The Island of Doubt

Stephen Chu on the cost of coal

U.S. Energy Secretary Stephen Chu is all about saving the coal industry. In the latest issue of Science, which includes a feature series on carbon capture and sequestration, he writes optimistically about the challenges and opportunities such technologies pose and why it could save us all from catastrophic climate change.

At least, that’s what I take away from his short essay. I don’t doubt Chu’s sincerity, or his ability to synthesize data. He is, after all, a holder of Nobel Prize for physics. But I’m afraid he hasn’t got a good grip on the economics of the matter.

In his essay, Chu writes about the reality that we won’t be slapping a moratorium on new coal-fired power plants any time soon, let alone start shutting down the existing ones, contrary advice from some of the country’s leading climatologists notwithstanding.

We should pursue a range of options for new coal-fired power plants (such as coal gasification, burning coal in an oxygen atmosphere, or postcombustion capture) to determine the most cost-effective approach to burn fuel and reduce the total amount of CO2 emitted. No matter which technology ultimately proves best for new plants, we will still need to retrofit existing plants and new plants that will be built before CCS is routinely deployed. Each new 1-gigawatt coal plant is a billion-dollar investment and, once built, will be used for decades.

Actually, coal plants cost a lot more than a dollar-a-watt. An hour’s drive east of me one of the few new coal-fired plants to buck a national trend against them is rising courtesy of Duke Energy. Cliffside 6 will cost, according to Duke itself, $2.4 billion and produce 800 MW of electricity when completed. That’s $3 for every watt, not counting the coast of the coal. Chu is off by a factor of three.

But there are even more interesting numbers associated with what’s happening at Cliffside. As Duke CEO Jim Rogers put in a letter to shareholders recently:

As part of that plan, we will retire the plant’s four older coal units by 2012 and shut down 800 megawatts of other older coal units by 2018.

Those four older units currently generate 400 MW. So a decade from now, after all the changes planned have been implemented, Duke will be generating 400 MW less than it is now after spending at least $2.4 billion, and including cost of decommissioning, probably closer to $3 billion. That’s a big investment for a net loss of generating capacity. This from a utility that, at the moment, charges some of the lowest electricity rates in the nation. Of course, if Duke gets its way, we’re going to see our rates jump significantly in order to pay for the new Cliffside plan, but that’s beside the point.

Or is it? Given that CCS is widely expected to decrease the efficiency of a typical coal-fired plant by some 30% and increase the cost by an unknown amount, it’s beginning to look like coal could quickly become the most expensive ways to generate electricity. Do we really want to head down this road?

Chu accepts that it won’t be cheap, but again puts an optimistic spin on the situation:

Estimates of CCS costs vary considerably, but experience with other pollution control technologies such as the scrubbing of SO2 and NOx show that costs can be considerably lower than initial estimates.

Like anyone else who cares about climate change and the future of their electricity bill, I hope Chu is right. I just don’t share his optimism about industry’s ability to solve the problem without some serious changes in fundamental economics. A report on Duke Energy’s plans from Duke University economist John Blackburn found that focusing on saving the coal industry is among the least efficient and most expensive ways to tackle the problem.

This report shows that, based on the utilities’ numbers and the modest changes noted above [modest increases in energy efficiency, cogeneration and renewable power sources, and if necessary, by using a large oversupply of electricity in the Southeast], electricity demand can be reduced by up to 3,700 Megawatts (MW) within 15 years, avoiding the need for any new plants and allowing retirement of 7 to 9 existing coal-fired units.

In other words, existing products and changes to the way electricity is sold and distributed among the utilities would make more economic sense and reduce emissions.

I’d like to see Science and Stephen Chu devote their respective resourcesto the opportunities offered by off-the-shelf technologies to reduce energy demand rather ways to save what is fundamentally one of the dirtiest, and rapidly becoming the most expensive, ways to power society.

And I got all the way to the end of the post before bringing up mountaintop removal.

Comments

  1. #1 Fred Magyar
    September 28, 2009

    ” At least, that’s what I take away from his short essay. I don’t doubt Chu’s sincerity, or his ability to synthesize data. He is, after all, a holder of Nobel Prize for physics. But I’m afraid he hasn’t got a good grip on the economics of the matter.”

    He has no choice, he is part of the same system that is hell bent on maintaining BAU at all costs. Witness the bailouts of the banking system, Wall Street and the automobile industry.

    To paraphrase Einstein, we can’t solve our problems with the same kind of thinking that caused them.

    We are in need of a radical paradigm shift and that won’t come from those currently holding economic power. Only if the system collapses do we stand a chance of real change.
    It system seems to already be quite rotten at the core so I believe it will indeed collapse under it’s own weight. Watch out below.

  2. #2 Fred Magyar
    September 28, 2009

    “It system seems to already be quite rotten at the core”

    That should be:

    It seems the system is already quite rotten at the core

    I need more coffee :-)

  3. #3 Pierce R. Butler
    September 28, 2009

    Fred Magyar @ # 1: Only if the system collapses do we stand a chance of real change.

    IOW, collapse is the only possible form of change?

    Quite possibly true (especially seeing how little is achieved by voting for “change”), but what emerges from collapses is usually not an improvement – particularly if sophisticated technical upgrades are required.

    Given that the social side of collapses are prime situations for scapegoating, I don’t see the white hats – meaning those calling for material sacrifices to achieve long-term sustainability – coming out on top in a battle of demagogues.

    We’re in a heap of trouble. In other news…

  4. #4 Willie Paul
    September 28, 2009

    You need remedial math on your estimate of costs. Your conflating the capex cost per MW with the operating expense. The plant will live for 50 years, so if you want to do the math, divide it across the life of the project and not just the time that it is built.

    If you can’t trust your math, I wonder about your other reasoning.

  5. #5 James Hrynyshyn
    September 28, 2009

    @ Willie: operating costs of coal (in dollars, though not cost to the environment) are tiny and don’t change the bottom line significantly. In any case, Chu is talking about construction costs, as that’s what everyone else talks about in this context. My comparison is valid.

  6. #6 Willie Paul
    September 28, 2009

    You need remedial math on your estimate of costs. Your conflating the capex cost per MW with the operating expense. The plant will live for 50 years, so if you want to do the math, divide it across the life of the project and not just the time that it is built.

    If you can’t trust your math, I wonder about your other reasoning.

  7. #7 David Marjanović
    September 28, 2009

    it’s beginning to look like coal could quickly become the most expensive ways to generate electricity. Do we really want to head down this road?

    If I may be allowed to lapse into unfettered utopianism for a moment… yes, of course we want to head down that road all the way to its end. Coal should only be mined by paleontologists. It contains irreplaceable treasures.

    One word: Guimarota. Look it up.

  8. #8 doug l
    September 28, 2009

    Wow. Thanks for the tip on Guimarota. I did just check it out and it is astonishing!

  9. #9 Mal Adapted
    September 28, 2009

    Don’t forget the Cerrejon coal mine in Colombia, where Titanoboa was found.

  10. #10 Duck
    September 29, 2009

    It’s Steven with a ‘V’. Just thought you might want to know. Hey, don’t look at me like that… Someone had to be persnickety.

  11. #11 Ugly American
    September 29, 2009

    The reason utilities want to use coal is because they have cost plus contracts. For any company that has a cost plus contract, there is an incentive to squander money. If you’re guaranteed 8% by your government contract and you spend $100M you make $8M but if you manage to squander $300M then you make $24M. When you show them a solar, geothermal or wind station that has only a tiny operating budget of hard to pad costs, they’re horrified. To end this nonsense we must end all cost plus contracts.

    Furthermore, the main reason businesses over consume fossil fuels in the first place is because they are 100% deductible on income tax. By contrast, investments in renewable resources are counted as depreciable capital investments and actually increase your property taxes. To stop this nonsense all we need to do is phase out consumption deductions.

    In Nevada, coal lobbyists also kept repeating various numbers for new coal plants between $2 to $3/watt. Later it turned out the power company’s own internal cost estimate was almost $5/watt. When offered flat rate construction contracts instead of the traditional cost plus contracts they suddenly went from ‘needing’ to build 3 coal plants immediately to not wanting any.

    By contrast, the Nevada Solar One power plant here had a finished cost of $4/watt including backup natural gas turbines – all from private financing. It operates at a profit without a cost plus contract or any state guarantees.

  12. #12 CaRteR
    September 29, 2009

    Okay, two possible causes of global warming.

    1.) A trace gas which has shown to increase in amount somewhere, loosely, around the time of historical temperatures increases is causing it. Though it’s not quite certain if the increase follows or precedes said temperature increase (okay, I’m wrong… the data show it *follows* the temperature increase)>

    2.) The sun is acting up. (Remember *that* sun… The one that… warms… the planet.)

    Hmmm….

    Ockams Razor. If there are two plausible explanations for a phenomenon, the simpler of the two is almost certainly the true explanation.

  13. #13 mad the swine
    September 30, 2009

    Unfortunately, Carter, your explanation #2 is not, in fact, plausible. Try again.

    http://solar-center.stanford.edu/sun-on-earth/glob-warm.html

  14. #14 Samuel Brauer, Ph.D.
    September 30, 2009

    I’m still not sure how much Steven Chu actually “believes” in this nonsense about carbon capture and sequestration, and how much is a requirement of his job. One of Obama’s campaign promises was to support “clean coal” technology, and I suspect that Steven Chu is essentially following orders. I’ve heard him speak at an MRS meeting a couple of years ago on the subject of climate change and clean coal was not a large part of his talk. My supposition is that if he brought it up at that meeting, he’d have been laughed at, Nobel Prize or not. (Some folks may remember that Peter Duesberg also had a Nobel prize and even managed to convince Idi Amin that HIV didn’t cause AIDs. I think we all know how that turned out.)

    Simply put- the arguments against “clean coal” are as follows-

    1) There’s an entropic cost to do the separation of CO2 from the waste stream and it will always be significant. Depending on how you do the calculation- temperature and methods matter, but I think it’s at least 15% of the energy generated. Spending money will not overcome the laws of thermodynamics- you may just find a way to do it a bit more efficiently.

    2)No one has any idea of the stability of large volumes of CO2. Leakage rates of storage are not discussed much, but with estimates of CO2 lifetimes in the atmosphere now pushing three quarters of a century, unless the storage system is close to perfect, it just delays the movement of CO2 by a few years. In other words- a 5% leak rate is unacceptable. Nobody has done good tracer studies using a labeled carbon atom as to how long CO2 actually remains in the underground storage that’s been tested to date.

    3) Not mentioned in the economics of either coal plants or nuclear plants is the cost of insurance borne by the taxpayer. Uncle Sam is the insurer of domestic nuclear power plants- no private insurer will touch them. A similar system will probably need to be put in place for CO2 storage since it’s quite a catastrophe if the storage system “burps”- a probable eventuality at some site. The cost of insurance would be one of the “hidden” economic costs of clean coal. As noted in previous posts, Steven Chu’s economics can leave a bit to be desired.

    Samuel Brauer, Ph.D.
    Nanotech Plus, LLC
    Stamford, CT USA
    http://www.nanotechplus.net

  15. #15 surag
    September 30, 2009

    I am not comfortable with all the rhetoric posted by envrionmentalist friendly people even though I myself consider to be one.

    Mainly, the biggest issue is the promotion of changing behavior and modest changes in environmental practices that can lead to better electricity usage. the biggest problem with this concept is that its requires a modest change by a significant number of people.

    just what does this modest change entail? turning of the lights more often? utilizing environmentally friendly materials more often? how will this be enforced? how are we going to utilize southwest power plants in the norhteast region? how about the inherent cost in all of these ‘modest’ changes?

    the duke report doesnt have any cost to economic benefit analysis on these changes. while modest can be an appealing term it is misleading as it only works when a critical mass of people and institutions implement said changes.

    the problem at hand isnt so much that coal is so horribly bad we should stop using it but that its the only alternative for cheap long term energy usage.

    increasing the amount of renewable energy by even a modest(again that word) level can amount to incredible costs.

    the use of solar power, wind turbine, or HEP all cost significantly more than the use of coal. as a result any ‘modest’ increase in output will not only require additional expenditures in creating more of these technologies, but also the R&D that goes into it as well as the costs of implementing these technologies will add up to a significantly high level.

    the Duke report, while promising is a very misleading report and unfettered support for such analysis can only lead us down a negative path. if you want to hear why it could lead to a negative path i’ll post more if you guys want to hear more.

    until then… surag out.

  16. #16 Ema Nymton
    October 1, 2009

    Hmmm. Carter, your argument is interesting, but I think that, perhaps, you didn’t account for the fact that you’re a fucking moron. Try to look at the issue again, keeping that simple fact in mind.

  17. #17 davidbaer
    February 2, 2010

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