USA: are natural gas and liberalised energy markets challenging
nuclear’s future?
By
Elisabeth Jeffries on Oct 3, 2012
At closer inspection, liberalised energy markets paired with cheaper
natural gas prices could mean the US hosts some no-go zones for existing
and future nuclear energy plants. But add carbon pricing into the
long-term mix and nuclear energy comes with its advantage.
Newly derived supplies of natural gas in North America has prompted
energy company Exelon to change course. Outlining its reason for
withdrawing a permit application for a nuclear plant in Victoria County,
Texas, the company – which runs gas as well as nuclear plants - blamed
commodities markets.
“The action is in response to low natural gas prices and economic and
market conditions that have made construction of new...plants in
competitive markets uneconomical now and for the foreseeable future,”
Exelon managers stated in a press release. Gas prices in 2012 dropped
to below $2 per million Btu for the first time in a decade due to new
supplies.
Elaborating on the company’s decision, corporate spokesman Craig Nesbit
confirmed the significance of the sharp decline in gas prices, but also
drew attention to Exelon’s particular circumstances in Texas, a
liberalised energy market.
“Existing nuclear is barely competitive and new nuclear is not
competitive at all. Part of the US is on a merchant [liberalised]
market, in which companies make competitive bids at the lower cost
possible. If you don’t clear the bid, the plant sits idle. Nuclear
plants live or die by the low cost of their power. On the other hand in
some regulatory markets they have captive customers and stable prices
they can charge to them.”
Market disadvantage?
It looks as if nuclear is once again on the back foot. Older arguments
in favour of gas have come back with a vengeance: that CGGT plants can
come online in a year and are cheaper to build; that they are more
easily scalable in terms of output; and that they can shut down more
quickly when demand falls or the growing wind power sector produces more
than expected.
This more complex situation, explains Nesbit, can drive negative pricing
which puts nuclear at a disadvantage. Under those circumstances “we pay
people to take power from nuclear,” he explains. “The whole market is
not in equilibrium right now,” he states.
Do plummeting gas prices spell defeat for nuclear in North America or a
temporary setback? Certainly, leading organisations like the
International Energy Agency have drawn attention to freshly competing
forces due to the dawn of a new “golden age for gas,” in a report of May
2012. But they point out a number of difficulties that will affect
unconventional (shale) gas in particular. Among these are social and
environmental concerns associated with its extraction because producing
it is an intensive industrial process, generally imposing a larger
environmental footprint than conventional gas development. As carbon
considerations climb the agenda, thisa energy source could conceivably
also arouse mounting opposition.
Carbon pricing
In addition, new carbon pricing policies expected in many regions will
make gas production more expensive. A 2009 report by the Massachusetts
Institute of Technology demonstrates that nuclear plants become
increasingly competitive as the price of carbon increases.
For instance, it shows a $25/ton carbon tax would increase the price of
coal-fired generation to $0.083/kWh and gas-fired generation to
$0.075/kWh while nuclear remains at $0.066/kWh. Similarly, the Electric
Power Research Institute (EPRI) indicates natural gas fitted with carbon
capture would be more expensive in 2025, showing an LCOE of $68-109/MWh
compared to an LCOE of $76 – 87/MWh for nuclear. Of course, North
America is one of the least advanced markets in terms of carbon pricing,
so that scenario may only just have become a reality by then.
Ron Cameron, head of nuclear development at the OECD Nuclear Energy
Agency, is sanguine: “our view is the gas price won’t stay so low.
Shale gas exploration will eventually move to more difficult areas,” he
says, suggesting shale gas will suffer from high exploitation costs.
Much of it is destined for export, so this will also increase the
price. Considered over the life span of a nuclear plant, the present
gas prices seem a less significant consideration. “A long term look at
the LCOE over 60 years shows nuclear really still looks competitive,”
states Cameron.
Nuclear: solid choice?
The nuclear option is then likely to remain solid, but could retreat
slightly as the preferred choice over a few years as short term gas
considerations dominate North America. As Rob Norfleet, energy analyst
at BB&T Capital Markets, points out: “utilities will tell you they want
a diversified fuel source (coal, natural gas, nuclear) and base their
investment decisions over a long term horizon (20 yrs).”
The problem is utilities’ reliance on external investors has its
shortfalls with short horizon results: “It’s hard for them to see a
return on investment if the gas price stays so low,” says Ron Cameron.
But if evolving nuclear technology successfully matures, its future
could look brighter regardless of gas prices.
“I think there is a place for nuclear, and the emergence of small
modular reactors (200 MW or below) could prove to be a winner with
nuclear over the next decade as they cost considerably less, are
scalable and safe,” asserts BB&T analyst Norfleet.
© Nuclear Energy Insider
http://analysis.nuclearenergyinsider.com/new-build/usa-are-natural-gas-and-liberalised-energy-markets-challenging-nuclear%E2%80%99s-future?utm_source=http%3a%2f%2fuk.nuclearenergyinsider.com%2ffc_nei_decomlz%2f&utm_medium=email&utm_campaign=NEI+e-brief+0310&utm_term=USA%3a+are+natural+gas+and+liberalised+energy+markets+challenging+nuclear%E2%80%99s+future+&utm_content=163964
|