Diablo Canyon: Saved? // Northeastern US's Gas Inventory Feels Heatwave Burn // Quitting Russian Oil: A Over $1 Trillion Pricetag

Diablo Canyon: Saved?

Diablo Canyon, a nuclear power plant located on the coast of California, might avoid its 2025 closure. Bloomberg reports that California has "asked the Biden administration whether it could qualify for federal funds to support its last nuclear power plant as the state grapples with potential electricity shortfalls."

Diablo, California's last nuclear plant, has been a controversial plant since the 1980s when it attracted the ire of the anti-nuclear movement. Environmentalists have scare-mongered about its existence for decades, citing its placement on a faultline and hyperbolic fears around nuclear safety and nuclear waste as reasons for closure. In 2016, they got their wish. California reached an agreement with them to let the plant's licenses expire. 

“This is an historic agreement,” said Erich Pica, president of Friends of the Earth, in a statement. “It sets a date for the certain end of nuclear power in California and assures replacement with clean, safe, cost-competitive, renewable energy, energy efficiency and energy storage. It lays out an effective roadmap for a nuclear phase-out in the world’s sixth largest economy, while assuring a green energy replacement plan to make California a global leader in fighting climate change.”

But now California's grid is suffering from an over-investment in unreliable renewables and an under-investment in firm baseload power plants. Its electricity prices are some of the highest in the nation, and, as Indian Point's closure showed, fossil fuels, not renewables, replace nuclear in the end.

So, the Golden State now seeks to take advantage of the Biden administration's credit program for nuclear plants facing closure for economic reasons. "In a letter Monday to US Secretary of Energy Jennifer Granholm, California Governor Gavin Newsom’s office said federal money will be a key factor in evaluating whether to extend the life of the Diablo Canyon nuclear power plant beyond its planned 2025 retirement date," according to Bloomberg.

But the question remains if Diablo Canyon even qualifies for the money. 

"Diablo is being forced to close for reasons that have nothing to do with profitability," said Mark Nelson, president of the Radiant Energy Fund, in an interview with Grid Brief. "Special state environmental rules were passed to intentionally kill coastal power plants, the only thermal plants that are fully protected from drought and heatwaves. These rules are intended to kill the plant; they must be changed or ignored."

Nelson went on to explain that Diablo would be "in the money" if it were a regular merchant plant, but it is not. "Profit and loss are not relevant for a regulated plant like Diablo. The California public utility commission could say to PG&E that they could recover whatever costs they incur. But there are essentially no costs! They've already completed the $800 million upgrade plan."

So then why apply for the money?

"Either this is a charade designed to shift the blame for the upcoming closure to parties outside the states ('gee golly the feds didn't give our solvent, regulated nuclear plant any of the money intended for underwater merchant nuclear plants')," Nelson said. "Or some deal had been brokered to force Diablo to build some water intake structure that no other plant on earth seems to need and they're expecting to get the feds to pay for it."

In his letter, Newsom asked the Energy Department if it could amend its requirements so that Diablo Canyon might qualify for the money. 

Whatever the case, the movement to save Diablo seems to be gaining a head of steam. The fragility of the California grid makes it a ripe opportunity for Newsom, in an election year, to shore up some of his weaknesses by saving the plant.

Northeastern US's Gas Inventory Feels Heatwave Burn

Natural gas is surging right now. "Natural gas briefly surged above $9 per million British thermal units in the US for the first time since 2008," reports Bloomberg. 

Several factors seem to be in play:

• Natural gas stockpiles are low "as exports are booming, and output from shale basins is muted."

• Traders expect demand to ratchet up as everyone blasts their AC to beat this summer's forecasted intense heat.

• Hydro, especially in the drought-parched West, is underperforming and coal is "severely constrained, leaving limited alternatives to gas."

The confluence seems to be hitting gas reserves in the Northeast especially hard. "An early-season heatwave forecast for the US Northeast next week is promising to lift gas-fired cooling demand, possibly slowing injections to gas storage in a region already strapped by depleted inventories," reports SPG.

The hot weather and slow output of replacement gas will make it hard for the Northeast to recover its reserves. "With Northeast gas-fired power burns already expected to outpace previous summer averages this season – thanks to capacity changes and limits on fuel switching – the hotter weather forecast only adds to the bullish outlook for generator gas demand during the peak cooling months," according to SPG.

Quitting Russian Oil: A Over $1 Trillion Pricetag

The EU has formed a new task force called REPowerEU. Its main objective is to find an escape route for Europe regarding Russian energy dependence. They want to transition away from fossil fuels with renewables. A new report from Rystad Energy reveals that will likely involve eye-watering costs.

Rystad says that the EU's cost estimate "may fall short as Rystad Energy analysis suggests the plan will require at least €1 trillion in investment to meet the core objective of increasing renewable generation from 40% to 45% of total energy supply by 2030."

"Additional investment will be required to meet targets, including grid and battery storage developments to ensure a stable supply of energy as the whole European power system will need to be restructured," the report continues.

First, this plan is not possible. Dispatchable baseload cannot be replaced with renewables and batteries. Renewables are non-dispatchable and battery storage is not the same as power generation. This would be a disaster for the European electricity sector. 

Second, Europe's GDP is around $18 trillion. Are they willing to spend 5.5% of their GDP on a project like this? I doubt it. They can't agree on Russia sanctions, so it's unlikely they'll agree on this.

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Crom's Blessing