Exelon Corporation (EXC), NextEra Energy, Inc. (NEE), Dominion Resources, Inc. (D): Can America Blow Away Nuclear Power?

Imagine if you opened up your electricity bill next month and it showed that your energy provider owed you money for sending you your monthly allotment of kilowatts. Think negative prices sound farfetched? Think again. Several Texas and Midwestern utilities, such as Exelon Corporation (NYSE:EXC) and Dominion Resources, Inc. (NYSE:D), are facing just such a predicament in several markets during off-peak hours.

OK, so customers don’t actually get paid by their providers since off-peak prices represent a small piece of the amount paid each month. Nonetheless, negative prices are a real problem facing utilities relying on nuclear and fossil-fuel generation — and they have little to do with cheap natural gas. The main contributor to off-peak negative prices is actually wind power. If the problem persists, energy companies such as Exelon Corporation (NYSE:EXC) and Dominion Resources, Inc. (NYSE:D) Resources, Inc. (NYSE:D), which focus on nuclear and coal, respectively, may be forced to retire their less competitive plants. Can America really blow away nuclear power?

Good news, bad news
Last year, the power industry sprinted to capture what was expected to be the last opportunity for a federal tax credit for new wind farm construction. The credit was eventually extended through 2013, but that didn’t stop a record 13 GW of capacity from being added to the nation’s grid. In fact, 8.38 GW were added in the fourth quarter alone.

That’s great news for renewable energy-minded power generators such as NextEra Energy, Inc. (NYSE:NEE) . The company owns more than 10 GW of wind capacity, or one-sixth of the nation’s total. The subsidy has enabled NextEra Energy, Inc. (NYSE:NEE) to create an impressive fleet of wind farms:

Source: NextEra Energy. Powered by Google Maps.

Say what you want about the federal tax credit for new construction, but that isn’t the government subsidy fueling negative prices. The owners of wind farms receive a production tax credit, or PTC, of $0.022 for every kWh of wind energy produced. That may not seem like much, but consider this: Wind speeds, on average, are inversely proportional to demand from the grid. When the grid needs the least amount of power — during the night and in spring and fall — wind speeds are at their peak.

Generally, providers curtail their power production during off-peak times to obey the law of supply and demand. Flooding the grid with juice that has nowhere to go results in negative prices, thus forcing providers to pay the grid to take the power they created. No business aims to sell products with negative values.