The messy conversion to renewables

Even those of us who passionately cheer the coming of renewable energy must admit the changeover from fossil and nuclear is going to be extremely complicated.  There are sunk costs and leftover problems from existing infrastructure.  Even worse, USA hasn't relied on wind to power critical elements of the economy since the tall ships were retired in the 19th century.  To complicate matters, energy policy is a crazy mixture of subsidies.  Nuclear power doesn't even exist without government support and the subsidies that were put in place to support wind generation as an infant industry now pose problems as the industry grows up.

Nuclear Industry Withers in U.S. as Wind Pummels Prices

By Julie Johnsson & Naureen S. Malik - Mar 11, 2013

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.

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 turbines 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 (D) 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,” Howard Learner, executive director of the Environmental Law and Policy Center, a Chicago-based advocate of cleaner energy, said in a phone interview. “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.

‘Perfect Storm’

The impact is greatest in the capacity-glutted Midwest. There, Richmond, Virginia-based Dominion is closing a money- losing reactor and selling coal plants, Exelon warns of shrinking nuclear margins and an Edison International (EIX) 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, in a phone interview. 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 perennial concern by activists that it poses a danger to public safety.

Prices Below Zero

Wind power has two advantages. Green 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.

Thus, 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 -$41.08 on Oct. 11, the least since the Midwest Independent Transmission System Operator Inc. began sharing real-time pricing in 2005.

‘Negative Prices’

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. (EXC), said in a phone interview.

If the push to “over-develop” 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,” according to Crane.

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

Defending Wind

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 CEO 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.”

Natural gas is fuel for a growing number of U.S. power plants because of its cost advantage and new environmental rules for coal. Wind is gaining as turbine costs plummet -- they are down one-third since 2010 -- and technology gains make windmills economical in states with lower average wind speeds.

Google Inc. (GOOG) is investing $1 billion in wind and solar projects and Warren Buffett’s MidAmerican Energy Holdings, Iowa’s largest utility owner, owns 6 percent of U.S. wind-energy capacity and has invested about $13 billion in renewable energy.

Tenfold Rise

U.S. wind installations have risen 10-fold since 2003 to 60,007 megawatts, attracting $120 billion investment that has produced new capacity equivalent to 14 nuclear power plants and enough to power 14.7 million homes, the AWEA, the industry group based in Washington, D.C., said in a Jan. 30 report.

Wind’s rapid gains have created headaches for grid operators since winds often blow strongest when homes and businesses use the least amount of power: at night and during the spring and fall seasons, said Paul Patterson, a New York- based analyst with Glenrock Associates LLC.

“I think this model’s got problems with it,” Patterson said in a phone interview. “There are not many examples where the product you produce actually has negative value.”

Before 2006, when wind power began its latest growth spurt, negative prices were extremely rare. The phenomenon is now prevalent in parts of the Midwest, Texas and the West Coast where turbine installations are growing fastest, data compiled by Bloomberg show.

“We can’t find enough demand for the amount of energy created by Mother Nature,” said Doug Johnson, spokesman for the Bonneville Power Administration, which manages the grid in the Pacific Northwest. The transmission operator, based in Portland, Oregon, paid wind operators $2.7 million last year to stay off line so it could make room for the power from hydroelectric generators handling the runoff from melting mountain snows.

Wind vs Fossil Fuels

The surge in wind generation is also squeezing the number of hours that fossil-fuel plants are needed to supply some wind- heavy markets, said Michael Blaha, the principal analyst of North American power research for Wood Mackenzie Ltd. in Houston. “It makes it economically harder for fossil units because when the wind’s up, it’s going to start depressing prices,” he added.

Negative prices are starting to seep into a Southern California power hub and may become more frequent as state regulations mandate that 33 percent of its power come from renewable sources by 2020, Blaha said. “That extra amount is going to knock out about 15 percent” of energy filled by fossil fuels.

Exelon in Illinois

Exelon, the largest U.S. nuclear operator, says a surplus of wind power is making negative pricing a problem in Illinois, where it owns six nuclear plants and a wind project. Prices for markets served by Exelon’s Clinton and Quad Cities reactors trade below zero between 8 percent and 14 percent of off-peak hours, said Joseph Dominguez, Exelon’s senior vice-president for governmental and regulatory affairs and public policy.

Exelon cut its quarterly dividend for the first time Feb. 7, after reporting a 38 percent decline in fourth-quarter profit on lower power prices and higher nuclear fuel costs.

“Wind generators ignore that price signal in order to chase the federal tax credit,” Exelon’s Dominguez said in a telephone interview. “Everyone else that is producing electricity during that time period pays that negative $30 per megawatt-hour back to the system in the form of congestion charges.”

The market should remain “open and fair” even in the “very rare instances” when demand can’t support two low-cost sources like wind and nuclear, Gramlich of the wind trade group said. “Just because one was there first doesn’t mean they automatically get the right of way to operate 24-7.”  more

Nuclear power has never been able to exist without subsidies—it is the pluperfect example of a state technology.  Its biggest economic problem (in the absence of a major system failure) is that the power plants, in addition to being insanely expensive, are also incredibly difficult to build.  And sometimes the building project goes so far wrong, it is actually cheaper to abandon it BEFORE it has generated so much as a watt of power.  The Crystal River Florida power complex has managed to inflict almost all the major disasters on itself and promises to make Florida's electricity very expensive in the near future.  If "The Sunshine State" had been serious about solar all along, most of these problems would have never surfaced in the first place.  Of course, PV cells have only been cost-effective for about five years, so in defense of the power companies, their decision loops are typically much longer than five years so what seems obvious now wasn't so obvious a very short time ago.

Consumer advocate says nuclear plant fiasco means financial 'armageddon'

Ivan Penn, Times Staff Writer

Tuesday, March 12, 2013

TALLAHASSEE — A warning to Progress Energy Florida customers about the financial impact of losing the Crystal River nuclear plant: Brace yourselves for "armageddon."

Maybe not today. Maybe not tomorrow, but soon, says Charles Rehwinkel, deputy state public counsel, who represents consumers before the Public Service Commission.

To date, customers have been spared the impact of Progress Energy Florida's disastrous nuclear energy track record, which includes: breaking the Crystal River plant beyond repair; recovery of costs related to the plant's assets; hundreds of millions in replacement power; planning a new natural gas plant to replace Crystal River; and spending $1.5 billion on the proposed but indefinitely delayed nuclear complex in Levy County.

In fact, a settlement last year between Progress Energy Florida and state regulators has temporarily lowered monthly power bills and put off the financial reckoning until 2017.

But after that, watch out, said Rehwinkel. "There's an armageddon coming in 2017, 2018. This is very scary."

Here's what he's talking about:

Progress Energy Florida, which became part of Duke Energy last year, already wants its 1.6 million customers to fork over $1.6 billion for costs related to Crystal River, another $1.5 billion for the replacement gas plant and another $1.5 billion toward the Levy plant, even if it is never built.

On Tuesday, representatives of Progress Energy Florida, PSC staff members and consumer advocates began laying the groundwork for the hearings on who will ultimately pay for all that.

The PSC currently is scheduling hearings for June, but Rehwinkel and other consumer advocates said that the complexity of the case will likely require the hearings to be put off until next year.

"The closing of this (Crystal River) plant is the biggest disaster in Florida power history," said James Brew, a lawyer who represents the phosphate industry, a large commercial power user. "We need to do it right."

Consumer advocates think that, when it comes to Crystal River, Progress Energy Florida has done little right.

They contend, for instance, that the utility settled for too small a payout from its insurance company.

The insurer, the Nuclear Electric Insurance Limited, paid a total of $835 million for property damages to the plant and to cover replacement power. The policy allowed up to $2.25 billion for property damages and $490 million per covered incident.

A higher payout by the insurer would have lessened the impact on customers.

Who pays for the outstanding — and in some cases still growing — bills related to Crystal River remains the subject of future state regulatory hearings.

Rehwinkel said the public counsel's office has asked to see the agreement between Duke Energy and the insurance company to see whether it might be possible to renegotiate the terms or whether consumer advocates simply will have to press state regulators to require the utility to get money from its shareholders.

Rehwinkel said the potentially overwhelming impact on customer bills from the Crystal River-related costs requires a careful review.

"There's just a lot of work that needs to be done," Rehwinkel said. He offered no details on how much future power bills would rise. Duke customers already pay the highest rates among Florida's three largest investor-owned utilities — Florida Power & Light and TECO (parent of Tampa Electric) being the other two.

In addition, the consumer advocates question whether the utility has made the right decisions in handling repairs and even the decision in February to shutter the broken nuclear plant.

But John Burnett, a lawyer with Progress Energy Florida, argued during Tuesday's meeting that the issues raised by consumer advocates were settled in an agreement reached with the state a year ago. That agreement prohibits the utility from requesting any dollars not already approved for Crystal River until 2017.

Burnett said commissioners should deem the consumer advocates arguments irrelevant because of a "lack of standing." He said the costs incurred have been supported by past commission decisions and arguments against recovering those costs from consumers have no merit, even beyond the end of the settlement agreement in 2017.

"We believe they are improper issues," Burnett said. "All of the issues have been included in the (state) settlement agreement."

Better to abandon nuclear plans, report says

Ratepayers in Florida, Georgia and South Carolina would be better off "eating" $6 billion already invested in unfinished nuclear reactor projects and focusing instead on producing or conserving the same amount of electricity by cheaper means.

So concludes a report scheduled to be released Thursday by economic analyst Mark Cooper of the Vermont Law School Institute for Energy and the Environment.

Cooper, a longstanding critic of the costs of nuclear power, said that by absorbing billions of dollars already committed to nuclear plant development now, ratepayers in all three states will avoid tens of billions of dollars in costs for risky nuclear plant projects.

In all there are five planned nuclear projects among the three states. Duke Energy's Levy County project and Florida Power & Light's proposed two-reactor project in South Florida are still in the planning stages. There are two other similar sized projects in South Carolina and one in Georgia. more