Today’s power markets do not fully value the climate and grid benefits of America’s nuclear fleet—something that state and federal policymakers should resolve, as they have for other important sources of clean energy like wind and solar.

Nuclear power plants across the country are facing economic headwinds and are at risk of closure, threatening the foundations of America’s clean energy progress. Taking action now to maintain the nation’s nuclear reactor fleet is among the lowest-cost clean energy options available today and should be an essential component of U.S. clean energy goals. Here’s why:

America’s Clean Energy Foundation is Crumbling

The United States is on course to a clean energy future. Emissions of carbon dioxide (CO 2 ) from the U.S. power sector have dropped 20% since 2005 and are now at their lowest level since 1993.1 Yet the very foundation of this clean energy progress is starting to crumble. Dozens of nuclear power plants across the country are facing economic headwinds and are at risk of imminent closure, threatening to undermine the nation’s clean energy goals. Already, six nuclear reactors have closed permanently since 2013, and retirement plans have recently been announced for eight more reactors.2 The closure of each one of these power plants is a huge step backwards for the country, representing the loss of enough clean energy to power a medium-sized city. In addition, the 99 nuclear reactors in the U.S. generate substantial domestic economic value— $40-$50 billion each year — with over 100,000 workers contributing to production. These plants represent half of that economic activity.3

Table 1. Recent and announced retirements of U.S. nuclear reactors

The full scope of the challenge is greater still. Cheap and plentiful supplies of American natural gas combined with slow growth in demand for electricity have led to very low prices for electricity in many parts of the country. This might be good news for U.S. consumers in the short term, but it could have far greater implications for climate goals and grid reliability in the long run. That’s because record low wholesale electricity prices across much of the country are creating a situation in which more than half the U.S. nuclear fleet may be operating below the break-even point and face the risk of closure.4 These at-risk reactors have a total capacity of 55,000 megawatts and reliably generate one in ten electrons in the country. To put it another way, the nuclear reactors now at risk of closure constitute America’s largest source of clean power, generating nearly as much electricity as all wind, solar, and hydroelectric power plants in the country combined.5

Figure 1. 2015 U.S. electricity supply mix. At-risk nuclear power plants generate 11% of U.S. electricity, nearly as much as all wind, solar, and hydroelectric power combined.

As Third Way’s 2015 report, “When Nuclear Ends” demonstrated,6 a wave of nuclear closures could undo recent progress in reducing power sector CO 2 emissions. Using an electricity capacity planning model developed by MIT-trained researchers, the report confirmed that when U.S. nuclear reactors retire, they are replaced predominately by increased generation from new natural gas-fueled power plants. That means greater CO 2 emissions as well as higher natural gas prices and more exposure to volatile natural gas markets for U.S. energy consumers.

To get a sense of the magnitude of the challenge, consider this: if the nation loses all 55,000 megawatts of nuclear power plants threatened by today’s economic and policy landscape and those plants are replaced by new natural gas power plants, CO 2 emissions could increase by roughly 156 million metric tons annually.7 That’s 8 percent of total U.S. power sector CO 2 emissions in 2015 or the equivalent of the annual emissions from electricity consumption in 23 million American homes.8 At a time when the United States is trying to move towards a low-carbon energy future, the country can’t afford to lose this enormous share of our clean energy supplies.

America’s Nuclear Fleet is an Affordable Source of Clean Energy

The good news is that, despite today’s economic challenges, preserving the existing U.S. nuclear fleet is one of the most affordable ways for America to decarbonize its electricity sector. Based on industry and government sources, we estimate that existing nuclear power plants need to earn an average price of roughly $31 to $49 for each megawatt-hour (MWh) they generate to recover all of their operating costs, a figure known as the levelized cost of electricity (LCOE).9 These costs cover the staffing, fueling, maintenance, and operation of existing reactors. Within this range, larger nuclear power stations with two or more reactors tend to cost less than single reactor power plants due to economies of scale (see Figure 2).

Figure 2. The “levelized cost of electricity” of existing nuclear power plants and new wind, solar and natural gas plants, 2016. This metric expresses the average pre-tax revenue a power plant needs to earn per MWh of electricity generated in order to recover all of its costs.

Some of these plants may require capital investments to replace aging components or perform other upgrades, which can cost hundreds of millions of dollars or more. Yet despite the large price tag, these nuclear power plants will generate massive amounts of electricity. Any necessary upgrades would thus add just a few dollars to the cost of each MWh of electricity produced by nuclear reactors. We estimate that the LCOE of existing reactors requiring significant upgrades to remain operational could range from about $40 to $69 per MWh.11 In addition, these retrofits often include upgrades that allow the nuclear reactors to produce more power than before (a process known as “uprating”), which would lower the LCOE even further than this estimate.

At an estimated cost of $31 to $49 for most reactors and up to $69 per MWh for plants requiring major upgrades, existing nuclear plants are among the most affordable sources of clean electricity available. Based on industry and government analysis, we estimate the unsubsidized cost of new wind power plants ranges from about $42 to $113 per MWh, depending largely on the quality of the wind resource available at different locations.12 After several years of substantial reductions, the unsubsidized cost of large, “utility-scale” solar photovoltaic projects now ranges from as little as $68 per MWh in sunny locales like the Southwest or Texas to as much as $222 per MWh in less favorable locations such as New England.13 Rooftop solar is even more expensive, usually double or triple the cost of utility-scale projects.14

Finally, even at today’s historically low gas prices, existing reactors are cost-competitive with new natural gas-fired power plants, which range from roughly $52 to $77 per MWh.15

With few exceptions then, existing reactors should be considered a core component of an affordable low-carbon energy portfolio. Keeping existing reactors online represents a very cost-competitive alternative to building new wind or solar energy projects in all but the most remarkable locations.16 And should gas prices rise in the future, preserving our nuclear fleet today will be viewed as an even wiser decision.

Rewarding the True Value of Nuclear

If maintaining existing nuclear units is so cost-effective, then why are they struggling?

Let’s take a step back…as we’ve explained, maintaining an existing nuclear reactor is in most cases cheaper than replacing it with new resources. The problem is that some of these reactors find it difficult to compete in the short term with the existing resources on the grid, namely existing natural gas units that are driving wholesale prices lower due to cheap fuel.

The past twelve months have seen wholesale electricity prices across most of the United States drop to some of the lowest levels ever. And with overcapacity in many markets and slow growth for electricity demand, capacity market revenues, which compensate power plants for providing reliable power to meet peaks in electricity demand, have likewise plummeted. This creates a tough environment for all non-gas generators to survive in. Existing (and new) wind and solar units are able to compete because of external state and federal subsidies. Lacking a similar level of support, nuclear plants are being particularly hard-hit by the current market trend.

Surveying the range of wholesale and capacity market prices across the U.S. over the last 48 months, we estimate that while roughly half of the U.S. fleet is profitable,17 the remainder of the fleet may be losing anywhere from a few dollars per MWh to as much as $21 per MWh considering ongoing refueling and O&M costs. Plants requiring major capital upgrades face higher losses, generally up to $31 per MWh, with a few of the most expensive plants facing losses as high as $42 per MWh (see Table 2).

Table 2. Estimated net income/loss/MWh of low-, medium-, and high-cost reactors with and without retrofit. *

As mentioned before, low electricity prices are clearly a boon for American consumers and industries. But these prices are rewarding low-cost generation in the short term, rather than supporting system-wide objectives like long-term affordability, fuel diversity, reliability, and emissions reduction. As a result, current electricity markets and policies are failing to fully value the contributions of the U.S. nuclear fleet.

Nuclear power plants deliver clean energy, free of any air pollutants and CO 2 emissions. The CO 2 emissions avoided by the nation’s nuclear plants alone delivers an estimated public value of $6 to $54 per MWh.18 The nation’s nuclear fleet also helps avoid hundreds of thousands of tons of harmful air pollutants each year, including: particulate matter, which causes lung cancer, cardiovascular disease, and other devastating health impacts; sulfur dioxide, which causes acid rain; nitrogen oxides, a precursor to smog; and toxic mercury, which can cause birth defects in children. Given these clean air benefits, it is not an exaggeration to say the U.S. nuclear fleet saves thousands of American lives each year.19

The nation’s nuclear power plants are also an important component of a diverse and secure supply mix, providing a valuable hedge against volatility in natural gas prices. The value of fuel diversity is difficult to quantify, but if the nation’s nuclear fleet was replaced by new natural gas plants, every $1 increase in the price per million Btus of natural gas would cost American consumers an extra $5.3 billion—or nearly $17 per person in the United States.20

In addition to fuel diversity benefits, nuclear contributes to overall grid stability. Nuclear reactors are built to run 24 hours a day every day of the year and only require refueling once every 18 to 24 months. This means that these units can continue to provide large amounts of electricity through periods of extreme heat or cold, coming to the rescue during events like the ‘Polar Vortex’ in January of 2014.21

Renewable energy sources like wind and solar power deliver similar clean air and fuel diversity benefits as nuclear. Recognizing that these public benefits are not valued in electricity markets, a whole range of federal and state policies have been established to support renewable energy development—and with great success. Federal subsidies for wind and solar, including the production tax credit, investment tax credit, and accelerated depreciation, lower the effective LCOE of wind plants by $20 to $29 per MWh and by $26 to $85 per MWh for solar projects.22 Wind and solar projects benefit further from state policies, particularly renewable portfolio standards (RPS), which require the adoption of a minimum amount of renewable energy and have been adopted in 29 states and the District of Columbia.23 Renewable energy representing the value of renewable energy in meeting state RPS objectives have generally ranged from $10 to $65 per MWh.24

Public policy has recognized and monetized these valuable public benefits delivered by renewable energy—awarding renewable sources between $30 and $150 per MWh when state and federal incentives are combined. These subsidies have helped two important resources, wind and solar, to thrive during an economically challenging period for U.S. power producers.

Nuclear power delivers the same benefits as renewable energy, including clean air, CO 2 -free power, and increased fuel diversity, as well as the additional benefit of grid stability. Therefore, state and federal action to preserve America’s nuclear fleet would be consistent with overall policy objectives and would deliver substantial net benefits to the public (see Figure 3).25

Figure 3. Estimated value of public benefits, such as clean air, avoided CO 2 emissions, and enhanced fuel diversity from existing nuclear compared to the value of policy support needed to keep existing reactors online.

New York is the first state to adopt a policy that rewards the low-carbon benefits of nuclear energy. The New York Public Service Commission recently approved a Clean Energy Standard which includes a zero emission energy credit for qualifying existing nuclear facilities. New York recognized that supporting the existing nuclear units is critical to meeting the state’s emissions reduction goals – and to doing so more affordably. Reports have also shown that, by keeping these plants online, the State can avoid losing thousands of jobs in economically challenged areas and $720 million in tax revenue from these facilities.26

Illinois also recently passed legislation that values the climate benefits of existing nuclear units via zero emission credits. The Future Energy Jobs Bill will support the continued operation of two nuclear plants, Clinton and Quad Cities, which were slotted to retire in the next two years. These plants represent 23% of Illinois’ clean electricity generation and the Illinois Environmental Protection Agency found that the retirement of the plants would produce an additional 21.5 million metric tons of CO 2 per year, resulting in over $10 billion in costs to society. The Illinois Department of Commerce and Economic Opportunity analyzed the impact of the nuclear plant retirements and found that the closure of the plants would result in the loss of 4,200 jobs and $1.2 billion in economic activity annually.27 The passing of this bill will ensure that Illinois will continue to reap these environmental and economic benefits, while at the same time supporting the ongoing development of renewables and energy efficiency in the state.

These two states serve as a model demonstrating how policies can recognize the benefits of both renewables and nuclear, and their approach should be considered by other states with nuclear units at risk.

Policies to Preserve America’s Clean Energy Foundation

A variety of federal and state policy actions could help close the gap between the cost of existing nuclear plants and their expected revenues in electricity markets. To save all reactors not requiring upgrades, a combination of state and federal policies would need to provide financial support in the range of $4 to $21 per MWh. Increasing policy assistance up to $31 per MWh could save all but the most expensive plants requiring upgrades.

The federal government has an important leadership role to play in preserving the existing nuclear fleet, given the national interest in meeting climate change goals, maintaining a secure and reliable energy system, and a vibrant economy with a highly skilled workforce. The states also have a critical role to play as they are well positioned to implement solutions that are tailored to the circumstances of each region. In particular, states could expand state renewable portfolio standards to include nuclear generation or provide tax credits to nuclear units. The National Conference of State Legislatures offers a number of additional state level actions to retain nuclear facilities.28

In this paper, we have chosen to focus on federal policy options for properly rewarding the value of existing nuclear power plants. The costs associated with these recommended actions would be significantly less than the total public benefits delivered and compare favorably to existing policy support for other sources of clean energy. The federal policies alone are unlikely to save all at-risk nuclear plants, so parallel state initiatives will still be needed in many instances to keep these valuable resources operating.

Federal Tax Incentives

An immediate solution would be to expand the production tax credit (PTC) of $18/MWh for new nuclear plants to include existing units. PTCs are generally intended as a mechanism to help new market entrants overcome economic hurdles, but a case could be made that these existing nuclear facilities face significant expenditures to remain operational, and their closure could threaten the country’s shift towards a clean generation mix.29 A more significant obstacle for this policy would come from its price tag—roughly $14 billion to support 800,000 GWh of generation annually if provided to all units. Despite this large price tag, it should be noted that the public benefits of maintaining these plants—on the order of $24 to 120 billion annually—far outweigh the cost.

An investment tax credit (ITC) on new investments in capital upgrades or nuclear fuel assemblies coupled with an accelerated depreciation incentive is another option. An ITC with accelerated depreciation could reduce existing facilities’ tax burden, thereby slightly reducing costs and closing the gap to profitability. We estimate that a 30% ITC with accelerated depreciation for existing nuclear facilities could reduce the levelized cost of plants by $3.3 per MWh for fuel expenditures and by another $3.5-8.2 per MWh for plants facing capital upgrades or retrofits. Although the size of the incentive may only be helpful for the most efficient plants, the impact of this federal policy could be more far-reaching if coupled with state incentives.

Adjustments to Federal Power Market Regulations

The Federal Energy Regulatory Commission (FERC) oversees the regional power markets that operate throughout the United States. FERC has recently initiated action addressing a number of issues to improve how wholesale prices are set and to reward reliability in electricity markets. Although progress has been made, further steps could be taken to establish markets in all regions that ensure that resources are compensated for meeting reliability requirements.

In addition, FERC is required to review and approve any changes proposed by Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to their market structure. FERC also decides on cases in which one or more parties believe that a proposed action may interfere with market rules. FERC should work to accommodate actions taken by states and RTOs/ISOs that attempt to introduce appropriate, market-friendly mechanisms to support clean energy resources, particularly reliability enhancing baseload options.30

In the longer term, it is worthwhile to conduct a broader review of the electricity markets to assess their overall performance in terms of market efficiency, securing system reliability, and maintaining critical low-carbon power. This will be a long and complex process, but is necessary to begin moving towards a market system that inherently values the attributes that are critical to achieve a clean, reliable, and secure electricity system.

National Clean Energy Standard

A nation-wide clean energy standard (CES) would mandate that clean energy, including nuclear, provide a significant and growing percentage of America’s total electricity consumption. Mandating a certain amount of clean electricity would indirectly increase the value of nuclear energy by increasing demand for all low-carbon sources. This is something that has previously been proposed by President Obama and debated in Congress. The potential clean energy benefits of a national CES would be huge—and so would the political challenge of getting it enacted.

Putting a Price on Carbon

The general consensus among economists is that the most efficient way to support low-carbon technologies is by putting a price on carbon. Putting a price on carbon could make existing nuclear (and renewables) more competitive, as it would require fossil fuel generators to include the cost of carbon emissions in their electricity prices. We estimate that a carbon price of roughly $42 per ton of CO 2 —what the EPA has determined to be the “social cost of carbon”—would be sufficient to help all but the highest cost reactors requiring retrofits.31 While a price on carbon has the potential to be a very effective tool, there is currently not sufficient political support for a carbon tax at the federal level.

Conclusion

Our existing nuclear fleet is the foundation on which clean energy progress can be built. If this foundation crumbles, so too will our national energy security, climate, and clean energy goals—taking thousands of jobs and substantial economic benefits with it.

Fortunately, preserving existing reactors remains one of the most cost-effective ways for America to produce clean electricity and pave the way for a more secure, lower-carbon electricity system. Maintaining existing nuclear units is more cost-effective in most cases than building new low-carbon resources. And the value of the public benefits, including the low-carbon and fuel diversity attributes, far outweighs the cost of the policy supports that are needed to keep these units in operation.