Nuclear’s $6 Billion Bailout Likely to Help Only Diablo Canyon

A $6 billion credit program was a centerpiece win for the nuclear industry in last year’s bipartisan infrastructure bill—a move aimed to prevent the imminent closure of zero-emissions power plants that struggled to compete with low natural gas prices in the 2010s.

Now, the Energy Department is unlikely to find plants to sign up.

In fact, just one plant—Pacific Gas and Electric Corp.'s Diablo Canyon in California—was expected to apply for the first round of the program, which accepted applications through 11:59 p.m. Tuesday. PG&E confirmed its application last week.

After extending the deadline and revising the program’s rules this summer, the department is looking at ways to keep the program going for four more years.

The credit’s potential end shows the reversal of fortunes for nuclear in the power market and its continued dominance on Capitol Hill—with some analysts suggesting the $6 billion bailout program could be eventually reallocated to something else.

Many plants are looking instead to a bigger accomplishment for the industry: the 10-year, $30 billion production tax credit, a much broader incentive included in the Democrats’ climate bill passed in August. And with higher power prices following Russia’s invasion of Ukraine, plant owners are less likely to be able to convince federal officials they are in desperate need of aid, energy analysts said in interviews.

The infrastructure bill’s Civil Nuclear Credit program is “perhaps no longer necessary,” said Timothy Fox, vice president and research analyst at ClearView Energy Partners, an independent research firm in Washington that analyzed the nuclear incentives in a report last week.

“It could just be that CNC becomes a de facto Diablo Canyon lifesaver,” Fox said, which would still fulfill the Biden administration’s goal of keeping nuclear capacity online. “If CNC does that for Diablo Canyon, then they may look at it as a success, even though it was originally targeting other plants as well.”

Deal With Diablo

Through the credit program, the Biden administration is entering the fight over the closure of Diablo Canyon, a struggling plant that California officials have argued must stay open to keep the power grid reliable.

The state cannot build enough renewable energy projects by the time of the plant’s scheduled closure in 2025, California Gov. Gavin Newsom (D) has said. Last week lawmakers approved Newsom’s plan to delay the plant’s closure until 2030, in part by issuing a $1.4 billion loan.

One crucial contingency: The state will cancel the loan if the plant doesn’t qualify for the Civil Nuclear Credit program by March 1 to help pay back the loan, according to the bill.

The department is widely expected to support Diablo Canyon, the plant’s supporters and opponents said.

This summer, agency officials scaled back a requirement that not more than half of a plant’s total revenues could derive from regulated contracts—a rule that would have disqualified Diablo Canyon and other nuclear plants that rely on state-approved utility rates to recover costs, the department explained. The department now requires a “material amount” of total revenues from competitive sources.

The department should authorize certain costs, such as re-licensing expenses that cannot be recovered from ratepayers, said Adam Stein, director of nuclear energy innovation at the Breakthrough Institute, an environmental technology research center. Still, the California bill leaves an air of uncertainty given the CNC requirements, he said.

“It’s not necessarily a done deal,” Stein said.

The department didn’t respond to questions by this story’s deadline. In June, Kathryn Huff, the assistant secretary of nuclear energy, called the program “absolutely critical” in an interview posted to the department’s website.

“We cannot allow these plants to be economically at risk because we failed to recognize their important contributions to our clean energy system, to our firm energy capacity, and our energy resilience,” Huff said.

Preferring the PTC

As Diablo Canyon highlights the limits and difficulty of navigating the Civil Nuclear Credit, the industry has praised the production tax credit included in the Inflation Reduction Act.

The credit offers $3 per megawatt-hour (MWh) of electricity produced and sold, which can increase to $15 per MWh if certain wage standards are met, according to the bill. The credit begins to scale down when power prices rise, meaning “it really does act like an insurance policy against low prices,” said Matt Crozat, executive director of policy development at the Nuclear Energy Institute.

Nuclear has seen better market conditions in recent months due to higher natural gas prices and higher power prices after Russia’s invasion of Ukraine roiled global energy markets. Natural gas prices have roughly doubled since January, according to the Energy Information Administration. The EIA projects prices to fall by about one-third in 2023 but remain much higher than prices seen through much of the 2010s.

Some nuclear plants in limited situations—such as those struggling to operate in high-cost, high-price regions—may not see a benefit from the tax credit and choose to apply for future rounds of the CNC program.

But for plants considering license renewals, “I suspect the PTC will do the bulk of the heavy lifting here” in providing long-term certainty, Crozat said.

Nuclear plant owners had pressed lawmakers for a production tax credit during negotiations over the infrastructure bill that passed last November, said Brett Rampal, chief technical analyst at Segra Capital Management LLC.

“I believe many of these plants will seek the production tax credit as much as possible,” Rampal said. “It’s more likely we’ll see this [CNC] program money get unspent and reappropriated and redirected toward other activities.”

For those who would prefer to see more investment in wind and solar energy, both nuclear incentive programs should be scrutinized to make sure they’re not propping up plants at the expense of investing in renewables.

“There might not be struggling nuclear plants if prices stay high,” said Steve Clemmer, director of energy research and analysis for the Union of Concerned Scientists, which has pressed for Diablo Canyon to close as scheduled. “It will make it more difficult to qualify for the incentives.”