22
NuclearPlantJournal.com Nuclear Plant Journal, September-October 2015
a competitive market is the impact of out-
of-market subsidies. It does not matter
whether these subsidies are provided
through Renewable Portfolio Standard
(RPS) procurement or long term power
purchase agreements where generators
receive payments for energy and capacity
outside of the competitive market. Out–
of-market subsidies depress market
prices and are economically harmful to
other generators.
Competitive energy and capacity
markets typically require a generator to
offer its energy into the market at a price
that typically reflects its marginal cost
to produce the next MW or in the case
of capacity markets, the revenue that
generators will need to cover its costs
that are not otherwise recovered in the
energy markets. The RTOs use these
offers to construct a supply curve. In
parallel, loads bid into the energy market
reflecting their best estimate of what the
projected needs are going to be on an
hour by hour basis effectively producing
a demand curve. The intersection of the
supply and demand curves determines
what the day-ahead energy price will be
for that particular location sometimes
referred to as Locational Marginal
Pricing (LMP). Each generator in the
supply stack that offered its energy into
the market at a price below the LMP will
be paid the LMP price. Since baseload
nuclear units have relatively low marginal
costs, these units are almost always at the
bottom of the supply stack and are paid
the LMP price.
Imagine for a minute now that
a generator that might otherwise be
uneconomic, obtains an out of market
subsidy typically through some state-
sponsored initiative. That generator is still
required to bid into the energy market to
ensure it is dispatched but no longer has
to bid its true marginal cost. Remember
its revenue stream is coming through the
subsidy. These generators will typically
bid an artificially low price which shifts
the supply stack to the right resulting in a
lower LMP. In effect, this generator with
its out of market subsidy has lowered the
energy price that the other generators
would have otherwise been paid. Since
baseload nuclear units derive most of
their revenues through the energy market,
this types of out of market subsidies is
particularly harmful.
One additional nuance we’re starting
to experience in New England is the
integration of wind resources driving
energy prices at certain times of the
day to negative numbers. In effect,
generators are actually paying the market
for the energy that they are producing.
This situation occurs when there is too
much generation available with very low
marginal offers wind, hydro, nuclear for
example. Each unit wants to run and
the market software calculates negative
LMPs. This has been a significant issue
in the Midwest and we are starting to see
it in New England as well.
6.
How has the federal government
support been for nuclear energy?
In terms of the competitive markets
as we have discussed, the FERC has
the opportunity to lead the initiative
to drive market structure reforms that
should provide a level playing field for
nuclear to compete. This is a very high
priority for the industry. As I pointed out
earlier, NEI, EEI, EPSA and several other
organizations sent a letter to the FERC
commissioners suggesting key principles
that the FERC should consider to address
the energy price formation issues we
have been discussing. Both the House
and Senate Energy Committees have
recognized threats to existing baseload
generation, particularly those plantswhich
sell their power in competitive wholesale
energy markets, and have proposed
legislation to address these concerns.
Most recently, in early July 2015, leaders
from these committees sent a letter to
FERC Chairman Norman Bay urging
the agency to take immediate action to
address the market rules which threaten
the economic viability of the otherwise
well-performing baseload generators. In
the letter, they ask that the FERC take the
necessary measures to ensure wholesale
competitive energy markets function
in a manner that fairly compensate all
generators by producing the appropriate
price signals, and maintain a reliable and
affordable electricity system for the long
term.
7.
Concluding comments.
Clearly the energy industry is
changing. The implementation of EPA’s
Clean Power Plan, the availability
of shale gas, the move to renewable
resources, and distributed generation are
all going to present complex questions
that our regulators and policy advisors
are going to need to address. Ultimately
our objectives should revolve around
reliability, economic sustainability for
both the ratepayers and shareholders
and environmental stewardship. Nuclear
power can make a significant contribution
to each of those objectives.
Contact: Marc Potkin, Entergy
Nuclear Operations, Inc., 440 Hamilton
Avenue, White Plains, NY 10601;
telephone: (914) 272-3391, email:
J
Instrumentation & Control
March-April
Plant Maintenance & Plant
Life Extension
May-June
Outage Mgmt. & Health
Physics
July-August
New Plants & Vendor
Advertorial
September-October
Plant Maintenance & SMRs
November-December
Annual Product & Service
Directory
Contact:
Michelle Gaylord
telephone: (630) 364-4780
Nuclear Plant Journal
1400 Opus Place
Suite 904
Downers Grove, IL 60515
USA
Annual
Editorial
Schedule
Nuclear
Plant
Journal
Sustainability
Challenges...
