Note: Drawn from report synopses by OurEnergyPolicy.org.
Highlights of Major 2010 Energy Innovation Reports
A Business Plan for America’s Energy Future
by the American Energy Innovation Council
Released June 2010
Post-Partisan Power
by Steven F. Hayward, Mark Muro, Ted Nordhaus, and Michael Shellenberger
Released October 2010
Creating a Clean Energy Century
by Third Way
Released November 2010
Government must play a key role in accelerating energy innovation for two reasons. First, innovations in energy technology can generate significant public benefits that are not reflected in the market price of energy, including cleaner air and improved public health, enhanced national security and international diplomacy, reduced risk of dangerous climate change, and protection from energy price shocks and related economic disruptions. Second, the energy business requires investments of capital at a scale beyond the risk threshold of most private-sector investors. A slow turnover rate for energy equipment, and existing market structures, limits investments in new ideas and creates a vicious cycle of status quo behavior.
Fossil fuels have undeniably been critical to American prosperity and development, but we can gradually move toward cleaner, healthier, and safer energy sources. Our goal today should be to make new clean energy sources much cheaper so they can steadily displace fossil fuels. If we structure this transition correctly, new energy industries could be an important driver of long-term economic growth. Drawing on America’s bipartisan history of successful federal investment to catalyze technology innovation by the U.S. military, universities, private corporations, and entrepreneurs, the heart of this proposal is a $25 billion/year investment channeled through a reformed energy innovation system.
The energy market is moving slowly, but inevitably, toward clean energy as countries decide they can no longer tolerate the pollution costs and security risks of conventional energy or the threat of global warming. The great hurdle is making clean energy as cheap as fossil fuels. This will require major breakthroughs. Existing clean energy sources are too expensive and have technical limitations. Countries that are home to this next generation of affordable clean energy technologies will likely dominate the 21st century economy. The United States can emerge as the dominant economy of the 21st century, just as it was in the 20th century. But we will not get there unless we change course and do so rapidly.
Recommendations
Recommendations
Recommendations
Create an independent national Energy Strategy Board charged with (1) developing and monitoring a National Energy Plan, and (2) oversight of a New Energy Challenge Program (see Recommendation #5).
Fund $16 billion/year in clean energy innovation set with multi-year commitments, managed by well-defined performance goals, focused on technologies that can achieve significant scale, and free from political interference and earmarking.
Create Centers of Excellence in energy innovation with strong domain expertise, with an annual budget of $150 – $250 million each.
Fund ARPA-E at $1 billion/year.
Establish and fund a New Energy Challenge Program to fund, build and accelerate the commercialization of advanced energy technologies.
Invest in Energy Science and Education. Double the Department of Energy’s Office of Science budgets. Invest roughly $500 million/year in K-12 curriculum and teacher training, energy education scholarships, etc.
Overhaul the Energy Innovation System. Invest up to $5 billion/year to establish a national network of regional innovation institutes. Fund ARPA-E at $1.5 billion/year.
Reform the nation’s energy subsidies. Create incentives for various classes of energy technologies so that each might mature, and decrease incentive levels as they become mature. Provide up to $5 billion/year to expand Department of Defense efforts to procure, demonstrate, and test emergent energy technologies.
Internalize the Cost of Energy Modernization and Ensure Investments Do Not Add to the National Debt
Provide direction for clean energy innovation through a reformed federal clean energy infrastructure. This would start with restructuring federal innovation under a National Institutes of Energy, with the singular mission of developing the affordable, commercial clean energy technologies of the future.
Create the early markets for private sector clean energy technologies until they are brought to scale and become affordable.
Ensure that new clean energy technologies are manufactured in the United States and that every region of the country reaps the benefits.
Educate the next generation of scientists and technicians to help America make the leap to clean energy.
Invest $15 billion in clean energy research, development, demonstration and deployment to bridge the capital gap in the private sector.
I have read all of these “innovation” plans several times, and find much to like. Many of their recommendations overlap, in fact. It would be a useful exercise to generate a single set of recommendations from these three plans, and see if all of these organizations could be persuaded to endorse the unified set. However, I think that all three plans suffer from three serious deficiencies that must be corrected if we are to make the progress we need.
First, all of the plans talk about “energy” as if we have an energy problem. No, we don’t. That is sloppy, unfocused thinking. While there are good environmental reasons to diversify away from coal in particular, the critical, absolute imperative for our country is to develop and deploy large scale alternatives to oil. We do not have an energy problem, we have a liquid fuels problem. I couldn’t find a single one of these plans that addressed the oil issue head on. We could develop the world’s cheapest, cleanest electricity and it would do very little to solve our oil problem in the critical next couple of decades. “Energy innovation” should be replaced by “large scale petroleum replacement”. If we did that, we would focus our thinking and finally begin to make progress.
Second, innovation by itself will not get us very far if access to liquid fuel markets is blocked, as it currently is. There is a tendency for technologists (like myself) to focus on technological solutions to problems. I am convinced that $100 a barrel oil makes many oil alternatives economically viable with existing or near term technologies. But these alternatives, including biofuels, are being blocked from full market access. We need policies that allow market access to oil alternatives. A strong Open Fuel Standards act would be a great help. Getting oil alternatives in the fuel market will help get these alternatives to scale and thereby drive down costs, as it always has and always will.
Third, the boom and bust cycle in oil prices is a huge deterrent to implementing oil alternatives. I think we will have these cycles as long as oil supply and demand are so closely balanced. The tight oil supply situation will likely be exacerbated by the impending decline in world oil production as old wells “dry up” more quickly than new oil production can be brought on line. Here is a particularly gloomy, but increasingly probable, vicious circle scenario. Low oil prices (during a recession), promote economic recovery, increased economic activity increases demand for oil, leading to oil prices increases, stimulating interest in oil alternatives, rising oil prices strip hundreds of billions out of the economies of oil importers, eventually rising oil prices abort the nascent recovery before oil alternatives can get a foothold, sending us back into recession with lower (but higher than before) oil prices, killing investment and interest in alternatives…until the next “boom and bust” cycle. Boom for the oil exporters, bust for the rest of us. We need policies that can help stabilize the domestic price of oil at levels high enough to ensure that oil alternatives can grow to scale. I don’t know how to do this, but I am convinced it is critical.
I think we do not need “innovation” in energy nearly so much as we need to identify the real problem: our dependence on oil, and then enact policies that start making it possible for large scale alternatives to oil to take root and grow. Access to energy markets for alternatives and dampening the boom and bust cycle for oil are the key policy issues.
Best,
Bruce Dale
I’ll second most of what Bruce wrote below. However, I balk at the statement “we do not have an energy problem, we have a liquid fuels problem.”
That’s a concise, easily remembered statement of the sort that good PR campaigns are built around. It’s arguably true — if one sufficiently hedges the definition of “problem”. The liquid fuels problem is certainly the most obvious, most immediate, and least controversial aspect of the can of worms our energy policy needs to address. But I’m not comfortable with that statement as a frame our energy policy issues.
Framing matters solely in terms of liquid fuels ignores or minimizes other aspects of the problem that are equally or ultimately even more important. For starters, there are the environmental effects of continued heavy reliance on coal and even natural gas. We may tolerate the devastation of mountain top removal and the health effects of burning coal on the grounds that it’s a “devil we know”. Or think we know. For shale gas extraction — the “new kid in town” — the threat to water supplies from thousands of ill-monitored holding ponds for spent fracking fluid has yet to blow up in our faces. But the ultimate threat is rapid disruption of ecologies from global warming. It’s a serious problem, and we do need to address it.
I know that global warming is an issue most of us would rather avoid. Fossil fuel interests have done a masterful job of politicizing it. They’ve propagated the meme that anthropogenic global warming is a hoax spread by liberals and socialists. There’s an active community of self-labeled skeptics prepared to attack anyone who says otherwise. Their opposition is intimidating. But in the innovation reports, I think the author’s reluctance to address global warming may be responsible for much of what Dr. Dale has challenged.
If we were completely honest, we’d be saying that there’s an urgent need to halt the rise of atmospheric CO2 to prevent excessive global warming. But we know that that position will stir opposition. It’s easier to try to sneak a broad reduction in fossil fuel consumption “in the back door” by bundling it with oil depletion and energy independence. We can then present the bundle as our “energy problem”. But doing so weakens our position. There will be those who see through the strategy and call us on it. We’re fortunate that Dr. Dale is on our side, and wants a sound and defensible energy policy as much as any of us.
Another problem with a tight focus on liquid fuels is that it ignores serious economic issues that a sound energy policy really needs to address. One can assert that fixing our economic situation ought not to be a concern for energy policy. However, the reality is that energy and economic issues are interwoven. We can’t successfully address one set while ignoring the other.
I live in Silicon Valley, where prospects had been bright and hopes running high for a blossoming solar PV industry. Those hopes have lately had to be scaled back. They’re now in danger of stalling outright. The problem hasn’t been a failure of innovation. New technology has been developed and works. Costs are falling. The problem is that they’re not falling fast enough to succeed in the world market. Chinese companies are committed becoming the leading world suppliers of PV modules. With the financial resources of the state behind them, they’re succeeding. Thousands of new jobs that we had hoped to create here around a booming PV industry have simply evaporated.
The situation with wind turbines is similar. The Chinese are well on their way to dominating that market. It isn’t just due to cheap labor either. In the high tech industries they’re advancing in, labor costs are a minor issue. It really comes down to the cost and availability of capital. China provides its sponsored industries with both protected domestic markets and the capital resources to pursue international markets. As things stand now in our short-horizon free market system, we cannot compete. Our energy policy must aim to redress that.
Roger
Roger,
We have two different energy maladies in this country. One is acute liquid fuel crisis and the other is a chronic global warming illness. What we tried to highlight in our discussion is that in order to be able to address the issues of global warming we need to be able to rely on a solid and expending US economy that can generate enough excess capital to “sponsor” less economical but important alternatives. For example, if you price Melanie Kenderdine’s proposal to change all the coal power plants to natural gas, you will need to spend roughly $100B more a year for fuel ( http://ourenergypolicy.org/docs/31/Kenderdine_Natural_Gas_12.2.10.pdf ). If our economy is stalling, it is not politically possible to convince the private sector to spare that money. One of the reasons that China invests in the new industries is that they simply have the excess cash to do it. We are running a deficit economy and more than half that deficit is our oil trade and it is growing. So what we are saying is not that global warming is not the target. We are saying that lets address our acute liquid fuel crisis while taking of the largest GHG emitter first.
By the way, the labor in the PV world is in installation not in manufacturing. So yes, today in China they have worker manually assembling the solar panels. Hey, they also have factories where 5000 ladies sitting in front of a school like desk manually folding the prismatic battery packs for the iPod. All this will go through major robotization over the next few years. New PV plants can operate with a skeleton crew (I saw somewhere that you can operate an entire plant with less than 10 people per shift). It is your local electricians that can take these panels and hook them to your grid supply that are the bottleneck.
If I am already challenging the conventional wisdom, I would like to throw another thing at you all. What if indeed the self-appointed skeptics are right? What happens if GHG emission only contributes 40%-50% of the reason the temperatures are rising? What do we do then? I think that as a nation we also have to think about remediation. I think that the world experts should start thinking about what to do all that extra water in the oceans. It might be easier to flood the Sahara desert then to convince India that some people should not have access to electricity.
Sorry for being the heretic. I am afraid that if we do not take care of the acute illness now, it will lead us to a war. If there will be a big war, the last thing that people will worry about will be global warming.
Eyal
I had a most pleasant day on Friday April 1 at the University of Maryland where I gave a seminar on my almost completed revised draft of“A Call to Action”. It was well received and a very interesting set of related questions came up on liquid fuels. People were concerned about some of the practical issues with using methanol and ethanol…many of the well known issues of toxicity, affinity to water, attacks on gaskets, ability to be shipped in pipelines, etc. Some wondered if ethanol and methanol production went far enough, i.e., wouldn’t it be better to make butanol or something called synthetic gasoline. [ I am aware that in Brazil they have vehicles that run on 100% ethanol and that whole infrastructure seems to be working just fine.]
I’m not nearly knowledgeable enough to answer the questions that the students brought up, but one thing that struck me was whether or not pursuing an Open Fuel Standard is the right strategy. I find the idea of a universal replacement to gasoline an appealing concept, especially if this universal replacement is similar to today’s gasoline. Perhaps this universal replacement is what is generally called “Synthetic Gasoline”. Rather than having flex fuel vehicles that can accept gasoline, ethanol, and methanol and mixtures thereof, would it be better to have all liquid fuel chains end up with the same liquid fuel (Synthetic gasoline??) to minimize not only changes in vehicles, but everywhere else in the fuel distribution chain, such as minimizing what needs to be done at present gasoline service stations? If there is to be a standardization of the end point liquid fuel, what should this liquid fuel be?
This is way over my head, so your thoughts on this are most welcome.
Another question that came up was my assumption that replacing gasoline in light duty vehicles with an energy equivalent amount of methanol ( I didn’t deal with methanol’s higher octane number) would be essentially GHG neutral. Would you agree? If not, please explain.
In view of the President’s goal to cut petroleum imports questions/answers/concepts like these are most timely.
Thank you for your thoughts.
Best,
Herschel
As I remember, gasoline has a greater energy density than methanol, but methanol was used in race cars because it had a higher octane rating and the engines could use a greater compression ratio, pack in more air, and end up with more power (but at the penalty of using more fuel). I understand that formula one racers use a carefully blended gasoline that has to last an entire race without refueling. The fuel would run in normal street cars, but I wouldn’t want to pay for it.
It is interesting that just over the last few weeks this topic have really gained momentum. I got this question now from several people. At this point I would venture to say that there is no clear answer. The main reason in my mind is that there is still a lot of missing data and conjectures.
1. Butanol is a great fuel. However, all the research I have seen so far only deals with low to medium blends of butanol. From my understanding butanol in high concentration like Bu85, will still require fuel flexibility [I don’t have citation for this, I am making a conjecture].
2. With regards to water contamination of pipes. Natural gas pipes run dry. Even small amount of moisture in natural gas pipes can condensate into hydrate solids which could eventually block the pipe. So this problem is solvable. Also in Brazil they pipe ethanol as you mentioned. The issue is one of capital investment which will not happen until there is a market for the fuel.
3. I understand that adding some heavier oil to the methanol/ethanol will help protect it in transport. Those heavier oils can be separated at the destination (by the blenders) then it could be trucked back for reuse. Because the heavy oil is a small fraction of the flow, trucking is a much smaller issue.
4. With regards to toxicity. Both ethanol and methanol are readily biodegradable (even very large spills will degrade in days). Moreover, they appear in every day products without any restriction. For example, methanol is the active ingredient in Windex. I don’t know much about biodegradability of butanol.
5. Several people told me that methanol in the car does nothing to improve GHG emissions. This may be true if methanol is created from coal compared to traditional light oil refining. But new processes that create methanol from natural gas are very efficient and on the other hand, our oil is getting heavier and dirtier (tar sands). So I don’t really believe that the old edict of methanol for transportation is the same as gasoline is true. Moreover, eventually we will be able to make methanol from CO2 and water directly from the environment.
So back to Melanie’s comment: In the end the issue is one of cost and scalability. From my understanding, butanol and synthetic gasoline (which I take to be a “dirty” mix of butanol and other similar length chains) are significantly more expensive at this time than methanol/ethanol. So the question is this, what will produce the best results: use simple fuels but make the investment in distribution and in new car technology or use a more complicated fuel and keep the existing distribution and car technology.
The advantages of maintaining the existing infrastructure are self-evident. However, there are also advantages to simplifying the fuels:
1. I think that the car engine technology will go through some major revamp to increase its efficiency anyway (variable timing, independent piston action, variable compression, etc). If we are going to invest in that technology we may as well make it available for all fuels. Particularly for the light fuels that have higher octane and could yield higher efficiency.
2. Since we are looking for solutions that could roll out globally, simple fuels could be made locally pretty much anywhere around the world.
3. One of the results of the use of lighter fuels is reduced urban air pollution. I don’t know how butanol compares.
As I said, I have not seen the data yet to be able to take a firm stand one way or another.
Sorry for adding to the confusion. Eyal
I’ve been interested in the tradeoffs among various liquid fuels for some time. For starters, I agree with pretty much everything Eyal writes below. In terms of energy policy, I think the key point is simply that with newer and more efficient microprocessor-controlled engine technology in the pipeline, flex-fuel capability is almost trivially easy to support. It opens a range of options and enables markets to resolve the most attractive approaches. I can’t think of anything — beyond a covert desire to shield current gasoline producers from competition — that would argue against it.
In terms of scalability and long term social good, I would put my own money (if I had it to bet) on synthetic gasoline and diesel from Fischer-Tropsch micro-channel reactors. That’s a gamble, since FT-micro channel reactors have yet to be demonstrated on a true commercial scale. Also, the 500 pound gorilla in the synthetic fuels arena (Shell Oil) is on record as saying that for synthesis, “small” can’t compete. They’ve said that synthetic fuel production requires the scale economies of very large plants, like the Pearl GTL plant they recently built in Qatar. If that’s so — rather, if it remains so — it’s bad news for synthetic fuels from biomass. The cost of harvesting and transporting biomass largely rules out giant central plants.
It’s rash to disagree with folks with demonstrable expertise who clearly know their business. However, I’ll hazard that Shell’s position is incorrect. Or maybe correct for now, but likely to be overturned by technology trends over the coming years. The scale economies that they’re concerned with are not fundamental — not rooted in the physics of the chemical processes. Rather, they have to do with complexity and the economics of plant construction. A small synthesis plant is not significantly less complex than a large one, and for that reason can be nearly as expensive to build. Given that, the way to minimize capital cost for production capacity is to make the plant as large as possible. But that strictly holds only for plants that are custom-built as one-off construction projects. When large numbers of similar plants can be assembled easily from factory-produced modules, the scale economies are quite different. Small plants operated in proximity to the sources of biomass become economically viable.
As to renewable liquid fuels in general, I find it useful to distinguish two broad categories: (1) those produced biologically, and (2) those produced via chemical synthesis. The first category (biologically produced) divides into two subcategories: (1a) those produced as waste byproducts by heterotrophic organisms consuming biomass (e.g., fermentation of sugars to produce ethanol); and (1b) those produced internally by autotrophs. The latter include vegetable oils that can be pressed from various seeds and nuts, as well as oils produced from cultivated strains of algae. Biological approaches generally have the advantage of low up-front capital costs. They can usually operate in low-tech environments. For that reason, they’re favored among those who see a new dark age looming. But they don’t scale well, have relatively low per-acre liquid fuel yields, and high O&M costs.
Liquid fuels produced via chemical synthesis all have a common middle point, which is synthesis gas. That’s a mix of H2 and CO2 in controlled proportions. Competing processes differ both on the front end — in how the synthesis gas is produced — and on the back end — what’s done with the synthesis gas.
There are lots of ways to produce synthesis gas. The two dominant methods at present are gasification of coal and steam reforming of natural gas. Gasification of coal yields an initial product that is dirty and requires rather expensive clean-up before it’s usable for synthesis. Steam reforming of natural gas is cleaner, and the initial product is easier to polish into clean synthesis gas. But neither is renewable.
For sustainably produced synthesis gas, there are four categories I distinguish: (2a) mid-temperature pyrolysis of biomass with co-production of “bio-char”; (2b) full gasification of biomass by partial combustion with oxygen; (2c) full gasification of biomass by steam and external energy; and (2d) reduction from CO2 and steam. Method (2a) is carbon-negative and primarily intended for sequestration of carbon. It also enhances soil fertility. Production of synthesis gas is secondary, and (2a) is not a path one would choose if production of liquid fuels is the sole goal.
Methods (2b) and (2c) may sound similar, but are quite different in detail. They also differ in their yields of liquid fuel per ton of biomass. In (2b), the energy to drive the production of synthesis gas is supplied by oxidation of a portion of the biomass itself. Almost half of the carbon in the biomass may end up as CO2 waste from the partial combustion. In (2c), there is no CO2 waste. Essentially 100% of the carbon in the biomass is converted to CO in the synthesis gas. The yield can be double that of (2b), at the cost of supplying external energy or greater than the energy that would have been supplied by partial combustion. That’s generally a good tradeoff, in terms of liquid fuel yield per acre; biomass is not a very efficient energy source. It’s better to use it as a carbon source, with energy supplied from sources with a lower land footprint.
Method (2d) doesn’t use biomass directly. It takes its carbon from captured CO2 from any of a range of sources. The reductions of CO2 and steam can be done in one step or two. For the one-step approach, CO2 and steam are reduced together in a type of high temperature electrolysis cell. It’s pre-commercial experimental approach, but efficient and promising. The two-step approach is conventional, using well-known reactions. Hydrogen is produced by electrolysis of water, and then a portion of the hydrogen is used to reduce CO2 to CO via the reverse water gas shift reaction (RWGS). In either case, the need to reduce carbon from CO2 makes the external energy required even greater than for method (2c). However, the synthesis gas comes out very clean and directly usable in subsequent reactions. There’s no H2S, tars, or metal carbonyls that have to be scrubbed. If one has cheap energy from advanced solar or nuclear power, this method could be quite economical.
My above classification scheme isn’t complete. There’s at least one important approach that doesn’t fit. That’s flash pyrolysis of biomass to produce a sort of “liquified biomass” or “bio-oil”. Bio-oil can be burned for heating in place of fuel oil, but isn’t directly usable as a liquid fuel for engines. It’s a colloidal suspension of unstable particles that would quickly clog any fuel injection system. Just sitting in a tank, my understanding is that it will turn into a gummy mess in a matter of a few days to a week or so. But it captures a high fraction of the energy from its biomass input in the form of a relatively dense liquid that’s easy to transport. There’s active research into ways to stabilize it, or to refine it into forms that can be used as transportation fuels. We’ll have to wait and see how that turns out.
Roger Arnold
Silverthorn Engineering
I have been focused nearly entirely on commercializing renewable jet fuels lately, but I’ll just add a couple of quick thoughts re the ground transport fuels/engines. It makes sense to require that vehicles can run on more than one fuel or fuel blend. It costs manufacturers very little in the case of a gasoline vehicle to add a fuel sensor and adjust the types of material they use for seals and hoses in the engine. That said, the flex fuel cars in the US tend to be the huge gas guzzling vehicles, and the engines are still optimized for gasoline use so they don’t take advantage of the positive characteristics of ethanol (e.g. higher octane) and because of the lower energy content of ethanol they get even worse “gas” milage. We need superior, highly efficient engines that can self adjust to different fuel blends and combust them completely. Companies like http://www.sturmanindustries.com are digitalizing engines making them highly efficient and highly fuel flexible. I agree w/ Eyal that we need to force the industry to switch to better engines as well as better and diversified fuels.
Re pipelines, yes ethanol can be transported in pipelines, but what they did in Brazil was build dedicated ethanol pipelines. A whole range of fuels are transported through conventional pipelines and there are real cross contamination concerns for example about sending jet fuel through a pipeline after ethanol has been send through.
I’ve been working on renewable fuels so can’t speak authoritatively to the methanol questions (since most is currently produced from fossil fuels), however, I believe it is considered toxic for human consumption and for that reason has been used as an additive to ethanol to denature it and thereby exempt industrial ethanol from liquor excise taxation. That said, I wouldn’t drink gasoline or diesel fuel either! (As a side note: most biodiesel producers use methanol and a catalyst to produce biodiesel and the fumes for the reaction can make you go blind if not properly contained.)
Yes, butanol is interesting as a blend stock. Gevo is the company I’ve been working w/ most closely on this fuel. I’m happy to put you in touch w/ some of their folks if you’d like to ask them about butanol blend levels.
There are strong incentives for flex fuel vehicles. The current gasoline standard is an historical artifact of the properties of Texas crude oil. If it had a larger kerosene fraction, we would have kerosene powered cars. There is no reason to believe it’s the right fuel for the future. Flex fuel standards ultimately let the market find the range of liquid fuel for the future. It enables alternative fuels today to compete—that has both economic and national security benefits. Most of the problems with flex fuel are artifacts of having a single fuel standard for so many decades. Many tractor and other engines in the 1920s and 1930s were flex fuel—start on gasoline but could run on kerosene that was used for home lighting. With the use of a single fuel for decades, the system forgot flex fuel options.
Flex fuel today is more attractive today because with computer engine control, the engine system changes its behavior to match the fuel. That capability is a consequence of California air pollution regulations that forced the auto manufactures to rethink engine control. In the end, computer control implies higher mileage and lower air pollution. Because of this, flex fuel is a cheap option—otherwise it would expensive.
As a side note, the Brazilian car fleet is flex fuel—not gasoline or ethanol. That decision was made because the relative price of ethanol and gasoline vary across Brazil as well as availability. All the big auto companies are in Brazil and have no problem making flex fuel vehicles for Brazil. Just about every Brazilian car has a conversion sheet so when you see the price of ethanol and gasoline on the oil station sign, you know which fuel implies the lowest cost per mile and which fuel you want to buy today.
In another discussion on innovation I suggested that while innovation is very important, like creating batteries with a higher energy density, that transformations may be just as important. By this I meant, as an example, transforming the coal industry to make methanol instead of electricity, may be as important to reducing our vulnerability to imported petroleum as innovating better batteries. (I’m not an economist, so I’ll make my apologies now if I have used financial terms improperly.)
Today I want to discuss another aspect of innovation; not technological innovation, but rather financial innovation. First a few 2010 financial figures from OECD on the projected costs of generating electricity from nuclear power plants. My figures are levelized cost of electricity (LCOE) in U.S. dollars per megawatt-hour. The following LCOEs are instructive: United States:48.73,77.39; South Korea (for their APR-1400 design) 29.05,42.09, and China (for their CPR-1000 design) 29.82,43.72.
For each pair of numbers the first figure is for a 5% discount rate and the second figure is for a 10% discount rate. The cost of money in high capital cost activities is immensely important. In the case of the United States about 37% of the cost of a new nuclear plant could be attributed to the difference between a 5% discount rate and a 10% discount rate [(77.39-48.73)/ 77.39 = 0.37]. Stated differently, the absolute difference in LCOE (10% rate minus the 5% rate) in the US situation would be 77.39-48.73 = 28.66. This cost difference is as much as the LCOE to build a whole new nuclear plant in China or in South Korea (at a 5% discount rate).
The first lesson I take away from this is that creative financing could be as important as technological creativity. Creative financing is already happening around the world between countries that export nuclear power plants and those countries that buy them. The second lesson is, we had better get nuclear capital costs in line with those from South Korea and China if we want to compete globally in a future that is likely to be increasingly electricity intensive.
Best,
Herschel
Dear Herschel,
You are absolutely correct in that capital costs are a (the) major factor in nuclear plant costs (or any other option that depends largely on up-front costs). However, your hope that US costs can be lowered to those of China is hopeless in the near term. We pay our people far more than they do and they follow much looser (industrial) safety and environmental constraints than we do. In the long term, either China increases the pay of their workers, or we lower ours. (I hope not). Up to now, we have consoled ourselves by indicating that we concentrate on higher value engineering, but they certainly will catch up.
I totally disagree with anything that promotes coal usage, unless the coal industry develops benign means of mining coal (No mountaintop removal, for example). I live near coal country and can state that it’s one of the worst businesses possible. I read recently that it will be cheaper to mine coal in the US and ship it to the booming coastal cities in China that is from China to transport the coal from where it is (far into the interior) to the coastal areas. I hope not.
I have a pet peeve about coal. Thanks for letting me vent.
Two observations on nuclear an coal costs.
The Japanese and Chinese (and now the U.S) are moving toward modular construction of reactors where large modules are built in factories, shipped to the site, and welded together to produce the plant. The move to the factory dramatically reduces labor man hours and helps schedules. That development would be expected to reduce the cost differences in nuclear construction in different parts of the world.
The U.S. may become a large coal exporter to China. The Chinese problem is rail logistics—the coal is inland. In contrast, ocean shipping is very cheap which is why one can ship coal half way around the world. China is driving the coal markets worldwide.
Charles
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