New Study: Palo Verde NukePlant Stays Open with a 50% RPSJune 05, 2018 Dylan Sullivan

The power plant from above

Cuhlik, from Wikimedia Commons

New power sector modeling, conducted by renowned energy firm ICF, usingassumptions based on publicly-available information developed by theNatural Resources Defense Council (NRDC), finds that Arizona’s Palo Verdenuclear power plant stays open and operates around-the-clock, even asutilities build enough renewable energy capacity, like wind and solar farms, tomeet a 50 percent by 2030 renewable portfolio standard (RPS).

https://www.nrdc.org/experts/dylan-sullivan

The new study is consistent with other analyses from financial firms and theU.S. government, which have found that Palo Verde can continue to operateand make money for its owners, even when other nuclear power plants in theU.S. face financial difficulty.

But these results are contrary to rhetoric from Arizona Public Service (APS),the state’s largest utility, which owns 29.1 percent of the plant and operates itfor a consortium of Southwest utilities. Searching for arguments against theClean Energy for a Healthy Arizona initiative, which would require Arizonautilities like APS and Tucson Electric Power (TEP) to meet strongerrenewable energy goals, APS has claimed the initiative would force it to closePalo Verde, but has never shown how it reaches this conclusion.

Actual analysis shows that the Western grid can reliably manage much largeramounts of renewable power while keeping Palo Verde open. As the largestnuclear power plant in the U.S., Palo Verde has economies of scale that allowit to remain competitive even in a future with low-cost renewables and gaspower, and wholesale power prices in the west are higher than in most of therest of the country.

Below we discuss the model ICF used, the assumptions we developed, and theresults. We also summarize other analyses about Palo Verde’s viability.

But first, some introductions

NRDC is a national not-for-profit organization with around 9,000 membersin Arizona. We frequently use power sector modeling to understand the costsand benefits of different policy proposals. NRDC’s analysis of a 50 percentRPS in Arizona was performed by energy consultancy ICF, using theirIntegrated Planning Model (IPM®), and assumptions developed by NRDC.IPM is a detailed model of the electric power system that is routinely used bythe electricity industry and regulators, including the U.S. EnvironmentalProtection Agency, to assess the effects of environmental regulations and

https://cleanhealthyaz.com/https://www.icf.com/solutions-and-apps/ipm

policy. It integrates extensive information on power capacity and generation,technology performance, transmission, energy demand, electricity and fuelprices, policies, and other factors. IPM then determines the most cost-effective way to meet electricity needs, based on its detailed representation ofthe U.S. electricity system. It can build new power plants, retire existingplants, or ramp them up and down to meet demand in the least-cost way.

Our scenarios, inputs, and assumptions

ICF ran the model with two different policy cases based on NRDC’sassumptions: an RPS case and a Gas Expansion case.

For the RPS case, utilities subject to Arizona’s existing 15 percent by 2025Renewable Energy Standard—basically all utilities except Salt River Project—have to meet a 50 percent renewable energy by 2030 target, with interimbenchmarks along the way. This matches the Clean Energy for a HealthyArizona proposed ballot measure for the November 2018 general electionballot.

In the Gas Expansion case, APS and TEP meet current and future energyneeds, in part, by building 5,900 MW of gas-fired power plants. This matchesthe long-term resource plans the state’s utilities submitted to the ArizonaCorporation Commission (ACC).

Assumptions for this analysis were developed by NRDC, relying primarily onpublicly available projections from various parts of the U.S. Department ofEnergy (DOE). For gas prices and energy demand, we relied on reference case(“business as usual”) projections from the Energy InformationAdministration (EIA), which is an independent statistical agency of the DOE.For power plant costs, we relied on the EIA for the costs of building new fossilfuel-fired generation or new nuclear plants, and the DOE’s NationalRenewable Energy Laboratory (NREL) Annual TechnologyBaseline projections for the costs of building new wind and solar projects,

https://www.eia.gov/outlooks/aeo/https://www.nrel.gov/analysis/data-tech-baseline.html

which represent its expert view on the future costs of renewable technologies.Additionally, limits on variable renewable generation were incorporated toapproximate the amount of solar and wind the grid can accommodatewithout additional transmission investments.

Results

Two important results emerge from the model’s “generation mix” results.

1. Palo Verde stays open in all cases. The choice Arizonans face inNovember is whether to power their future with renewable energy orwith carbon-emitting gas. The continued operation of Palo Verde is notthreatened by a 50 percent RPS. Why is the model not ramping down orshutting off Palo Verde? From an economic perspective, adding low-costsolar to regional power mix displaces higher-cost coal and gas electricity,not Palo Verde, which is fairly cheap to operate. From a grid-operatorperspective, It’s likely that electricity demand in Arizona is sufficient tosoak up Palo Verde’s generation, and the output of extra solar, on all buta few days in the spring and fall. On those few days, solar and nuclearcan be exported throughout the 13-state Western Interconnection. Thishighlights something discussed later in the blog: APS and Arizonashould be at the forefront of efforts to integrate the operation of theWestern electric grid. This would make it easier for, say, Arizona and itsutilities to sell and transmit solar and nuclear power to other customersin the Pacific Northwest or Southern California.

2. The generation mix that emerges from the RPS case is remarkablysimilar to the mix the model projects under a Reference case scenario,where only policies and capacity changes already approved are modelled.In other words, the clean energy future encouraged by the 50 percentRPS looks almost exactly like the model’s cost-optimized electricityfuture for the state, the mix an all-knowing economist would choose forthe state if there were no 50 percent RPS, APS, or ACC.

These two key results are highlighted in the table below. The table shows theamount of electricity generated by Arizona solar, gas, and nuclear plants, andtotal generation, under three cases: the Reference case and the two policyscenarios. Note that the nuclear generation is the same in all three cases. Andin the Reference and RPS cases, total generation is higher than in the gas-heavy case (meaning more of the state’s energy demand is met with localresources), because solar power more-than-doubles. By 2030, there is enoughsolar in both the reference and RPS cases to power around 1.8 millionArizona households from clean, local solar energy annually.

Utilities subject to the ACC's jurisdiction can cost-effectively meet a 50% RPS while keeping PaloVerde open; solar does not equal 50% of total Arizona generation in the table above because thistotal includes SRP generation and exports around the West.

The second table is power plant capacity: the instantaneous power productioncapacity of power power plants of a given type in Arizona in a given year.Nuclear capacity does not change across the three cases, and the nuclearoperates essentially around-the-clock, at a capacity factor of 90 percent.

U.S. Government and financial firms predict PaloVerde will remain open

Because of its importance to the Western electricity grid—it is the biggestpower plant by annual electricity output in the U.S. and the second in size—other analysts have also examined Palo Verde’s viability in a future with lotsof low-cost renewable energy and gas power (low gas prices have had a muchbigger impact on the viability of baseload resources than renewables in thelast few years). Below we summarize three recent analyses.

Energy Information Administration

EIA, the statistical agency of the US Department of Energy, annuallyconducts a comprehensive forecast of the U.S. energy system, the AnnualEnergy Outlook. This year, as part of the AEO, they conducted a detailedanalysis of the U.S. nuclear fleet, testing nuclear power plants’ sensitivity togas prices (which directly affect the price of nuclear’s key competitor, gas-fired power plants, and directly affect wholesale power prices), environmentalregulation (carbon taxes make nuclear more competitive), and upkeep andmaintenance costs of nuclear plants themselves. Even in their toughest casefor nuclear, where plant maintenance costs increase 20 percent and gasprices plummet, where nationwide, over 80 percent of all nuclear

http://www.analysisgroup.com/news-and-events/news/analysis-group-report-finds-that-the-transition-underway-in-the-us-power-system-is-not-harming-reliability/

capacity shuts down by 2050, Palo Verde stays open.

The EIA found that smaller, single unit nuclear power plants that operate inderegulated markets are more sensitive to low wholesale power prices thanbig plants in regulated markets. Palo Verde is the nation’s biggest nuclearplant, and only one owner, Southern California Edison, with a 15.8 percentshare, operates in a quasi-deregulated market. EIA notes that large plants canspread fixed overhead costs over a large base of generation, and that they cantake advantages of economies of scale when negotiating service and fuelcontracts.

Bloomberg New Energy Finance

Bloomberg New Energy Finance has estimated the profits for every nuclearpower plant in the U.S., in an analysis described here. In the underlyingreport, BNEF found that Palo Verde will continue produce about $60 millionper-year in profit for its owners in the near-future. This analysis also onlyconsiders energy market revenue: the value of the plant’s capacity, which anyregulator would take into account when weighing whether or not the plantshould close, could be worth another $150-300 million per-year.

National Renewable Energy Laboratory

In addition to the two economic analyses above, the National RenewableEnergy Laboratory (NREL), as part of a years-long modeling effort that“explores the implications and challenges of very high renewable electricitygeneration levels,” studied how the Western grid, operationally, couldaccomodate 80 to 90 percent renewable energy. In their scenarios, more thanseven gigawatts of always-on nuclear resources continue to operate in theWest, including Palo Verde’s four gigawatts.

The authors conclude that, operationally, the Western grid can operatereliably with 80 to 90 percent renewables, and that new, flexible options likeenergy storage and demand response can help integrate more renewables and

https://www.eia.gov/outlooks/aeo/pdf/nuclear_power_outlook.pdfhttps://www.eia.gov/outlooks/aeo/data/browser/#/?id=62-AEO2018&region=3-19&cases=ref2018~hrnuc_plus20&start=2016&end=2050&f=A&linechart=~~~~ref2018-d121317a.9-62-AEO2018.3-19~hrnuc_plus20-d121517a.9-62-AEO2018.3-19&map=&sourcekey=0https://www.bloomberg.com/news/articles/2017-06-14/half-of-america-s-nuclear-power-plants-seen-as-money-losershttps://www.nrel.gov/analysis/re-futures.htmlhttps://www.nrel.gov/docs/fy15osti/64467.pdf

mitigate curtailment — when grid operators turn down wind and solar whenthey cannot be used. They also find that integration of the West’s balkanizedgrid is important, and that Arizona’s ability to export electricity to bigelectricity load centers in Southern California is limited by a lack oftransmission capacity. In total, the study shows that integrating very highlevels of renewables is possible, even as nuclear plants like Palo Verde stayopen. (For NRDC's general view on the role of nuclear in a deeply-decarbonized world see my colleague Matthew McKinzie's blog.)

Aside from its PR effort, APS is not acting like theplant is at risk

If APS were actually concerned about the long-term viability of Palo Verde ina high-renewables future, we would see it in actions, not just an all-out PReffort. APS would be aggressively adding new, flexible power options likedemand response and energy storage, instead of limiting storage anddoubling-down on gas power. APS would be building more transmissioncapacity between Arizona and big electricity load centers in SouthernCalifornia. APS would also be pushing for integration of the Western grid’s 37separate fiefdoms, which currently make it much more difficult for owners ofcheap, clean power plants, like solar in Arizona or Palo Verde, to sellelectricity across the grid’s institutional boundaries.

But APS is not doing these things, and that, combined with ample evidencethat Palo Verde is actually viable in a high-renewables future, suggests APS isnot actually worried. Instead, they are just trying to stop a ballot initiativethey dislike.

https://www.nrdc.org/experts/matthew-mckinzie/nrdc-analysis-nuclear-energy-and-safer-climate-futurehttps://www.utilitydive.com/news/stunning-aps-rfp-could-violate-arizona-gas-moratorium-critics-say/523451/