Posted by: Electric Thoughts™ | June 7, 2011

Hard Choices

Between An (Energy) Rock and A Hard Place

Just as concerns about global warming and carbon emissions were about to create a rejuvenation of nuclear power, the Tohoku earthquake and tsunami rocked the shores of Japan, and with it, the latest nuclear renaissance.

This recent disaster in Japan has shown us that we are increasingly stuck between a rock (coal) and hard place (nuclear fuel rod) when it comes to energy sources. If we’re going to solve this conundrum, it’s time to take another look at the cost comparison between generating energy and conserving energy, or negawatts. A negawatt is the opposite of megawatt – a million watts of power avoided versus a million watts of power used – a powerful concept with demonstrated ROI, that even the Federal Energy Regulatory Commission (FERC)* has now recognized.

Consider the following cost estimates for new power generation from the most common sources, drawn from information supplied by the Energy Information Agency (http://www.eia.doe.gov/oiaf/beck_plantcosts/index.html), which cites “overnight” costs. An overnight cost is the physical construction cost of the plan, divided by capacity, and does not include land costs, financing cost or any other related cost.

Nuclear: Even before the disaster in Japan this year, the EIA estimates overnight cost of a nuclear plant at $5,335/kW.

Coal: The same EIA report lists the overnight cost of a coal-fired plant as $2,884/kW without carbon capture and $5,388/kW for integrated gasification combined cycle with carbon capture.

Natural Gas: The EIA lists the overnight cost of a natural gas plant at $978/kW for a conventional combined cycle plant, and $2,060/kW for advanced combined cycle with carbon capture (NGCC with CSSS).

Conservation: I estimate that an energy efficiency project with a simple payback of three years under an electric rate of $0.0982/kWh (the average retail price in the U.S. according to EIA; http://www.eia.doe.gov/cneaf/electricity/st_profiles/e_profiles_sum.html) has an equivalent “overnight cost” of no more than $2,581/kW. This figure assumes that the energy savings accrue over all 8760 hours of the year. If the savings accrue over fewer hours, then the equivalent “overnight cost” would be lower because the kilowatt reduction would be higher. The calculation is simply the electric rate times the hours per year of operation, times the simple payback period in years.

Conservation with a moderate payback period is roughly the same cost as the cheapest clean generation technology (NGCC with CCS) and, since many conservation projects have a much faster payback than three years; this leads me to the following proposal:
“As a society, we should stop funding the construction of any power plants in the U.S. until we have engaged and exhausted all conservation projects that have a payback of less than three years. We should finance the overnight costs of these conservation projects via a savings charge on individual energy consumption. Each end-user’s savings charges would go into that end-user’s energy savings account, which they could use for their own energy conservation projects. If the funds aren’t applied in a reasonable amount of time (e.g. three years), the end user loses them. The savings charge rate, as a fraction of a utility bill, should be set so that societal savings charges equal the current rate of spending on new power plants.”

In my view, this will force a more through analysis and comparison of the effects of conservation versus construction, and lead to a more efficient use of capital in energy generation. At the same time, it will have the important effect of contributing to a reduction in greenhouse gasses and spent nuclear fuel.

In the coming months and years, the Japanese will undoubtedly teach us a great deal about how effectively aggressive conservation can help to quickly offset the loss of power generation capacity. And I suspect that what we will learn will be consistent with this proposal.

*http://www.ferc.gov/EventCalendar/Files/20110315105757-RM10-17-000.pdf

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