Nuclear Subsidies: A Case of Pure Waste

With an abundance of low-cost natural gas available, thanks to the shale revolution, the case for shutting down money-losing nuclear plants has become compelling. The opportunity to save consumers billions of dollars by replacing nuclear power with gas-fired plants is too sensible to ignore.

Some states, however, are propping up nuclear plants to retain high-paying jobs. Illinois and New York have decided to subsidize several financially faltering nuclear plants to keep the plants open, and several other states — including New Jersey, Ohio, Pennsylvania and Connecticut — are considering doing the same.

Clearly, a growing number of nuclear plants are no longer profitable. Peter Davis, former assistant secretary for nuclear energy at the U.S. Department of Energy, estimated that 52 percent of the nation’s nuclear-generating capacity is at risk of premature retirement. Since 2015, six nuclear plants have closed and utilities have announced that another eight plants will be shuttered in the next few years. In some states such as California and Massachusetts, where companies have announced plans to pull the plug on nuclear plants, electricity can be produced more cheaply with other energy sources.

Significant economic benefits would accrue from a nationwide shift to low-cost natural gas. Consider the size of the U.S. nuclear fleet — about 100 plants with a generating capacity of almost 100,000 megawatts of electricity. States would be irresponsible not to recognize the economic reality of rising nuclear power costs and much lower natural gas costs.

But instead of letting distressed nuclear plants close, Illinois and New York have created zero-emission carbon credits to keep the plants running. Nowhere are the consequences of this policy shown more clearly than in Illinois where Exelon, owner of the three plants, threatened to shutter them after the company said it had lost $700 million in the last few years from operating the plants.  The creation of zero-emission carbon credits to save money-losing nuclear plants is a bailout, which no amount of pious rhetoric about global warming can disguise.

The fact is, carbon dioxide emissions from energy production in the United States have dropped to early 1990’s levels. Credit for this goes not to nuclear power but rather the combination of hydraulic fracturing and horizontal drilling in shale formations, which has produced a huge amount of natural gas for electricity production. Today the U.S. is the world’s leading producer of natural gas, with resources that are projected to last through the end of this century and beyond.

One paradox of nuclear subsidies is the longer they succeed in keeping uneconomic plants in operation, the costlier they will become, and the more expensive it will be for ratepayers — households, businesses, and industries. With aging nuclear plants, anything can go wrong and probably will go wrong.

Subsidies could come back to haunt states that resort to them. Bloomberg Intelligence, a finance company, says that if every reactor in the Northeast and Mid-Atlantic states adopts subsidies at the same level as those in Illinois and New York, ratepayers will need to shell out an additional $3.9 billion annually. Industries would be hit with the highest rates and those would show up in the prices that they charge.

Besides, there is a question whether nuclear subsidies are even legal. The Federal Energy Regulatory Commission has exclusive jurisdiction over wholesale power markets and regional grid operators. FERC and “merchant” power producers maintain that states’ support for particular types of generation — whether it be nuclear power or mandates for renewable energy sources — is skewing wholesale power prices and infringing on FERC’s authority over markets.

Requiring consumers to pay artificially elevated prices to keep nuclear plants in operation may appear to save the jobs of nuclear plant workers, but this ignores the reality that employers could produce more jobs if electricity costs were lower.

When the government picks winners and losers in the energy market, consumers pay the price. Favoring nuclear power with heavy subsidies distorts the energy market, increases costs to electricity users, and discourages the development of new energy technologies. Over four decades of experience clearly shows that subsidies do not work. They distort markets, misallocate capital, and promote crony capitalism.


Bill O’Keefe is president of Solutions Consulting and former CEO of the George C. Marshall Institute.

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