Dive Brief:

• Entergy Corp. announced this morning that it will shutter its Palisades nuclear plant in Michigan on Oct. 1, 2018, after striking a deal with Consumers Energy to terminate a power purchase agreement (PPA) for the generation.
• The plant will be refueled in the spring and then will continue to operate for more than a year before shutting down permanently. The facility employs about 600 people.
• Under the original PPA, Consumers Energy agreed to purchase almost all of Palisades' output through April 2022. Officials say ending the contract early could save ratepayers $172 million over four years.
• Consumers Energy said it intends to use natural gas, renewables and energy efficiency to replace the plant's 811 MW of generation.

Dive Insight:

The demise of Palisades is no surprise—UBS Securities all but predicted the closure this summer—and it neatly fits into a pair of growing storylines: struggling nuclear plants, and the energy mix used to replace them.

In a statement, Entergy said that since it first entered into a PPA with Consumers in 2007, "market conditions have changed substantially, and more economic alternatives are now available to provide reliable power to the region."

Cheap natural gas has been the primary driver, along with the intensive capital requirements of the nuclear industry. Despite their carbon-free output and the country's climate goals, several plants have been forced to shut down before their operating licenses expire. Pacific Gas and Electric intends to close the Diablo Canyon nuclear plant. New York is struggling to institute subsidies to keep its upstate plants afloat.

Entergy said that as a result of the agreement to terminate the PPA shut down the plant it will recognize a non-cash impairment charge of approximately $390 million ($252 million after-tax) in the fourth quarter of this year. And in addition to the impairment charge, through the end of 2018 the company will record additional charges totaling approximately $55 million related to severance and employee retention costs.

“Entergy is committed to treating our employees fairly throughout this process and will assist employees who want to relocate within Entergy or leave the company,” Bill Mohl, president of Entergy Wholesale Commodities, said in an emailed statement. He also said that Consumers Energy committed to work with Entergy as part of its ongoing talent recruitment efforts, "and will consider potential placement of up to 180 appropriately skilled employees from Palisades into the utility’s workforce over time.”

For Consumers Energy, the plant's closure leaves open the question of how to replace the more than 800 MW of carbon-free power. As in past cases, it appears the mix will not be completely devoid of fossil fuels. The utility intends to use "continued excellent power plant performance: along with energy efficiency programs, additional renewable energy, and gas-fired generation.

As for UBS' prediction: its report this summer singled out Palisades in Michigan, as well as the Xcel Energy's Prairie Island plant in Minnesota. The Prairie Island facility is facing about $500 million in necessary upgrades, and there have been rumblings the Xcel could look to shut it down.