June 10 (Bloomberg) -- Edison International’s decision to abandon its San Onofre nuclear plant in California is the latest blow for an industry already facing questions about its long-term survival.
Edison, based in Rosemead, California, announced June 7 it will permanently shut the plant’s two reactors, trimming total U.S. operating units to 100 from 104 at the beginning of the year and 110 at the peak in 1996. The announcement brings to four the number of units permanently removed from service this year, the most in any year since the nation embraced nuclear power.
Other facilities are nearing the end of their projected lifespans and may need costly renovations while cheap natural gas has siphoned off market share. Potentially expensive regulations to bolster safety in response to a triple meltdown at Japan’s Fukushima Dai-Ichi plant in 2011 have raised the concerns of investors.
“The decision to shut down San Onofre is another sign that the economics of nuclear are under pressure given the low cost of alternative sources,” Travis Miller, a Chicago-based analyst for Morningstar Inc., said in a phone interview. “Just five years ago, nuclear power plants looked like a gold mine.”
Since a near-meltdown at the Three Mile Island plant in Pennsylvania in March 1979, 19 reactors have closed or been designated for closure and four have been approved for construction. The San Onofre plant, run by a subsidiary of Southern California Edison, was taken offline in January 2012 after a radioactive leak and unusual wear on steam generator tubes was discovered.
“This is a situation that is unique to Southern California Edison,” Steve Kerekes, a spokesman for the Nuclear Energy Institute, a Washington-based industry group for reactor owners, said in a statement.
“This is a blow to California’s energy diversity but is not an indicator of the industry’s larger ability to reliably supply low-carbon electricity to hundreds of millions of electricity consumers,” he said. “The fundamentals in the electricity sector continue to present a strong argument for the value of nuclear energy.”
Edison will record a $300 million to $425 million cost in the second quarter from shutting the plant. Its shares fell 1.3 percent to $47 at 1:48 p.m. in New York.
Edison decided to shut the reactors as the state’s power supply faces its biggest test since market manipulation by traders for companies including Enron Corp. in 2000 and 2001 helped push electricity prices to record levels and triggered rolling blackouts across the state.
Calpine Corp. of Houston, NRG Energy Inc. of Princeton, New Jersey, and other owners of plants that sell power on California’s wholesale market stand to benefit from the higher power prices caused by the nuclear plant’s absence, according to Andrew Smith, an analyst with Drexel Hamilton LLC.
“If you’re a generator in California, this is a net benefit to you,” Smith said in an interview. “If you are a consumer of energy, the reverse is true.”
The grid in the southern portion of the state has been bolstered with the expectation that the reactors wouldn’t be operating this summer, said Stephen Berberich, Chief Executive Officer of the California Independent System Operator. The state will also encourage energy conservation on the hottest days, Berberich said in a June 7 media call.
“We will get through this summer,” he said. “Assuming no catastrophes or fires, we can squeak by.”
Without the 2,200 megawatt San Onofre plant, Southern California’s dependency on power imported from neighboring Arizona and Nevada and other states will grow. Wholesale electricity at Southern California’s SP15 hub has averaged $50.97 a megawatt-hour so far this year on the Intercontinental Exchange, heading for the highest annual average since 2008.
State electricity demand is expected to peak at 47,413 megawatts this summer, 2.3 percent higher than last year, according to the California ISO.
To replace the generation lost by San Onofre, California will need to build gas-fueled plants that produce more pollution than nuclear power, Morningstar’s Miller said. In addition, the shutdown will hasten the region’s shift to wind and solar alternatives as California plans to get one-third of its electricity from renewables by the end of the decade, he said.
Nationwide, nuclear power reached a peak in 2001 when it generated 20.6 percent of all U.S. electricity. Last year, its share fell to 19 percent, the lowest since 1998, according to the U.S. Energy Information Administration.
Two reactors being constructed by Southern Co. of Atlanta, two being built by Scana Corp. of Cayce, South Carolina, and a previously abandoned Tennessee Valley Authority project are the only units scheduled to be completed this decade.
Dominion Resources Inc. and Duke Energy Corp. have announced in recent months that they will retire a unit each. Exelon Corp. of Chicago plans to shut its 44-year-old Oyster Creek reactor, the oldest in the U.S. fleet, at the end of 2019.
The economic climate, coupled with an increase in renewable energy sources like solar and wind generation, may not bode well for new units, said David Lochbaum, director of the Nuclear Safety Project for the Union of Concerned Scientists, a Cambridge, Massachusetts-based environmental group.
“It’s difficult to get Wall Street to loan money against so much uncertainty,” he said in a phone interview. “The four closures this year make Wall Street more apprehensive, not less apprehensive.”
Edison decided to shut the plant, located between Los Angeles and San Diego, after determining regulators may take too long to decide whether it can restart. The company faced challenges from environmental group Friends of the Earth and California Senator Barbara Boxer, a Democrat, who raised concerns about the plant’s return to service.
Dominion of Richmond, Virginia, closed its 39-year-old Kewaunee nuclear plant in Wisconsin in May after determining that low wholesale power costs, driven by a decline in gas prices, didn’t justify keeping the facility open as power purchase agreements were ending.
Duke Energy of Charlotte, North Carolina, the largest U.S. utility owner, decided in February to close its Crystal River plant in Florida. The unit had been shut since 2009, when workers replacing a steam generator triggered cracking in the concrete containment building.
The last wave of U.S. plant closures was in the late 1990s, when falling gas prices helped tilt economics in favor of retiring rather than attempting large-scale repairs. Six reactors were closed from 1996 to 1998, according to Nuclear Regulatory Commission data, and peaked in 1996 when Haddam Neck in Meriden, Connecticut; Maine Yankee in Wicasset, Maine; and Unit 2 at the Zion plant in Illinois shut.
About 10 percent of the generating capacity retired in the U.S. since 2010 has come from nuclear, according to data provided by the Nuclear Energy Institute. Shutdowns of coal and natural gas plants have accounted for about 74 percent of the 35,596 megawatts of power retired within the past three years, the industry group said.
“The decision to shut down rather than retrofit the San Onofre nuclear plant shows the changing economics of the power market,” Howard Learner, executive director of the Environmental Law and Policy Center, a Chicago-based advocate of cleaner energy, said in a telephone interview. “We suspect other nuclear plant owners may start reaching the same decision.”
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