Undermining: Electrons have Consequences
Industrial Sabotage at an Industrial Scale
Barak Obama famously said “elections have consequences”. He clearly misspoke; surely he meant to say “electrons have consequences”? The choice of how we generate electrons has consequences, but are these consequences intended or unintended?
Germany is trying hard to do the let’s “Shut Nuclear, Shut Coal and Shut Gas” experiment. If Germany was an unimportant island, we might welcome such a “demonstration project” - something that is sorely lacking in the famous “energy transition”. However, Germany is neither an island nor is it unimportant. Germany has a trade surplus that is greater that of all the other EU countries combined. Moreover, as a central part of the European energy system, choices in Germany spill over and affect energy security in many countries. To see how energy policy in Germany can undermine its neighbours we will start in New York.
The Cost of Everything, The Value of Nothing
The Indian Point nuclear facility in NY with its three reactors had been in operation since the 1960s supplying up to one third of New York City’s electricity at its peak.
With its proximity to the New York metropolis, a combination of environmentalist’s fear of nuclear power and opportunistic political band-waggon jumping pushed hard to close it down. For a while this pressure could be managed - but when the economics became marginal, there was no reason to resist the tide of opposition. So in 2021 the operator chose to close the plant, to unbridled glee and celebration by so-called environmentalists.
And because of New York’s landmark 2019 climate legislation and years of clean energy planning and investments by the state, New York is better positioned today than ever to achieve its ambitious climate and clean energy goals without this risky plant. (“Indian Point Is Closing, but Clean Energy Is Here to Stay” NRDC)
As we’ll see, “Indian Point Is Closing, but Clean Energy Is Here to Stay” hasn’t aged well….
Undermining
So what happened to the economics of Indian Point such that a marginally profitable business become unprofitable? Two things. An aging plant needs considerable and costly maintenance. However, on their own, increasing O&M costs were not enough to be fatal. On the other side of the ledger revenues were hurt. The “ambitious climate and clean energy goals”, referred to in the NRDC quote above, had led to an increase in solar and wind generated electricity in New York. As is now well known, wind and solar have zero marginal cost when they work. In addition they have priority in the merit order and in many cases can actually go “less than zero”; providing electrons at negative prices thanks to subsidies. In the case of the US/NY, production tax credits can allow for negative prices all whilst allowing the wind and solar companies to turn a profit. Think about that: negative prices and you can still make a profit.
Nuclear plants simply can’t compete. Indeed, no thermal plant can compete - but in the case of coal or gas, the turbines can be wound down (albeit at a cost of wear-and-tear that is unaccounted for). Nuclear is much harder to modulate, especially into the high frequency variability of wind and sun. Thus, nuclear plants generally have to keep generating electrons and either give them away, or in the extreme case of negative pricing, literally pay to have these baseload electrons taken.
No (unsubsidised) business can survive negative pricing. The increasing penetration of wind and solar generation undermines the regular pricing that always-on, super reliable nuclear needs to make its thin margins.
Add on a layer of rabid anti-nuclear activists and virtue signalling politicians, and shutting down the plants looks like the only smart move if you are the owner of the facility. From a system point of view it looks smart if you have blinkers on and don’t care about reliability.
This pattern of apparently cheap (and artificially cheaper through subsidies) electricity undermining the margins of legacy power generation has led to many closures like Indian Point. Vermont Yankee being another example.
Whilst I have discussed the economics in relation to nuclear plants above, the same is true for gas and coal, except that they have greater ability to ramp up and down (gas more so than coal) and can remain economic by selling electricity when the market is under-supplied and the marginal cost is high. When that is not enough, gas (and coal) plants can be paid to be on “standby” - via so called capacity payments1.
Depending on your point of view, the erosion of the economics of legacy power plants can be seen in one of two ways:
it is a huge win as it “proves” that wind and solar are cheaper (spoiler: it doesn’t), or
it is a huge disaster because you are undermining the economics of, and thus removing, thermal plants which are critical to not having blackouts when wind and solar don’t show up.
Wishful Thinking 0, Reality 1
In what must be an enormous shock to many anti-energy activists, the removal of reliable, low-carbon nuclear power does not mean there is a compensating increase in wind and solar. To the surprise of absolutely no one who has a hint of real-world experience, the missing nuclear power is replaced by higher-carbon solutions. In the case of New York and Vermont it was natural gas, in the case of Germany it has been coal, and lignite at that. With no little irony, Germany’s emissions would be even worse if they were not able to import nuclear-generated electricity from France, but more on that later.
In a moment of unusual journalistic clarity - the Mass Live article on Vermont Yankee from 2017 noted:
“So, while replacing coal with a natural gas plant reduces carbon emissions, replacing a nuclear plant with natural gas-fired generation has the opposite effect.”
Fast-forward to 2024 and UK’s climate warrior rag The Guardian “discovers” that shutting Indian Point has…. wait for it… you may want to take a seat for this…
increased CO2 emissions.
“From a climate change point of view it’s been a real step backwards and made it harder for New York City to decarbonize its electricity supply than it could’ve been,” said Ben Furnas, a climate and energy policy expert at Cornell University. “This has been a cautionary tale that has left New York in a really challenging spot.” source
Indian Point, and Vermont Yankee are simple examples - but what of the consequences to national energy security for France?
France has some of the lowest-carbon energy in Europe having a rare combination of low-carbon generation (nuclear (>70%), hydro and some renewables).
France has an enviable nuclear fleet providing some of the greenest and most reliable electricity in the world. The much feted, and increasingly common, periods of low and negative priced electricity - from France’s own renewables as well as from imports from Germany are undermining the economics (and reliability) of the critical nuclear fleet. Sunny and windy spring days with low demand make for great social media propaganda.
Cold winter nights will make a different kind of headline when/if the thermal engines are undermined to extinction.
Not possible you say? No one would be that dumb you say? Read on!
When German Energy Policy Undermines France’s Energy Security
said Furnas. “It’s a harrowing dynamic. Taking away a big slice of clean energy coming from nuclear can be a self-inflicted wound from a climate change point of view.”
Harrowing indeed. This comment refers to emissions and the “unintended consequences” of choosing to shut a nuclear plant (Indian Point in that case). But what happens when this same dynamic affects national energy security? In the case of German energy policy you can argue that it is simply a gigantic, tragic but ultimately self-determined clusterfuck.
However, Germany is not an island and when this spills over into France we can wonder about how it might strain relations between the two pillars of the EU.
Ignoring the worrying question of whether ramping nuclear is a good idea for long-term reliability; I’d just like to highlight this phrase from the above post because it takes the Indian Point dynamics and raises the stakes to national energy policy:
In short, German tax-payers subsidise their wind and solar and thanks to the interconnectors and EU “market”, this is starting to undermine the economic viability of the French nuclear fleet. France will not permit a risk of black-outs due to inadequate capacity so will ultimately have to make-whole the economics of the nuclear operator (which is partly state owned in any case) - so the French tax payer will pay. Meanwhile France gets a $500million fine from the EU for not adding renewables fast “enough”.
So for another spoiler alert: don’t hold your breath for those days of zero or negative pricing showing up in your annual electricity costs, ever.
In an extraordinary display of political “politicking” Germany criticised France for not having enough electricity export capacity in 2022 - because France’s nuclear fleet was under a major maintenance program.
Germany, which typically relies on electricity imported from France’s nuclear facilities when its intermittent renewable production falters, was traumatised by major disruptions in French nuclear electricity production in the summer of 2022. The Guardian2
In a further irony, Germany is worried that France has cheap, green and reliable electricity which will undermine Germany’s attractiveness for businesses.
“Without reliable access to affordable power, Germany fears energy-intensive companies will invest elsewhere, and “we will lose this industrial base,” Habeck said.
As David Blackmon says, “you can’t make this stuff up”!
Maybe someone should ask Germany’s Green party Vice-Chancellor Robert Habeck how it is that subsidised renewables are not cheaper3. Oh wait….
Electrons Have Consequences
The lesson from New York and Vermont is that France should be very wary of cheap/negative priced electrons from Germany (or indeed from its own renewables) undermining the economic viability of its nuclear fleet.
In an ultimate irony, from a post that is full of ironies, should France allow its nuclear fleet to be undermined (it won’t), it would result in the use of more gas and coal and increased emissions, just like New York and Vermont.
With these competing ideologies, we should watch for any further Balkanisation of the EU electricity system4 as “Energy Sovereignty™” becomes an integral part of Energy Security.
Giant Batteries Drain Economics of Gas Power Plants (usnews.com) - covers capacity payments and how even these are being eroded by batteries - which perform the same function (stepping in to plug gaps) but are unlikely to ever be enough to negate the need for the gas on standby… so this is another example of undermining…
As a side note, you will see headlines that Germany is a net-exporter of electricity. But once again, “damned statistics” and all that. Germany exports electricity when its overbuilt wind and solar are churning out electrons at exactly the same time as everyone else - when they are not needed. Sunny, windy spring days.
Germany Electricity Exports to France Surge to Highest in 30 Years - Bloomberg
On this point part of his complaint was that France was state-subsidising its nuclear fleet… “My point is not that France has nuclear power plants; my point is that the operator of the nuclear power plants can offer cheap prices below market value.”. The irony-meter goes off the scale again…
As a small example, electricity prices in the south of Norway have increased to the point of being a political question as southern neighbours use Norway’s hydro as a balancing battery for their excessive renewables.
It took real energy IQ to write this piece. Powerful and detailed. Thanks for the information.
Thank You, I better understand.