A Nuclear/Gas Alliance?

As I was scanning the news of the last few days I was intrigued by a headline featuring the CEO of the largest owner/operator of nuclear power plants in the US, Exelon Corp., extolling the virtues of natural gas and advocating an increase in its output. That might not sound earth-shattering, especially considering that Exelon also owns a fleet of natural gas-fired power plants with combined output equivalent to several nuclear reactors, unless you are convinced that nuclear and gas are engaged in a tooth-and-nail competition to supply America's future electricity needs. However, it's certainly attention-getting for Mr. Rowe, whose company recently acquired the substantial wind-generation business of John Deere, to go on record opposing clean-energy subsidies for a range of low-emission technologies.

The main message of Mr. Rowe's address at the American Enterprise Institute was apparently that Congress shouldn't interfere further with markets, regulations and technologies that he sees already being sufficient to reduce carbon emissions and clean up the air. Yet while I'm usually reluctant to read too much into remarks I wasn't present to hear, I do think it's possible to infer an alternative strategic dynamic to the nuclear vs. gas narrative that I have encountered in a number of blog postings in the last few years, particularly since shale gas production took off and the anticipated nuclear renaissance in the US encountered resistance. Because it's uncommon to hear CEOs touting their competition, I think it's safe to conclude that Exelon views nuclear and gas as complementary--a view I share--rather than competing for the same segment of the market.

It also sounds like Mr. Rowe sees gas and nuclear competing with coal, which makes eminent sense in the context of environmental policy and typical grid power-dispatch curves. Competition between nuclear and coal was especially obvious when both were viewed as enhancing energy security and before concerns about greenhouse gas emissions had become mainstream. And as recently as a few years ago, when most forecasts anticipated declining US gas production and rapidly increasing imports of LNG, yielding even more volatile natural gas prices, coal-fired power plants were the principal large-scale alternative to both new nuclear and gas-fired capacity. Today's emphasis on emissions, combined with next-generation reactor technology, gives nuclear an edge over coal in baseload for locations where communities are comfortable with the technology, while gas has a more than a 2:1 lead over coal in planned new generating capacity and seems likely to do even better in terms of capacity actually built, due to its substantial lifecycle environmental advantages.

It's also possible to envision a future grid relying mainly on nuclear for baseload power and natural gas for flexible power, without the need for any coal generation at all. Moreover, with the addition of smart grid technology and new long-distance transmission, that combination should provide a very hospitable environment for much larger increments of renewable energy. Gas-fired backup power remains the best enabler for incorporating intermittent generation from wind and solar power, particularly when these technologies are combined in installations such as Florida Power & Light's new hybrid solar/gas power plant in southeast Florida. That seems like a much more realistic approach than the notion of an all-renewable grid based on energy storage, even if storage technology were to become more effective and much cheaper. (Storage has a key role to play in the future grid, but I believe it will be used mainly for short-term buffering and for storing the cheapest off-peak power from any source, rather than as dedicated storage for renewable power.)

The biggest potential obstacle to this scenario is growth, or the lack of it. In a US electricity market that is barely growing at all, in contrast to the steady 2% or so per year expansion in demand from 1997-2007, and with renewables given the first shot at satisfying any growth in a majority of states, the only opportunity that looks big enough for both nuclear and gas-fired power to cooperate on is coal displacement. Yet if you agree with Mr. Rowe that "carbon legislation is dead", it's a lot less certain that coal would go away fast enough for the combination of gas and nuclear he is promoting to become the de facto future. It remains to be seen whether the market, together with an increased emphasis on local pollutants--excluding CO2--under the Clean Air Act will be sufficient to squeeze out a coal industry that, along with its numerous stakeholders, will not depart without a fight.