Dive Brief:

• Pacific Gas & Electric, the electricity provider for northern California, has reached a deal with environmental and labor groups to close the Diablo Canyon nuclear plant and replace it with a combination of renewable energy, efficiency and energy storage.
• Under the terms of the deal struck with Friends of the Earth, the Natural Resources Defense Council and others, PG&E will renounce plans to seek license renewals for the plant's two reactors, which expire in 2024 and 2025 respectively. In the meantime, the utility will propose a plan to the California Public Utilities Commission to replace the generation from the 2,240 MW plant with clean energy resources. 
• The deal ends an extended struggle over the future of the plant, the Washington Post notes, during which critics raised concerns over the safety of the plant, located near a major geological fault line on the central California coast. Diablo is the last nuclear plant in the state and provides about 9% of California's electricity.

Dive Insight:

After years of debate over its future, Diablo Canyon is succumbing to the fate of many nuclear plants in organized markets. 

With low gas prices and stagnant load growth keeping market prices down, nuclear plants, with their relatively high fixed costs, are finding it difficult to compete. Five reactors were shut down in 2013 and 2014, the Post notes, while Exelon just announced plans to shutter two major plants after efforts to win legislative support in Illinois failed. 

“Our analysis continues to show that instead of continuing to run all the time, there will be parts of the year where Diablo will not be needed,” PG&E CEO Tony Earley, said Tuesday, according to SF Gate. "At a plant like Diablo, with large fixed costs, if you effectively only run the plant half the time, you’ve doubled the cost.”

In California, however, the debate focused on more than economics, with many critics highlighting safety concerns at Diablo. While PG&E has always maintained the plant is safe to operate, some green groups have called for its closure following the tsunami-induced meltdown of the Fukushima Daiichi nuclear plant in 2011.

Those calls have opened a divide in the environmental community, with others arguing that the environmental benefits of the plant's carbon-free generation mean its life should be extended beyond the 2020s.

By agreeing to replace the nuclear generation with greenhouse gas-free resources, PG&E is taking aim at the concerns of both camps. Under the terms of the deal, PG&E is committing to source 55% of its power from renewables by 2031, outpacing the 50%-by-2030 renewable energy mandate in place in California. 

Erich Pica, president of Friends of the Earth, a party to the deal, called it a historic agreement. 

"It sets a date for the certain end of nuclear power in California and assures replacement with clean, safe, cost-competitive, renewable energy, energy efficiency and energy storage," he said in a statement. "It lays out an effective roadmap for a nuclear phase-out in the world's sixth largest economy, while assuring a green energy replacement plan to make California a global leader in fighting climate change."

Under the deal, PG&E will submit a detailed proposal to the CPUC to approve its transition away from nuclear power. If approved, PG&E would promise to obtain 2,000 gross GWh from efficiency by January 2025 and issue requests for offers for 2,000 GWh per year of greenhouse gas-free energy resources or efficiency by 2020.

Because Diablo Canyon provides baseload energy, the proposal recognizes that retiring the plant could create the need for some renewable energy curtailment and new challenges around system ramping and grid integration. To address these, the parties to the deal say they will "strongly support" efforts at the CPUC to support the development of carbon-free energy storage resources, including pumped hydro and utility-owned storage.

While the details of the closure and resource replacements will be worked out in the coming years, the framework for Diablo Canyon's retirement could provide a model for other jurisdictions facing nuclear closures. In May, an official from the Nuclear Energy Institute said as many as 20 plants could be at risk for retirement nationwide, which could put pressure on state efforts to comply with the Clean Power Plan if they are replaced with fossil generation.