By David Wagman, Chief Editor
Meaningful climate change legislation in the U.S. Congress seems unlikely any time soon. Here’s why and why this may not be good news, especially for developers of baseload coal-fired power plants.
Congress this past summer flirted with climate change legislation. This would be the much-anticipated set of federal rules limiting and controlling the amount of greenhouse gas emissions that power plantsamong other fossil fuel userscould emit to the atmosphere.
The congressional effort failed but it showed that writing any climate change legislation will be more challenging than many thought.
“Everyone learned how complicated this issue is,” said Barry Worthington, executive director of the U.S. Energy Association. When I spoke with Worthington in early September he said legislation likely would not be passed before 2010. Support for a bill was not 100 percent, but he rated it a virtual certainty that some sort of climate change legislation would pass. “I think in all likelihood the moment (for climate change legislation) has yet to arrive,” he said.
Of course that was before the economy fell on the floor. The extent of the recent economic turmoil suggests a couple of things. First, Congress and the new president will have their hands full restructuring financial markets and steering the economy out of the ditch. With gasoline prices easing through October the pressure to “do something” regarding energy is over for now. Never mind that gasoline prices have little to do with electricity generation. The public, the media and Congress lump energy all together in a broadly defined issue. Little wonder that coherent policy is such a rarity. At any rate, “energy” will slip down the priority list as gas pump prices improve.
Second, the bailout and other budget constraints will limit the federal government’s ability to fund new energy programs. Incentives, tax breaks, demonstration projects and so on will be difficult to justify for some time. On the “revenue enhancement” side it likely will be difficult for Congress to tax industry for its fossil fuel consumption. “You want to do what in economic times like these?” seems the likely response to such a plan.
Lawmakers will argue that what the economy needs now is a good shot in the arm. Higher energy costs, whether in the form of a tax or other penalty on fossil fuels, will be labeled as counterproductive to fostering economic recovery.
Seen more broadly, the public’s concern with the environment is largely a luxury item. Good times and plentiful cash make it relatively easy to worry about all manner of environmental disaster. It’s also relatively easy to write a check to support environmental causes and organizations. When economic difficulty comes knocking at the door, or at the neighbor’s door, people’s eagerness to worry about the environment will cool.
From a still broader perspective, international consensus still needs to be forced on climate change. Talks begin next year on post-Kyoto action. The European community hopes to have carbon change policies in place by the end of the year even as some countries threaten to block a deal, citing the economic slowdown. Poland and Italy argue they cannot afford to enforce emissions targets on their industrial sectors.
Closer to home, the Conservative Party defeated the Liberals in Canadian parliamentary elections after the Liberals based much of their campaign on a national carbon tax. Liberals proposed a carbon tax up to a C$40 ($34) a ton on energy consumption. Prime Minister Stephen Harper labeled the plan a “tax on everything.”
U.S. lawmakers may take those sentiments as a cue to slow adopting rules that might hurt domestic industries.
But in the absence of legislation, coal-based generators remain uncertain over the potential rules related to climate change and carbon emissions. This is particularly problematic as the environmental community has played the climate change card quite effectively, either to halt or delay new baseload coal plants.
Some delay in building new baseload capacity seems likely, given the recent economic tremors. A drop in electricity demand growth in the coming months will ease pressure for at least some new baseload capacity.
Left unresolved, however, will likely be a comprehensive national approach to climate change and carbon emissions. As has happened before when it comes to electric power generation, the approach may resemble a patchwork quilt of rules championed by some states and eschewed by others. (Of interest will be seeing if California can remain committed to its aggressive climate change goals. What looked difficult to achieve a few months ago may prove all but impossible under current economic conditions.)
A news article last month quoted a Republican senator as saying that the green bubble has burst and environmental issues will take a back seat to economic issues for some time. Seen in a positive light, that sentiment could signify that low-cost, baseload coal-fired generation may be called upon to help power economic recovery. But that recovery may well take place without a nationwide, comprehensive set of rules for climate change regulation.
Then and Now
By Steve Blankinship, Associate Editor
The first POWER-GEN International was held in Orlando in 1988 and this year the event marks its 20th anniversary. Those 20 years have seen the euphoria and caution of deregulation; the bursting of the combined cycle bubble then its re-emergence; a flurry of new coal plant construction; the promise of a nuclear renaissance; escalating construction costs and fuel prices; the entry of renewables into the mainstream; and what may turn out to be the worst economic downturn in at least 35 years.
Because it’s always interesting to compare how things were with how they are now, let’s look at changes for a few basic power industry costs since 1988.
Take the cost of a residential kWh. According to the Edison Electric Institute, the nominal cost of a U.S. residential kWh in 1988 was 7.44 cents. The most current figures show a nominal cost of 10.63 cents. Adjusted for inflation, the numbers are 11.76 cents in 1988 and 10.63 cents now. So despite all the pressures on the power industry, the real cost of electricity has come down in the past 20 years.
Comparing other costs is more difficult. Take the cost of a gas-fired power plant. Combined cycle plants barely existed in 1988 and they didn’t hit their stride until the mid- to late 1990s. That makes cost comparisons tricky. Plus, the mainstay of the early combined cycle plants was the E-class combustion turbine. For more than 15 years, the F-class turbines have been favored.
Energy Information Administration (EIA) numbers indicate that combined cycle plants intended for intermediate to baseload use built in the mid-1990s cost about $600/kW for a 500 MW plant. Today, the cost of a 550 MW CC plant would be about $1,200/kW. (One 550 MW plant was built earlier this year for less than $1,000/kW.)
However, fuel represents a large percentage of the total cost of electricity from gas plants, making the cost of natural gas a number most people focus on. The average cost of natural gas in 1989 was $1.69/mmBtu. The average cost of natural gas last year was $8.97/mmBtu.
Comparing the cost of coal plants isn’t much easier. In 1988, the cost to build a 600 MW subcritical project was about $700/kW. Based on numbers from EIA, EPRI and other sources, a comparable plant today would probably be a 750 MW supercritical plant costing $2,000 to $3,000/kW. That would not include carbon capture, which could increase the cost by 30 percent. Factoring in sequestration, not yet proven to be commercially viable, could double the overall project cost.
Roosevelt Huggins, manager of business development for air quality control systems at Black & Veatch (B&V), estimated the cost of a wet flue gas desulfurization system in 1988 was about $175/kW. Today, the cost would be about $475/kW. “The difference in price reflects design changes that have made these systems far more efficient,” Huggins told me. Yet the prices rose only about 4 percent a year until 2004 when the cost of everything went up including concrete, steel and demand for engineering services and scrubbers.
Coal plants built in the 1980s could capture 95 percent of the particulate matter they produced and remove 70 percent of sulfur dioxide. Today’s plants can capture 99.9 percent of the particulates and 95 percent of the sulfur dioxide. In the 1980s, no mercury emitted from coal plants was captured. Today’s technology removes 85 percent.
According to B&V, an 850 MW greenfield with wet FGD came in at $1,230/kW 20 years ago. An 855 MW brownfield with wet FGD cost $725/kW. And a 1988-vintage 425 MW greenfield with wet FGD cost around $1,090/kW.
Earlier this year, the 545 MW Weston supercritical unit with SCR, dry FGD and advanced mercury reduction technology went commercial at $1,420/kW. The same unit today would probably cost “north of $3,000/kW,” said Tom O’Brien, Weston project manager.
The cost to fuel a coal plant has declined since 1988. According to EIA data, the overall nominal cost of all kinds of U.S. coals in 1988 was $22.07 per short ton. That compares to $25.40 in 2007. But in real terms, the total price of all coal has fallen from $29.16 to $21.23. The cost of bituminous coal declined in real dollars, from $38.54 to $34.12.
Comparing the cost of wind then and now is no easier. In 1988, the typical wind turbine was much smaller than today (50 to 150 kW as compared with 1.5 MW), the technology less advanced and the market much smaller. A typical wind turbine in 1988 would have cost about $750/kW. A 1.5 to 3 MW wind turbine today costs about $2,000/kW. That’s certainly higher, but consider that the technology is far more efficient today than 20 years ago. One reason wind turbines have such better capacity factors today is their size and height. It requires a lot of steel and concrete to build a 300-foot-tall tower and more materials go into today’s wind turbines.
Transmission represents another huge electric power infrastructure cost. Reliable figures don’t go back to 1988. But more recent numbers suggest the cost has risen in just the past seven years. According to “Transmission Planning for a Restructuring U.S. Electricity Industry,” by Eric Hirst and Brendan Kirby, published in June 2001, the cost of building one mile of 345 kV transmission line in 2001 was just under $1 million. The Edison Electric Institute currently places the cost at more than $2.7 million per mile.
Looking at these numbers may not provide all the clues we’d like about the next 20 years, any more than the 1988 numbers would have provided any certainty in predicting today’s conditions. But this much is certain: Looking back is always interesting. And looking ahead is always challenging.
Economic Shock Could be Therapeutic
By Nancy Spring, Senior Editor
Turmoil in the financial markets has injected the words “volatility” and “uncertainty” with steroids. Will the electric power sector feel the pinch? Of course, but frozen credit markets and belt-tightening could cause some surprising shifts in our industry.
We’ve been in wait-and-see mode when it comes to building new generation in this country for quite a while, even though all long-range forecasts called for additional power. The Energy Information Administration, for instance, projected that total U.S. electricity supply must rise at an average rate of 47 TWh a year from 2008 to 2030 to meet demand growth. Now the economic crisis has many questioning these forecasts. What if the economy slows down? Will we over-build?
Actually, long-range forecasts of electric demand and supply have never been that helpfulor accurate. There’s a surprise around every technological corner. In the 1960s, demand growth caused by air conditioning was underestimated; today, data centers are gobbling up energy faster than anyone ever dreamed. Extrapolating from demand growth in the late ’60s and early ’70s led to big generation overbuilds.
“People have made mistakes in terms of electricity demand predictions and price predictions, largely by underestimating the medium-term impact of markets,” said Dan Gabaldon, a principal in Booz Allen Hamilton’s energy practice, in a cap-ex report he and I worked on earlier this year for PennWell’s Electric Light & Power.
Compare long-range projections with reserve capacity margin data. The first is assailable and prone to change; the second is immediate and meaningful. A recent NextGen Energy Council study found that U.S. baseload generation capacity reserve margins declined “precipitously to 17 percent in 2007, from 30 percent to 40 percent in the early 1990s.” The Council said 12 percent to 15 percent is the minimum required to ensure reliability and stability.
That’s a much more compelling and credible assessment of our electric health and a better way to plan for the future. If the economic meltdown forces us to do that, the result could be productive.
“[W]e need to be realistic about how well we can plan for the distant future…. (I)t is unrealistic to imagine that we can legislate today for the next 30 to 40 years and get it right,” said Sen. Jeff Bingaman, D-N.M., chairman of the Senate Energy and Natural Resources Committee, in his 10 principles for climate legislation.
And that brings us to global warming.
The current toxic economic atmosphere will probably choke federal global warming legislation, but we don’t have to give up on building a smarter, cleaner energy structure. We just have to take a more realistic look at all of our optionsand that means coal, which has struggled under the weight of a “carbon-capture ready” requirement.
A U.S. Government Accountability Project report released in October said that carbon capture and sequestration technology isn’t ready now and might not be for a long time.
Not a big surprise to those industry leaders and scientists who have repeatedly said the same thing. Not only is CCS not “ready,” but it’s expensive, uses a lot of power and creates a new tangle of legal issues. Public Power Weekly reported that DOE studies found that sequestering CO<sub>2</sub> underground might double power plant water consumption, a precious resource that’s already in short suppy in many areas of the country.
The whole idea of burying CO<sub>2</sub> is as fundamentally flawed as dumping garbage into the ocean or burying nuclear waste in a mountain. Haven’t we learned this lesson before? Yucca Mountain: 30 years and $85 billion. If the economic crisis forces us to question CCS, then good.
But perhaps the biggest surprise was wrapped up in Congress’ financial bailout bill, where Production Tax Credits and Investment Tax Credits for clean energy were thrown in at the last minute.
Earlier this year, Rep. Mark Udall, D-Colo., said, “Green is the new red, white and blue” and added that wind is the future of energy. Maybe not wind: Congress gave wind a one-year PTC, while solar got eight years of ITCs and significantly, allowed utilities to take direct advantage of the ITC through ownership of solar projects. Today, solar is the new green.
Solar is poised for rapid technological advances and should be as big a success story as wind. Plus solar provides other benefits: it’s both central station and distributed generation. It won’t take thousands of miles of expensive transmission lines to bring its clean energy to market. (Not only is new transmission expensive, but arguably, a large, interconnected transmission grid isn’t the most reliable way to run the system and make it more secure from cyber and physical attack. The Texas model might be preferable.)
Utilities are quickly developing excellent solar programs on both sides of the meter. At a press conference during the Solar Power International conference in October, Duke Energy’s CTO David Mohler said, “Ultimately, we will get into [the installation business.] We can standardize it…. In eight years, utilities and other players will be able to sort out the value chain.”
So, we plan for the mid-term, include coal, worry less about legislating the capture and storage of CO<sub>2</sub> and put our R&D dollars into technologies like solar that will revolutionize our electric grid. We imagine a new business model for utilities. Maybe the economic crisis will do more good than harm.