Over the last week, groups funded by competing energy sources have attempted to revive the myth that pro-renewable energy policies have a significant economic impact on other energy sources, particularly nuclear power plants.
As background, we thoroughly refuted that claim more than two years ago. At the time, Federal Energy Regulatory Commissioner John Norris, who had previously expressed concern about the impact of renewable policies, called our evidence “very compelling” and concluded that blaming the renewable Production Tax Credit (PTC) for economic challenges at nuclear plants was a “distraction.”
AWEA released additional data at that time showing that all occurrences of negative prices account for a fraction of one percent of the decline in revenue at nuclear plants, with low natural gas and coal prices accounting for the vast majority of the economic challenges nuclear plants face. Moreover, our initial report demonstrated that only a small share of all negative prices appear to be linked to wind generation, with low electricity demand and nuclear plants’ inflexibility the primary cause of most negative price events.
Grid operator data still show fossil fuel prices, not wind, are responsible for nuclear’s woes
An updated look at data from the regional grid operator confirms that all of our points are still valid. At most, the impact of wind on nuclear economics, even in wind-rich places like Illinois, still accounts for a fraction of one percent of the impact of low prices for natural gas and other fossil fuels. Moreover, additional data confirm that many negative price events are primarily caused by factors other than wind energy.
The real challenge facing nuclear plants is that fossil fuel prices have continued to fall, well below the already low prices of two years ago. As indicated in the following table, data from the regional grid operator (page 133) show that, due to a precipitous decline in the price of natural gas and coal, wholesale power prices hit a low of $36.16/megawatt hour (MWh) in 2015, down from $38.66/MWh in 2013, and a nearly 50 percent reduction from the high of $71.13 in 2008. Since 2008, declines in the price of natural gas have reduced electricity prices by more than $26/MWh, while a drop in the price of coal has reduced power prices by more than $10/MWh. A drop in the price of oil has also cut power prices by more than $1.25/MWh.
In contrast, hours when wind sets the market clearing price of electricity, which is what opponents allege affects the prices received by other power plants, reduced power prices by a trivial $0.07/MWh in 2015, only 1/500th of the total decline in power prices since 2008.
Components of PJM wholesale electricity prices, 2008 and 2015, in $/MWh
|Component||2008||2015||$ Decrease||% Share of total $/MWh decline|
PJM market data for specific power plants further confirm that wind projects have a trivial impact on nuclear power plants. The owner of the Quad Cities nuclear plant in Illinois recently announced it is taking steps to retire the facility due to market difficulties, which it has noted in investor disclosures are caused by low gas prices and transmission constraints. Market data show that all occurrences of negative prices, of which wind-related negative prices are a small subset, reduced average power prices at Quad City by only $0.12/MWh, relative to if those prices had been $0/MWh instead.
Moreover, the data strongly indicate that wind generation is not the largest driver of negative prices at Quad Cities. Most negative price events happened during time periods of low wind output, while most periods of high wind output do not correspond to negative price events, as we also demonstrated in our report two years ago. Over the last year, wind generation averaged only 1,845 megawatts (MW) during negative price events, compared to a maximum wind output of 5,021 MW and an average output of 1,681 MW across all hours. On average, wind output was less than 10 percent above average during hours when power prices were negative.
The primary factor causing negative prices still appears to be the inability of nuclear plants to reduce their output during periods of low electricity demand. This impact appears to have grown as energy efficient lighting and reduced industrial use have cut demand for electricity during off-peak hours.
As we first explained a few months ago, low gas prices have also caused a new phenomenon that is leading coal power plants to cause negative prices. At least some coal plants have decided to continue operating at a loss as power prices go low or even negative to avoid paying contract penalties for not taking enough coal under long-term supply and delivery contracts with mines and railroads. For many coal power plants that no longer have space to add to their record coal piles, these contracts have created an out-of-market incentive to continue operating and drive power prices negative simply to burn coal to avoid contract penalties.
Data that was recently inadvertently publicly disclosed as part of the Peabody Coal bankruptcy further confirms that these inflexible long-term coal contracts are common; for a specific power plant in New Mexico, “The 19-year coal supply contract, originally signed in late 2005, calls for delivery of 3.7 million tons to 4.3 million tons of coal annually between 2010 and 2024, with smaller amounts provided in preceding years. The contract includes a provision that allows Peabody to collect a ‘shortfall’ payment of $7.35 per ton if the plant owners do not take the minimum contracted tonnage.”
Fossil resources almost always set the market clearing price on the integrated wholesale electricity market, while wind almost never does. As a result, the price of fossil fuels has a direct impact on electricity prices, while wind does not.
Occasionally transmission constraints force a wind plant to reduce its output, as there is not enough transmission capacity for the full output to reach customers. When this occurs power prices can go low or negative on the section of the power grid between the wind plant and the transmission constraint. However, because most wind capacity is located in remote areas, there are typically no other power plants on this section of the grid, so there is zero impact on other power plants.
Finally, some of the clearest evidence that wind is not responsible for nuclear’s woes can be seen just by looking at where nuclear power plants are retiring. Most retiring nuclear plants are in areas that have little to no wind generation, like Florida, Vermont, Wisconsin, Massachusetts, and New Jersey.
Smart utilities are investing in low-cost wind
As part of their attacks, groups funded by competing energy sources have also falsely attacked the economics of wind generation. One attack claimed that renewable energy “is usually three or four times more expensive than nuclear-generated electricity.” Data from the Energy Information Administration, Wall Street investment firm Lazard, national laboratories, and other third-party experts conclusively show that is not true. In fact, wind is the lowest-cost source of generation in many regions of the country. As a result, wind was the largest source of new generating capacity last year.
Some opponents have also incorrectly claimed that wind power plants only produce electricity “about a quarter of the time.” In reality, most individual wind plants produce a significant amount of power more than 90 percent of the time, and that is only increasing as wind technology improves. Moreover, the grid operator only cares about the aggregate output of all wind plants, which is even more stable because of the diversity of weather across the many hundreds of miles covered by a typical grid operator.
It appears these wind opponents may have been confused by the term capacity factor, which specifies the amount of electricity a power plant produced relative to the total maximum that could have been produced if the plant operated at 100 percent output at all times. Wind plants being installed today typically have capacity factors of 35-50 percent, which is also increasing as wind technology improves. While that may seem low, it is actually higher than the average capacity factor for gas power plants and comparable to that for many hydroelectric and coal power plants.
Anti-wind groups have also misleadingly focused on the renewable energy Production Tax Credit (PTC), without mentioning the far larger incentives for fossil and nuclear energy. As Commissioner Norris noted two years ago, “It’s important to note that subsidies have existed for all forms of energy in this country.” Wind energy only accounts for around two percent of the cumulative federal incentives awarded to all energy sources, with the vast majority flowing to fossil and nuclear energy, as documented by the Nuclear Energy Institute’s own data.
We do wholeheartedly agree with these groups that a diverse energy portfolio is important. However, they appear to have forgotten that wind is a key part of energy diversity, a conclusion noted in the words and actions of the many utilities and state regulatory commissions making large recent investments in wind. Wind is one of the few resources immune to both fuel price risk and carbon price risk, as wind generation has no fuel cost and no emissions.
We also agree with these groups that carbon policy and transmission policy are key parts of the solution for enabling markets to most cost-effectively reduce carbon pollution. FERC Commissioner John Norris’s conclusion two years ago that, “Transmission development is the better, and more proactive, solution to negative pricing,” was spot on.
AWEA has worked with the owners of large nuclear plants to promote grid upgrades that provide more consumers with access to our low-cost energy. Separately, AWEA and many large nuclear plant owners support carbon policies, like the Clean Power Plan, that put a price on carbon pollution and let the market pick the resources that are best able to cost-effectively cut emissions. Rather than distracting people with attacks on competing energy sources like wind, we hope other low-carbon energy sources will choose to work with the wind industry on solving the real problems that are affecting all low-carbon energy sources.