Wednesday, May 23, 2018
Business

Duke Energy ponders more nuclear vs. natural gas

CHARLOTTE, N.C. — Duke Energy will update Florida regulators Tuesday on the status of the broken Crystal River nuclear plant and a report that says it could cost up to $3.5 billion to fix.

The real issue, though, is much bigger: whether the company has any nuclear future in Florida at all.

Duke acknowledged as much at a nuclear industry conference last week.

"Nuclear development is facing the perfect storm," said Duke vice president Chris Fallon, speaking to a gathering of nuclear industry leaders. Natural gas prices are at historic lows, federal regulators have put a moratorium on new nuclear projects for at least two years and power demand is down.

The extended economic recovery, low population growth and greater energy efficiency are expected to slow the rate of growth in electricity demand over the next 20 years, according to the U.S. Energy Information Administration.

While Fallon said he believes it is important to have nuclear power as part of the energy mix throughout the utility's service territory, he acknowledged that low natural gas prices and high-priced nuclear construction have stifled new nuclear development.

"It's very hard to justify a (nuclear) project," Fallon said. "That's making it very challenging for us."

In Florida, Duke is weighing two nuclear power issues: whether to repair or close Crystal River and whether to build two new reactors in Levy County for $24 billion, which could drive up the average customers' bill by hundreds of dollars a year.

Should it do both? Can it — and its customers — afford to do either?

Utilities nationwide face similar questions, showing what a difference a year makes. At last year's Nuclear Construction Summit, the industry readied itself for a "nuclear renaissance," marked by regulatory approval of the first two new nuclear plants in 30 years.

Now nuclear renaissance has become nuclear retreat.

What changed?

An enormous supply of natural gas in the United States — accessible now thanks to breakthroughs in drilling technologies — caused prices to fall to historic lows, making gas plants competitive to operate.

"No one would have imagined the gas phenomenon," Mark Marano, senior vice president of business development for Areva, a nuclear power developer, told the summit.

"Nuclear is going to be there," Marano said. "The question is: What form or shape will it be in? The economics are truly hitting home."

The impact of natural gas has proved so overwhelming that Virginia-based Dominion Resources Inc. announced last week that it would shutter an existing nuclear plant. The utility said no one would buy it when the company offered it for sale.

For Duke Energy, which acquired Progress Energy Florida in a merger that closed in July, the fate of Crystal River is deeply affected by the dramatic change in economic reality. Low demand and cheap natural gas have made it difficult to justify spending billions of dollars to repair a 36-year-old nuclear plant — in particular when there's a risk the repair might fail.

According to Duke, the low natural gas prices are not entirely a good thing: Without Crystal River, Fallon told the summit, 76 percent of Duke's Florida energy production would come from natural gas.

Such dependence on a single source could send customers' bills soaring if natural gas prices spike.

"That's a big concern," said Charles Rehwinkel, deputy state public counsel, who represents consumers before the Public Service Commission. "I think that's probably the biggest thing keeping Progress looking at the repair of Crystal River."

The Crystal River nuclear plant broke during a maintenance and upgrade project three years ago. As workers cut into the nuclear reactor's 42-inch-thick concrete containment to replace old steam generators, the building cracked. An attempt to repair the first crack resulted in more cracks.

Before the merger with Progress Energy, Duke commissioned its own independent review of the troubles at Crystal River and concluded that while the building could be repaired, it would cost $1.5 billion to $3.5 billion plus $300 million a year for as long as seven years for replacement power while the plant sits idle.

If Duke successfully repairs the plant and the Nuclear Regulatory Commission clears it for safe electricity generation, Crystal River could produce low-cost clean energy for 20 more years. Nuclear fuel is cheap compared to natural gas.

By comparison, the construction of a new natural gas plant would cost about $1 billion and take 18 months. The natural gas plant would last 30 years, but would require a steady stream of fuel to keep it going. As Rehwinkel noted, the price of natural gas can be volatile.

In 2008, natural gas prices exceeded $13 per million BTU. Prices dropped below $2 in June of this year. The price now is above $3 but is expected to fall in coming months. Because of environmental concerns about new drilling process (called hydraulic fracturing, or fracking), prices could see a significant uptick if government regulations tighten.

"You've got risk in there," economist Robert Graber told the nuclear summit. "Once you build those natural gas plants, you're at the mercy of those markets."

Graber said one state, Vermont, has already banned fracking and several other states are considering bans or tighter regulation.

Part of the equation in Duke's analysis involves the likelihood that Crystal River's insurer will help cover the cost of repairs. The utility and its insurer, the Nuclear Electric Insurance Limited, are expected to begin nonbinding mediation over payment next month.

At Tuesday's PSC hearing, a key question will focus on what it will cost customers to meet their energy needs — with or without nuclear.

Ivan Penn can be reached at [email protected] or (727) 892-2332.

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