Entergy Corporation ETR will shut down its Pilgrim nuclear power plant, a 680-megawatt (“MW”) power plant located in Plymouth, MA, latest by Jun 2019. The closure is because of poor market conditions, declining revenues and rising operational costs.
The decision was based on several reasons like low current and forecasted wholesale energy prices along with an increase of shale gas production. This has resulted in an annual loss of over $40 million for Pilgrim. Only a month ago, federal inspectors downgraded the plant's safety rating to the lowest level. This may also be a reason for the proposed shutdown.
Though nuclear plants are in demand in growing economies where power requirements are high and sufficient funding is available from the government, nuclear power reactors are expensive to build.
The Pilgrim plant began generation in 1972 and was relicensed in 2012 for an additional 20 years. The plant employs 600 full-time and 900 temporary workers.
According to Entergy, timing of the shutdown is contingent on further discussion with ISO-New England, the operator of the plant, and other factors. It may be shut down as early as the end of the current operating cycle in 2017. A final decision will be taken in early 2016.
The Pilgrim plant will remain under enhanced oversight by the federal Nuclear Regulatory Commission (“NRC”) throughout the process. During this period, Entergy anticipates $45–$60 million spending at the plant.
After shutting down, Pilgrim will be decommissioned. As of Sep 30, 2015, the Pilgrim nuclear decommissioning trust had a balance of about $870 million, thereby meeting NRC requirements.
In Dec 2014, Entergy shut down its Vermont Yankee nuclear power plant. The crucial decision came in the wake of the shale gas-induced supply glut that lowered the wholesale energy prices; high costs for the plant relative to its size; and wholesale market design flaws that led to artificially low energy and capacity prices in the region.
We note that tightening regulation, shale gas induced supply glut and a sluggish economy have put tremendous pressure on the power companies with significant exposure to coal and nuclear power, resulting in a series of recent high-profile nuclear plant closures.
Zacks Rank
Entergy Corporation currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the power sector are Brookfield Infrastructure Partners L.P. BIP, Consolidated Edison, Inc. ED and American Electric Power Co., Inc. AEP. While Brookfield Infrastructure and Consolidated Edison sport a Zacks Rank #1 (Strong Buy), American Electric carries a Zacks Rank #2 (Buy).
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