America’s Energy Future
Dinner at the Square
The Economics of Power Generation 101:
Mother Nature, Common Sense and Turning a Supertanker
“It’s kind of like an investment portfolio – I don’t know which is going to be best 20 years from now, if I
don’t know what interest rates are, I don’t know what fuel prices are – just like I don’t
know whether bond investments or equity investments are going to be the right choice. Trust me, I have some of both.”
- Bill Herrington
“It’s a bit like a Vegas marriage. . . up front cheap but other costs over time that are hidden, they show up later in life.”
- Jim Rossi.
The economics of building new plants and developing new technologies is a long term proposition. When we make decisions, we may not know if we were right or wrong for twenty years. Short-term concerns dictated by political cycles and concern for today’s stock prices create a poor environment for finding the long-term solutions required. Resist the 4-year tango pivot.
Some technologies, like nuclear, solar and wind have substantial up-front costs but generate inexpensive energy. Others are inexpensive to build, but generate expensive energy. Bill Herrington: “The cheap plants get bad mileage and the expensive plants get good mileage.”
If a good decision can only be assessed after decades, then our cost comparison should reflect a long time frame.
“So much of energy policy making and energy resource choices
seem to involve forecasting and so often the debates involve people
who seem to think the unknowable can be stated with certainty.”
- Peter Bradford
While there will certainly be some situations where a technology that appears to be a solid long-term solution requires subsidy and favorable tax treatments from the government to allow the technology to get to the “tipping point” of market sustainability, the best long-term solutions will succeed in the free market environment. Our system approaches industrial development by letting the investors bear the risk and reward. If we have a broad climate change regime that internalized the value of reducing carbon – and there was real competition – competing even-up,
‘one doesn’t know who would win. . . We just don’t know what combination of resources would prevail. What’s important is not to play pin-the-tail on the donkey in Tallahassee or Washington in the sense of saying “we know what the winner is” and put a substantial part of our chips behind getting it done regardless of what sophisticated integrated resource planning or market mechanisms are telling us.’ – Peter Bradford
Intelligent energy solutions vary by state and region, by whether we are seeking energy for base load generation (the energy needed to meet the base demand) or peak load generation (energy required to provide for peak demand times). Solar may provide a solution in the southwest U.S. but not in Tallahassee where trees and environmentally sensitive areas limit its viability. Biomass is well-suited to our area, but not for the desert southwest. To solve energy problems, we need to have local discussions focused specifically on what the local need is.
As we proceed in our discussion of energy options, we must define the time-frame we are addressing. For example, if we seek to limit greenhouse gases in the next ten years, nuclear will be of no value to us, as it is impossible to scale it up rapidly.
To recap, variables include:
- Baseload or peakload generation
- Long-term or short-term solution
Discussions of energy alternatives need to squarely face the challenge of scale. For example, the recent announcement of a solar thermal plant capable of scaling up to 300 MW could – at best – provide .6% of Florida’s energy demand.
While we did not specificially discuss this, all three participants agreed with this statement.
Peter Bradford and Bill Herrington had a difference of opinion on the cost of nuclear energy – Mr. Herrington assessing the cost at 2100 $/KW; Mr. Bradford assessing the cost at between 3600 and 4000 a kilowatt hour.
1. Cost of capacity, 2,081 $/KW for nuclear in 2005 – find documentation here.
2. Costs of nuclear generally underestimated due to low estimate of capital and insurance costs, high estimates of generating capacity, and failure to account for government subsidies. Data is also old as there are no new nuclear projects in U.S. Find documentation here.
3. World Nuclear Association in 2005 estimated costs of nuclear at 2,100 to 3,100 $/KW at 5% interest rates. See data here (page 8).
4. Find a helpful explanation of nuclear start-up and generation costs here.
5. Recent plants (all outside of U.S.) have cost more than $2,000 per kW to build (with addition of generation costs estimated by industry at $1,300 per kW = $3,e00 per kW. Find information here.
6. Wikipedia article on the cost of nuclear here.
- Our economic health is tethered to electrical energy generation. That suggests that changes in energy generation source needs to be handled carefully – you don’t “turn a supertanker” fast.
- Smart metering – so consumers can know what they’re consuming and when.
- Taxing energy consumption by KW/hr consumed rather than the total bill (as with gasoline).
- Careful consideration of results of taxation on energy costs for consumer – about 20% of your bill is taxes – Businesses pay 6.0% sales tax (residential exempt). Tallahassee owns its own utilities so that municipal taxes are embedded in the fees.