Analysts see US 'recarbonisation' policy as unclear for nuclear

06 July 2017

The consequences of US President Donald Trump's "recarbonisation" policy for nuclear energy are likely to be nuanced, a newly released paper from S&P Global Ratings has concluded. The nuclear sector will likely benefit from the removal of existing regulations but suffer under a "watering down" of clean power legislation.

Trumped up: How the Clean Power Plan's exit could affect the power sector assesses the implications of the President's announcement in March of plans gradually to repeal the Clean Power Plan (CPP) and in June of his intention to withdraw the USA from the Paris Agreement on climate change.

The CPP was introduced in 2015 by President Barack Obama and the US Environmental Protection Agency (EPA) in an effort to cut US CO2 emissions by 32% from 2005 levels by 2030. The plan sets emissions standards for power plants and customised goals for states to cut carbon pollution. The plan's implementation was stayed by the US Supreme Court in February 2015 pending litigation. Although the litigation is ongoing, the report notes that under its current leadership the EPA is "less than inclined" to enforce it.

Election campaign promises to roll back existing "burdensome" regulations from nuclear energy "could certainly help improve the very cumbersome fixed cost structures", S&P said, potentially leading to incremental improvements in competitiveness. However, the anticipated removal or dilution of the CPP would have "severe negative ramifications" for nuclear generators.

Baseload generators such as coal and nuclear have struggled in the USA's deregulated electricity markets, but are still seen by the US Department of Energy as critical to energy security and grid reliability. Under the CPP, states would have been expected to assign a value to carbon allowances, and compliance with carbon reduction mandates would have been "nigh impossible" without baseload nuclear generators, the report notes. This would have given states "considerable incentive" to keep nuclear capacity in operation through market subsidies. "That incentive will likely disappear with the CPP," it says.

As a consequence of a rolling back of the CPP many decisions affecting the future of nuclear assets will be made at the state, rather than federal, level. Illinois and New York have both taken actions that will sustain their nuclear fleets, but numerous nuclear assets, particularly in merchant states, remain at risk, the report says. It highlights Pennsylvania, Ohio and Connecticut as facing "difficult decisions about whether or not to sustain nuclear assets that are showing diminished profitability". This is further complicated by each of those states being part of a broader, multi-state power market, raising questions as to how credits would affect pricing.

Winners and losers

Trump's election campaign asserted that the CPP and Paris Agreement had worsened the prospects of the USA’s coal generation and coal mining industries, the report notes. It is unclear, however, whether the coal sector will in fact benefit from their removal as the rise of natural gas has in fact been more of a contributing factor, it adds. It finds the repeal of the CPP will be largely inconsequential for natural gas. State-led initiatives to develop renewables are expected to be maintained over time, even without the CPP.

Mike Ferguson, S&P's US energy infrastructure director, said: "We still expect that many states are going to continue pursuing climate change reduction strategies. Even if policy isn't focused on decarbonisation, consumers will continue to covet cleaner products."

Researched and written
by World Nuclear News