On September 12, 2024, the California Public Utilities Commission (the "Commission") issued a Decision in the Integrated Resource Planning Proceeding, R.20-05-003, modifying load-serving entity (LSE) procurement obligations for the replacement of the Diablo Canyon Power Plant, California's last operating nuclear power plant. The Decision makes an important statement on the current procurement environment in California and the difficulties of facilitating a transition to renewable energy. The Commission's recent efforts to close Diablo Canyon also comes at an interesting time as AI sparks renewed interest in nuclear power.
In 2016, Pacific Gas & Electric (PG&E) reached an agreement with labor unions and environmental groups to close Diablo Canyon. Seismic risk and renewable energy competition were key factors in the decision. However, closing Diablo Canyon has proved difficult. Diablo Canyon produces 18,000 gigawatt-hours of electricity annually and represents nearly 10 percent of California's energy portfolio. A generator of this size must be closed delicately. Therefore, the Commission has allocated procurement obligations to LSEs to replace the lost capacity of Diablo Canyon. Due to interconnection delays, supply chain barriers, and permitting issues, meeting the procurement obligations has been challenging and the LSEs have requested the modification of their obligations.
After acknowledging the difficult procurement environment, the Commission released a staff proposal to modify the LSEs' procurement obligations due June 1, 2025. Industry participants generally supported the proposal. The California Independent System Operator and PG&E supported the proposal for the sake of electric service reliability. The California
Environmental Justice Alliance and the Sierra Club, environmental groups, also generally supported the proposal on the condition that the Commission would not relax the clean energy standards. The Public Advocates Office at the Public Utilities Commission supported the proposal for the sake of ratepayer cost savings. In the Decision, the Commission granted LSEs relief by authorizing the use of "contracts with resources that either emit zero greenhouse gases or are otherwise eligible under the renewables portfolio standard requirements, as bridge resources for a period of not more than three years from the compliance deadline of June 1, 2025." System reliability and ratepayer costs were key factors in the decision. These "bridge contracts" will serve as a temporary solution as additional energy resources reach commercial operation. How California closes such a massive generator of reliable, non-emitting power will continue to be an instructive example of managing the often competing interests of environmentalism, reliability, and affordability. If that isn't reason enough to monitor this proceeding, enter AI.
The Western Electricity Coordinating Council's Western Assessment of Resource Adequacy for 2023 forecasted a load growth of 16.9 percent over the next decade, nearly double its 9.6 percent forecast in 2022. Expected data center development, largely spurred by AI, was the primary contributor to the jump in demand. Large tech companies like Microsoft, Google, and Amazon all have clean energy ambitions, but the intermittent nature of many renewable resources is incompatible with data centers' need for reliable energy. Consequently, tech companies are looking to nuclear. Constellation Energy recently announced plans to reopen its nuclear reactor on Three Mile Island, the site of a partial nuclear reactor meltdown in 1979, and will exclusively sell the power to Microsoft under a 20-year power purchase agreement beginning in 2028. Constellation Energy also plans to invest $800 million in new equipment for its Byron and Braidwood nuclear power plants in Illinois to increase output by 135 MW. Google recently signed a nuclear energy agreement with Kairos Power to purchase 500 MW of nuclear energy from multiple small modular reactors. The first reactor is expected to begin operation by 2030, followed by additional reactors through 2035. While seismic concerns distinguish Diablo Canyon from other nuclear plant closures, it will be interesting to watch if renewed interest in nuclear power and California's role in the tech industry influences Diablo Canyon's closure. We will continue to monitor developments in Diablo Canyon's closure.
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