Is nuclear getting blown away?

Industry blames cheap, subsidized wind power for woes

Dietz Brothers Inc. towermen attach the blades of a Polaris America LLC wind turbine installed by Renewable Energy SD in Elgin, Minn., in February 2012.
Dietz Brothers Inc. towermen attach the blades of a Polaris America LLC wind turbine installed by Renewable Energy SD in Elgin, Minn., in February 2012.

A glut of government-subsidized wind power may help accomplish a goal some environmentalists have sought for decades: kill off U.S. nuclear power plants while reducing reliance on electricity from burning coal.

That’s the assessment of executives and utility experts after the U.S. wind-energy industry went on a $25 billion growth binge in 2012, racing to qualify for a federal tax credit that was set to expire at year’s end.

The surge added a record 13,124 megawatts of wind turbine energy to the nation’s power grid, up 28 percent from 2011. The new wind farms increased financial pressure on traditional generators such as Dominion Resources Inc. and Exelon Corp. in their operating regions. That’s because wind energy undercut power prices already driven to 10-year-lows by an abundance of natural gas.

“Right now, natural gas and wind power are more economic than nuclear power in the Midwestern electricity market,” said Howard Learner, executive director of the Environmental Law and Policy Center, a Chicago-based advocate of cleaner energy. “It’s a matter of economic competitiveness.”

Wind-generated electricity supplied about 3.4 percent of U.S. demand in 2012 and the share is projected to jump to 4.2 percent in 2014, according to the U.S. Energy Information Administration.

The wind-power boom has benefited consumers in regions where wind development is fastest, contributing to a 40 percent wholesale power price plunge since 2008 in the Midwest, for example. Yet the surplus is creating havoc for nuclear power and coal generators that sell their output into short-term markets.

The effect is greatest in the capacity-glutted Midwest. There, Richmond, Va.-based Dominion is closing a money losing reactor and selling coal plants, Exelon warns of shrinking nuclear margins, and an Edison International merchant coal-plant unit has gone into bankruptcy.

“It’s a perfect storm,” said Charley Parnell, a Chicago based spokesman for Edison’s Midwest Generation unit. Pricing, already under pressure from cheap natural gas and the lingering effects of recession, now has a wind factor. “Wind absolutely plays a part in that,” he said, “especially in the off peak hours.”

Atomic-power providers complain that the upheaval is an example of government subsidies distorting the market - to the particular detriment of nuclear which provides 19 percent of the nation’s electricity, is clean and has proved safe despite concerns by activists that it poses a danger to public safety.

Wind power has two advantages.

Renewable-energy laws in many states require utilities to buy wind energy under long-term contracts as part of their clean-energy goals and take that power even when they don’t need it. Wind farms also receive a federal tax credit of $22 for every megawatt-hour generated.

Even when there is no demand for the power they produce, operators keep turbines spinning, sending their surplus to the grid because the tax credit assures them a profit.

On gusty days in the five states with the most wind power - Texas, California, Iowa, Illinois and Oregon - this can flood power grids, causing prices to drop below zero during times when demand is light. Wholesale electricity during off-peak hours in Illinois has sold for an average price of $23.39 per megawatt hour since Jan. 1, after hitting a record low of minus $41.08 on Oct. 11, the least since the Midwest Independent Transmission System Operator Inc. began sharing real-time pricing in 2005.

Meanwhile, nuclear and coal plants must continue running even as this “negative pricing” dynamic forces them to pay grid operators to take the power they produce.

“It is becoming more pronounced as more wind is coming on,” Christopher Crane, chief executive officer of Chicago- based Exelon Corp., said in a phone interview.

If the push to “overdevelop” subsidized wind continues, “there is a very high probability that existing safe, reliable nuclear plants will no longer be competitive and will have to be retired early,” Crane said.

More development seems a certainty. Wind power got more help when Congress, as part of January’s deficit deal, extended the production tax credit through Dec. 31, amending current law so projects that begin this year will receive the 10-year tax break regardless of when they come online.

While few new projects are expected to be built out this year due to developers’ mad dash at the end of 2012, “we think 2014 will pick up again,” said Rob Gramlich, interim chief executive of the American Wind Energy Association, a trade group.

Gramlich doubts wind power is the chief reason that spot market power producers like Exelon are suffering a profit drain. “Low prices are due to a lot of things, mostly shale gas,” he said. “But to some extent wind does reduce power prices and that’s a good thing for homes and businesses.”

Business, Pages 23 on 03/12/2013

Upcoming Events