Shale gas glut closing nuke plants

— Duke Energy’s decision to dismantle a Florida nuclear power plant rather than pay for repairs is a sign of how rapidly natural gas is remaking the U.S. power industry, speeding a shift from coal and uranium.

Duke’s Crystal River Unit 3 plant in Florida joins Dominion Resources Inc.’s Kewaunee reactor in Wisconsin as the first to be shuttered in the U.S. because of growing shale gas supplies, serving as signposts for utilities also considering decommissioning reactors. At least four other U.S. reactors are also at risk of early retirement because of new power market economics, said Julien Dumoulin-Smith, a New York City-based analyst with UBS Securities LLC.

“The fuel du jour is natural gas,” said Florida PublicCounsel J.R. Kelly, the state’s official advocate for utility customers. “I personally believe in fuel diversity. I’m just afraid the costs of new nuclear are going to be prohibitive.”

The question for Duke, the largest U.S. utility-owner by market value, is whether Florida regulators will allow it to charge the state’s consumers $1.65 billion for its failed investments in the reactor, while increasing the state’s already hefty reliance on gas to fuel its electricity plants.

Florida’s Public Service Commission expects to hold hearings to determine whether Duke’s decision to retire the plant is prudent for customers, said Cynthia Muir, a commission spokesman.

Kelly said he will take “a very close look” at Duke’s funding request.

“We’re not going to leave our ratepayer in the lurch,” he said.

Duke’s Chief Executive Officer Jim Rogers is among utility executives who have warned that too much reliance on natural gas puts customers at risk of power price spikes should fuel costs rise, as they often did in years before producers learned to extract it from abundant shale beds in the U.S. and Canada.

“We view gas as the most viable short-term option,” said Mike Hughes, a Duke spokesman. “The costs are low and we anticipate the cost of fuel for the foreseeable future will remain relatively low. Long term, we don’t think you should put all of your eggs in the gas basket.”

A shale-fed plunge in natural gas prices is tilting the power industry toward thatfuel, lowering electricity prices and pressuring profits at coal and nuclear generators. At the same time, rising fuel prices and escalating safety repairs are making older, single-unit reactors like Crystal River increasingly difficult to operate profitably.

“Natural gas is really distorting the markets,” Margaret Harding, a nuclear industry consultant based in Wilmington, N.C., said in a telephone interview. “These old, small plants, if they get slapped with a lot of capital upgrades, they’re going to betough to justify.”

Gas has become the cheapest source of power for much of the U.S. with prices that have tumbled 75 percent below the July 2, 2008, peak of $13.695 per million British thermal units.

The low price for natural gas, $3.42 per million Btu on the New York Mercantile Exchange on Wednesday, has led to a decline in the number of drilling rigs in Arkansas’ Fayetteville Shale as drillers explore other more profitable deposits.

The all-in cost to produce electricity during the fourth quarter, including operating and capital expenses, was $90.42 per megawatt-hour at a combined-cycle gas plant, $140.13 at a coal-fired plant and $143.29 at a nuclear plant, according to data compiled by Bloomberg New Energy Finance. A megawatt-hour can power about 800 average U.S. homes for an hour, accordingto the Energy Department in Washington.

The trend has prompted utilities to build gas plants rather than a wave of new nuclear behemoths once predicted to follow Southern Co.’s $14 billion construction of reactors in Georgia.

“The market is telling us that right now, nothing can really compete with natural gas unless it’s renewables that are loaded with subsidies,” said Samuel Brothwell, senior analyst with Bloomberg Industries. “The challenge here is that natural gas can be a great power plant fuel, but it can’t be the only power plant fuel.”

Florida already uses gas for about two-thirds of its electricity generation and risks becoming overly reliant on a fuel whose price has swung from $2 to almost $15 per million Btus and back to $2 since the early 2000s, according to Brothwell.

Florida’s dependence would rise to more than 70 percent later this decade if Duke builds new gas generation to replace the crippled Crystal River reactor and two coal units in central Florida, he said.

Business, Pages 25 on 02/07/2013

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