Financial Challenges of Operating Nuclear Power Plants in the United States

Summary

Some of the 60 operating nuclear power plants (comprising 99 nuclear reactors) in the United States have experienced financial stress in recent years due to a combination of low wholesale electricity prices and escalating costs. Six nuclear reactors have permanently shut down during the past five years, and 19 others have announced their intention to close or have been identified as “at-risk” of closure by financial consultants and ratings agencies.

Generally, U.S. nuclear plants are located in one of two market areas: (1) competitive—where the value of electricity fluctuates based on supply-side price offers that are generally a function of fuel (e.g., natural gas) costs and demand-side price bids, and (2) cost-of-service—where the value of electricity is set at a rate based on regulator-approved costs, operating expenses, and a reasonable investment return. Most of the U.S. plants considered vulnerable to shut down before expiration of their operating licenses are “merchant plants” that sell all or most of their power into competitive wholesale power markets. The price paid to merchant plants for electric power varies by location and is influenced by the price-setting fuel (usually natural gas and coal), transmission congestion, and other factors. Wholesale electricity prices in certain locations have fallen and electricity sales revenue may be below the fuel and operating and maintenance (O&M) costs of some plants, not considering capital expenditures that may also be incurred.

CRS analysis of third-party data indicates that 19 of 33 power plants operating in competitive power markets may incur fuel and O&M costs that exceed electricity revenues for each plant in 2016. However, this number declines to seven in 2017 due to rising forward electricity prices as reported by Bloomberg. While merchant generators do have other revenue sources (i.e., capacity payments where available, power purchase agreements, and hedging positions) and additional costs (e.g., capital), CRS was not able to locate plant-specific information about these revenues and costs that would allow for a holistic financial assessment at the plant level.

The nuclear power industry and its supporters have proposed that Congress take action to prevent currently operating U.S. reactors from shutting down before their licenses expire. Supporters contend that nuclear power should be valued as a domestic source of highly reliable, low-carbon electricity. However, opponents contend that nuclear power suffers from too many drawbacks and that federal incentives should focus instead on renewable energy and efficiency. Nuclear power plants annually provide about 20% of total U.S. electricity generation.

To date, all of the policy action related to financial support for existing nuclear plants has been at the state level. New York has implemented a Clean Energy Standard (CES) that includes payments to qualified nuclear power plants in the state starting at approximately $17 per megawatt-hour in 2017. The CES has been challenged on legal grounds. A similar program was recently approved by the Illinois legislature, and Ohio has also considered nuclear support.

Since each nuclear power plant is subject to a unique combination of financial variables, federal-level incentives are challenged because some nuclear plants are expected to continue operating without federal financial support. Should Congress choose to debate financial incentives for existing nuclear plants, several options may be considered. Tax incentives based on capital investment or electricity production could potentially provide financial support for existing nuclear plants. Establishing a carbon price—carbon tax, cap-and-trade, emissions regulations—could also provide some financial assistance to nuclear power, depending on how a carbon price mechanism was designed and implemented. Finally, Congress could authorize and require the federal government to enter into power purchase agreements with nuclear power plants that would provide a guaranteed price for nuclear-generated electricity. Additionally, the nuclear industry has been advocating that the Federal Energy Regulatory Commission (FERC) institute changes to electricity price formation in competitive power markets.