Closure of Duke Energy’s Nuke Plant Opens Up More Natural Gas Opportunities

CEO Jim Rogers cautions against an over-reliance on Natural Gas

Ken Silverstein | Feb 06, 2013


Duke Energy’s decision to close its troubled nuclear unit in Florida may typify the times: inexpensive and abundant natural gas coupled with the uncertainty of building coal plants and the high expense associated with nuclear facilities.

Duke will take the next 40 to 60 years to completely decommission its Chrystal River plant in Florida and in doing so, it will avoid repair costs of $3 billion over eight years. A combined-cycled natural gas plant is easy to permit and relatively cheap to run, making it the natural option to eventually replace the one to be retired. Duke, however, is not alone. It will be joined by Dominion Resources, which also plans to eliminate a nuclear unit in Wisconsin.

“This has been an arduous process of modeling, engineering, analysis and evaluation over many months,” says Duke’s Chief Executive James Rogers, in a formal statement. “The decision was very difficult, but it is the right choice.”

The nuclear unit in question gained the national spotlight in July 2012 when Duke’s board used it as the reason to ditch its newfound leader just hours after the Duke-Progress deal consummated. The board fired Bill Johnson, saying that the 2009 idling of Chrystal River was too costly to ratepayers and stockholders.

Unit 3 there, which is 36-years-old and 860 megawatts, had a crack in the containment wall. But when engineers and contractors sought to fix it, more such fissures formed. After examining the price tab to remedy the issue, Duke’s new board decided to shut it down. The money to pay for the dismantling will come from escrow accounts and its insurance carrier that will pay $835 million.

Nuclear energy has its champions: The fuel form, which is relatively emissions-free, is a bonus for climate advocates while the uranium that is used to feed the reactors is plentiful. And for three-plus decades, the plants had become reliable and efficient, running at 90-plus percent capacity rates -- more than any other form of electric generation. To top it off, no major accidents had occurred here.

Then Fukushima happened in March 2011. And that caused the world community to pause and to reexamine its nuclear energy options. While nuclear concerns around the world are cooperating in an effort to prevent such a disaster again, the shale gas phenomenon, or unconventional natural gas, keeps persisting.

Portfolio Diversification

After two units are retired, the nation will have 102 nuclear plants that supply 20 percent of the country’s electricity. However, four new facilities are scheduled to be operational by 2017, two of which are to be controlled by Southern Co. and two of which are to be owned South Carolina’s Scana Corp.

What now? “As someone who loves nuclear, it is a large speculation,” says John Rowe, former chief executive of Exelon. “It is 30 years before it breaks even. I think the combination of low natural gas prices and Fukushima will set a real nuclear renaissance back by several decades. “We should maintain the technical knowledge if it would be needed 20 years from now. But I’m genuinely uncertain that it will be needed.”

Utilities, meanwhile, understand the need for a balanced energy portfolio. Duke’s Rogers had earlier said to this reporter that shale gas “seems too good to be true.” That is, in 2007 the U.S. Energy Information Administration did not list any such gas in its forecast. And today the picture is much different.

At the same time, he is also concerned about the vast amount of water that is required to frack, calling water the “new oil.” Furthermore, natural gas has methane releases associated with it, which have come under scrutiny lately for creating more of a greenhouse gas effect than coal -- a proposition that the natural gas industry says is untrue and that methane dissipates after 20 years.

For its part, Duke relies on natural gas to fuel about 15 percent of its generation. Nuclear and coal provide most of the rest. As part of its agreement with the state of North Carolina, it is shutting down some older coal fired plants and replacing them with modern natural gas combined cycle facilities. It’s also building a supercritical coal unit in the state, as well as a coal gasification facility in Indiana -- moves that had previously received state regulatory approvals.

“We have a portfolio of options,” says Rogers. “That’s been the secret to our 40-year plan.”

The Crystal River closing is a set back for the nuclear industry that gets at both the plant’s high maintenance cost and the availability of inexpensive options to replace it. On over-reliance on natural gas, though, will eventually come back to bite --  the main reason why Duke and others are advising utilities to diversify their fuels.

EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.

Twitter: @Ken_Silverstein

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Crystal River Nuclear Toast

This plant nearly broke the back of what was then the Investor-Owned Utility Florida Power Corp when it was originally built.  Like many nuclear power plants; it cost more to build than was anticipated, and took longer to complete.  But the crack in the walls are a hoot.  Who but broke people would use non-coated rebar in a salt-saturated coastal area?  There are more than a few cracks in this containment building.  Salt, oxygen and REDOX have worked thier magic once again.  At least Florida nuclear plants no loner operate under the impediment of requireing professional engineers to be on staff.  That move has to save some rate payer money.  Are there any Investor-owned utilities left; or is all that stock once owned by individual investors now in the hands of holding companies?  Do these holding companies pay-out dividends at the same rate they now receive them.  And is Duke going to actually pay the taxes it owes to Citrus County.  The world waits and wonders.  But Citrus County schools and police and fire services are shutting down.  Maybe they are experiencing a lack of power.

Natural Gas Pricing affects Nuclear and Coal Plants

Retirement and conversion of coal-fired power plants will continue based on economics i.e. cost of construction and operating costs – most notably Natural Gas. Similarly the retirement of older nuclear plants, requiring significant retrofit, will be replaced by Natural Gas.

Per “Duke to Close Troubled Plants”, Smith, R.; The Wall Street Journal; 2/6/13, pg.B2, Duke recently built a 900 MW natural gas plant [similar in size to Crystal River] for about $900MM as opposed to $1.5 - $3 Billion to repair Crystal River.

So Natural Gas plants are less expensive to build and, as long, gas prices stay below $6/MBTU the resultant annualized cost favor these plants over nuclear or coal. Please see my paper “Goodwin, R.W.; “Natural Gas Power Plants’ Fuel of Choice”; Energy Pulse Weekly; July 26, 2011”.

Richard W. Goodwin West Palm Beach FL 2/6/13