The present global discussions of energy in a carbon-constrained world pit two ethical philosophies against each other – justice for the planet and justice for the poor (Wright and Conca 2007). Although the approximately 150 tkWhrs generated between 1910 and 1990 emitted over 160 billion tons of CO2 with significant damage to human health and the environment, it also lifted almost 2 billion humans out of abject poverty (United Nations 2009) and significantly increased life-spans for the poor and middle class. And this trend continues to accelerate.
The ethical drivers for and against energy production are not just an academic exercise. They are the reason for China’s recent expansion of coal and the rise of its middle class to over 500 million people this year. But 800 million in China still remain in abject poverty, along with well over a billion others across the globe, and their energy privations must be balanced with the need to preserve the planetary ecosystem, or we will fail to achieve either a peaceful or a prosperous future.
As discussed in What Is Our Energy Future? the world needs about 30 trillion kWhrs of electricity per year to eradicate global poverty and war, twice what we produce now. But what is this going to cost society? In the long-run? What are the actual costs to produce energy – not the fixed price, not the financing, not the tax breaks and subsidies, or the mandates, not all of the artificial add-ons that we demand in order to make someone rich or to fit into our economic model. These other costs are what go into calculating levelized costs, lossely defined as a break-even point for investors, utilities and consumers. Levelized costs are critical for short-term economic planning and financing, but society needs to know the actual total life-cycle costs so we can plan beyond our captive 4-year intervals. Otherwise, short-term profits will drive us down the fossil-fuel path by default and we will have no hope of breaking this costly cycle.
By life-cycle costs, I mean the total costs of building, operating, maintaining, fueling and decommissioning a thermal power plant, a solar array, a wind farm or hydroelectric dam over its life, that is, 15 years for a wind turbine, 40 years for a fossil fuel plant, 60 years for a nuclear plant, or 80 years for a large hydroelectric dam. Dividing those total costs by the amount of energy actually produced, not theoretically possible or installed capacity but actually produced, gives a life-cycle cost in ¢/kWhr. How we finance this cost is a totally different issue, one at which we generally fail as a society.
To calculate these costs, each source must be normalized to the capacity factor and the life span and a specific total energy production, such as 0.5 trillion kWhrs. Although it is cheap to build a gas-fired plant, the fuel costs become more important as time goes on, even with the present gas surge. While it is expensive to build a nuclear plant, the fuel costs are low and the capacity factor high, so the longer it operates the cheaper it becomes. Similarly for wind and solar, expensive to build but no fuel means the longer they are operating the cheaper they become. On the other hand, the longer fossil fuel plants operate the more expensive they become because it is all about the fuel.
If readers are interested, it will take a few posts to go over the details of calculating these costs for each of the primary energy sources of coal, natural gas, nuclear, wind, solar and hydro, but the results are: 4.1 ¢/kWhr for coal, 5.2 ¢/kWhr for natural gas, 3.5 ¢/kWhr for nuclear, 4.3 ¢/kWhr for wind, 7.7 ¢/kWhr for solar, and 3.3 ¢/kWhr for hydro.
These costs are for the entire life-span of the units, after running them to death. These costs are separate from investments, taxation, subsidies, loan structure, and other costs that are associated more with pricing and financing than with what the actual costs are to produce that energy.
Costs not captured include electrical grid upgrade, connectivity of renewables and buffering of their intermittency by rapid cycling of fossil fuel plants as presently practiced in this country, and non-carbon-tax externalities such as pollution and health care costs associated with energy sources, especially for coal. Costs for coal are highly dependent on the cost of gasoline, and the costs for wind are highly dependent on material costs like steel and concrete as wind requires about 10 times the amount of steel, concrete and copper per kWhr than any other energy source. These, in turn, are also highly dependent on the cost of gasoline. All decommissioning and waste disposal costs are relatively small compared to other costs, 0.1¢/kWhr or less, even for nuclear. Costs of a carbon tax @$15/ton of CO2 emitted are significant for the fossil fuels over this time period but, on their own, are still insufficient to force any change in fossil fuel use, or the total mix of sources adopted by a nation. According to Dr. Daniel Kammen, Nobel Prize-winner at Berkeley’s Goldman School of Public Policy, in order to force changes in fossil fuel use, the tax must exceed @$40/ton of CO2 emitted, something which will never fly in the foreseeable future.
Using these numbers, we can estimate how much it will cost to implement different energy mixes over the long term. The U.S. will be producing about 6.5 trillion kWhrs/year by mid-century. Assuming all present energy systems are dead and need to be replaced, the present mix (⅔ fossil fuel, ⅓ others, with natural gas increasing with respect to coal) will cost a little over $7.5 trillion of which $1.7 trillion would be capital investment. However, to produce 6.5 trillion kWhrs/year by mid-century with the ⅓ – ⅓ – ⅓ mix discussed in What Is Our Energy Future? (a third fossil, a third renewable and a third nuclear) will cost a little under $7.4 trillion of which $3.4 trillion would be capital investment, most heavily weighted towards renewables. So about the same cost, but the second mix is better for the environment, for energy security, uses half the fossil fuel, and sets us up for a more sustainable future, but requires more investment, and therefore, greater financing.
So the financing issue is key. T. Boone Pickens can whip $1.5 million out of his back pocket to buy a GE 1 MW wind turbine, but it would take over 3,200 of them running their entire life-span to equal the life-cycle output of a single coal-fired plant, and over 9,500 of them to equal the life-cycle output of a single AP1000 nuclear plant. Even T. Boone can’t get financing for that many at once. Unfortunately, the $7 billion price tag of a single AP1000 exceeds the entire financial portfolio of most utilities. Thus, the need for loan guarantees or some way to finance big projects which, in the long-run, are cheaper for the consumer and society as a whole. Almost all of the nuclear plant fiascos of the 1970s and 1980s were actually financing and planning debacles, not a fault of the technology. And taxpayers were made to foot the bill on many of those poorly-financed and poorly-planned projects, thus souring much of the public on big projects like these.
So can we get our financing act together in time to avoid becoming a natural gas nation?
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