Report by Penn State researchers offers a critical view of existing studies of state subsidies for financially distressed nuclear plants

Photo Info

Powerlines
Powerlines Providing Electricity 
9/28/2018

An intensive public debate is occurring in states with competitive electricity markets, including the PJM Interconnection which includes Pennsylvania, about the future of their existing nuclear generation plants.  With the fall of natural gas prices since 2014, electricity prices have also decreased, and some nuclear plant operators in the northeast and mid-Atlantic are no longer profitable, and some have announced retirements ahead of their originally scheduled decommissioning.  Several states, including Illinois, New Jersey, and New York have created programs to subsidize their nuclear plants, and other states including Pennsylvania have considered similar programs.

In this report, Penn State authors examine the set of studies on this question that have been used in legislative discussions to provide evidence in support of subsidy programs.  The report offers a review of the studies and a critical assessment from the perspective of economic theory and engineering fundamentals.  The authors find that the body of studies as a whole are characterized by assumptions and methodological gaps that influence the findings in support of subsidies and/or are framed in a way that could imply to many readers that subsidies for existing nuclear plants are needed.   Many of these approaches neglect potential problems with subsidies that could impose costs on consumers, and could overstate the benefits of such programs.  The report concludes that the current literature on this topic is an insufficient basis for states to enact subsidies, which could have a dramatic impact on electricity markets in the long-run.

 

 

About the authors:

Seth Blumsack, Professor of Energy Policy and Economics and International Affairs, Chiara Lo Prete, Assistant Professor of Energy Economics, and Mort Webster, Professor of Energy Engineering are in the John and Willie Leone Family Department of Energy and Mineral Engineering, in the College of Earth and Mineral Sciences at Penn State.  Uday V. Shanbhag is the Gary and Sheila Bello Chair and Professor of Industrial Engineering in Harold and Inge Marcus Department of Industrial and Manufacturing Engineering, in the College of Engineering at Penn State.