A practical, affordable (and least business risk) plan to achieve " 80% clean electricity" by 2035

Electricity Journal

Volumn 24, Issue 6, 2011, Pages 8-26

  Severance, Craig A ^a  

^a Iowa State Commerce Commission   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

BUSINESS RISKS; CLEAN ELECTRICITY; POWER INDUSTRY;

ELECTRIC UTILITIES;

EID: 79960558928     PISSN: 10406190     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.tej.2011.06.004     Document Type: Article

References (66)

1. Norihiko Shirouzu, Mariko Sanchanta and Kana Inagaki, At Utility, a Leadership Vacuum: Hospitalization Furthers Anxiety and Leaves a Leadership Vacuum, Wall St. J., Mar. 31, 2011, at http://online.wsj.com/article/SB10001424052748704559904576231742989493576.html.
2. One Killed in Clash at Planned India Nuclear Plant Site, BBC News, April 18, 2011, at http://www.bbc.co.uk/news/world-south-asia-13124773.
3. Labour Turn Up Heat on Huhne over Carbon Emissions Row, BBC News, May 10, 2011, at http://www.bbc.co.uk/news/uk-politics-13343055.
4. Craig A. Severance, Business Risks to Utilities as New Nuclear Power Costs Escalate, Elec. J., May 2009, or Business Risks and Costs of New Nuclear Power, Jan. 2009, at http://energyeconomyonline.com/uploads/Business_Risks_and_Costs_of_New_Nuclear_Power_Reprint_-_Jan_2__2009_Craig_A._Severance.pdf.
5. Gus Lubin, Japan Officially Cancels its Plan to Become 50% Nuclear Powered by 2030, Business Insider, May 11, 2011, at http://www.businessinsider.com/japan-nuclear-power-2011-5.
6. Nuclear Commission Pinpoints 2021 for German Atomic Shutdown, D.W. - World, May 11, 2011, at http://www.dw-world.de/dw/article/0,,15066387,00.html.
7. Exelon's Rowe: Low Gas Prices and No Carbon Price Push Back Nuclear Renaissance 'A Decade, Maybe Two,' Climate Progress, Oct. 12, 2010, at http://climateprogress.org/2010/10/12/exelon-john-rowe-nuclear-renaissance-constellation-energy/.
8. China Renewable Sector Eyes Govt Support Amid Nuke Safety Fears, Reuters, Mar. 30, 2011, at http://www.reuters.com/article/2011/03/30/china-renewables-nuclear-idUSL3E7EU15C20110330.
9. Craig A. Severance, Job Losses Push Need for Energy Bill, Energy Bulletin, Feb. 10, 2010, at http://www.energybulletin.net/51504.
10. Developed Economies Fall into a Deflationary Spiral, Global Risk Alert, Economist Intelligence Unit, Mar. 16, 2011, at http://gfs.eiu.com/Article.aspx?articleType=gr&articleId=467 (registration may be required). This briefing notes "Although record amounts of cash have been pumped into the economy by the world's main central banks, much of the liquidity has been hoarded by the banks as a buffer against a further deterioration of their loan books. As a result, this liquidity has not found its way into the economy ..." Utility investment on the other hand could flow into the domestic economy and help counter deflationary job losses.
11. Joseph Romm, Breaking: Socolow Reaffirms 2004 'Wedges' Paper, Urges Aggressive Low-Carbon Deployment ASAP, Climate Progress, May 18, 2011, at http://climateprogress.org/2011/05/18/socolow-wedges-deployment/.
12. DSIRE Web site resource, Summary Maps - RPS Policies May 2011, at http://www.dsireusa.org/summarymaps/index.cfm?ee=1&RE=1.
13. If a mandatory national Clean Energy Standard proves impossible, its adoption by the Executive Branch could still be an argument to approach state regulators for inclusion of projects in rate base. The industry can choose to make progress toward this goal, even if not required.
14. Energy Information Administration, Average Retail Price of Electricity to Ultimate Customers, at http://www.eia.doe.gov/cneaf/electricity/epm/table5_3.html.
15. Average residential bills of "over $106 per month" using 2010 average rates from that table of $0.1158/kWh, and EIA data of average (2008) residential consumption of 920kWh/month, from: http://www.eia.doe.gov/tools/faqs/faq.cfm?id=97&t=3.
16. Electricity rate inflation could become far worse. A recent study projected electricity prices in Australia may "nearly double" from FY08 to FY15 because of four forces now also affecting U.S. utilities: (1) increasing fuel costs; (2) higher costs to build new power plants; (3) advanced grid build-out costs; and (4) new environmental standards. See: Paul Simshauser, Tim Nelson, Tim and Thao Doan, The Boomerang Paradox, Part I: How a Nation's Wealth Is Creating Fuel Poverty, Elec. J., Jan./Feb. 2011, and "Part II" in the Mar. 2011 edition.
17. U.S. Bureau of Labor Statistics series on real wages, April 2011 release at http://www.bls.gov/news.release/pdf/realer.pdf BLS notes "since reaching a recent peak in Oct. 2010, real average weekly earnings have fallen by 1.7 percent."
18. Julie Patel, Regulators Slash FPL's Rate-Hike Request, S. Florida Sun Sentinel, Jan. 13, 2010, at http://www.sun-sentinel.com/business/fl-psc-increase-vote-20100113,0,5320042,full.story. The rate increases garnered so much public opposition Gov. Crist "had opposed the rate hike and reshaped the commission by appointing two outsiders to replace two outgoing commissioners." Even in non-democratic societies such as China, officials hold down rate increases, starving utilities of revenues needed to pay for increased costs,
19. Keith Bradsher, China's Utilities Cut Energy Production, Defying Beijing, N.Y. Times, May 24, 2011, at http://www.nytimes.com/2011/05/25/business/energy-environment/25coal.html?_r=2&pagewanted=1.
20. The Peak of the Oil Age: Analyzing the World Oil Production Reference Scenario in World Energy Outlook 2008, Global Energy Systems Group, Energy Policy, Mar. 2010, at http://www.tsl.uu.se/uhdsg/Publications/PeakOilAge.pdf.
21. ORC International, Survey Highlights: Americans Want EPA to Do More, Not Less, Feb. 2, 2011, at http://switchboard.nrdc.org/blogs/paltman/2-2%20ORC%20International%20EPA%20Survey%20Report.pdf.
22. American Lung Association, Toxic Air: The Case for Cleaning Up Coal-Fired Power Plants, Mar. 2011, at http://www.lungusa.org/assets/documents/healthy-air/toxic-air-report.pdf.
23. U.S. Environmental Protection Agency, U.S. Greenhouse Gas Emissions Inventory 1990-2009: Executive Summary, see Table ES-2 on p. ES-4, at http://www.epa.gov/climatechange/emissions/downloads11/US-GHG-Inventory-2011-Executive-Summary.pdf.
24. Benenson Strategy Group poll results, Aug. 25, 2010, at http://climateprogress.org/wp-content/uploads/2010/08/Benenson-epa-poll-8-30-10-2.pdf.
25. International Institute for Environment and Development, Costs of Adapting to Climate Change Significantly Under-Estimated, Aug. 27, 2009, at http://www.iied.org/climate-change/key-issues/economics-and-equity-adaptation/costs-adapting-climate-change-significantly-under-estimated.
26. Energy Information Administration, Energy Market and Economic Impacts of H.R. 2454, The American Clean Energy and Security Act of 2009. EIA's analysis of the House climate and energy bill projected (see p. ix (p. 10 of PDF) "the electricity sector accounts for between 80 and 88 percent of the total reduction in energy-related CO2 emissions relative to the Reference Case in 2030," at http://www.eia.doe.gov/oiaf/servicerpt/hr2454/pdf/sroiaf(2009)05.pdf.
27. Data for chart drawn from Energy Information Administration, Total Electric Power Industry Summary Statistics, Year-to-Date 2010 and 2009, January through December, Net Generation and Consumption of Fuels, from EIA's Electric Power Monthly published in Mar. 2011 with data through Dec. 2010, see Chart ES.1.B at http://www.eia.doe.gov/ftproot/electricity/epm/02261103.pdf. The chart lists net generation before losses from transmission & distribution, which typically average about 6.5% for the U.S.
28. U.S. Department of Energy, 20% Wind Energy by 2030, at http://www.nrel.gov/docs/fy08osti/41869.pdf. In this comprehensive evaluation of the potential for substantial wind energy build-out in the U.S., DOE assumed by 2030 the U.S. could obtain 20 percent of 5.8 billion MWh/year from wind (p. 21), i.e., 1.16 billion MWh per year, with wind capacity of 305,000MW (p. 26). DOE assumed average wind-associated additional transmission loss of 4.72 percent (p. 207, loss assumptions 0.236kW/MW/mile and avg. 200-mile transmission). This seems to imply an average capacity factor of 45.5 percent at the wind farm. DOE assumes significant improvement in wind capacity factors, due both to technology improvements and about 18 percent of the total 305GW as offshore wind. This may be a best case scenario, however. A 1.04 percent shift of 2010 total generation would require new generation of 42,850 thousands of MWh. Using more pessimistic assumptions, this could be generated by approximately 13,500MW of wind with an average "wind transmission penalty" of 10 percent and a less optimistic average capacity factor at the wind farm of approximately 40 percent.
29. American Wind Energy Association, AWEA U.S. Wind Industry Annual Market Report Year Ending 2009, at 4, at http://www.awea.org/learnabout/publications/loader.cfm?csModule=security/getfile&PageID=5089.
30. Electric Power Research Institute (EPRI), Assessment of Achievable Savings Potential From Energy Efficiency and Demand Response in the U.S., Jan. 2009, at http://www.edisonfoundation.net/iee/reports/EPRI_AssessmentAchievableEEPotential0109.pdf. Of particular note is this study evaluated voluntary measures, and did not include the imposition of any new mandatory measures such as improved building codes, beyond those already adopted. EPRI noted (p. 185): "As such, any new codes and standards or other externalities would contribute to greater levels of overall efficiency."
31. A proportional standard allows existing "dirty" power to operate longer if there is growth in electricity use. If electricity use increases 1 percent per year from 2010 to 2035, i.e., by 28 percent, and all new generation added to meet growth in use is supplied by "clean energy" generators, then the full growth wedge (28 of a 128 Index, or 22 percent of the new total) would be "clean energy." Since 54 percent of the existing 2010 generation mix, or 54/128=42% of the new total 128 Index, is already "clean," then "clean energy" would be 22%+42%=64% of the new 128 total. To meet an 80% Clean Energy standard a total of 16 percent of the new 128 Index (20 percent of the existing 2010 mix) would need to be retired and converted, rather than 26 percent of the existing 2010 mix needing retirement and conversion if there is no growth in MWh usage. A greater percentage of "dirty" power plants could operate longer. This is a major difference between a proportional 80% Clean Energy standard, and a "shrinking carbon cap" with absolute carbon reductions.
32. Energy Information Administration, data for 1997-2009 from Electricity Overview: Selected Years, 1949-2009, at http://www.eia.gov/emeu/aer/pdf/pages/sec8_5.pdf, data for 2010 from Electric Power Monthly, Mar. 2011, at http://www.eia.doe.gov/ftproot/electricity/epm/02261103.pdf.
33. Credit goes to financial writer Nicole Foss of The Automatic Earth, http://theautomaticearth.blogspot.com/ for repeatedly reminding us of this basic concept.
34. U.S. Environmental Protection Agency, Combined Heat and Power Partnership, an in-depth EPA program to promote increased use of CHP, at http://www.epa.gov/chp/.
35. Bryan Wingfield, GE Sees Solar Cheaper Than Fossil Power in Five Years, Bloomberg News, May 26, 2011, at http://www.bloomberg.com/news/2011-05-26/solar-may-be-cheaper-than-fossil-power-in-five-years-ge-says.html.
36. Ehren Goosens, Lowes Buys Sungevity Stake to Offer In-Store Solar Lease, Bloomberg News, May 16, 2011, at http://www.bloomberg.com/news/2011-05-16/lowe-s-buys-stake-in-sungevity-to-offer-in-store-solar-lease-program.html.
37. Energy Information Administration, Average Capacity Factors by Energy Source, 1998 through 2009, at http://www.eia.gov/cneaf/electricity/epa/epaxlfile5_2.pdf.
38. This point was highlighted by the Citi Nov. 2009 financial analysis New Nuclear: The Economics Say No, at https://www.citigroupgeo.com/pdf/SEU27102.pdf.
39. Energy Information Administration, How Old Are U.S. Power Plants? (2010 ages are listed, and this article adds one year for estimated average age as of 2011); EIA table at http://www.eia.gov/tools/faqs/faq.cfm?id=110&t=3.
40. Matthew L. Wald, Oyster Creek Reactor to Close by 2019, N.Y. Times, Dec. 8, 2010, at http://www.nytimes.com/2010/12/09/nyregion/09nuke.html.
41. Mark Clayton, State Senate Pulls the Plug on Vermont Yankee Nuclear Power Plant, Christian Sci. Monitor, Feb. 24, 2010, at http://www.csmonitor.com/USA/2010/0224/State-Senate-pulls-the-plug-on-Vermont-Yankee-nuclear-plant.
42. IHS Global Insight, Press Release, Power Capital Costs Index, Dec. 21, 2010, at http://press.ihs.com/press-release/energy-power/power-plant-construction-costs-recovery-paused-costs-go-flat-once-more. Note the price trend was steeply upward until the Great Recession.
43. Marc Chupka and Gregory Basheda, Rising Utility Construction Costs: Sources and Impacts, a Brattle Group report for The Edison Foundation, Sept. 2007, at http://www.edisonfoundation.net/Rising_Utility_Construction_Costs.pdf.
44. Jeremy Grantham, Time to Wake Up: Days of Abundant Resources and Falling Prices are Over Forever, GMO, at http://www.gmo.com/websitecontent/JGLetterALL_1Q11.pdf.
45. Data for chart from Fig. 68 (PDF p. 115) U.S. Geological Survey, Assessment of Coal Geology, Resources, and Reserves in the Gillette Coal Field, Powder River Basis, Wyoming, Open File Report 2008-1202. Chart 67 notes this 6 percent is 10 billion short tons. PDF p.12 notes total Gillette field coal production in 2006 was 413 million short tons, equivalent to 37 percent of total U.S. coal production. Report at http://pubs.usgs.gov/of/2008/1202/pdf/ofr2008-1202.pdf.
46. Tadeusz Patzek and Gregory Croft, A Global Coal Production Forecast with Multi-Hubbert Cycle Analysis, Energy, Aug. 2010, at http://xa.yimg.com/kq/groups/20593576/885722944/name/Patzek+and+Croft+2010+-+Peak+Coal+2011.pdf.
47. Energy Information Administration, Annual Energy Outlook 2011 Early Release Overview, Table 14: Oil and Gas Supply, at http://www.eia.doe.gov/forecasts/aeo/excel/aeotab_14.xls.
48. Potential Gas Committee, Potential Gas Committee Reports Substantial Increase in Magnitude of U.S. Natural Gas Resource Base, April 27, 2011, at http://www.potentialgas.org/.
49. Robert W. Howarth, Renee Santoro, and Anthony Ingraffea, Methane and the Greenhouse Gas Footprint of Natural Gas from Shale Formations, Climatic Change Letters, DOI: 10.1007/s10584-011-0061-5, at http://graphics8.nytimes.com/images/blogs/greeninc/Howarth2011.pdf.
50. General Electric Press Release, GE Launches Power Plant with Breakthrough Flexibility and Efficiency to Enable Greater Use of Wind, Solar and Natural Gas on Power Grid, May 25, 2011, at http://www.genewscenter.com/content/detail.aspx?ReleaseID=12510&NewsAreaID=2&PrintPreview=True.
51. Increasing "Clean Energy" generation an average of 42,850 thousand MWh/yr each year, for a 25-year period results in total generation converted of about 1,071,250 thousand MWh/yr by the end of 2035. If supplied by generators operating in base load mode at 90 percent capacity factor, this requires approximately 136,000MW (136GW) of new capacity to replace supplanted "dirty" generation. If all were combined-cycle gas turbines with an installed total all-in cost of about $1,300/kW (including "overnight" costs without escalation of $1,050/kW, modest real dollar cost escalations of 3%/yr during construction period, and avg. weighted cost of capital of 10.5% during construction), this 136GW would cost roughly $176 billion. Yet, because of RPS requirements it is reasonable 30 percent may come from other than natural gas power plants. For instance, EIA expects 20.2GW by 2035 of biomass cogeneration facilities related to mandated biofuels production (EIA, Annual Energy Outlook 2011, at 77 at http://www.eia.gov/forecasts/aeo/pdf/0383(2011).pdf). Small hydro, combined heat and power, landfill gas, and biogas plants are more expensive per kW than natural gas CCGTs (see, e.g., EPA CHP resources, supra note 34). If average all-in cost is $3,000/kW for these other types of power plants, and they comprise 40.8GW (30 percent) of the total 136GW, then total all-in costs of construction for the 26 percent conversion would be approximately $246 billion.
52. As noted in note 27, if the 26 percent converted was all generated from wind, approximately 13,500MW/year of wind farms would need to be brought on line. EIA's current "overnight" cost estimate for on-shore wind is $2,438/kW. This jumped 21 percent from the prior-year estimate. Assuming no further real price escalation (because of technology improvements and Chinese competition), average wind all-in costs are estimated at $2,645/kW. The DOE 20 percent wind study (supra note 27) estimated transmission costs attributable to wind of $120/wind kW (p. 95, PDF p. 114), bringing total wind costs to $2,765/kW. If 340GW of wind is added over the 25 years, total wind costs may equal $939 billion if there are no tax credits. If the 30 percent tax credit is extended then net costs to utilities are $670 billion. Geothermal is more cost-effective. If total "all-in costs" for geothermal average $4,600/kW (starting with EIA's current "overnight" cost estimate of $4,141/kW) this same generation with geothermal may cost roughly $693 billion assuming no tax credits available, average 7.5 percent transmission losses due to remote locations, and transmission capital costs of $18 billion. If the 10 percent tax credit for geothermal is extended, utility costs would instead be $626 billion. If a mixture of 50 percent geothermal and 50 percent wind is used with no tax credits, total costs would be $816 billion. See Energy Information Administration, Updated Capital Cost Estimates for Electricity Generation Plants, Nov. 2010, Table 2 at 8, at http://www.eia.gov/oiaf/beck_plantcosts/pdf/updatedplantcosts.pdf.
53. Id. EIA Capital Cost Estimates, at 172. EIA's current cost estimate for solar thermal is $4,692/kW for a plant that includes a natural gas boiler to warm up the plant during early morning hours, and keep the plant at operating temperatures during daylight operational hours.
54. Id., Table 1 at 7 and Table 2 at 8 and individual sections on coal with CCS. The lowest "clean coal" estimate is pulverized coal with CCS, estimated at overnight cost of $4,579/kW before cost escalations during construction, and before cost of capital during construction. Adding modest real dollar cost escalations during construction plus the cost of capital during construction, brings all-in costs to roughly $6,625/kW. Using the same 136,000MW baseload needed to replace the 26 percent of generation converted means "clean coal" may cost approximately $900 billion.
55. Id., Table 1 at 7 and Table 2 at 8. EIA's updated "overnight" cost per kW for new nuclear is $5,339/kW, in an estimate prepared well before the Fukushima debacle. In 2008, industry cost estimates for new nuclear (in $2007) were in the $4,000/kW "overnight" cost range. (See Web-posted report at note 4.) This new EIA estimate is now 33 percent higher. With much more modest (5%/yr) further real dollar cost escalations during construction, and including cost of capital during construction, indicates total all-in costs for new nuclear of $10,970/kW. Using an optimistic 90 percent capacity factor and thus the same 136GW, total all-in capital costs would be $1.492 trillion for new nuclear to replace the retired "dirty" power MWh generated.
56. National Aeronautics and Space Administration, Project Apollo: A Retrospective Analysis, at http://history.nasa.gov/Apollomon/Apollo.html. NASA quotes the cost of the entire Apollo program as "about $95 billion in 1990 dollars." which converted with a CPI calculator is approximately $160 billion in 2010 dollars.
57. If we express existing MWh as 100 index "units," then 2.5 percent growth through 2035 results in new MWh demand of 185 "units" by 2035. All existing "clean energy" generators are 54 units. To meet 80% Clean requires 148/185. Thus, a total of 148-54=94 new "units" need built. 94/26=3.6 times the investment required in new plant compared to simple conversion of 26 percent of existing generation. If the most expensive option (new nuclear) were chosen at $1.5 trillion for a 26-unit block, total investment needed might be $5.4 trillion. If instead CCS at $900 billion×3.6 were built, $3.24 trillion might be spent. This is about 20 Apollo programs.
58. On-bill financing that stays with the utility bill for that address as part of the fixed-charge cost of local service - rather than requiring payment in full when the customer moves - is the "barrier-breaker" similar to PACE (Property Assessed Clean Energy) loans, but should not carry the "property taxes take priority over lenders" objection to PACE from mortgage lenders that has crippled PACE. It may also be the only way to help renters. Utilities can "make money" by recovering their weighted cost of capital in the rate base for all funds committed to on-bill financing programs.
59. American Council for an Energy Efficient Economy, Potential for Energy Efficiency, Demand Response, and Onsite Renewable Energy to Meet Texas' Growing Electricity Needs, Mar. 1, 2007, at http://www.aceee.org/research-report/e073.
60. Generation of power at off-peak by an otherwise idle advanced combined-cycle gas turbine (CCGT) of approximately 6,333Btu/kWh Heat Rate, cycling this off-peak output through pumped hydro energy storage with 80 percent efficiency (i.e., 20 percent lost) would provide an effective heat rate of about 7,920Btu/kWh. Compared to a conventional natural gas combustion turbine with a heat rate of 10,842Btu/kWh, fuel savings could be approximately 27 percent. If the power stored came instead from a wind farm, fuel savings might be 100 percent. Heat rates from National Petroleum Council, Electric Generation Efficiency, Topic Paper No. 4, July 18, 2007, at http://www.npc.org/Study_Topic_Papers/4-DTG-ElectricEfficiency.pdf.
61. Tom Scheueneman, Gravity Power Module Revolutionizes Pumped Hydro Energy Storage, Triple Pundit, Mar. 11, 2011, at http://www.triplepundit.com/2011/03/gravity-power-module-aims-revolutionize-pumped-hydro-energy-storage/, and Water Battery: Riverbank Power Brings New Twist to Pumped Storage, Eco Friendly Mag, Mar. 24, 2009, at http://www.ecofriendlymag.com/sustainable-transporation-and-alternative-fuel/water-battery-riverbank-power-brings-new-twist-to-pumped-storage/.
62. Electric Power Research Institute, Electricity Energy Storage Technology Options, Dec. 2010, Energy Storage System Costs on p. xxiii (PDF p. 25). Compressed Air Energy Storage Systems estimated at $1,150-$1,250/kW and Pumped Hydro from $1,500-$4,300/kW. This entire White Paper on energy storage is well worth reading, at http://www.electricitystorage.org/images/uploads/docs/EPRI_StorageReport_5_11.pdf.
63. World Nuclear Association, Supply of Uranium, at http://webcache.googleusercontent.com/search?q=cache:56xsARvWWaEJ:www.world-nuclear.org/info/inf75.html+80+years+uranium+world+nuclear&cd=1&hl=en&ct=clnk&gl=us&source=www.google.com WNA's estimate of 80 years left of economic resources is at current usage rates, therefore increases in usage from new reactors would likely shorten this time frame.
64. The Potential Gas Committee's latest assessment of total "U.S. Future Gas Supply" is 2,170 Tcf. (Supra footnote 50.) Divided by current U.S. consumption of approx. 24Tcf/yr the math (90 years) leads to statements of "100 years of natural gas supply." However, as usage increases the time line shrinks.
65. U.S. Geological Survey, Substantial Power Generation from Domestic Geothermal Resources, Sept. 29, 2008, at http://www.usgs.gov/newsroom/article.asp?ID=2027&from=rss_home.
66. Navigant Consulting, Job Creation Opportunities in Hydropower, Sept. 20, 2009, at http://www.hydroworld.com/etc/medialib/new-lib/hydroreview/online-articles/2010/09.Par.30736.File.dat/NHA_JobsStudy.pdf.