ICYMI: CEPP Could Cost CA Billions Over Decision to Close Diablo Canyon

Berkeley, Calif. — Yesterday, the Breakthrough Institute’s Director of Climate and Energy Zeke Hausfather -, Sr. Nuclear Analyst Dr. Adam Stein, and Deputy Director Alex Trembath published an analysis of the Clean Electricity Performance Program (CEPP) proposal in the budget reconciliation bill and how it could cost California millions in fines and loss of billions in incentives if California policymakers keep their plan to shut down Diablo Canyon.

Click here to read the full analysis
Hausfather, Dr. Stein, and Trembath are available for comment

Included in Democrats’ budget reconciliation bill, CEPP incentivizes states to deploy low-carbon electricity generation and prevent them from closing existing low-carbon facilities prematurely — aka Diablo Canyon. The proposed program establishes a system of financial incentives and penalties depending on year-to-year changes in a utility’s clean energy portfolio with 2019-2020 as the program’s baseline.

If utility companies increase their clean energy production from one year to the next over 1.5% — and also surpasses a 4 PPT target — they receive $150 per MWh for that increased percentage difference minus 1.5%. For example, if a utility had 20% of the electricity generation from clean sources in 2022, and increased that to 24% in 2023, they would be eligible for a payment of $150 per MWh for 2.5% - 4% minus 1.5% - of their total generation.

If utility companies do not meet their 4 PPT goal one year — or worse decrease clean energy production — they are charged $40 per MWh for the difference. So, if clean generation declined from 2023 to 2024 from 20% to 17%, the utility would have to pay a penalty on missing the 4 PPT goal plus the additional 3 PPT decline — a $40 per MWh fine of 7% of that years’ energy generation.

CEPP is designed to keep nuclear plants like Diablo Canyon from closing and if California policymakers stick to their plan the state’s clean energy production would decrease from 89% in 2023 to 67.2% in 2024 and 46% in 2025 if energy demands were replaced with natural gas.

“This would result in penalties of approximately $600 million across the two years over which Diablo is retired, and total penalties of $1 billion by 2030, as continued penalties of missing the 4% growth target are imposed until PG&E brings clean energy generation back up to its baseline levels,” write Hausfather, Dr. Stein, and Trembath. “If PG&E replaces the clean energy output of Diablo by adding 7 percentage points of clean energy each year (e.g. one-sixth of Diablo’s total output) it would reduce the total penalty to $700 million while adding 11 percentage points (e.g. one quarter) each year would reduce the total penalty to $500 million.”

“The fact that clean energy has to be added in the same year that Diablo is replaced to avoid incurring large fines makes the decision to close the reactor particularly costly under the CEPP framework even if PG&E pursues accelerated adoption of clean energy replacements.”

“Closing Diablo puts PG&E at risk of missing out on an additional ~$500 million in incentives they could receive by going from 89% clean energy to 100% clean energy under the CEPP, if PG&E is unable to both fill in the gap left by closing Diablo and get all the way back up to 100% before the program ends in 2031. If we use the actual current procurement of 71% clean energy — which accounts for PG&E gas generation sold to CAISO — the incentives at risk could be as large as ~$1.5 billion.

Not only is closing Diablo Canyon antithetical to the state’s clean energy and climate goals, but California risks hundreds of millions of dollars under the current CEPP framework by pursuing the plant’s closure.