FROM HERE TO NEW ENERGY

Transition from Coal to Clean Energy Makes Good Business Sense; Economic Study Demonstrates Profitability for Utilities
March 4, 2010 (Natural Capitalism Solutions)
and
Coal Plants in Transition: An Economic Case Study
Paul Sheldon, Emily Evans, Nick Sterling, et. al., March 2010 (Natural Capitalism Solutions)

THE POINT
Anybody capable of telling the truth has to admit it is time to stop using coal to generate electricity. The evils of burning black rocks begin with black lung and environmental degradation and culminate in the dark forebodings of the worst impacts from global climate change.

The question remains, however, of how to enlighten decision-makers and move them toward a future powered without burning. Coal Plants in Transition: An Economic Case Study, a new report from Natural Capitalism Solutions, answers that question in explicit detail. Far from science fiction about a New Energy dream, the report is business-oriented. It is directed at working utility managers and energy providers who bear the enormous burden of keeping the nation’s lights on at the most affordable rates.

The report looks at Arizona’s Navajo Generating Station (NGS), a 2,250-megawatt, 35-year-old coal plant, and asks what the costs and benefits would be from keeping it going by retrofitting and upgrading it to meet current pollution and air quality requirements and what the costs and benefits would be from replacing it. Using low, medium and high market price scenarios for all variables, it explores the upgrade and replacement options and demonstrates in cold hard numbers that a transition to New Energy and Energy Efficiency is the right thing to do from a purely business-oriented point of view.

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A retrofit would cost hundreds of millions of dollars, leaving a shift to New Energy and Energy Efficiency as a highly viable economic option worth studying. Building wind, photovoltaic (PV) and concentrated solar power (CSP), geothermal, and biomass capacity and advancing consumer efficiencies are not only economically viable options but could add profits for utilities through the use of options such as pollution offset credits (Renewable Energy Credits, RECs), emissions trading system credits (emissions allowances), the sale of unneeded water rights and through savings from not having to purchase fuel.

A medium price scenario concluded the Navajo Generating Station coal plant could be replaced with no threat to the reliability of the energy supply and the expectation of a yearly revenue surplus of $157.6 million.

The report includes an online calculator that allows energy managers to plug in parameters applicable to any project and determine their own most cost-effective choices.

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THE DETAILS
The report assesses low, medium and high market price scenarios for all variables pertaining to the 2,250-megawatt, 35-year-old coal-burning Navajo Generating Station (NGS).

The cost-benefit analysis considers the options of (1) retrofitting and upgrading the plant to meet current pollution and air quality requirement and (2) replacing it with New Energies (NEs) and Energy Efficiency (EE) implementation.

NGSW, like every coal-burning power plant, is periodically re-assessed for purposes of resource planning, equipment testing, operational evaluation or financial review as well as for re-permitting or compliance inspection to determine whether it can meeting regulatory changes or needs an upgrade to meet new pollution limitations or resource standards.

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Questions relevant to power plant reassessment:
(1) Are technology upgrades needed to comply with clean air, clean water or waste disposal laws?
(2) Will technology upgrades improve performance? If so, would the benefits of increased production outweigh the costs?
(3) How close is the plant and the plant's technology to the end of functional life?
(4) Will a transition to other energy-generation options affect reliability?

Using the report’s online calculator, utility managers and power producers can develop a concept of how to respond to such questions and then prove or disprove their concept with cold hard numbers that reflect its economic costs and benefits and nothing else.

The report includes observations about ancillary benefits from NE and EE (job creation, economic development and other externalities such as improved air quality and decreased public health costs) but it restricts its cost-benefit analysis to traditional economic parameters.

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The conclusion, based entirely on a cost-benefit analysis using traditional economic parameters, is that it makes sound business sense for power plant operators to transition away from fossil fuels to NE and the implementation of EE. The business case becomes even sounder when the revenue streams available from REC and emissions allowance markets and the savings from avoiding the expenses of purchasing water rights and fossil fuel supplies.

Navajo Generating Station (NGS), near Page, Arizona, generates electricity for 5 public and commercial utilities in Arizona, California, and Nevada. The biggest part of its power goes to the U.S. Bureau of Reclamation and is used to pump water through the Central Arizona Project 336-mile canal network.

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A real-world decision presently confronts NGS operators. Given the facts that (1) installation of new scrubbers to comply with the newest EPA air quality requirements will cost an estimated $38-to-$100 million per year, (2) the City of Los Angeles will not be renewing its contract in 2019, and (3) by 2019, it is anticipated there will be a cap and a price on greenhouse gas emissions, should operators incur the expense of the new scrubbers?

In the medium price scenario, NGS could profitably be replaced with NE and EE programs and the operators could expect to earn $157.6 million per year.

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Revenues:
(1) Sales of NGS rights to 34,000+ acre-feet of water would produce $3.4-to-$36.8 million per year at the medium price of $630 per acre-foot. It is reasonable to think water prices in the Southwest will be much higher. The price for water in some Texas urban markets is now ~$1000+ per acre-foot.
(2) Sulfur dioxide (SO2) and nitrogen oxide (NOx) emissions allowances will each generate $14.1-to-$26.8 million per year. Historical swings in these allowance markets could reduce these revenues by one-half or double them.
(3) Fuel cost savings should be as much as $830 million per year.
(4) The revenue in U.S. or international emissions trading markets from sales of the allowances on the 19+ million tons of CO2 per year from NGS could be as much as $1 billion per year, assuming a U.S. Energy Information Administration (EIA) projected emissions price of $35 per ton.

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The cost of NE and EE to replace the NGS capacity includes a full range of technologies (wind, PV and CSP solar, geothermal and biomass) and is estimated at $757 million-to-$1.6 billion.

Recent analyses of job creation and retention from NE/EE implementation nationally and for California, Colorado and Kentucky show significant net job gains. California’s investments have created 1.5+ million new jobs and $65 billion in household energy savings in the last 30 years.

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QUOTES
- Paul Sheldon, report lead author/senior consultant, Natural Capitalism Solutions: “We are quickly entering a water- and carbon-constrained world, and we wanted to look at what options might be available to utility managers and other energy providers…We believe that these findings represent a business approach for energy managers to consider as they are faced with difficult decisions regarding the future of their facilities. We’ve shown that this approach allows them to maintain reliability and still profit in their transition to 21st century energy technologies…Obviously, the circumstances and data will be different for every utility…A business plan based on our ideas may work for some utilities and not for others, depending on their specific situation. But we have shown that the concept is sound and that it is possible for utilities to continue meeting their demand while at the same time investing in new clean energy technologies to replace aging coal-burning facilities.”

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- Hunter Lovins, founder, Natural Capitalism Solutions: “It’s profitable for utilities to be investing in cleaner energy sources right now…Replacing sunset technologies with more of the same – repeating the mistakes of the past – may feel more comfortable, but it makes no economic sense. Clean energy is more than just clean. It’s more profitable than dirty power for utilities and better for communities and consumers. This report highlights one of the aspects of how we can prosper by unleashing the new energy economy.”

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- Craig Cox, executive director, Interwest Energy Alliance (for wind and utility-scale solar companies): “In my home state of Colorado, clean-energy industries are providing a significant boost to our economy at a time when we really need it…We’re seeing significant interest in these technologies throughout the Southwest, so from the perspective of utility managers, this study should give them a new approach to decision making at a critical time when they are faced with many uncertainties.”