Power price recovery may be too late to aid its nuclear plants: Exelon exec
Las Vegas (Platts)--9Apr2014/1033 am EDT/1433 GMT
While Exelon expects a recovery in power prices, it may not come in time to save some of the company's nuclear plants, a senior company executive said in Las Vegas Tuesday.
"Nuclear power has taken the biggest punch" of all generation sources in the current low power price environment, Kenneth Cornew, president and CEO of Exelon Generation, said in an interview.
Exelon owns the largest fleet of nuclear power stations in the US. Of the company's total 35-GW power generation capacity, nuclear accounts for 55%. But several of those plants are "financially challenged," Cornew said.
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The smaller, single unit plants, such as its 610-MW Ginna plant, are particularly challenged as are three of its five nuclear plants in Illinois. The Illinois plants are primarily challenged because of location. They are in places where large amounts of low-priced wind power comes into the system, depressing wholesale power prices, Cornew said. The busbar price at the Quad City plant on the western side of Illinois, for instance, has been $5-6/MWh below prices at the NiHub prices, he said.
In addition, the capacity revenues available from the Midcontinent Independent System Operator, are "negligible," Cornew said. That environment is even a challenge for Exelon's single reactor plant in Clinton, which is one of the newest nuclear plants in MISO, he said.
The owners of some power plants in MISO are able to earn higher capacity prices by exporting their capacity to the PJM Interconnection market. MISO's most recent capacity auction cleared at about $1/MW-day. PJM's last capacity auction cleared at $59.37/MW-day.
The problem is that a transmission link to PJM could be very expensive, but "we are exhausting every option, including linking the [Clinton] plant to the north or the east," Cornew said.
POWER PRICES 'TOO LOW'
Meanwhile, Exelon still believes power prices are too low. Forward prices are not reflecting market fundamentals in part because of a lack of liquidity in the market, which Cornew said is "as bad as it has been."
He attributed that to the fact that many banks are getting out of power trading and many participants are only buying for the short term because of the uncertainty created by the prospect of large numbers of coal plants retiring in the next couple of years due to pending environmental regulations.
As the level of coal retirements unfolds in 2015 and 2016, power prices should recover with the prospect of a "$2 to $4 expansion of heat rates," Cornew said. But, he added, "We can't afford to lose money until the recovery comes."
In the meantime, Exelon is advocating for changes in the way reliability is priced in the market, particularly in capacity markets. "Price formation this winter was a very positive sign," he said, with prices shooting up above the $1,000/MWh cap, he said.
That is an indication that more attention needs to be paid to winter peaks and suggests that there should be some sort of seasonal capacity market, Cornew said. The polar vortex events of this winter showed that the grid is vulnerable in the winter, not just during the summer peak season, he said.
One of the key issues that needs to be addressed is that all capacity should be treated equally, Cornew said. For instance, demand response should be required to bid into the day-ahead market just as other resources are and there should be limits on the ability of bidders to buy out their positions in the incremental auctions RTOs conduct in the periods between capacity auctions.
"As a trader it hurts me to say this, but capacity markets should focus on physical not financial assets. It is too easy to bid into PJM and buy back at a low price through the incremental auction or to only face a small penalty. Until that is fixed, we should focus on physical assets, not financial," he said.
Cornew had no specific, detailed recommendations for how such reforms should be implemented, but said that Exelon would continue to work through the stakeholder process to achieve those goals.
Ultimately, however, "if we cannot find a solution, we would move toward the option of closing plants," Cornew said. "We would focus on other technologies and businesses we can be good at and grow in." He mentioned that Exelon already has investments in both in the upstream and retail side of the gas business.
--Peter Maloney, firstname.lastname@example.org
--Edited by Irene Tang, email@example.com