NEW ENERGY AND RECESSION, OPPOSING FORCES

Cost Works Against Alternative and Renewable Energy Sources in Time of Recession
Matthew L. Wald, March 28, 2009 (NY Times)

SUMMARY
Economic circumstances may significantly impact Congressional willingness to act (spend) on New Energy and climate change.

Some authorities believe spending to build New Energy and spending to cut greenhouse gas emissions (GhGs) will drive electricity prices up, not a favored political strategy during a long, deep recession.

The Obama administration, however, is committed to climate change action. It’s EPA has begun to move on cutting GhGs. (See EPA TO MAKE BIG MOVE ON EMISSIONS IN MID-APRIL )

Democrats in Congress remain committed to legislation that institutes a U.S. cap&trade system and legislation creating a national Renewable Electricity Standard (RES) requiring utilities to obtain 10% of their power from New Energy sources by 2012 and 25% by 2025.

The assumptions working against New Energy are that (1) making GhGs more expensive will make the cost of burning coal higher and, at least in the short term, lead to higher electricity prices; and (2) even if climate change legislation makes coal more costly and leads to price parity among energy sources, New Energy will still be expensive and therefore the RES will play in role in higher electricity prices.

The fallacy in these assumptions is the implicit assumption that coal-generated electricity is cheap when in fact it is already costing ratepayers severely in human health and environmental degradation. Calculating such costs is problematic because coal companies, feeling growing pressure, conceal much.

One set of comparative costs puts the electricity generation per-kilowatt-hour costs at 7.8 cents for modern coal, 10.6 cents for natural gas and 10.8 cents for contemporary nuclear power. Wind is 9.9 cents per-kilowatt-hour. If the calculation for wind includes extra natural gas generation to compensate for wind’s intermittency – a rather bizarre way to do the calculation – wind’s cost could be put at 12 cents.

The Electric Power Research Institute (EPRI), a utility-sponsored nonprofit, predicted in November 2008 that by 2015 wind would cost nearly 1/3 more than coal and ~14% more than natural gas. EPRI said solar power plant costs would be 3 times coal and 2 times natural gas.

These estimates may be more accurate. (click to enlarge)

COMMENTARY
The price of fossil fuels and nuclear power is much higher than the retail price ratepayers see on their bills but that cost is folded into their health insurance, property insurance and taxes. It is really impossible to have a complete discussion about comparative prices without taking those "external" costs into consideration. Nevertheless, the article suggests some parameters. It is not especially accurate.

The piece suggests power price estimates vary in favor of whatever energy source is preferred. The truth is, there are a wide variety of factors that figure into the per-kilowatt-hour price of power generation. These figures (7.8 cents for coal, 10.6 cents for natural gas, 10.8 cents for nuclear, 9.9 cents or 12 cents for wind) are not unreasonable but are also not in any way fair or final, though the article suggests they are.

One of the biggest mistakes made in comparing prices is to take the cost of EXISTING coal and nuclear plants against the cost of building NEW wind, solar and geothermal. While the numbers put forward may have validity, it is an incontrovertible fact that the marketplace has, for the last 2 years, chosen NEW wind and natural gas over NEW coal and nuclear.

click to enlarge

It is particularly odd to add the cost of building new natural gas plants to the cost of building new wind. It sounds sort of logical the way it is presented: Intermittency requires extra generation. But why not more wind? Studies show wind spread over a wide enough region and connected by adequate transmission can eliminate problems of intermittency. And why not add the cost of the back up built for nuclear plants (for when safety-oriented incidents trip them offline)? And the cost of building back up for coal (for when ranmping causes delays in bringing them up to grid demand)?

Another set of price estimates belying the Times' figures. (click to enlarge)

Speaking of intermittency, how about the intermittent dependability of natural gas prices? Last summer they were through the ceiling. Now they are affordable. How long will that last? Wind, by comparison, is solid is a rock.

Also, it is worthwhile to consider which way the proffered prices are going. While wind, solar and geothermal are just barely beginning to achieve the economies of scale that will drive costs down, coal and natural gas will soon be forced to incorporate the price of GhG emissions or the price of emissions-capture (if it ever becomes workable) into their costs, a stipend that will continue to rise. Nuclear at present offers no solution for the disposal of radioactive waste, an expensive proposition that apparently will take at least as long to deal with as the threats of weapons proliferation and security.

Finally, New Energies generally require modest, if any, water resources for operation, while fossil fuels plants and nuclear plants put a tremendous strain on ever more precious and therefore expensive water supplies.

Bottom line: On those EPRI costs for 2015, how will the prices compare in 2020? 2025? Because most nuclear plants begun now won’t come on line until nearly 2020. And most coal plants begun now won’t come on line until there is a way to capture and store GhGs safely at commercial scale, something that may not happen before 2030.

The longer an investment takes to pay off, the more expensive the capital is. (click to enlarge)

QUOTES
- Barry Moline, executive director, Florida Municipal Electric Association: “Consumers right now are extremely price-sensitive…”

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- Jonathan Mir, co-head of North American utilities, Lazard investment bank: “There are great benefits to the use of alternative energy…If it is deployed in an uneconomic way…it is quite regressive in nature.”