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8 March 2023

Vistra sees merit in buying nuclear while the IRA protects its price

US energy company Vistra claims to be the biggest electricity generator in the US, boasting 37 GW of resources, but it has been changing rapidly and now it has bolstered its nuclear output by buying Energy Harbor, which has about 4 GW of US based nuclear power. This is an unashamed consequence of the Inflation Reduction Act, which offers protection until 2030 for nuclear by offering nuclear production credits. And effectively this is a change in direction for Vistra, showing it prefers the certainty of nuclear over the intermittency of renewables.

Vistra used to be the most polluting of all US energy generators, but back after its bankruptcy re-organization in 2016 it began closing coal plants in Texas, Ohio, PennSylvania, Illinois and Massachusetts and by 2020 had closed 16 GW of them. It then promised a further acceleration in shut downs up until 2027, with another 6.8 GW of coal plant closures announced as it described its route to decarbonization this time purely in the MISO markets of Illinois and Ohio, that time blaming it on the pro-renewables stance of MISO itself, so if anything these were protest closures.

It then announced a 1 GW splurge on renewables adding 928 MW of solar and of course the fated Moss Landing battery sites, where it has already brought 400 MW/1,600 MWh of battery energy storage system (BESS) online in California. The overheating and smoke at those installations has led to these batteries being out of action for large periods, and has slowed its push towards its stated 6000 GWh of BESS in California.

Vistra is always conscious of its low market cap which went as low as $9.2 billion back in 2020, but has only just recovered over the $10 billion mark on news of this deal. Investors still see the company as behind the times, and a reluctant believer in global warming. At the time of its renewables upgrades it also included a new 2.3 GW nuclear facility in its list of carbon free projects, which was in fact a pair of upgrades to existing nuclear plants, in existence since 1974. It’s plan is to reach a 60% reduction in CO2 emissions by 2030 and net-zero by 2050.

But the truth is that buying three nuclear plants in the form of Energy Harbor is nothing to do with its decarbonization – this company has its own retail clients, and this is simply a landgrab enabled by the safety of the IRA Act.

When we last looked in detail Vistra sill had 7 CCGT gas turbines in the ERCOT totaling 7,838 MW, plus peaking facilities of 3,538 MW. Its PJM fleet has 8 CCGT natural gas turbines making up 5,902 MW and six gas or oil-fueled turbines totaling 1,439 MW. In New York it has a further 8 CCGT generation systems with capacity of 4,730 MW, for a total of 21.3 GW of its total capacity and this shows that gas is by far its most favored technology, which so far it has done nothing about.

Its challenge to replace a significant proportion of these by 2030 rests on it being successful in its ability to solve intermittency using battery and we see the Harbor purchase as a hedge against that, costing it $3.43 billion including debt that it will take on. Energy Harbor shareholders also get a 15% stake in the newly formed subsidiary holding company called Vistra Vision.

It claimed that Energy Harbor operates the second-largest non-regulated nuclear fleet in the United States, supplying roughly 33 terawatt hours of carbon-free power generation annually. The company was earlier known as FirstEnergy Solutions and emerged as Energy Harbor following a restructuring in 2020. This was on the back of a $61 million bribery scheme in Ohio whereby the company bribed the Ohio House Speaker to push through a piece of legislation so customers could bail its nuclear plant for $1 billion by paying higher energy costs. Now that Joe Biden is doing it, it is seen as OK.

One of the major problems of the IRA is that in order for Biden to get it through, he has had to accommodate many other energy technologies, many of which most people would not want to see flourish.

The newly created Vistra Vision will have 7.8 GW in what it describes as zero-carbon generation with 5 million retail customers and a growth pipeline of 1,100 MW of additional renewables projects.

The transaction is said to bring $125 million in improved cashflow from increased scale, optimized operations, and cost structure efficiencies.

Expect a lot more of deals that are triggered purely because of some aspect of IRA subsidies – we have this week a couple of carbon capture deals (see worth noting) which we suspect would not have happened without it, and right now every renewables developer in the US is re-organizing their pipelines to take best advantage of IRA offerings.

Vistra President and CEO Jim Burke stated, “We are excited to announce this unique combination and the many benefits it brings to our key stakeholders – customers, employees, communities, and shareholders. Vistra has been focused on responsibly transitioning its power generation profile, and though we’ve made significant progress over the past several years, there are few opportunities to grow a reliable and dispatchable zero-carbon generation portfolio at scale this quickly. With the enactment of the zero-emission nuclear production tax credit, nuclear power generation now has down-side protection against lower power prices, resulting in tremendous upside opportunity compared to other generation with similar attributes.” Nuclear is still way too expensive.