The Base Load Empire Strikes Back with Capacity Creep

When you study the patterns of boom and bust across the post WWII history of the electric power business, one of the patterns that show up is called “capacity creep”.  This is the strategy of making incremental improvements to existing power plant units to improve their operating performance and capacity output and to extend their useful lives.

We saw this pattern writ large in the 1990’s as wholesale competition took off with the divestiture by investor owned utilities of their ‘old dog’ power generators.  The new owners did what every new home owner does—they fixed up the place—and it made a huge difference in the performance of nuclear and coal fired generators once thought hopeless.

The story this week about Exelon’s $90 million uprating project at the Limerick nuclear power plant and a similar effort at Peach Bottom nukes reminds me that this pattern commonly appears as a signpost in the build-up stage of the power business cycle.

This two year project at Limerick to replace the transformers which convert the power output for delivery on big high voltage transmission lines is part of a package of improvements to “uprate” or boost the plant’s output, in this case adding 170 megawatts of generating capacity to each unit.  These improvements and others boost Limerick’s total capacity to 2,600 megawatts or 23 percent more power than their original 1989 design.

Capacity Creep adds up to a Big Deal

Overall Exelon plan expects to add up to 1,500 megawatts of capacity to its fleet of 17 reactors. Multiply Exelon’s effort across the rest of the current nuclear fleet and it adds up to some serious capacity expansion.

Exelon’s uprating project at $2400 per kilowatt for these capacity creep additions can use the critical mass of the base load installed capacity to define the market economics for competing sources including renewables.  Capacity creep improvements are a cost effective defense strategy for base load players in a market where renewable energy is often the only bright and shiny sources talked about for the future. Exelon has a compelling business interest in extending the useful permitted life of its plants since building new ones is so difficult.  It also wants to squeeze out all the energy is can from those units to sell into tightening power markets.

America also needs these base load generators to succeed and perform well to assure a stable and reliable grid operation and enable all the renewable energy coming to market to have a reliable back up source to fill the gaps from its intermittent operating pattern.  In short, we need these nuclear plants on almost all the time.

In other power markets like the Southeast where wind resources are limited, such a strategy would be prudent and probably welcome despite a desire for more renewables to assure reliability and postpone the need for marginal capacity additions.

A credible integrated resource plan should consider capacity creep as a “scenario” and price it out expecting it will compare favorably with gas combined cycle on price or even DSM-side options and efficiency and might be more reliable depending upon the long term success rates of the utility demand side programs.

The Regulator’s Dilemma

For the federal and state regulators the downside of turning down these uprates is that they must live with the higher emissions of all types in the near term and thus likely miss achieving their targets.  A worse fate is that the base load plants are forced to close prematurely thus triggering a resource adequacy problem with spiking prices and ratepayer angst before comparably priced alternative resources are available.

Mississippi utility regulators have seen that light and approved Entergy Mississippi’s plan to uprate the output from Grand Gulf Nuclear Power Plant 13% from 1,265MW to 1,443 MW by 2012. The estimated cost of this uprating of $510 million for this incremental capacity is the functional equivalent of building an entirely new nuclear power plant— a good deal for Mississippi and for its ratepayers.

Capacity Factor Olympics: Nuclear Power’s Gold Medal Performance

One of the great and often unheralded stories from the base load part of the power industry is the tremendous improvement in capacity factor – a measure of how efficiently the power plant operates to produce electricity.  The nuclear power plant operators have increased the overall fleet capacity factor from 62 percent to almost 92 percent since the 1990’s. America’s energy security and reliability today depends upon this continued solid performance by our nuclear fleet.  And make no mistake, there is little or no chance of seriously reducing CO2 emissions without a stable and growing nuclear energy component to our power generation resource mix.

And while the nukes have done the best job at capacity improvements, the coal power plant fleet so bad mouthed today has also improved their performance to a fleet average of 71 percent capacity.

So what?

The issue for renewable energy is that a concerted pattern of capacity creep among base load nuclear and coal plants improves reserve margins thus reducing the need to add incremental resources or at least pushes them into the future.  During the last build up stage of the power business cycle there was about 15% capacity creep potential in the installed base. Conversely, many baseload improvements also bring the need for additional transmission capacity to get that additional production to market.  Thus my conclusion is that any threat that base load capacity creep may have on reducing the need for renewable energy is more than offset by the benefit of additional transmission construction.

We need more renewable energy in our overall power generation mix but it will be very tough—and imprudent, to displace base load generation given its installed base and valuable capacity factors.  Capacity creep is buying time for this transition to a cleaner generation portfolio mix and it will help moderate rates.  One more thing, the Nuclear Regulatory Commission has granted 20-year extensions to more than half the nation’s current nuclear fleet most of it now operating on the unregulated merchant energy side of the balance sheet. These owners have every reason do do exactly what Exelon is doing—make those babies hum like a fine swiss watch!

Capacity creep in America’s nuclear power fleet is reducing greenhouse gas emissions, improving our energy reliability, facilitating transmission expansion, and moderating rates.  What’s not to like about that?