Exelon Corporation (NYSE:EXC) relies on nuclear power for 55% of its capacity -- and that's not going to change any time soon. With nearly 20,000 MW of nuclear power, here's why Exelon will keep packing a powerful punch.
The power disrupter
The U.S. Environmental Protection Agency, or EPA, is shaking up the power sector like never before. In June 2014, the agency announced its Clean Power Plan to limit carbon emissions from existing power plants. Set to be finalized by June 2015, the plan lays the framework for 30% carbon reductions by 2030 from 2005 levels.
Nuclear has been in power purgatory. While some environmentalists, economists, and investors consider nuclear to be a vital part of our nation's power portfolio, others believe its high capital investment costs, necessarily centralized power structure, and radioactive waste make nuclear a "no-go" for our environment and economy. For Exelon, the largest nuclear generator in the United States, this debate decides its financial future.
In Illinois, politicians are paving the way for a nuclear-centric power plan. It's no secret that their decisions are closely interconnected with Exelon's. In an Illinois House resolution issued last May, the document noted that it was "developed on the heels of public statements made by Exelon Corporation that it would consider closing select non-profitable nuclear plants," and that their analysis classifies "at-risk" nuclear plants as those "located in Byron, Clinton, and the Quad Cities identified as unprofitable by Exelon in public statements."
The report's numbers are alarming: $1.8 billion in annual lost economic activity, 7,800 jobs gone, $437 million in electricity price hikes, and an estimated $18 billion in societal costs from actual increases in carbon emissions as Illinois pulls power from dirtier sources. While projections that large should be taken with a shaker of salt, the findings are clear: Nuclear is here to stay. For Exelon, that means avoiding a major monetary shake-up. Nuclear power provided 81% of Exelon's generation output in the same year that its generation unit accounted for 61% of the corporation's $1.73 billion in net profits.
With each state capable of forming its own clean power plan, Exelon's Illinois win is important for other companies, as well. Southern Company (NYSE:SO) relies on nuclear power for 16% of its total generation. With six reactors spread across Alabama and Georgia, Southern Company's nuclear assets are important slices of each state's power pie. In Alabama and Georgia, nuclear energy produces a whopping 76% and 91% of the states' emission-free electricity, respectively. Most importantly, Southern is investing even more in nuclear power. Two new Georgia reactors totaling 2,234 MW are setting Southern back $5 billion. The reactors won't be fully up and running until 2018, meaning decisions on nuclear power today will have significant ramifications for these reactors' value add in a few years.
Dominion Resources (NYSE:D) may be best known in investing circles for its natural gas pipelines and export opportunities, but nuclear plays an important role for this Virginia-based utility as well. The company's three power stations across Connecticut and Virginia account for 23% of Dominion's 24,900 MW of generation capacity -- and it used to be more. Dominion shuttered a 556 MW Wisconsin plant in 2013, a decision that it stated was "based purely on economics."
Nuclear for the win?
Nuclear power has had its ups and downs. But for Illinois and Exelon, the EPA's Clean Power Plan solidifies nuclear's role as a relatively emissions-free energy source. Other states will make their own power portfolio decisions, but nuclear is likely to remain an important ingredient in our nation's electricity generation.