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The cost of ending global warming – a calculation

Guest Post by Chris Uhlik. Dr Uhlik did a BS, MS, and PhD in Electrical Engineering at Stanford 1979–1990. He worked at Toyota in Japan, built robot controllers, cellular telephone systems, internet routers, and now does engineering management at Google. Among his 8 years of projects as an engineering director at Google, he counts engineering recruiting, Toolbar, Software QA, Software Security, GMail, Video, BookSearch, StreetView, AerialImaging, and research activities in Artificial Intelligence and Education. He has directly managed about 500 engineers at Google and indirectly over 2000 employees. His interests include nuclear power, photosynthesis, technology evolution, artificial intelligence, ecosystems, and education.

(Ed Note: Chris is a member of the IFRG [a private integral fast reactor discussion forum] as well as being a strong support of the LFTR reactor design)

An average American directly and indirectly uses about 10.8 kW of primary energy of which about 1.3 kW is electricity. Here I consider the cost of providing this energy as coming from 3 main sources:

1. The fuel costs (coal, oil, uranium, sunlight, wind, etc)

2. The capital costs of the infrastructure required to capture and distribute the energy in usable form (power plants, tanker trucks, etc)

3. The operating costs of the infrastructure (powerline maintenance, plant security, watching the dials, etc)

The average wholesale electricity price across the US is about 5c/kWh, so the all-in costs of providing the electrical component is currently ~$570/person/year or 1.2% of GDP. The electric power industry including all distribution, billing, residential services, etc is $1,120/person/year or 2.4% of GDP. So you can see there is about a factor of two between marginal costs of electricity production (wholesale prices) and retail prices.

The rest of this energy comes from Natural gas, Coal, Petroleum, and Biomass, to the tune of 6.36 kW/person.

I’m going to make the following assumptions to calculate how much it would cost to convert to an all-nuclear powered, fossil-carbon-free future.

Assumptions (*see numbers summary at foot of this post)

  • I’ll neglect all renewable sources such as hydro. They amount to only about 20% of electricity and don’t do anything about the larger fuel energy demand, so they won’t affect the answer very much.
  • Some energy sources are fuel-price intensive (e.g. natural gas) and some have zero fuel prices, but are capital intensive (e.g. wind). I’ll assume that nuclear is almost all capital intensive with only 35% of the cost coming from O&M and all the rest going to purchase costs plus debt service.
  • I’ll use 8% for cost of capital. Many utilities operate with a higher guaranteed return than this (e.g. 10.4%) but the economy historically provides more like 2–5% overall, so 8% seems quite generous.
  • I’ll assume 50 year life for nuclear power plants. They seem to be lasting longer than this, but building for more than 50 years seems wasteful as technologies advance and you probably want to replace them with better stuff sooner than that.
  • Back in the 1970’s we built nuclear power plants for about $0.80–0.90/watt (2009 dollars). In the 1980’s and 90’s we saw that price inflate to $2.09–3.39/watt (Palo Verde and Catawba) with a worst-case disaster of $15/watt (Shoreham). Current project costs are estimated at about $2.95/watt (Areva EPR). Current projects in China are ~$1.70/watt. If regulatory risks were controlled and incentives were aligned, we could probably build plants today for lower than the 1970’s prices, but I’ll pessimistically assume the current estimates of $3/watt.
  • Electricity vs Combustion: In an all nuclear, electricity-intensive, fossil-carbon-free future, many things would be done differently. For example, you won’t heat your house by burning natural gas. Instead you’ll use electricity-powered heat pumps. This will transfer energy away from primary source fuels like natural gas to electricity. Plug-in-hybrid cars will do the same for petroleum. In some cases, the total energy will go down (cars and heat pumps). In some cases, the total energy will go up (synthesizing fuel to run jet transport aircraft). I’ll assume the total energy demand in this future scenario is our current electricity demand plus an unchanged amount of energy in the fuel sector, but provided instead by electricity. I.e. 1.3 kW (today’s electricity) + 6.4 kW (today’s fuels, but provided by electricity with a mix of efficiencies that remains equivalent). This is almost certainly pessimistic, as electricity is often a much more efficient way to deliver energy to a  process than combustion. (Ed Note: I discuss similar issues in these two SNE2060 posts).
  • Zero GDP growth rate

Result: In this future, we need 7.7 kW per person, provided by $3/watt capitalized sources with 8% cost of capital and 35% surcharge for O&M. The cost of this infrastructure: $2,550/person/year or 5% of GDP.

Alternate assumptions:

  • Chinese nuclear plant costs of $1.70/watt
  • Higher efficiency in an electric future were most processes take about 1/2 as much energy from electricity as they used to take from combustion. 1.3 kW from old electricity demands (unchanged) + 3.2 kW from new electricity demands (half of 6.4 kW). And fuels (where still needed) are produced using nuclear heat-driven synthesis approaches.

Alternative result: $844/person/year or 2% of GDP.

Conclusion: Saving the environment using nuclear power could be cheap and worth doing.

Numbers*:

Year: 2008
GDP: $14.59T
Population 306M
Electricity: 12.68 quads
Non-electricity fuels: 58.25 quads
Natural gas: 16.33 quads
Coal: 1.79 quads
Biomass: 3.46 quads
Petroleum: 36.67 quads
Average retail electricity price: 9.14 c/kwh
Electric power industry: $343B/yr
Electricity transmission industry: $7.8B/yr

Per person statistics:
GDP: $47,680
Electricity: 1.29 kW (average power)
Fuels: 6.36 kW

By Barry Brook

Barry Brook is an ARC Laureate Fellow and Chair of Environmental Sustainability at the University of Tasmania. He researches global change, ecology and energy.

335 replies on “The cost of ending global warming – a calculation”

DavidTweed,

I am not sure what you are advocating.

Are you saying that we can’t roll out nuclear fast enough so we will have to roll out some other low emissions technology, such as renewables?

Any alternative technology will require far more materials, labour, manufacturing capacity, etc. than nuclear to produce the same energy output (dispatchable power), so how would it help to go to some other technology?

If we can’t roll out nuclear fast enough we certainly cannot roll out anything else any faster, or even as fast.

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Question – what defines the summer peak load period? typical dates, times (hours of day/night etc.), duration?

In Texas its hot weather during the months of May through September. Ideally there should be no major scheduled dispatchable generation maintenance during this period. The peak of each day will be in the afternoon between 2 pm and 6 pm and run for a few hours.

Question – what is the difference between capacity credit and effective capacity for LOLP calculations?

I would think they are the same. You can get about the same valud for capacity credit by either running an LOLP study and noting the change in LOLP for varying a reliable gas unit by a few MW and then varying the total wind by a few MW and noting the benefit to the LOLP from each source. Wind will be some fraction of the natural gas as far as its effect on the LOLP and that would be the capacity credit number. You can get about the same value by looking at a few peak load hours and seeing at what level the wind is running at during those hours. This works because most of the LOLP comes from not being able to serve load during those peak hours. I would not associate wind with base load. During the peak hour both base load generation and peaking generation are reliable and available, well about 95% of the time. Because of the little bit of forced outage rate of reliable generation we must have some additional reliable generation available. So not even reliable generation is completely reliable. Wind is so unreliable it does not contribute to being able to satisfy the reliability (i.e. capacity) requirement.

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This has become an extremely long post as it focusses on the most critical aspect of conversion off the carbon economy.
An interesting study of the impact on GDP can be found at:
http://www.nakedcapitalism.com/2011/01/what-if-chinas-gdp-is-seriously-overstated.html

This article is on China bu the arguments are as strong for any country. A quote” electricity generation capacity – actual and in development – paints a somewhat different picture on the GDP take, ie, on a comparative analysis, actual usage of electricity produced/ consumed does not correlate with imagined GDP growth figures.”

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Today’s The News York Times has an article about the non-renewal of building NPPs in the USA. High cost for big NPPs is certainly part of the problem, but the other is in those states with restructured ultility companies. There, the GenCos need a power purchase agreement with at least one RetailCos in order to arrange for financiang. The RetailCos are not cooperating due to low customer demand brought on by the Great Recession and various energy efficiency schemes. Those companies which are still vertically integrated seem to be moving forward unless the utility regulating commission won’t let them charge the customer base until the NPP is actually gnerating; when that happens they cannot afford to build.

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If we can’t have low cost nuclear – due to the Greens and environmental NGO’s anti-nuclear policies – then we will get gas, ever increasing carbon prices and ever increasing electricity prices. That is what will happen in the developed countries. In other countries, they will invest in the least cost option, coal. So the economically irrational policies in the developed countries will have negligible effect on world emissions but will further damage the economies of those countries who implement the polices forced on us by the anti-nuke brigade.

This is a currently running, Oxford style, moderated debate in “The Economist”. http://economist.com/debate/days/view/645 The clear conclusion I draw from this is if we can’t have low cost nuclear we’ll get carbon taxes, gas and high cost electricity.

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Useful comment from a friend of mine, on this article: http://www.theaustralian.com.au/news/opinion/energy-sector-wilts-under-solar-stress/story-e6frg6zo-1225993849581

“Alan Moran’s analysis of the huge subsidies for solar electricity offers only a tiny clue as to how this has all happened: ‘the triumph of hope over experience’.

Where does that hope arise? Governments hear it from their electorates. Fifty years of propaganda, starting off in the 1960s with the absurd proposition that ‘free’ energy from the sun translates into cheap, highly refined electrical energy, has created a public obsessed with the promise of solar power. The ‘experts’ keep telling them that with more investment in research and demonstration the dream of cheap solar electricity will eventually come true. Governments deliver that dream right now, with the many subsidies Moran lists.

As Moran warns, energy is too important to be left to public fantasy. Solar electricity is, as he says, intrinsically uneconomic. Its source, solar radiation, is simply too feeble when it arrives at the earth’s surface. The conversion technology is beautiful but the engineering to reach the required scale swamps the costs. This needs to be a matter of public education, as do the pervasive impacts of energy costs on living standards. Perhaps then we will be ready to look at the real energy options for a low-carbon future.”

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David B. Benson,

Thank you for the link. All continents except Africa and Australia. However, South Africa and Egypt are both planning to start new build soon, so only Pity about Australia, eh?

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gene, you say this:

I would not associate wind with base load.

and I get this on the one hand but on the other hand, the concept of capacity credit first came up (I think) in our discussions in the context of barry’s critique of claims from the renewables camp that dispersed wind could function as base power. barry took Jacobson’s numbers seriously in order to point out that wind could provide very little reliable power, and do so only with absurd overbuild.

that said, it seems very important to say that WIND CAN’T PROVIDE BASEPOWER, and that the real capacity credit number is often lower (a lot lower) than the number barry originally came up with, a point peter lang has made.

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Yes I agree Greg that wind cannot provide base load power. Possibly a refined statement would be that wind cannot supply reliable power for either base load or peaking. That knocks off both ends with one statement. Wind can supply unreliable power so the customers would have to tailor their consumption to match what and when the wind can produce power. I don’t think our modern society can run on that kind of power supply model. Sail boats have this power problem and use both wind and solar and batteries. However they have to monitor their usage constantly and shut down when the battery drops below a certain charge level. I talk with these folks on the ham radio and they have to watch their power usage very closely. Its not a model for businesses and most homeowners to have to be forced to use.

Wind power here in Texas is reducing the amount of gas being burned and a little of coal energy. I don’t recall seeing the economics ever being calculated to see if the wind program is paying for itself. I bet it isn’t but those in favor of wind don’t really want such a study to be performed. They are hiding from the truth being uncovered.

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Gene,

Wind power here in Texas is reducing the amount of gas being burned and a little of coal energy.

Coud you please post a link to any good references you have on this.

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Here is a recent Austin Energy report on their concept for reducing CO2.

Click to access Austin’s%20Energy%20Leadership%20Karl%20Rabago%2012%202010.pdf


Here is an older City Public Service report (San Antonio) on their generation plan before they reduced the amount of new STP 3 and 4 nuclear. I could not find their new plan on line but it had almost no reduction in coal in the new plan
http://s192669574.onlinehome.us/files/joint/energy_options/2009-01-22_Mike_Kotara.ppt
I’m afraid the anti nuclear proponents are in charge at both AE and CPS at the current time.

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gregory Meyerson, on 5 February 2011 at 2:09 AM — Memorize this ditty:

When the wind blowth not
other power must be sought.

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I’ll assume 50 year life for nuclear power plants. They seem to be lasting longer than this, but building for more than 50 years seems wasteful as technologies advance and you probably want to replace them with better stuff sooner than that.

The average life of a nuclear power plant is 22 years. Even then 50 is awfully generous considering most industry projections use 40.

Most of your assumptions are ridiculous but that one sticks out.

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No the long life times of existing nuclear plants is simply because the cost of keeping an existing plant going is cheaper than the cost of building a new plant. When the cost of a new plant drops enough to justify closing down the old plant, then that will happen. The long life times assumption is not ridiculous.

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Gene Preston wrote:

I don’t recall seeing the economics ever being calculated to see if the wind program is paying for itself. I bet it isn’t but those in favor of wind don’t really want such a study to be performed. They are hiding from the truth being uncovered.

This information is not very difficult to find. Have you tried looking for it, or requesting it for your local energy company? Reports from NREL are a good place to start (such as the wind power market reports for 2008 and 2009). There are also EIA and IEA annual energy outlooks (here and here). AWEA has quarterly market reports. If you’re an energy analysts or market investor, you can get this information in real time from your local ISO (or consult secondary sources on these prices). ERCOT provides a rather detailed list of market reports for real-time and day-ahead markets. ERCOT, in fact, is a rather hotbed of critical study on market pricing and wind integration with numerous academic studies on the topic (here, here, here … to cite only a few). Why would anybody invest in these technologies (public, private, hedge or capital financing, energy trading, venture capital, utility stock, or anything else) if they were unable to find these numbers? I don’t find any evidence that these numbers are hard to find, or are otherwise being deliberately concealed or covered up (as you suggest).

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The study I was talking about is one with no tax breaks and no subsidies and the optimized generation plan which includes the cost of new transmission is optimized when a number of resources are included in the mix such as wind solar nuclear and even gas and coal but in those instances the long range costs of the environmental damage of CO2 is taken into account. No there has never been such a study performed. ERCOT is trying to perform sucn a study and they keep coming back to the BAU plan which is very dependent on fossil fuels. In order to get wind to be in the plan they have to force it and that increases the overall cost of the plan rather than letting the optimization software select the option. Because wind has little capacity value, the optimized generation plan is going to select the more reliable gas plant option to add capacity. Then wind can be added but the economics are very sensitive to gas prices, since you have to add a lot of wind to displace a little gas. And that wind has a lot of transmission cost associated with it. The program is going to object to adding the wind so it has to be forced into the generation mix. We are just now getting around to doing LOLP studies with wind and solar. The effective load carrying capability of wind and solar still is to be determined. Even if the LOLP study shows there is some value to wind and solar there is still a chance that a common mode failure of all the wind or all the solar in a wide are could result in a rolling blackout if too much capacity dependence is put on wind and solar to provide reliable power at all times. Your referrences are not the kind of system studies I was talking about.

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Gene Preston wrote:

Then wind can be added but the economics are very sensitive to gas prices, since you have to add a lot of wind to displace a little gas. And that wind has a lot of transmission cost associated with it.

I’m not following you.

ERCOT currently calculates the capacity credit of wind at 8.7% of installed capacity. They describe their methodology (using LOLP results) here. They primarily use this for resource planning. Capacity factors, as you correctly suggest, are something different.

The cost of wind energy has very little to do with the cost of gas (to an extent). A well known UK study looked at wind integration costs, and found balancing costs to be no more than £3 – £5/MWh (from system efficiency impacts). I believe the Bonneville Power Administration now charges an “integration cost” to wind developers, and places this cost at $5.70/MWh (adding together costs for regulation, load following, and imbalance). Is this the kind of study you are looking for?

Wind and natural gas plants are not linked as you suggest. If wind dies down in a “common mode failure” and reserve capacity is activated to meet the demand, the cost of wind energy is not the sum of the two generation sources!

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EL all the power plants are tightly connected in an hour by hour dispatch. When wind ramps up gas and coal ramp down. Thats the only purpose of wind, to displace fossil fuel energy sources. Wind in ERCOT is given an 8.7% capacity credit as you have correctly stated. This means that the other 91.3% capacity must be made up with conventional generation when there is load growth and when older coal and gas plants are retired and believe me there are a lot of old power plants in the US that need retiring. But these older plants are not being replaced sufficiently because of the fear of environmental regs, rightly so. The over reliance on wind is going to create a great difficulty in operating our electric systems reliably. I expect rolling blackouts during the summer peak and winter peaks in upcoming years in ERCOT as wind is increased and no mechnaism is in place to insure reliability in the ERCOT system. Either the rules have to be changed to insure reliability or we will need to get used to the electricity going on and off.

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Gene Preston wrote:

I expect rolling blackouts during the summer peak and winter peaks in upcoming years in ERCOT as wind is increased and no mechnaism is in place to insure reliability in the ERCOT system. Either the rules have to be changed to insure reliability or we will need to get used to the electricity going on and off.

Are you suggesting regulatory agencies and utility developers in Texas are not likely to follow ERCOT’s own reserve capacity planning formulas, and do not see a market for regulatory services as a very lucrative and value added component of their business models? This seems unlikely to me (especially when there is a great deal of money to be made integrating wind). And this doesn’t necessarily raise energy costs for consumers. In fact, in some instances it lowers it (here, here, and here), since better grid operability (or flexibility) reduces costs-benefits of peak pricing programs.

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The reserve margin is just a recommended level in ERCOT. There are no mechanisms in place in ERCOT to insure the minimum reserve margin level is actually met. In fact it isn’t being met. Currently wind is transmission constrained. New lines will be finished in the 2013 time frame. But new wind on those new lines will not keep the lights on in the summer time when winds are light in the panhandle and temperatures are over 100 degrees. I just received an urgent email from a fellow in PJM saying that it looked like ERCOT was going to be short on capacity soon. This shortage of capacity is being discussed internally within ERCOT at this time. Lets face it, the open market design is basically a failure by the Texas PUC. Lets see if we are able to keep the lights on this summer.

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