By Andrew Engblom and Hira Fawad

Data feature produced by S&P Global Market Intelligence research groups in cooperation with the news department to highlight emerging trends and topics of interest.

A decade or more into what was once thought to be the start of a "nuclear renaissance" in the United States, the nuclear power industry is facing what could be its first sustained decline in generating capacity.

Despite adding no new reactors through the 1980s, 1990s and 2000s, the industry spent years quietly adding capacity through uprates and further boosting output with improved operations such as faster refuelings.

But now the nation's aging nuclear fleet is being challenged by new market dynamics brought on by low natural gas prices and surging renewable energy production that threaten plants' ability to continue operating even with extended operating licenses and upgraded equipment. As of Oct. 5, according the U.S. Nuclear Regulatory Commission, there were 99 nuclear units operating in the U.S. and out of these, 76 have received license extensions, while 16 applications for license extensions were pending.

Four plants have been retired in the past several years, though for different reasons.

Duke Energy Corp.'s Crystal River unit 3 in Florida and Edison International's San Onofre Nuclear Generation Station in California were both forced to retire due at least in part to complications from failed maintenance efforts. Dominion Resources Inc.'s Kewaunee plant in Wisconsin and Entergy Corp.'s Vermont Yankee in Vermont, meanwhile, were retired with fingers pointed to power prices.

According to industry analysts, more retirements are likely to come.

A review of recent reports from UBS, Moody's and Fitch Ratings released this year shows they considered at least 12 nuclear units "at risk" for early retirement because of market conditions.

The latest victim to the current market dynamic is Entergy's Pilgrim plant in Plymouth County, Mass, one of those "at-risk" units. On Oct. 13, Entergy said it would retire the unit no later than June 1, 2019, due to "poor market conditions, reduced revenues and increased operational costs." The exact decommissioning date for the unit will not be decided until the first half of 2016 after additional discussions with ISO New England Inc., but Entergy has already informed the ISO that Pilgrim will not partake as a capacity resource in the market.

With at least one more plant scheduled to retire before 2020 — Exelon Corp.'s Oyster Creek plant is scheduled to close in 2019 — and only four new units on the horizon — two each at Southern Co.'s Vogtle expansion and SCANA Corp.'s V.C. Summer expansion — the potential decline becomes clear.

At the end of 2015, SNL Energy data shows there will be 102,502 MW of nuclear operating capacity online and, based on currently announced additions, license renewals, rerates and retirements, nuclear capacity would increase by 4,654 MW in 2020. But if the 12 nuclear units identified as "at-risk" are decommissioned, then aggregate nuclear capacity would drop down to 96,573 MW by 2020.

The 12 nuclear units collectively identified by UBS, Moody's and Fitch — Pilgrim is one of them — have an aggregate capacity of 10,583 MW. Among those plants, Exelon's Quad Cities 1 and 2 located in Rock Island County, Ill., are regulated while the remaining 10 units are merchant plants. Berkshire Hathaway Energy subsidiary MidAmerican Energy Co. owns a portion of Quad Cities.

In its Jan. 7 report, Fitch Ratings noted that regulated unit retirements are caused by extended outages where the repair costs are high. The merchant plant closures are encouraged by market conditions that limit the recovery of rising operating and capital costs.

UBS

UBS identified six nuclear plants at risk of retirement based on projected negative free cash flows: Exelon's Byron 1 and 2 in Ogle County, Ill.; Entergy's James A. FitzPatrick in Oswego County, N.Y.; and Quad Cities 1 and 2. It also assumes retirement of Exelon's Clinton Power Station in De Witt County, Ill., Byron and Quad Cities over the 2017-2021 time frame.

The largest two nuclear units at risk of early decommissioning are Byron units 1 and 2. Unit 1 totals 1,207 MW and unit 2 totals 1,177 MW. UBS does not expect Byron's retirement in the near term as it finds more "break-even" economics for this asset. UBS expects free cash flow for Byron of negative $113 million in 2015, improving to negative $10 million in 2019.

Byron cleared the latest PJM Interconnection LLC auction, with prices significantly higher in the Commonwealth Edison Co. zone. UBS expects the plant to continue to clear the PJM auction and Exelon expects to continue to operate Byron until May 2019.

Due to limited forward commitment via the Midcontinent Independent System Operator Inc. capacity auction, UBS assumes Clinton to be Exelon's next nuclear plant to be retired, by May 2016. According to a MISO representative, Exelon must give notice by Dec. 1 if it will not bid Clinton into the next MISO auction. UBS expects negative free cash flows of $70 million in 2015 for the plant, improving to negative $12 million in 2017.

UBS assumes retirement of Entergy's FitzPatrick plant in 2016. Entergy spokesman Jerry Nappi said in a recent email response to SNL Energy that a decision on whether to refuel FitzPatrick needs to be made by the fourth quarter of this year.

UBS does not expect Exelon to run Quad Cities beyond 2018 and expects free cash flows of negative $111 million in 2015, improving to negative $30 million in 2018.

Fitch Ratings

Earlier this year, Fitch Ratings identified eight units — all majority-owned by either Entergy or Exelon — to be at risk of premature retirement. These units are at Clinton; Nine Mile Point 1 in Oswego County, N.Y.; Palisades in Van Buren County, Mich.; Pilgrim; Quad Cities 1 and 2; R.E. Ginna in Wayne County, N.Y.; and Three Mile Island in Dauphin County, Pa.

"Exelon Generation Co., LLC (Exgen), has indicated the plants will be retired if market conditions do not improve or market reforms are not instituted," Fitch said.

Fitch believes that Nine Mile Point 1 and R.E. Ginna will most likely survive. Nine Mile Point 1 shares costs with the 1,301-MW Nine Mile Point 2. Fitch noted the New York Public Service Commission has directed Rochester Gas and Electric Corp. to negotiate a reliability support services agreement, or RSSA, with the Ginna owners that would allow the reactor to continue operating. On Aug. 13, the New York PSC said RG&E can start collecting a temporary surcharge related to the RSSA.

Moody's

FirstEnergy Corp.'s Davis-Besse plant in Ottawa County, Ohio, was said to be at risk of retirement by Moody's in a November 2014 comment, as the rating agency believes the unit could have its competitiveness threatened by sustained low natural gas prices. The unit is exposed to the natural gas boom in the nearby Marcellus shale along with new gas-fired plants being added to the grid that are benefiting from that fuel source.

Fitch, however, did not include Davis-Besse because of FirstEnergy's long-term economic stability plan in Ohio. Under the 15-year economic stability program, FirstEnergy's utility subsidiaries will purchase power from the plant and sell the output into wholesale energy and capacity markets, with customers receiving rate credits or charges to offset power purchase costs. However, staff of the Public Utilities Commission of Ohio has opposed FirstEnergy's plan, which is currently under review by the commission.

With its capacity declining and greater competitive pressures, it follows that net generation from nuclear plants is also declining. Increases came through the early 2000s due to uprates and improved operations, but net generation has plateaued and is now on decline.

Total net generation across all fuel types for 2014 was 3,932,844 GWh. The combined net generation for nuclear and at-risk nuclear made up 20% of the total, while coal and gas contribute 40% and 27%, respectively. Total nuclear net generation for the year through July 2015 was 467,827 GWh. At-risk nuclear capacity accounted for almost 11% of this total.