Release Dates: April 7 - 30, 2014 | Next Early Release Date: December 2014

Report Number: DOE/EIA-0383(2014)Issues in Focusjeffery jones/Michael Leff

Release Date: 4/28/14

In 2012, coal-fired and nuclear power plants together provided 56% of the electricity generated in the United States. The role of these technologbeen changing since 2009, as both low natural gas prices and slower growth of electricity demand have altered their competitiveness relative to 

also must comply with requirements of the Mercury and Air Toxics Standards (MATS) and other environmental regulations. Some of the challen

generators, and the implications for electricity markets if the plants are retired in significant numbers, are analyzed in this discussion.

Of the total installed 310 gigawatts (GW) of coal-fired generating capacity available at the end of 2012, 50 GW, or 16%, is projected to be retired Reference case. Despite those projected retirements, coal continues to account for the largest share of the electricity generation mix through 20natural gas. However, throughout the projection the coal share of total generation remains significantly below its 49% share in 2007, when coal In 2012 and 2013, operators of five nuclear power reactors representing 4.2 GW of capacity announced plans to retire the reactors by 2015. Foand 3, Kewaunee, and Crystal River—already have ended nuclear power production, and the fifth, Vermont Yankee, is expected to end generat

addition, the Oyster Creek plant is expected to conclude operation in 2019 [2]. These are the first retirements of U.S. nuclear power plants since 1998. Retirements often are the result of unique circumstances, but some owners of nuclear power plants have voiced concerns about the profi

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discussion of possible additional nuclear retirements [3]. In order to evaluate the impacts of potential retirements beyond those in the Reference 

alternative cases with economic assumptions that make it less likely that existing coal and nuclear power plants will be used for generation.Factors that lead to power plant retirementsPower plant owners generally make the decision to retire plants when their expected costs exceed their expected revenues over the future life opower plants can include large capital projects, such as installation of flue gas desulfurization (FGD) systems or scrubbers on coal plants, incre

costs. Revenues are received from energy sales or capacity payments in wholesale electricity markets in regions of the country with competitive cost-recovery mechanisms in regions with vertically integrated utilities subject to rate regulations [5].

Recent trends in the electric power industry have resulted in both declining revenues and increased operating costs for coal plants. Because na

and thus sets prices in Regional Transmission Organization (RTO) markets, and natural gas influences wholesale electricity prices in non-RTO 

prices beginning in 2008 tends to reduce electricity prices and the payments received by all generators for the electricity they produce. Lower ncompetitiveness of natural gas combined-cycle (NGCC) power plants relative to coal-fired plants. When

lower natural gas prices drive the cost of generating electricity from an NGCC plant below that of a nearby coal-fired plant, the coal plant is dispearns less revenue [6].Slow growth of electricity demand in recent years has resulted in fewer high-cost marginal generators being dispatched. In regions with excess 

relatively high variable operating costs may not be dispatched frequently enough to produce the revenue needed to cover their costs [7], making 

Although the average price of coal delivered to the electric power sector declined in both 2012 and 2013, it rose by more than 4% per year from 

increase in operational costs for coal-fired power plants reinforced the impacts of lower demand and more competitive natural gas prices.When faced with declining profitability, plant owners may choose to retire their units rather than make additional investments to keep them opercase, all coal-fired plants are required to have either a scrubber or a dry sorbent injection (DSI) system combined with a fabric filter in order to c

later years. As of the end of 2012, 64% of the U.S. fleet of coal-fired generators was compliant with this requirement. The remaining plant owne

whether to retrofit or retire their plants [9].

The outlook for nuclear power also has been altered by the changing conditions in U.S. electricity markets. Nuclear power plants have lower fuegas-fired plants, translating to lower variable operating costs and ensuring that they are dispatched when available. The spread between the prifor nuclear plants is often referred to as the quark spread. Nuclear power plant owners in wholesale markets rely on sufficient quark spreads to 

maintenance, and any new capital expenses associated with the plants to provide a return on their investment. Lower wholesale electricity price

all nuclear power plants, especially those with increasing operations and maintenance (O&M) costs or capital addition costs.The AEO2014 Reference case assumes an additional 6 GW of generic nuclear retirements from 2012 to 2019, beyond the six reactor retiremenincludes the Oyster Creek plant), as higher-cost units face continued economic challenges. Those projected retirements are represented by der

in vulnerable regions, not by retiring any specific plants. Higher natural gas prices in the Reference case after 2020 support the continued operalimit retirements from 2020 through 2040.

Accelerated retirement casesAEO2014 includes several cases designed to explore the effects of alternative assumptions that change projected natural gas prices or electric

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carbon dioxide (CO2) emissions as a proxy for possible future policies to mitigate greenhouse gas emissions. However, those cases have impa

and the economy, which makes it difficult to measure the independent effects of significant coal and nuclear capacity retirements. In order to iso

retirements on the energy system, several cases were developed by incorporating assumptions that directly accelerate retirements of coal-fired 

Accelerated Coal Retirements caseThe AEO2014 High Coal Cost case assumes a decrease in coal mine productivity and an increase in coal transportation costs, causing coal pri

those in the Reference case in 2040. In the Reference and High Coal Cost cases, real O&M costs are flat, which is consistent with long-term hisplants age, higher O&M costs may also become a concern because replacement parts and upgrades to plant equipment could be required to kethe Accelerated Coal Retirements case, the assumptions of the High Coal Cost case are combined with an assumed 3% annual increase in rea

plants from 2012 through 2040, with the increase intended to represent the high end of potential future O&M costs. The higher fuel prices and O

Retirements case serve as proxies for any combination of factors that would produce a higher rate of coal plant retirements.

Accelerated Nuclear Retirements caseThe Nuclear Regulatory Commission (NRC) has the authority to issue initial operating licenses for commercial nuclear power plants for a period 

them in 20-year increments. The NRC has already approved initial 20-year license extensions for more than 70% of the nuclear fleet, and the Athat each plant will receive a first license extension unless its planned retirement has specifically been reported. The nuclear power industry cur

submit license applications for additional 20-year life extensions that would allow plants to continue operating beyond 60 years. The AEO2014 R

plants reaching 60 years of age between 2030 and 2040 will be granted a second life extension.Nuclear power plants operate as baseload capacity. Although they are expensive to build and maintain, they have relatively low variable operatare dispatched when available. While not affecting their dispatch order, increases in nonfuel O&M costs can have negative effects on the econo

through lower profit margins. To avoid retirement for economic reasons, a plant must maintain a positive net present value over its operating life

O&M costs for nuclear power plants remain flat in the AEO2014 Reference case. However, recent data suggest that O&M costs for nuclear plan

of 4% over the 2008-12 period [10].

The Accelerated Nuclear Retirements case assumes that O&M costs for nuclear power plants grow by 3% per year through 2040; that all nucle

reasons are retired after 60 years of operation; and that no additional nuclear power plants are built after the 5.5 GW of capacity currently undecase reflects uncertainty regarding actions and costs associated with continued operation of the existing nuclear fleet.

Accelerated Coal and Nuclear Retirements caseLarge-scale simultaneous retirements of both coal-fired and nuclear capacity could have a significant effect on the electric power system. In ord

the AEO2014 Accelerated Coal and Nuclear Retirements case combines the assumptions of the Accelerated Coal Retirements case and the Accase.

ResultsRetirementsIn the Accelerated Coal Retirements case, 110 GW of capacity, or 117% more than in the Reference case, is retired by 2040 (Figure IF6-1). In t

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Retirements case, coal retirement levels are similar to those in the Accelerated Coal Retirements case through 2030, with a slight leveling off to

when some coal-fired capacity is needed to make up for the lost nuclear capacity.

figure dataIn the AccelerateGW of nuclear ca(Figure IF6-2). Hoearly in the projecreduction in nucleto reach their 60tsame retirement Accelerated CoaThere is no increretirements in the despite higher O&retirements do ocdiscussed in the AEO2014. The Lassumptions as tRetirements caseassumptions from case that result in the Reference caretirements of nuoperated for 60 ythe projection in tcapacity falling to Accelerated Coafigure dataCapacity additioIn order to replacaccelerated retire(including capacicombined heat aend-use sectors) 

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case. The new ca

of natural gas an(Figure IF6-3). Na

units are favored and relatively mofigure data

Generation fuel As existing coal anatural gas and rof the generation this trend dependcoal-fired capacitfigure dataCoal-fired generaAccelerated Coathe greatest total AEO2014 cases, available coal-firegeneration througremoving coal caof generation. Co2040 is 1% higheRetirements case result of a small iinstalled at the enNuclear power plbaseload generavaries with changNuclear RetiremeNuclear Retireme2040 is 40% lowethe Accelerated Celectricity generacase level in 204Natural gas pric

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In all the AEO201

natural gas prices the Reference caand nuclear capaexisting natural gdevelopment of nwith the largest ingeneration also hFor example, the the electric poweCoal and Nucleathan the Referen

figure data

Carbon dioxide sectorCoal and natural CO2 emissions fr

is the most signifthan twice as mu

as a combined-cyGeneration using does not emit COBecause of the h

that result in less also result in the reductions. Total 

emissions in the are 20% below th(Figure IF6-6). EmAccelerated Coabecause some nuby gas-fired genecoal-fired capacit14% below the RAccelerated Nucl

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generation is 328 

level in 2040, whemissions are 85 reflecting an averCO2 per mWh re

across the two scCO2 emissions preduced, which is increase in CO2 e

generation from aburning natural gfrom natural gas some reduction in result of higher efigure data

Retail electricity Retail electricity pretirement caseskey determinant owhich in turn are electricity prices. highest delivered highest retail elec2040, real retail eCoal and Nucleathan those in the figure dataConclusionsAccelerated retireelectricity generagas and renewabthe nation’s electmost often the lowcapacity, while reby the increased 

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and wind technol

projection periodthe electric powefor both natural grelative to the Re

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Table IF6-1. Average delivered natural gas prices, electricity prices, and carbon diioxide emissions in four case

Year and case

Average delivered natural gas price to

power sector

(2012 dollars per million Btu)

Retail electricity price

(2012 cents per kilowatthour)

Electric 

2012 3.44 9.8 2025Reference 5.75 10.1 Accelerated Coal Retirements 5.91 10.5 Accelerated NuclearRetirements

5.69 10.2 

Accelerated Coal and NuclearRetirements

5.92 10.6 

2040Reference 8.16 11.1 Accelerated Coal Retirements 8.60 12.0 Accelerated NuclearRetirements

8.57 11.5 

Average delivered natural gas prices, electricity prices, and carbon dioxide emissions in four cases, 2012, 2025, and 2040. History: U.S

Administration, Monthly Energy Review September 2013, DOE/EIA-0035 (2013/09) (Washington, DC, September 2013). Projections: AModeling System, runs REF2014.D102413A, HCLONUC.D012314A, HCCSTOM.D012314A, and LOWNUC14.D012314B.

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Year and case

Average delivered natural gas price to

power sector

(2012 dollars per million Btu)

Retail electricity price

(2012 cents per kilowatthour)

Electric 

Average delivered natural gas prices, electricity prices, and carbon dioxide emissions in four cases, 2012, 2025, and 2040. History: U.S

Administration, Monthly Energy Review September 2013, DOE/EIA-0035 (2013/09) (Washington, DC, September 2013). Projections: AModeling System, runs REF2014.D102413A, HCLONUC.D012314A, HCCSTOM.D012314A, and LOWNUC14.D012314B.Accelerated Coal and NuclearRetirements

9.03 12.5 

Endnotes

Entergy, "Entergy to close, decommission Vermont Yankee" (Press Release, August 27, 2013; accessed March 25, 2014), http://www.enterg/newsrelease.aspx?NR_ID=2769.

1.

Exelon Corporation, "Exelon to retire Oyster Creek generating station in 2019" (Press Release, December 8, 2010; accessed March 25, 201

/newsroom/pr_20101208_Nuclear_OysterCreekRetirement.aspx.

2.

M. Wallace and G.D. Banks, Restoring U.S. Leadership in Nuclear Energy (Center for Strategic & International Studies, Washington, DC, Ju

/publication/restoring-us-leadership-nuclear-energy.

3.

The U.S. Energy Information Administration analysis assumes competitive economics for electric power capacity, in which variable costs de

costs must also be paid by electric sales revenue to continue operation over the long term.

4.

Capacity payments provide units with revenue for being available to run in order to ensure reliability. Capacity payments can account for a speak load plants, which do not run often and require financial incentives to remain available for dispatch.

5.

U.S. Energy Information Administration, "Dark spreads measure returns over fuel costs of coal-fired generation," Today In Energy (February 

/todayinenergy/detail.cfm?id=10051.

6.

U.S. Energy Information Administration, "Electric generator dispatch depends on system demand and the relative cost of operation," Today 

http://www.eia.gov/todayinenergy/detail.cfm?id=7590.

7.

8. U.S. Energy Information Administration, "Assumptions to AEO2014: Electricity Market Module" (forthcoming), http://www.eia.gov/forecasts/a

S. Ferris, "Hatfield’s Ferry Power Station quietly closes for good," Herald Standard (Uniontown, PA, October 20, 2013), http://www.heraldsta

s-ferry-power-station-quietly-closes-for-good/article_cd0133e1-9adb-58c2-8f8d-66769de34835.html. Installing control equipment does not g

remain economical to continue operating. Retirement of the Hatsfield's Ferry power station in Pennsylvania was announced after installation scrubber system in 2009. However, in the AEO2014 Reference case most coal-fired power plants continue operating despite the regulatory 

9.

Electric Utility Cost Group (EUCG), via Nuclear Energy Institute, "Annual briefing for the financial community" (February 13, 2014), http://ww

/Economics/Financial-Analyst-Briefings/Nuclear-Energy-in-2014-Status-and-Outlook.

10.

The 2025 average price of natural gas price delivered to the electric power sector in the Accelerated Nuclear Retirements case is slightly low

Reference case due to a decline in LNG export capacity additions. The retirement of nuclear capacity in the Accelerated Nuclear Retiremen

increase in demand from the electric power sector, resulting in higher natural gas prices, and the anticipation of higher prices reduces the ecLNG export facilities, lowering LNG export projections. This results in lower natural gas prices in the Accelerated Nuclear Retirements case because less natural gas is exported. Demand from the power sector does not change significantly from the Reference case until significant 

are retired.

11.

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