Is Fort Calhoun a victim of prices or policies?

By Will Boisvert

Fort Calhoun power plant

Once again a money-losing nuclear plant gets the axe while cheap renewables flourish. And once again, that seemingly hard-headed verdict hinges less on economic reality than on one-sided subsidies and biased policies that derail the environmental progress they are supposed to promote.

This time it’s Nebraska’s Fort Calhoun nuclear plant. The Omaha Public Power District, the publically-owned utility that owns the reactor, says it’s an open-and-shut case. A small plant—at 479 megawatts, the smallest in North America—with high overhead costs, floundering in an electricity market that’s getting hammered by cheap gas-fired power and wind turbines that are sprouting like corn stalks, is just too expensive to keep running.

And the numbers do sound damning. Press reports put Fort Calhoun’s production costs at about $50 per megawatt-hour, well above wholesale market prices of $20 to $25 per megawatt-hour. (OPPD spokesman Mike Jones says the company doesn’t divulge production costs, but emailed me that “we would say those numbers are close and would not argue with them.”) The utility says that closing Fort Calhoun will save up to $1 billion over the next two decades. The lost output would be replaced by a mix of wind power (42 percent), a smidge of gas-fired generation (2 percent) and a lot of efficiency and demand-response to lower electricity consumption. Retiring the plant, in OPPD’s view, is financially smart and impeccably green. 

But while that proposal sounds both cheap and clean, it’s actually a long step backwards for the utility’s decarbonization program. OPPD’s 2014 resource plan, which anticipated Fort Calhoun running through the end of its current license in 2033 while bringing in wind and gas to replace coal-fired power, forecast that the utility would generate 66 percent of its electricity from zero-emissions sources by 2018, one-third renewable and one-third nuclear. That target will now be slashed. Without Fort Calhoun, the company’s “rebalanced” portfolio will top out at just 50 percent zero-emissions electricity by 2025. Nebraska will lose more clean electricity than was produced last year by its wind, solar and biomass sectors combined.

What will stay on the grid is coal-fired power, which is slated to continue providing 14 percent of OPPD’s electricity through 2033. Fort Calhoun’s closure is thus a huge lost opportunity for decarbonization: if it were to stay open, OPPD could instead shut down all its coal generation and much of the gas-fired power it will use over the next two decades. From that angle, clean nuclear output is being retired in order to preserve high-emissions gas and coal generation that will produce 35 million tons of carbon dioxide by 2033 along with other air pollutants.

Meanwhile, the economics of Fort Calhoun’s closure only make sense because of perverse federal and state policies that starve nuclear power of the supports given to renewable energy.

To be sure, OPPD is reducing its carbon footprint by buying wind power, and at a reasonable cost. Nebraska has sensational wind resources, with some wind farms achieving capacity factors of 45 percent or more. That makes Nebraska wind power cheap—but probably not cheaper than Fort Calhoun’s power.

It’s hard to say exactly how cheap, because the company refused to tell me the price of the wind power it buys. (Wondering why a publically-owned monopoly keeps those prices secret? Me too.) But scattered press reports have local utilities buying power from some of the same wind farms OPPD does for about $45 to $55 per megawatt-hour. Those prices gibe with other estimates: a 2014 study for Nebraska’s state Power Review Board put the levelized cost of electricity for in-state wind farms at about $45 to $60 per megawatt-hour, in the same range as Fort Calhoun’s production cost. To meet its voluntary renewables goals—Nebraska doesn’t have a state renewable portfolio standard—OPPD has been loading up on 20-year power purchase agreements with wind farms. Like Fort Calhoun’s power, these long-term wind contracts are likely above wholesale market rates (while adding to the overcapacity that is driving markets down). The result is that Fort Calhoun’s allegedly too-expensive power is nominally being replaced by wind power with production costs that are roughly the same.

That seemingly futile trade-off makes financial sense for OPPD because of subsidies—lots of subsidies—that make wind’s price a lot lower than its cost. The federal Production Tax Credit pays wind farms $23 for every megawatt-hour they generate for their first ten years, or about $11-12 per megawatt-hour spread over a 20-year power purchase contract. Wind farms can elect to take a 30 percent federal Investment Tax Credit on their capital costs instead, which is often more lucrative, and get additional subsidies by selling Renewable Energy Certificates that out-of-state utilities buy to comply with renewable portfolio standards.

The revenue from these subsidies let wind farms cut their prices enough to make it financially advantageous for OPPD to buy wind power instead of operating its nuclear plant. Together they account for most of the $735 million to $994 million OPPD will save over 20 years from closing Fort Calhoun, which works out to $12 to $16 for every megawatt-hour of electricity the reactor would produce over that period. If the plant got similar subsidies, the economic case for shutdown might evaporate. Still more subsidies will accrue to wind from the EPA’s Clean Power Plan, which, as OPPD points out, offers no help to existing nuclear plants like Fort Calhoun.

So from the standpoint of OPPD’s astute bean-counters, replacing Fort Calhoun with wind is the responsible way to procure low-carbon power at the least cost for customers. From a larger perspective, the shut-down shows just how muddled and self-defeating America’s energy policies have become by excluding nuclear power from supports that other low-carbon energy sources receive. While we’re growing renewable power with expensive subsidies, we’re snuffing out clean nuclear plants in the name of economic efficiency—and slowing the pace of decarbonization to a crawl.

OPPD’s board will vote on Fort Calhoun’s retirement on June 19. Before that happens, the plant’s employees, many of them customers—and therefore owners—of OPPD, should ask the executives and board members some questions about the cost of wind power contracts and the consistency of the utility’s low-carbon initiatives. And they should ask politicians why contradictory government policies are jeopardizing the nation’s largest source of clean energy.