Apr

16

It appears New Jersey's governor will sign a bill subsidizing the state's nuclear power plants:

"One bill would provide two Public Service Enterprise Group nuclear power plants with subsidies costing ratepayers about $300 million per year."

While friends at American Nuclear Society and Nuclear Energy Institute may be celebrating, those invested in the power markets may have a different view.

The issue is "market response." When a state pays an owner to run their plant independent of regional market signals, the owner will run his plant. In fact, the owner will happily run their plant when their production costs fall below market prices.

That's fine for the nuclear plant. It's not fine for other participants. When large assets ignore market signals and continue to produce, market-clearing prices for everyone crashes. The nuclear owners win, other producers lose. Those other producers include coal, natural gas, oil, hydro, wind, solar, and storage.

FWIW: Consumers win with lower energy costs (yes, they could get some of their $300 million back). State and local governments win with SIP programs and tax bases.

The power market may adjust bids in the attempt to offset state subsidies. While adjustments help, they would not address the behavior.

This is not a new problem. In US, EU, and other deregulated power markets, nuclear plants frequently ignore market signals. When they do, market-clearing prices frequently cross $0.00. With added incentives to "must-run", zero-priced energy may appear more frequently.

To be candid, I'm being a bit ornery. I believe it's in the nation's best interests to keep existing nuclear plants running. For free-market proponents, there are no perfect solutions. For New Jersey (and Illinois and New York), this is one of the policymakers' least bad options.

IMO, there's another choice. It relies on markets. It would reside at the wholesale level (multi-state). The grid could offer a two-tier pricing system for capacity. One tier would be for baseload plants, which would capture nuclear, large coal, large hydro, and large natural gas. The other would be for non-base load plants, which would include small gas, oil, small hydro, wind, and solar.


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