UBS: Atomic reactors under long-term contracts also at risk for closure

"Burning Money" graphic by Gene Case, Avening Angels, as featured on the cover of The Nation magazine in 2003, accompanying Christian Parenti's report on the nuclear power relapse.As reported by Matthew Bandyk at SNL Financial and Robert Walton at UtilityDIVE, it's not just single unit, small sized atomic reactors in competitive marketplaces for electricity that are succumbing to a record-breaking, and accelerating, trend of closure announcements.

UBS Securities has noted (in its June 23rd report entitled U.S. Electric Utilities & IPPs: Reacting to Retirements) that even atomic reactors with lucrative, long-term Power Purchase Agreements, such as Entergy's Palisades atomic reactor in Michigan, are non-competitive, and facing imminent shutdown. So too are multi-unit nuclear power plants, such as Xcel Energy's Prairie Island Units 1 and 2 in Minnesota.

As Bandyk at SNL reported it:

Since 2012, when Dominion Resources Inc. revealed its Kewaunee nuclear facility in Wisconsin was unable to make money in wholesale electricity markets and would be retired, small nuclear reactors operating in deregulated merchant environments have been facing the most pressure. Plants that did not sell purely on a merchant basis, but had the extra security of a long-term power purchase agreement, were seen as in better shape.

Long-term contracts, however, may not be a savior in some cases going forward. "We see long-term contracted plants as also at particular risk of shutdown" because of the lack of rate-base incentive for utilities and high operating costs, the [UBS] report said.

Bandyk continues:

The Palisades facility could become the leading example of this potential trend. The nuclear plant sells its output to CMS Energy Corp. subsidiary Consumers Energy Co. under a long-term contract through 2022, according to S&P Global Market Intelligence data. But due to the high price of this contract, both Consumers and Entergy may find it mutually beneficial to give up Palisades and replace it with a lower-cost solution like power from merchant power plants in the Midwest, according to the report. (emphasis added)

This corresponds strongly with the analysis provided by Amory Lovins of the Rocky Mountain Institute, in a Forbes column entitled "Closing Diablo Canyon Nuclear Plant Will Save Carbon and Money." Lovins points out that "Renewables and efficiency cost less than operating many nuclear plants."

UBS recommends that Palisades should close by spring 2017, as a favor to Entergy's and Consumer Energy's/CMS's shareholders, and as a huge favor to regional ratepayers, who have been gouged for the past decade on their electric bills.

(This is the second time since April that UBS has recommended Palisades' closure -- but the latest report has added the suggested date: spring 2017.)

With the approval of the Michigan Public Service Commission in 2007, Consumers Energy/CMS contracted to purchase every single megawatt-hour of electricity Entergy would produce at Palisades till 2022. NIRS executive director Tim Judson has stated it is by far the highest Power Purchase Agreement he has seen. Combined with Entergy's refusal to make very costly but vitally needed major safety repairs (embrittled reactor pressure vessel annealing; steam generator replacement; reactor lid replacement), Judson points out that something must be seriously out of whack at Palisades, for Entergy to still be unable to keep its head above water, given such financial advantages, at ratepayer expense and downwind/downstream safety risk (Palisades is located on the Lake Michigan shoreline, drinking water supply for many millions downstream).

Bandyk also reported:

Closing Palisades "could not only save money for [Entergy] in operating the plant and accelerating its strategic positioning away from nuclear but also reduce delivered costs to CMS consumers avoiding the cost of such a high-priced PPA," the report said. A likely scenario would be Entergy announcing the retirement this fall so Palisades could be shut down around its spring 2017 refueling outage, the UBS analysts said. (emphasis added)

In fact, Entergy's CEO recently advised potential investors that the company is looking to get out of the failing merchant atomic reactor business.

UBS has also reported that closure of Xcel Energy's twin unit Prairie Island, MN nuclear power plant by the mid-2020s is a distinct possibility.