Concerns About State Subsidies For Nuclear Power Plants / by Norris McDonald

The Center supports Zero-Emissions Credits(ZEC).

Critics of state support for struggling nuclear power plants are warning that state plans to subsidize unprofitable generating resources present “a very real threat” to wholesale electricity markets.  The subsidies in question come in the form of zero-emission credits for uneconomic nuclear plants, which were included as part of New York’s Clean Energy Standard and are intended to aid the state’s transition away from fossil fuels and into renewables.

Exelon has been pushing for similar treatment for its nukes in Illinois, while FirstEnergy has said it will seek financial assistance for its Ohio plants.

The subsidies aren't being driven initially by state policy, but are being driven by the specific requests of generation owners about particular units because those units are not profitable.

These same critics believe that social goals, such as the reduction of carbon emissions to reduce the effects of climate change, can be accomplished through market-based solutions, such as a price on carbon.  Many economists agree that the most cost-effective way to do that is have a carbon price, not by picking individual power plants that are low carbon.

The FitzPatrick nuclear power plant on Lake Ontario was due to close in 2015, but remained open under new ownership and a state-sponsored 'zero-emission' production credit program.  (Nuclear Regulatory Commisison)

The FitzPatrick nuclear power plant on Lake Ontario was due to close in 2015, but remained open under new ownership and a state-sponsored 'zero-emission' production credit program. (Nuclear Regulatory Commisison)

To protect the markets from the effects of the subsidies, these critics advocate for applying PJM’s Minimum Offer Price Rule (MOPR) to all existing resources. The rule currently covers only new subsidized gas-fired plants.  They believe action is needed to correct the MOPR immediately.  They believe an existing unit MOPR is the best means to defend the PJM markets from the threat posed by subsidies intended to forestall retirement of financially distressed assets. Opponents also believe the role of subsidies to renewables should also be clearly defined and incorporated in this rule.”

Opponents are expressing concern that Illinois and Ohio could set a precedent for other states, calling the subsidies “contagious.  One opponent views the threat as so severe that in January filed as an intervenor in support of independent power producers opposing New York’s ZEC program.

These opponents believe the ZEC program is not consistent with the operation of a competitive wholesale electricity market.  They believe the program would artificially suppress NYISO, dissuade the construction of new generation and, if extended, “result in a situation where only subsidized units would ever be built.”

These opponents believe new combined cycles have been added because of competitive markets. They’ve been added because of the fact that we have a capacity market. … But for PJM overall markets, we probably would not have seen that level of entry of highly efficient combined cycles.”  (RTO Insider, 3/9/2017)