Revenue related implications of flexible operation

Individual generating plants interact with each other and with a broad variety of other economic agents through the electricity grid and the market. This is why nuclear power plants cannot be considered in isolation.

Rather, the focus is on the impacts of adapting conventional baseload systems to meet new operating requirements.

As discussed in Section 6.2.1, the potential deterioration of plant profitability is considered one of the major economic risks associated with load following, if there are no additional incurred costs for flexibility. As stated earlier, the first means by which a plant’s profitability can be adversely affected is the higher costs associated with flexible operation.

The second means by which the profitability of nuclear power plants can be unfavourably affected is potentially decreased revenues from flexible operation as a combination of quantity and price effects. Revenues are likely to decrease because of the so-called compression effect, which is directly related to reduction in the load factors and reduced payment for energy delivered when a plant operates at reduced power. These direct effects on plant revenues might be reinforced by declining prices at the electricity markets (see Section 6.3.2). However, commercial arrangements within the market rules and regulations may provide payment for balancing services.

If there is a payment — the amount of which depends on the market rules, regulations and arrangements — for providing grid flexibility, some revenue losses could be compensated.

6.3.1. Load factors

As mentioned above, the most profitable mode for nuclear power plants under perfect competition conditions is operating at high load factors. In general, capacity uprates are important in spreading fixed O&M costs over a higher output, resulting in lower generation costs per kilowatt-hour. Hence, reducing a load factor would result in increased generation costs, as fixed costs have to be spread over the lower output level. High load factors are also essential to pay back the investment cost inherent in nuclear generation [52].

The studies reviewed show that load following operation has resulted in very limited, if any, impacts on load factors. According to Ref. [43], the impact of load following on the load factor was estimated to be around 1.2%.

The Elforsk report [63] came to a similar conclusion, noting that the capacity factor was reduced by less than 1.8%

for the entire fleet in France.³⁸

Although the impact of load following on the load factor is low, in the longer term, the introduction of significant amounts of variable renewable energy sources into the energy system can imply massive additions of generation capacity, and is likely to cause substantial shrinking of load factors of dispatchable technologies.

Reference [52] further assessed the impacts on load factors for different penetration levels of wind and solar

38 This small reduction was mainly due to unexpected or increased maintenance of CRDMs.

technologies in the energy systems. Table 4 shows that for high penetration levels of wind and solar energy, the adjustments in load factors for nuclear energy might be rather substantial. For high penetration rates of variable renewable energy sources such as wind and solar, the impacts on load factors and profitability are estimated to be in the tens of a per cent.

TABLE 4. IMPACTS ON LOAD FACTORS FOR DISPATCHABLE TECHNOLOGIES AT DIFFERENT PENETRATION LEVELS OF WIND AND SOLAR ENERGY IN THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Technology

Change in load factor (%)

Wind Solar Wind Solar

with 10% penetration with 20% penetration

Nuclear −4 −5 −20 −23

Coal −27 −28 −62 −4

Combined cycle gas turbine −34 −26 −71 −43

Open cycle gas turbine −54 −40 −87 −51

Note: 2011 scenario from Ref. [52].

In some Member States, regulations may also require wind and solar energy generation to be a ‘must take’

resource, unless grid stability is in jeopardy. In those regions, when wind and solar energy generation are high and demand is low, baseload generation, such as from nuclear or coal, will be displaced in the merit order and will affect the capacity factor of other generation sources. Figure 37 shows the results of a study [64] investigating the increased penetration impact of renewable energy on a North American region, specifically the PJM Interconnection in the USA.

The top graph in Fig. 37 shows the progression of the PJM portfolio to 20% penetration of wind and solar energy, while the lower graph extends to 30% penetration. In both cases, nuclear generation is assumed as must run baseload. While this study did not evaluate the potential of nuclear generation to be operated at lower or cycling loads, it clearly illustrates the variation of impacts on the production rate (in this case, by the fossil fuel generating units, i.e. gas and coal) such that generation shifts from gas and coal to renewable sources as renewable energy penetration increases.

6.3.2. Price impacts

The direct effect on plant revenues might be reinforced or partly offset by price impacts from electricity markets. The latter encompass level and volatility effects. The substitution of baseload nuclear energy, with low or zero short run marginal costs, by variable renewable energy sources, such as wind or solar, will result in declining electricity prices, as long as the system costs are not internalized.

A related issue is periods with negative prices and higher volatility of prices, which decrease profits and make them less predictable (Table 5).

In economic theory, supplying electricity by technologies with low or zero short run marginal costs is not optimal as long as system costs are not internalized. This may pose risks to electricity supply in the medium and long terms, as fixed costs of installations cannot be covered by the decreasing price. The disruption and added uncertainty within the grid system are also potential implications.

6.3.3. Profitability

The introduction of significant amounts of variable renewable energy sources into future energy systems can cause the profitability of dispatchable technologies to shrink substantially (see Ref. [52]). Profitability losses for the nuclear sector can range between 39% and 55% in a scenario with a high penetration of renewable energy sources (Table 6).

When profitability decreases, the incentives for investors to invest in additional capacities (capacity uprates) for dispatchable technologies, including nuclear, decrease. Studies have shown that with more volatile prices, recovering the investment costs will also become more difficult [66]. Obviously, less profitability at a lower load factor reduces investor interest in flexible capacity additions. The result is underinvestment in dispatchable technologies, including nuclear.

FIG. 37. Potential impact on the weighted capacity factor of various technologies with 20% (top) and 30% (bottom) renewable energy generation penetration, where nuclear generation is assumed as a baseload resource (courtesy of N. Kumar, Intertek, reproduced from Ref. [64]).