recall of transactions associated with capacity sold to New York. Therefore, resources located within the IESO Control Area do not currently qualify as Installed Capacity Suppliers to the NYCA.
The IESO's market has exported, on average, 812 megawatts each hour to New York.
Since 2004.
The IESO was merged with the Ontario Power Authority some time ago, so it now holds many contracts for supply. Instead of selling capacity directly, with the contracts it holds, it asked "stakeholders" if they wished to sell capacity to other markets.
Not sure they mentioned the IESO doesn't meet NYISO requirements to do so.

Lastly, the Brattle Group is prominent in both the nuclear rate offer story and capacity discussions.

From the first article cited in this post:
According to a study by The Brattle Group, paid for by Exelon and Upstate Energy Jobs, the four nuclear power reactors in Upstate New York are responsible for $3 billion in economic activity and nearly 25,000 jobs.
Another Brattle Group study I recently noted (but only lightly skimmed) is Enabling Canadian Electricity Imports for Clean Power Plan Compliance: Technical Guidance for U.S. State Policymakers. Aside from pointing out that the document exists, I'll note this as it relates to my suggestion for Ontario to significantly reduce it's losses on contracted industrial wind facilities:
Rate-Based Plans. The EPA requires that countries from which clean energy is imported be physically interconnected to the U.S. and that the imports be contracted in order to qualify for producing [emission rate credits]. 
While this matched my understanding of the Clean Power Plan's rate-based option, there seems to be a consensus forming most states will go with Mass-Based plans. My quick review of Brattle's work indicates just importing Canadian power can reduce a state's emissions, and if the state was already in a position to meet its targets, this would allow it to sell excess CO2 allowances.

My understanding of the world to now is this is exactly what happens - imports reduce emissions, but Canadian exports receive not credit for emissions-free power, even if such credits exist.

It's highly unlikely Canadians will benefit from incurring the type of expense in building out renewables the NY-ISO was warning their Public Services Commission about- particularly in Ontario, where the IESO and regulator (the OEB) seem more like Illinois legislators than the New York public servants cited in this post.

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