On August 1, New York became the first state to adopt a policy to subsidize aging, uncompetitive nuclear reactors. The state's Public Service Commission (PSC), which regulates utility companies, passed a Clean Energy Standard that combines a 50% renewable energy standard by 2030 with massive subsidies to prop up uneconomical reactors.1
Prepare yourself for loud celebrations from the nuclear industry, heaping praise on New York Governor Andrew Cuomo and calling for other states to emulate the Empire State with lucrative incentives to insulate the nuclear industry from competition and to postpone closures of uneconomical reactors.
We hate to throw water on the parade, but the move actually proves what a bad idea it is to throw subsidies at nuclear power. Let's jump to the punch line, then we can fill in the blanks: New York just committed to spending twice as much money propping up old nuclear reactors than on new renewable energy, to get 2‒3 times less energy from nuclear as renewables in the end.
Basically all of the US$7.6 billion2 in nuclear subsidies will leave New Yorkers' bank accounts and go to companies headquartered in Chicago and Paris: Exelon and Electricite de France, which jointly own the company that will own all of the bailed-out reactors. The money will produce not one more job for unemployed New Yorkers, put not one more solar panel on a roof, provide not one more dollar of economic development. And by soaking up so much of New Yorkers' energy dollars, the subsidies could prevent them from investing in energy efficiency and renewables.
A precedent for other states?
Nuclear boosters will argue that New York is setting a precedent for other states to prop up the industry by "valuing" nuclear power's role in combating climate change. But to those close paying attention, it proves just the opposite: bailing out aging, uneconomical reactors is a massive diversion of time and money needed to invest in renewable energy, energy efficiency, and other strategies for reducing emissions.
Here's why. Other states won't all be able to replicate the unique circumstances that enabled New York to ram through such a massive bailout in just a few months. In most other states, nuclear subsidy proposals have been proposed legislatively or through an adjudicated process where there has been a full, transparent review. In Ohio, a massive "black box" subsidy3 for FirstEnergy's nuclear and coal plants has been challenged by extensive litigation, resulting in the company closing several coal units4, and still may not survive a federal legal challenge.5
In New York, Governor Cuomo ordered the PSC to create the nuclear subsidies through a fast-tracked proceeding, in which there was no transparency and the public had limited time to participate. The governor has a reputation for overstepping his authority6 to get the commission to do what he wants.7 Both the governor's office and the PSC are under investigation8 by the US Attorney's office9 and the New York Attorney General10 in similar cases, none of which involve anywhere close to the amount of money the nuclear subsidies would direct to a single corporation: Exelon.
The amount of support needed to reverse nuclear energy's fortunes dwarfs what is needed to expand renewables, and actually requires states to prioritize nuclear over clean energy solutions. The New York PSC approved a US$7.6 billion subsidy to nuclear power plants as part of a Clean Energy Standard that also sets a goal of generating 50% of the state's electricity from renewable energy by 2030. The policy will lock in subsidies for 12 years (into 2029), for four reactors in one region of the state ‒ Ginna, FitzPatrick, and Nine Mile Point 1 and 2 ‒ by declaring them a "public necessity."
Subsidies for nuclear would be priced according to a measure the EPA uses to evaluate the social and environmental impacts of carbon emissions ‒ the Social Cost of Carbon. The subsidies will increase over time, from 1.75 cents per kilowatt-hour (kWh) in 2017 to 2.92 cents per kWh by 2027. The cost of subsidizing nuclear would go up from US$480 million per year in the first two years to around US$800 million per year in the final two years ‒ assuming all of the reactors last that long, which is not a good bet given that no reactor in the world has run for more than 47 years and the PSC wants to push two of them all the way to 60 years.
By the end of the 12-year subsidy period, New York will end up spending twice as much money propping up old nuclear power plants as on developing renewable energy11 ‒ for what will turn out to be half as much energy, at the most. In addition the nuclear subsidy program could expand to include the two reactors at Indian Point under the same "public necessity" designation within the next couple of years, increasing the total cost to more than US$10 billion and reversing the state's longstanding policy of closing those reactors.12
The subsidies are intended to keep the four upstate reactors operating, since Ginna and FitzPatrick are now too expensive to operate without a lot of subsidies. Together, the four reactors can generate at most 27 million megawatt-hours (MWh) of electricity per year. To meet the 50% renewable energy goal, the PSC estimates it will develop at least enough new wind, solar, and other renewable energy sources to generate about 34 million MWh per year. That is 25% more renewable energy than nuclear, at half the cost of the nuclear subsidies.
And here's the kicker: the state will still have to replace almost all of the aging reactors by 2030, anyway. And if 25% more renewables can be built for half the cost of the nuclear subsidies, then the state could reduce emissions even more by implementing lower cost renewable energy. In fact, just by following the examples of other states that are growing renewables and improving efficiency faster than New York, the state could easily exceed its targets for renewables and greenhouse emissions. A study commissioned by environmental groups found that just expanding energy efficiency in New York ‒ which would not require subsidies and would actually save consumers money ‒ could reduce electricity demand by as much as the bailed-out nuclear reactors can generate by 2030.13 So why even bother with a bailout?
Governor Cuomo and the PSC had to ignore all of these facts in order to justify subsidizing the nuclear industry. The PSC didn't do any studies to see if the closure of reactors would actually affect the state's emissions goals, and it considered no alternatives to propping up nuclear reactors ‒ such as investing more in renewables and efficiency ‒ and only considered different methods for delivering enough subsidies to prevent reactors from closing next year.
FitzPatrick, Entergy and Exelon
The policy the PSC adopted lacks any way out of the subsidies: no plan to phase reactors out, no back-up plans in case reactors close anyway. In fact, it's actually an all-or-nothing policy. The whole 12-year commitment is tied to just one reactor: FitzPatrick. The current owner, Entergy, decided last year that it will close FitzPatrick in January 2017 and has been making the necessary preparations: notifying all of the relevant agencies, withdrawing applications for license amendments needed to continue operating, and canceling plans to refuel in September (next month). Entergy's plan to run FitzPatrick until January 2017 was made to "burn up" more of the unused fuel in the reactor before the final shutdown.14
Before announcing the final nuclear subsidy proposal less than a month ago, the governor brokered a negotiation for Entergy to sell FitzPatrick to Exelon. Entergy has stood firm in its plan to close FitzPatrick regardless of what subsidies the state provides, so the only possible option to keep the reactor operating is for another company to take it over, for which Exelon is the only candidate. The decision by the PSC actually requires Exelon to do it or else the 12-year subsidy commitment will be cancelled. So, in fact, it appears that the whole nuclear subsidy plan is really about preventing one reactor from closing ‒ FitzPatrick, which will probably shut down before 2030 anyway, even with the subsidies.
One has to ask, if the money on the table is not enough to convince Entergy to keep operating FitzPatrick, then why on earth would Exelon agree to take it over and run it for 12 more years? One simple answer: it's the price of a precedent. Exelon has become increasingly desperate to get someone, somewhere to provide the bailout necessary to restore increasingly uncompetitive nuclear reactors to profitability, and the other watering holes in the desert have been drying up. Illinois has not come through for going on three years, and even potential compromise legislation is not likely to include the game-changing subsidies Exelon really wants. The massive subsidies approved by New York are large enough to do that, and the price for Exelon appears to be taking on the risk of owning and operating FitzPatrick.
Unfortunately for New Yorkers, a deal good enough to be worth Exelon's while is going to be a terrible deal for the state. US$7.6 billion in subsidies, all to be paid by electricity customers, is going to strain everyone, but especially low-income consumers, businesses, local governments and school districts.
Finally, the PSC's Clean Energy Standard Policy sets an enforceable requirement that New York obtain 50% of its electricity from renewables by 2030. But the policy is less ambitious than it seems, because the definition of renewables includes old, large-scale hydropower facilities that generate about 15% of the state's electricity. Other leading states15 on renewables, including California16, Oregon17, and Washington18, do not include large hydro as renewable. So New York's Renewable Portfolio Standard is only 35%, by comparison.
13. AGREE and NIRS, 22 Oct 2015, 'Replacing FitzPatrick: How the Closure of a Nuclear Reactor can Reduce Greenhouse Gasses and Radioactive Waste, while Creating Jobs and Supporting the Local Community', www.nirs.org/neconomics/replacingthefitzpatricknuclearreactor.pdf