New York’s Nuclear Program, an Exportable Model?

By Aaron Geschiere, Fall 2016 Fellow

As carbon regulation comes into focus, nuclear power is becoming a wedge issue, even amongst environmental advocates. Some oppose nuclear due to the challenges associated with waste disposal, as well as a number of nuclear disasters ranging from Chernobyl to Fukushima. However, with additional attention on limiting carbon emissions following the Paris Climate Agreement, some environmental organizations are beginning to see nuclear power as an essential component in limiting fossil fuel generation and associated carbon emissions.

In the United States, nuclear generation currently provides the majority of the nation’s carbon-free generation. While the recent growth of wind and solar receives a lot of attention, these technologies still provide relatively small amounts of the United States’ overall electricity mix. According to the U.S. Energy Information Administration, wind provided just under 5% of electricity generation in 2015, and solar accounted for even less: under 1% (including distributed solar). In contrast, nuclear accounted for 20% of total generation and about 60% of the United States’ carbon-free generation.

However, nuclear energy is struggling in certain competitive wholesale markets. Three nuclear plants have retired for economic reasons since 2013 and five additional plants, totaling 7 gigawatts of capacity, have suggested that they could retire before the expiration of their operating licenses. In addition, power plants owners and market analysts have identified six nuclear facilities that they consider to be at-risk for retirement.

Valuing Nuclear in New York

In order to preserve the state’s at-risk nuclear facilities, New York recently became the first state in the country to commit to providing additional payments to the state’s nuclear facilities outside of prevailing wholesale market prices. Beginning in 2017, the state’s Clean Energy Standard (CES) will provide a subsidy of $17.48/MWh to the state’s three upstate nuclear plants, rising to an estimated $29.15/MWh by 2019.

The payments assign a value to the avoided carbon emissions that will result from the continued operation of the FitzPatrick, Ginna, and Nine Mile Point nuclear facilities. These payments, known as Zero-Emissions Credits (ZECs), will be calculated through a multi-step process:

1. The subsidy payments will be provided for six two-year periods referred to as “tranches”.
2. The payments are calculated using the U.S. Interagency Working Group’s Social Cost of Carbon (SCC) from their July 2015 study. The SCC is set at $42.87/ton for the first tranche, rising to $64.54 in the sixth tranche.
3. New York is one of nine states in the Regional Greenhouse Gas Initiative (RGGI), a CO2 cap-and-trade program that already puts a value on carbon emissions in New York. In order to avoid double counting of this value, the SCC is adjusted down by the forecasted RGGI price ($10.41/ton).
4. For Tranches two to six, further downward adjustments will be made to the extent that forecasted firm power prices (energy price plus capacity price) exceed $39/MWh, in order to account for increases in market prices.
5. The ZEC price is converted from $/ton to $/MWh using a conversion rate of 0.54, which is “based on the emissions rates of the mix of resources that would be avoided by the preservation of zero-emissions attributes”.

New York’s actions support a popular line of thought: that nuclear can serve as a carbon-free bridge fuel until sufficient renewable energy can be brought online. The ZEC program was created in tandem with a new Renewable Energy Standard goal of 50% renewable energy by 2030. Thus, the state’s nuclear facilities would stay online until new renewable energy could be brought online.

A Model for Other States?

With nuclear units struggling elsewhere, the model created by New York could be adopted in a number of other states. The key to its export lies in the model’s simplicity: it values something not valued in prevailing wholesale market conditions (avoided carbon), relies on a third-party estimate of the cost of potential increased carbon emissions, and adjusts for future market prices.

In fact, Exelon, which owns more operating nuclear capacity in the United States than any other company, worked with Illinois legislators to introduce and pass a bill in Illinois that relies on the SCC (converted to $/MWh) to create subsidy payments for the state’s nuclear facilities, with similar adjustments for increases in market prices. In the future, Connecticut, Ohio, Michigan, Pennsylvania could all use the SCC to provide subsidy payments to their struggling nuclear facilities.

However, the ability of other states to adopt this structure will be dependent on its survival in New York. On August 23rd, Ampersand Hydro requested a rehearing of the state’s nuclear program, asserting that they should be similarly compensated as a zero-emission technology. More recently, a number of generation owners filed a suit in federal court on October 19th to block New York’s ZEC program, asserting that it interferes with competitive markets. In the coming months, these proceedings will have a large impact on the future of New York’s electricity market, but due to the interest in adopting this model in other states, they will have an outsized impact on the future of American nuclear energy more generally.

Aaron Geschiere is a Fellow with the Clean Energy Leadership Institute and an Associate at ICF International.