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Exelon’s Nuclear Retirements to Buoy Natural Gas

Exelon recently announced they intend to retire two of its Illinois nuclear power plants, Dresden and Byron, next fall. On top of that they said two other Illinois nuclear plants, Braidwood and LaSalle, are at “high risk for premature closure”. While this announcement may be a negotiation tactic in Exelons’ ongoing discussions for plant subsidies, what would the impact of these retirements be on PJM’s ConEd market?

To begin with, let’s take a look at PJM’s ComEd market where all four of the plants in Exelon’s announcement reside. The graphic below shows a snapshot from BTU’s Power View, filtered down to show PJM plants within Illinois.

From this we can see that the bulk of generation is coming from five nuclear power plants within ComEd. On average, these five plants have accounted for about 75% of generation in the Chicago area, so taking two of them out of the mix would have a pretty drastic impact on the region. Retiring Dresden and Byron next fall would remove almost 5 GW of capacity and create a void that other forms of thermal generation (gas and coal) would have to step in to fill.

While gas generation has continued to grow over the past five years, coal generation has felt the weight of weak gas pricing, dropping to zero for most of 2020. The graphic below shows average daily generation for gas and coal plants within ComEd. Shown in red is Chicago Citygate natural gas pricing, which hit new lows in the first half of 2020.

What will the supply stack look like by the end of next year? From BTU’s Power View, I have pulled BTU’s capacity outlook for ComEd, along with BTU’s grade for each project which is a measure of risk the project will make it to market and timing for the projects.

While there is more than a gigawatt of gas-fired facilities under construction (a BTU grade of 5 means a project is under construction), that capacity is not expected to enter the market until the spring of 2022, leaving the region strained for winter 2021/2022. If Exelon makes good on their announcement of fall 2021 retirements, expect gas, and even coal plants to pick up the slack, and provide strength for Chicago natural gas prices next winter.

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Matthew Hoza is the Head of US Power Markets for FactSet. Currently he is leading the team responsible for the development of FactSet’s suite of power market data and analysis solutions.

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