Jeff McMahon reports that nuclear is not dead, according to Morningstar analysts, but cheap natural gas has shuttered some plants and left others at risk. In the last year, U.S. utilities have closed or announced plans to close five nuclear reactors in addition to the canceled development plans, according to the Morningstar Utilities Observer report for November, 2014. McMahon has monitored the speculations that prolonged low gas prices could drive more plant closures given the high maintenance capital investment requirements. Despite slimmer margins for nuclear operators in a low natural-gas price environment, McMahon think this speculation is unwarranted, outside of some select situations.
This does not include disabled plants, like Fort Calhoun in Nebraska, that are offline and may never reopen. And it does not include plants already scheduled for closure, like the Exelon Oyster Creek plant in New Jersey.
Nevertheless, McMahon concludes that most existing nuclear plants will survive because they provide power without producing carbon emissions, as reported by Morningstar, because coal will suffer with greenhouse gas regulations, and because power prices should recover from their current trough. But most of all, because of the nuclear low variable cost (about $12/MWhr, compared to $24 for the most efficient gas plants).
No emissions, coal closures, likely gas price increases, and improving power prices are certainly favorable aspects of the nuclear viability, but the low variable cost is far and away the primary reason that most are not at risk of closure despite a difficult market environment, as suggested by analyst Mark Barnett.
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