In September, Illinois lawmakers agreed to spend up to $694 million of taxpayer money over the next five years to keep several money-losing nuclear power plants open.

Nuclear energy produces no greenhouse gas emissions, meaning it can contribute to lowering carbon emissions. But today’s nuclear plants often can’t compete on price against cheaper existing sources of energy, particularly natural gas and government-subsidized renewables.

The negotiations in Illinois are a microcosm of a larger debate taking place across the country about the role existing nuclear power plants should play in the clean energy future.

For two of the nuclear plants at stake, the operator, Exelon, had already filed paperwork with federal regulators to shut them down for financial reasons. Lawmakers agreed to pay to keep the nuclear plants open so that Illinois could meet its clean energy goals, and Exelon agreed to keep two other marginal nuclear plants in the state open as well.

The deal is a culmination of a lot of painstaking negotiations and “midwestern practicality,” according to Illinois Deputy Governor Christian Mitchell.

But not everybody agrees. Illinois gets a much larger percentage of power from nuclear than other states, and it would’ve taken a massive new investment in renewables to meet the state’s clean energy goals. In a sense, Exelon had the state over a barrel.

“This is now the second round of such subsidies that Illinois is paying out,” explained Steve Cicala, a non-resident scholar at the Energy Policy Institute at the University of Chicago, referring to a previous round included in an energy jobs bill in 2016.

“When this runs out, they’ll be doing the same ‘pay us or the plant gets it’ dance.”

The latest battle started in Aug. 2020 when Exelon Generation announced that it would to retire two of its Illinois nuclear power plants in fall 2021. Byron was scheduled to close in September 2021 and Dresden would close in November 2021. Exelon said the plants were losing hundreds of millions of dollars, although it declined to disclose exact figures to CNBC.

“Submitting decommissioning paperwork is like a parent dangling their keys and saying ‘I’m really leaving…’ when their kid doesn’t want to put down the video game controller and get in the car,” Cicala said.

It can be hard to justify offering government subsidies to a profitable company with a market capitalization of $52 billion. Exelon in total earned $1.2 billion in GAAP profits in the third quarter of 2021 and its Exelon Generation subsidiary, which operates the plants, earned $607 million. However, as is often the case with utilities, its results can vary widely — for the first nine months of the year total, Exelon earned $1.32 billion and Exelon Generation showed a loss of $247 million, both worse than the equivalent period last year.

Exelon says it is unfair to ask it to compete in an open competitive energy market where carbon-emitting energy sources are able to emit their waste into the air for free while nuclear power plants have very strict and expensive waste management regulations to comply with.

Meanwhile, legislators were anxious to pass a comprehensive energy bill that moves the state toward 100% clean energy by 2050. The two nuclear plants at issue provided nearly 4,200 megawatts of power, while two others on the edge of viability, Braidwood and LeSalle, provided another 4,700. For reference, 1,000 megawatts of energy will power a mid-size city, according to Bill Gates’ book “How to Avoid a Climate Disaster.”

To replace that much power with renewables would have required a tremendous amount of new wind and solar construction in the state.

The current capacity-weighted average size of a solar farm is 105 megawatts, and for wind it is 188 megawatts, Jason Ryan, spokesperson for American Clean Power, a membership organization representing the renewable industry, told CNBC.

That means the state would’ve had to construct about 85 solar farms, or more than 47 wind farms.

If the nuclear power plants were retired now, “renewables wouldn’t be ready in time to take their place,” Jack Darin, the director of the Sierra Club’s Illinois chapter, told CNBC. The environmental lobbying group does not support nuclear power as a long-term clean energy solution because of the nuclear waste that is generated, among other reasons. But Darin also suggested that building new natural gas plants would be worse in the long run.

“Once a gas plant is built, and pipelines are brought in, those are very likely to run for decades and decades and pump out carbon pollution,” he said.

According to nuclear advocates, plants constructed decades ago simply cannot compete on an economic basis with other forms of energy in today’s U.S. market. Ultra-cheap natural gas drove energy prices down across the board, and nuclear power plants have not been able to cut costs enough to be competitive.

“The trend that you’ve been seeing across the country of premature nuclear retirements are all entirely about economics,” according to Exelon’s Kathleen Barron, who oversees government and regulatory affairs for the company.

Exelon owns electricity generation facilities throughout the Midwest, mid-Atlantic, Northeast, Texas and California. Of those facilities, more than 85% of its output was nuclear in 2020, with natural gas making up most of the rest.

All of Exelon’s nuclear power plants in Illinois (except the Clinton nuclear plant) hook into PJM, which runs the largest electrical grid in the U.S. and operates one of the largest wholesale electricity markets in the world. Power generators bid into the wholesale marketplace and PJM accepts the mix of sources that keeps rates lowest.

“Everyone bids in, and then we accept the offers from lowest to highest until we reach the target capacity number we need to reach,” explained PJM spokesperson Jeff Shields.

PJM’s mix of energy sources has changed over the last 15 years or so, with natural gas increasing to about 40% of the total electricity and renewables increasing slightly to sit at 6%. Over the same time, coal has consistently decreased over time and now stands at 19%.

Along the way, nuclear has remained relatively constant at about 35%.

While the composite mix has changed, the wholesale electricity price has largely remained flat over the last 15 years when adjusted for inflation, PJM said.

Cicala argues the real problem isn’t the total supply of energy, but the ability to move power from the rural areas where it’s generated to high-demand areas like the city of Chicago. Today, there’s a surplus of inexpensive wind power in those rural areas — where Exelon’s nuclear plants are located — driving prices down.

“The plants would be in a much better financial situation if they could get the prices that power goes for downtown rather than downstate. Investments in high-voltage transmission could solve that problem and be done with it, rather than re-creating a crisis every few years and throwing money at it,” Cicala said.

“Ultimately this is a problem of too much supply depressing prices. The nuclear subsidies attempt to fix this problem by encouraging even more supply. It’s like thinking that one more flush is going to fix an overflowing toilet.”

Exelon’s Barron disagreed.

“While transmission improvements in certain areas would aid the expansion of renewable energy and improve grid reliability, they would have no meaningful impact on the underlying market and policy failures that have put nuclear operators at a competitive disadvantage,” said Barron in a statement.

“What we need are state and federal policies that recognize the carbon-free benefits of nuclear energy, much as existing policies value the environmental benefits of wind and solar.”

To enable a fair discussion, the Illinois Environmental Protection Agency hired Synapse Energy Economics in January to complete an independent audit of Exelon’s financials.

“Everyone had a baseline of agreement — from the governor, to the legislature, to the environmental groups to our union allies — everyone agreed that we needed to keep the nuclear fleet online. The only question was, ‘What is going to be a sufficient level of support to allow them to continue to operate?'” Deputy Governor Mitchell told CNBC. “That was really where the push was.”

A redacted version of the audit is publicly available, and CNBC has reviewed a version with fewer redactions, but none of the reports contained a precise breakdown of what each plant was losing, citing proprietary business information. That’s because energy trades on a competitive marketplace, and competitors could use that information to just barely undercut Exelon.

“We see this with other utilities and merchant generators, so Exelon is not unique,” said Max Chang, a principal associate at the auditing firm. “It would be really nice to improve transparency.”

The independent audit did confirm that Exelon was losing money on the plants and recommended a $350 million state subsidy.

Exelon disagreed with the number, saying the auditor left out some of Exelon’s costs and that the report was overly optimistic about where energy prices would trend.

Synapse later admitted its projections of energy prices were off. “As it turns out, our estimates of capacity prices are too high for 2022 and 2023 and our estimates of energy prices are too low for 2021 and possibly for 2022,” Chang told CNBC.

“The $694 million was within the bounds of our analysis. The report focused on the 95th percentiles, not the maximum values.”

Consumer protection advocates agreed the final deal was necessary. “The most cost-effective way to deal with climate change is just to build on what we’ve got,” said David Kolata, the executive director of the Citizens Utility Board, a nonprofit, nonpartisan organization that works to protect the interests of consumers.

“It became apparent to folks that you can’t, at the end of the day, cost-effectively reach 100% clean energy if existing nuclear plants close prematurely,” Kolata told CNBC. “None of this is an argument for a blank check for Exelon or for nuclear,” he added.

Another part of the deal says that if federal money becomes available to subsidize existing nuclear fleet, then Exelon must apply for those funds and return any money due back to the Illinois taxpayers.

“That made it much easier for us to pass a bill that had this $700 million nuclear support element to it, because if the feds do act, then there’s a strong likelihood that that money will be rebated to or maybe never collected at all from the ratepayers,” said Bill Cunningham, the assistant majority leader in the Illinois Senate, who was the Democratic point person on the negotiations.

That could come into play now that the Democratic-controlled Congress has passed President Biden’s infrastructure spending plan and could be on track to pass the larger Build Back Better plan.

In the end, Exelon won by keeping the plants open, Cicala said.

While a nuclear plant may lose money at times, it’s hard to turn on and off — think of it a like a 24-hour convenience store that makes more money at 8 a.m. than it does at 4 a.m.

“Of course, given the opportunity to get subsidized by the government, the 24/7 store is going to complain about how much money they’re losing at 4 a.m.,” Cicala told CNBC. “But there’s option value to holding onto the plant if the economics aren’t working for them right now — look how quickly gas prices can change!”

Exelon CEO Chris Crane celebrated the deal in the quarterly financial report, too, calling the legislation a critical milestone.

As far as costs to consumers, the total subsidy comes down to about 80 cents a month for the average customer, according to Exelon’s Barron.

Although contentious, the final agreement involved some unlikely political alliances, which offers hope for similar compromises in the long-term transition to carbon-free energy.

Some environmental groups do not consider nuclear power to be clean energy because of the carbon emissions necessary to construct a plant and the toxic waste which needs to be stored long-term. But they were willing to join arms with nuclear power generators in order to meet short-term carbon-emission goals for Illinois.

Labor unions also wanted to keep the nuclear power plants open because they provide high-paying, community-sustaining jobs, pitting them against environmental advocates, who normally come from the same side of the political spectrum.

Pat Devaney, the Secretary Treasurer of the Illinois American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), told CNBC organized labor supported the bill and glad to see the nuclear power plants kept online.

“The economies of those whole regions, in regards to property tax funding for school and public safety, I mean, it would have just been decimated entire regions of our state” if the plants were to have shut down, Devaney told CNBC.

Environmentalists who wanted the plants shut down think the jobs argument is overblown.

“We dubbed that the nuclear hostage crisis,” said David A. Kraft, director of the Nuclear Energy Information Service, an anti-nuclear non-profit. “What we mean by that is you know they would cry economic hardship, we’re losing money, we’re gonna close the plants. And wouldn’t that be awful — you’re going to lose all those jobs.”

Kraft does not believe the financial woes of the plants are a reason to give operators subsidies.

“Competent adults plan for their retirement. We think utilities should do the same thing,” Kraft told CNBC.

Ultimately, Illinois ended up with an imperfect compromise. But the fact that it was possible to reach a compromise in the name of reducing carbon emissions was an accomplishment.

“Even if the bill isn’t what we would write if we were kings and queens, we’ve got to move forward,” J.C. Kibby, the clean energy advocate for the National Resources Defense Council for Illinois, told CNBC.

“It was on the back of years and years of organizing and education. And that filtered up to putting elected officials in place who understood that how important that existential threat of climate change was,” said Kibby. “So as a friend of mine says, ‘You’ve just got to do the work.'”