Illinois says no to nukes and coal, but not for the reasons you think
Cheap wind and natural gas drive old power plants out of business Today’s power price “is so much lower than it used to be”
For a snapshot of the woes of U.S. coal and nuclear power plants, take a look at Illinois. In the past month, power companies announced the closure of coal and nuclear facilities that account for more than 10 percent of the state’s power-generating capacity. The shutdowns come as cheap wind power surges and plants burning low-cost natural gas offer more competition.
Exelon and Dynegy, the two biggest power generators in Illinois, made a last-minute plea to state lawmakers to help rescue their money-losing nuclear and coal plants. Exelon, which runs 11 nuclear reactors in the state, wanted legislators to pass a bill allowing it to charge higher rates for its carbon-free output, whereas Dynegy supported a measure that would let it sell power from its eight Illinois coal plants to another market, where its electricity could fetch higher prices. Neither bill was taken up for a vote before the session ended on May 31, leaving the companies stuck with unprofitable power plants. “You’ve got free wind power coming from the west and cheap gas coming from the east, and that’s not a good place to be for coal and nuclear power plants,” says Travis Miller, an analyst for Morningstar.
The power industry upheaval is playing out across a large part of the U.S. (page 24). Over the past 20 years, more than a dozen states deregulated their electricity markets to let power companies compete to sell wholesale electricity across state lines. That extra competition, plus the advent of cheap power from wind turbines and natural gas plants, has helped push wholesale power prices down by double-digit percentage points in some places.
The impact has been profound in the Midwest, where the share of wind power added to the grid has risen from 2 percent to 12 percent in the past four years, according to energy research firm Genscape. The average annual wholesale electricity price in the Midwest has fallen 43 percent since 2008, according to Bloomberg data.
These factors have put big pressure on aging, higher-cost coal and nuclear plants. Like Dynegy and Exelon in Illinois, power companies in Ohio and New York have asked state regulators for the ability to collect millions of extra dollars from consumers to keep coal and nuclear units running. In Ohio, American Electric Power and FirstEnergy won guaranteed rates
from the state’s utility regulator that would help them avoid closing a handful of unprofitable coal and nuclear plants. The rates were put on hold in April by federal regulators; both companies are now seeking alternatives. In New York, Governor Andrew Cuomo has proposed a clean energy standard that would have utilities buy credits from nuclear plants as part of a goal of getting half the state’s electricity from emissions-free sources by 2030. New York regulators are reviewing the standard.
Exelon had looked for support for a similar plan in Illinois, where falling industrial activity has driven down electricity demand four years in a row. Making matters worse, out-of-state utilities are selling cheaper power into southern Illinois, undercutting coal and nuclear plants there. Because those utilities are regulated and thus guaranteed to make a profit in their home states, they can afford to sell discounted power to deregulated markets out of state. “The power price you are getting now is so much lower than it used to be,” says Kit Konolige, an analyst for Bloomberg Intelligence. After it was undercut again in the most recent power auction in the Midwest, where power companies bid to supply electricity to interested markets, Dynegy said it plans to shut three coal units in southern Illinois over the next year. On May 6, Exelon said it will close two of its nuclear plants in the state, Clinton in 2017 and Quad Cities in 2018. The plants have lost a total of $800 million since 2008.
Amid an ugly budget battle, Illinois lawmakers were never that excited about helping either power company manage their unprofitable plants. Illinois Attorney General Lisa Madigan called the Exelon proposal “outrageous“and said it would “force consumers to pay more only to boost the companies’ profits.” Exelon, the largest nuclear reactor operator in the U.S., earned more than $2 billion last year. It issued a statement calling Madigan’s comment “wrong-headed” considering Illinois subsidizes other sources of power such as wind and biomass generated by profitable companies.
With more wind power poised to come online and natural gas forecast to stay cheap, the outlook isn’t likely to improve for many nuclear and coal plants in the Midwest. “The energy market is depressed in the region,” says Shahriar Pourreza, an analyst at Guggenheim Securities. “That’s the long and short of it.”
The bottom line Coal and nuclear plants, which make up 10 percent of Illinois’s power capacity, are shutting down rather than continuing to lose money.