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Peril at Home

We could see 11-22GW of nuclear facing early retirement in the next 10 years.
Fortnightly Magazine - July 2014
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The existing U.S. nuclear fleet, representing 100GW or 20% of our electric generation, is in economic peril and in danger of declining even more rapidly than expected driven by five dominant factors:

• Sluggish Demand.

• Low Gas Prices.

Christopher Dann is a Partner in the energy, chemicals, and utilities practice of Strategy& (formerly Booz & Company), a member of the Pwc network of consulting firms.

• Aging Inventory.

• Escalating Costs.

• Competition from Renewables.

Sluggish Demand. Persistently low power demand in most markets driven by demand destruction during the recession and a prolonged sluggish recovery has depressed power prices in most markets - average reserve margins remain above 20% through 2018 in the NERC LTRA Anticipated Case.

Low Gas Prices. The abundance of natural gas has depressed gas prices and improved the current and expected economics for natural gas fired generation - Given the level of unconventional gas supply in North America, market expectations are that long-term gas prices remain within the $5-$6 range.

Aging Inventory. The existing nuclear fleet is aging with 43 units having less than 20 years of life without license extensions - over 30 units have Mark I and II BWR containments the same vintage as Fukushima Daiichi.

Escalating Costs. Nuclear O&M costs have grown 5% annually over the past 5 years; fuel has grown 9% annually. Operating cost escalation is driven by units age, increased regulatory requirements, an aging nuclear workforce and the economics of particular units - 18 units are single unit sites that are on average 40 years old.

Competition from Renewables. The increasing penetration of renewables in many markets is depressing the economics of baseload generation - with zero marginal costs, these resources can bid in at negative prices (to capture the Production Tax Credit) and are pressuring economics in off peak as well as peak periods.

Given these economic pressures, 20-25% of merchant nuclear units are currently operating at negative or nearly negative cash margins. We would anticipate that, if current conditions persist, we could see 11-22GW of nuclear units facing early retirement over the next 10 years. Even assuming all plants receive 20-year license extensions, the entire existing nuclear fleet would shut down by 2050, replaced by only a handful of new units. As these critical resources supply 80% of US carbon free electricity, the perilous condition of the US nuclear fleet has ramifications well beyond the nuclear industry.

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