Survival strategies for US plant operatorsLow-cost gas and reduced energy demand are hammering the US nuclear industry. Some plant operators are finding ways to fight back. Staff at Exelon Generation’s Clinton power station in the US state of Illinois had good reason to feel proud this May. That was when the company was given a GE Hitachi Nuclear Energy Vendor Award for improving the efficiency of plant refuelling. In a nutshell, the team at Clinton managed to shave about USD$10m a year off fuel costs by refuelling on an annual basis instead of every 18 months to two years, as is standard practice in the industry. The saving, which has not affected operational safety and efficiency in the slightest, would have been admirable at any point in time. But in the US energy market of 2013 it is particularly notable, because arguably nuclear power is fighting for its life. Nuclear is seen as yesterday’s power source, while natural gas is the energy of the here and now due to its low cost and domestic extraction. What can nuclear do to fight back? Obviously one option is to reduce its cost of operations, as the Clinton plant team has demonstrated. Exelon is working on other approaches, too. Krista Lopykinski, the company’s director of nuclear communications, explains,“Exelon is taking decisive action to create value, continuing to find productivity and efficiency improvements that allow us to minimise operations and management, capital and fuel costs and maximize reliability. “Another step we are taking to reduce costs and improve efficiency is the integration of the Constellation Energy Nuclear Group plants into the Exelon fleet.” Cost synergies She adds: “The integration results in cost synergies, reducing operating costs and allowing for greater collaboration especially in the areas of IT systems and regulatory framework issues, such as Fukushima response and cyber security.” But that course of action is fairly limited. “The fact is that US plants are very efficient now in terms of their capacity factors,” says David Hess, director of the capacity optimisation working group at the World Nuclear Association. “There may be a certain amount of savings which could be made through streamlining efficiency of operations even more; in fact I’d be very surprised if there wasn’t. But I don’t really know how much scope there is for internal cost cutting.” A complicating factor is the presence of different types of energy markets in the US. In regulated markets, nuclear may be protected from the threat of cheaper sources of generation. Companies there can afford to sit out the threat from shale gas. In non-regulated markets, in contrast, operators may be massively exposed; some states have incentives for low-carbon generation that, ironically, make it difficult for nuclear to compete in the energy mix. Furthermore, these markets may be set up in a way that makes it difficult for nuclear to deliver certain advantages. For example, one way in which nuclear power can demonstrate its value is through load following. Swings in demand In France, for instance, nuclear power is dialled up or down to suit the major swings in demand on the grid. But, clearly, operators need an incentive to do this, which is not always the case in the US. This diversity of markets means operators in different parts of the country may be left holding very different cards when it comes to playing nuclear off against competing generation sources. Hence if you wanted to find operators that were able to fight back against the current market dynamics, says Steve Kerekes, senior director of media relations at the Nuclear Energy Institute, “you’d want to focus on those with reactors in New England and the Midwest.” Another problem for the nuclear industry, particularly since Fukushima, is that regulatory authorities are likely to take a very dim view of the kind of tinkering that could help reduce costs. “Any changes to procedures or any changes to equipment comes with an accompanying risk,” says one insider. “What you are seeing right now in the industry is a period of immense risk aversion.” Cost reduction As a result, even if there is an obvious route to cost reduction there is also an overwhelming temptation to resist changes and hope the industry can ride out the storm. And the funny thing is that safety, albeit this time from an investor’s perspective, may yet prove to be the ace up the nuclear industry’s sleeve. A study published in July by EnergyPath Corporation, a management and economic consulting firm, found that gas may seem cheaper than nuclear right now but poses a much greater long-term risk for investors. “Although the cost of the gas plant (with carbon tax) is found to be slightly cheaper, that choice of fuel carries a far greater cost uncertainty, suggesting a greater long-term investment risk than nuclear power,” said the authors. Perhaps, then, the main task for the industry now is one of communication. As one observer puts it, “The US nuclear industry needs to be doing more lobbying. I don’t know what else can be expected of it.”
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