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”

Bloomberg Businessweek (Europe) - - CONTENTS - Mark Che­diak

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.

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