Exelon's Nuclear Options

 | May 28, 2014 | 4:00 PM EDT
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There is recent news about Exelon's (EXC) nuclear plants failing to clear auctions. Some look at it and have deep concerns about the future of the company and its nuclear assets. It turns out that this is not news. In fact, Exelon's fleet looks a tad better than many expected a few weeks ago.

Exelon operates the nation's largest fleet of nuclear power plants, and owns or operates more than 20 nuclear plants in three separate markets.

One of those markets is PJM Interconnection, which recently completed its annual capacity auction for energy year 2017/2018. The market clearing prices were in the range of $120 per megawatt-day. Of the 167,003.7 megawatts of unforced capacity that cleared in the auction, 154,690 megawatts were from generation capacity, 10,974.8 megawatts were from demand resources and 1,338.9 megawatts were from energy efficiency resources. The 11,834.8 megawatts of capacity that was offered but not cleared will be eligible to offer into the first, second and third incremental auctions for the 2017/2018 delivery year.

PJM changed the rules for this auction year. It limited the amount of capacity that could be imported from other markets into PJM, calling it "capacity import limits." PJM's capacity import limits hurt Exelon's nuclear units. However, it was not a surprise to Exelon or other participants that PJM would change this rule.

News outlets suggest Exelon was broadsided by PJM's auction, claiming that Exelon's Byron, Quad Cities and Oyster Creek units failed to clear the auction. Byron is a 2 x 1,168 megawatt nuclear generator located near Rockford, Ill., which is in another power market (the Midcontinent Independent System Operator, or MISO). Quad Cities is a 2 x 912 megawatt generator located near Moline, Ill., which is also in MISO. Oyster Creek is a 1 x 636 megawatt facility located near Toms River, N.J., which is in PJM.

Together, Byron and Quad Cities offer a capacity of 4,160 megawatts. According to RTO Insider, PJM's import limits from all sources are 4,525.5 megawatts. However, only 2,624.3 megawatts can be imported from Illinois. It is, therefore, no surprise that Exelon would be unable to import capacity from these two "foreign" nuclear facilities into PJM's market.

Exelon's Oyster Creek is also not a surprise. However, that unit presents a different story. Four years ago, it was announced that New Jersey's Department of Environmental Protection entered into an administrative consent order with Exelon to close Oyster Creek by 2019. While PJM's auction covered energy year 2017/2018, it is not a surprise that unit would offer a bid that would be on the margin.

PJM's auction results do not necessarily mean these units cannot operate or earn capacity payments. As I will explain more fully in my next column, grids may find themselves short of capacity. Consequently, grids like PJM might find themselves in a position of needing marginal units to come back into the markets and assure managers there are adequate reserves.

Like previous auctions, renewable energy took a hit in capacity payments. According to PJM's announcement:

"803.7 megawatts of wind resources were offered into and cleared the auction as compared to 870.5 megawatts of wind resources that offered into and cleared the previous auction. The capacity factor applied to wind resources is 13%, meaning that for every 100 megawatts of wind energy, 13 megawatts are eligible to meet capacity requirements. The 803.7 megawatts of cleared wind capacity translates to 6,182 megawatts of wind energy nameplate capability that is expected to be available in the 2017/2018 Delivery Year.

"116.4 megawatts of solar resources were offered into and cleared the auction as compared to 89.8 megawatts of solar resources that offered into and cleared the previous auction. The capacity factor applied to solar resources is 38%, meaning that for every 100 megawatts of solar energy, 38 megawatts are eligible to meet capacity requirements. The 116.4 megawatts of cleared solar capacity translates to 306.3 megawatts of solar energy that is expected to be available in the 2017/2018 Delivery Year."

In general, the news about Exelon's nuclear units is not as bad as first reported. There will be challenges ahead, but the future is slightly better for Exelon's nukes than what was expected just a few weeks ago.

This weekend I will describe other surprises in the demand-response arenas. It turns out that these surprises may help Exelon and its nuclear plants. Stay tuned.

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