Early Nuclear Retirements in Deregulated U.S. Markets: Causes, Consequences and Policy Options

Geoffrey Haratyk

March 2017

Power prices have fallen significantly since 2008, putting commercial nuclear reactors in the United States under substantial financial pressure. In this market environment characterized by persistently low natural gas prices and stagnant electricity demand, the analysis shows that about two thirds of the 100 GW nuclear capacity are uncompetitive over the next few years under the current trajectory. Among those in merchant deregulated markets, 21 GW are retiring, or are at high risk of retiring prematurely.

The potential consequences of the hypothetical withdrawal of 30 GW of nuclear capacity include: 1) a ~5% increase in carbon emissions if replaced by gas-fired units or 2) a cost of subsidies greater than $8 billion per year if replaced by renewables.

Without a carbon price, out-of-the-market payments would be needed to effectively maintain nuclear capacity in deregulated markets. Filling the revenue gap would come at a cost of $4-7/ MWh on average in these markets, which is much lower than the cost of subsidizing wind power. The policy support could take the form of direct zero-emission credits, renewable portfolio standard expansion, or clean capacity market mechanisms. As a last resort, the exercise of a new mothballing status could prevent the retirement of nuclear plants.

In a context of uncertainty around future fuel price, technological advance, and climate policy, avoiding the irreversible shutdown of nuclear assets is essential to minimize cost and damage to the environment while ensuring long-term security of supply.