Lawrence Makovich and Benjamin Levitt reported in later 2017 that the operation of the Salem and Hope Creek nuclear power plants in New Jersey produces benefits for New Jersey consumers. The plants make power supply more resilient to major system failures, such as natural and man-made disasters, and limit the environmental impact of electric production, particularly the electricity carbon footprint. In addition, the continued operation of Salem and Hope Creek produces lower and more stable power supply costs compared with the outcome if the plants closed prematurely.
Consumers in New Jersey are at risk of permanently losing the benefits of the state’s nuclear generation owing to the lack of harmonization between public policies and PJM market operations and rules. In particular, market failures to fully compensate New Jersey nuclear generators for contributions that ensure power system security of supply and lower emissions, coupled with market distortions like mandates of subsidized renewable generation, result in lower electric generator cash flows compared with the levels expected from an undistorted, efficient market outcome. The cumulative impacts to New Jersey of the premature closures and replacements of the Salem and Hope Creek nuclear plants are summarized in Table 1.
Since PJM operates a capacity market alongside its energy market, PJM market failures and distortions that suppress wholesale electric energy prices and the associated energy market cash flows cause under investment in electric production efficiency rather than in installed capacity. The bottom line is that an undistorted PJM market
outcome would efficiently pace the size and mix of cost-effective power supply investment by generating prices for capacity and energy that internalize all costs, including the cost of carbon dioxide (CO2) and other pollutant emissions. Such an undistorted, efficient market outcome would lead to a diverse technology and fuel electric supply portfolio of cost effective peaking, cycling, base-load, and intermittent resources. As a result, the power supply portfolio would not lose base-load nuclear power plants that
are lower cost to continue to operate than the costs associated with the new supply being added to the marketplace.
Nationally, awareness is growing regarding the rising challenge of maintaining grid resiliency as more base-load nuclear and coal power plants are retired prematurely. In September 2017, Secretary of Energy Rick Perry issued a letter to the Federal Energy Regulatory Commission recommending new rules to offset market distortions caused by a lack of harmonization between public policies and electricity market operations, noting that.
Distorted price signals in the Commission-approved organized markets have resulted in under-valuation of grid reliability and resiliency benefits provided by traditional baseload resources, such as coal and nuclear. … The proposed rule requires the Commission-approved organized markets to develop and implement market rules that
accurately price generation resources necessary to maintain the reliability and resiliency of our Nation’s electric grid.1
Although the specifics of the approach are not yet available, the initiative shows that the discord between public policies and market operations is currently high on the electricity policy agenda. New Jersey is at a critical juncture. To do nothing to address current PJM market failures and distortions will lead to under investment in electric production efficiency, moving the electric supply portfolio toward a less efficient generation mix with too few nuclear base-load resources. As a result, not addressing the existing disharmony between public policies and market operations increases the probability of uneconomic closure decisions and the replacement of the Salem and
Hope Creek nuclear power plants. These closures would predictably result in
• Less resilient power supply. The number of possible low-probability but high-impact events and their statistical independence means that some kind of significant disruptive event is likely to confront the PJM power system within the coming decade, such as another polar vortex episode, a Sandy-type hurricane landfall, a natural gas pipeline or storage facility failure, a foreign or domestic terrorist attack, or legislative or court interventions constraining the natural gas supply chain. Therefore, prudent planning ought to incorporate resilience to the range of possible significant deviations from expected normal operating conditions. A retrospective analysis of the 2014 polar vortex conditions in PJM illustrates the resilience benefits provided by the New Jersey nuclear power plants at the time.
Their analysis finds that the cost to New Jersey consumers, had the New Jersey nuclear plants retired prior to the 7 January 2014 polar vortex, would have been between $70 million and $230 million. Because New Jersey’s nuclear plants provide resilience benefits to all PJM consumers, the total cost of the loss of the New Jersey nuclear plants is around 10 times higher. Since 2014, the PJM power supply has become more reliant on natural gas pipelines and operations and is therefore less resilient to similar events. The upper end of this range reflects how recent changes in the PJM power supply portfolio have increased the resilience benefits provided by the New Jersey nuclear plants.
Going forward, other high-impact events may cause a loss of load for an even longer duration. The benefit to New Jersey of preventing a similar loss of load lasting 24 hours averages $440–790 million. The polar vortex of January 2014 is just one example of the type of events that can stress the power supply. Events in the future may occur with more or less frequency and with more or less disruptive force. Therefore, the analysis of the polar vortex alone cannot be used to define resiliency planning. However, this analysis demonstrates that the New Jersey nuclear plants are important to the resilience of the PJM power supply and that their importance has increased
following the power supply portfolio’s recent increase in dependency on the natural gas supply chain.
• Negative statewide impacts on economic activity. The retail power price increase in New Jersey associated with the closures of Salem and Hope Creek causes real gross state product to decline 0.14%, equal to $820 million in 2017 prices. The increase in retail power prices hurts the New Jersey labor market, contributing to total job losses of 6,100 per year.
• More varied monthly New Jersey consumer power bills. The electric variable cost of production accounts for about 15% of consumer power bills. Back-casting indicates that the variation (standard deviation) of PJM variable production costs would increase by 11% if the base-load nuclear power plants with stable generation fuel costs of about 0.7 cents per kWh were closed and replaced primarily by natural gas–fired generating plants whose monthly fuel costs per kilowatt-hour varied in the past four years from a low of 1.1 cents in March 2016 to a high of 10.4 cents in January 2014.
The annual cost to replace the portfolio diversity effect of the Salem and Hope Creek nuclear resources on variable production cost variation with financial hedges of natural gas prices amounts to $77–112 million per year in PJM.
Secretary of Energy Rick Perry, Letter to the Federal Energy Regulatory Commission Chairman and Commissioners, 28 September 2017, Subject: Secretary of Energy’s Direction that the Federal Energy Regulatory Commission Issue Grid Resiliency Rules Pursuant to the Secretary’s Authority Under Section 403 of the Department of Energy Organization Act. New Jersey consumers’ share of this cost is $8.6–12.6 million per year, indicating the implicit value of the more stable and predictable power bills produced by having nuclear generation in the supply portfolio rather than a higher exposure to natural gas–fired generator cost variability:
• Greater environmental impacts from electric production. New Jersey nuclear generation accounts for 95% of the state’s zero-emission, non–CO2-emitting electric generating resources. Replacing the 28,750 GWh/y of electric output from the Salem and Hope Creek nuclear power plants with a 15%/85% mix of renewable and natural gas–fired generation increases annual electricity sector CO2 emissions by 13 million metric tons (MMt). To put this into perspective, New Jersey electric generation emitted 16.1 MMt and 19.4 MMt of CO2 , respectively, in 2012 and 2015.Using a mid-range estimate of $42 per metric ton for the social cost of carbon puts the environmental impact value of the CO2 emission abatement provided by the continued operation rather than replacement of the Salem and Hope Creek nuclear power plants at $530 million per year. In addition, the replacement of Salem and Hope Creek with the same mix of renewable and natural gas–fired generation will increase annual electricity sector nitrogen oxide (NOX) and sulfur dioxide (SO2) emissions by 3,063 metric tons and 118 metric tons per year, respectively. Using the 2016 Cross-State Air Pollution Rule market allowance prices in New Jersey for NOX and SO2 emissions puts the additional environmental impact of emissions at $420,000 per year.
• Higher New Jersey consumer power bills. Without Salem and Hope Creek generation, the annual average cost of electric production in PJM would increase by about $1.6/MWh under PJM market conditions similar to 2013–16. New Jersey nuclear closures would also eliminate a $3.8/MWh locational marginal price (LMP) benefit for electric energy in New Jersey compared with the rest of PJM operating under 2016 PJM market conditions with delivered natural gas prices to generators reflecting the $3.29/MMBtu average price level for 2013–16.
Altogether, the higher PJM average cost of electric production and the loss of the LMP differential would increase the cost of New Jersey wholesale electricity by $5.4/MWh. This annual cost increase adds $404 million in New Jersey consumer power payments that would involve a 4% increase in the average retail power price. The percent increases to specific customer classes from 2016 retail price levels are summarized.
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