SAN FRANCISCO: Newly announced major layoffs and a prolonged outage at a major nuclear power plant have raised concerns that the price of carbon allowances for California's forthcoming cap-and-trade program will rise sharply, market participants said on Tuesday.
Southern California Edison (SCE), owner of theSan Onofre nuclear power plant in southern California, announced on Monday night it will lay off 730 employees this year to cut costs, a move that comes as the plant's owners acknowledged that it will be a long time before the carbon-free nuclear plant will fully return to service.
The 2,150-MW San Onofre plant has not produced electricity since Jan. 31, when a radiation leak was discovered in one of the plant's two units.
The outage has been a major driver of California carbon allowance (CCA) futures prices on exchanges this summer because SCE has been forced to fire up older, carbon-emitting natural gas plants to replace the lost electricity.
SCE is the largest emitting utility in the state, and has a big compliance obligation under the cap-and-trade program, which will hold its first allowance auction in November.
On Tuesday, CCAs were trading above levels seen late last week, with four trades for a total of 35,000 allowances clearing in the $17.50-$17.75 per tonne range, market sources said.
"San Onofre is the big wildcard in the CCA market right now," said Jeff King, managing director of environmental markets at Scotiabank.
"If that plant stays down for an extended period of time, it means higher compliance costs for the rest of California," he said.
It was difficult to say whether the layoff announcement had any direct impact on prices, sources said, although there is no question in the minds of market participants that a prolonged outage at San Onofre would raise the price of CCAs.
"I would say a longer shutdown is bullish," a broker said Tuesday.
LAYOFFS
Even without the shutdown, SCE utility would be announcing the layoffs, which will reduce the plant workforce to 1,500 employees, said Jennifer Manfre, a company spokeswoman.
"SCE has concluded that SONGS' staffing and costs are significantly higher than other similar dual unit, non-fleet nuclear power plants," the company said in a statement.
But the shutdown, stemming from premature wear to the plant's steam generators, didn't help, the company said.
"The steam generator issues at SONGS also require that SCE be prudent with its future spending while SCE and regulators review the long-term viability of the nuclear plant," it said.
PROLONGED OUTAGE
"The reality is that the Unit 3 reactor will not be operating for some time," it said, referring to the unit where the leak was discovered earlier this year.
The closure of the 2,150-megawatt SONGS, which typically supplies the state with about 8 percent of its electricity, has at times strained the power grid during the warmer-than-usual California summer.
Grid operators have fired up some vintage natural gas-powered facilities and asked Californians to conserve electricity during peak hours to prevent rolling blackouts.
So far, good planning and an impressive response from consumers to public pleas for conservation has kept the juice flowing uninterrupted in the state this summer.
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