Transcript Document

Paying to Warm the Globe:
Climate Crises and
Opportunities
Presentation to Chicago Area Mensa
January 2008 Meeting
Sean Casten,
President & CEO
Recycled Energy Development, LLC
January 19, 2008
Chicago, IL
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Conventional wisdom is dead wrong
None of the following statements are true.
1. Significant reduction of greenhouse gas emissions is not
possible without economic disruption.
2. Coal-fired power is cheap.
3. The US economy optimally allocates capital.
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Current greenhouse gas debate is
built on faulty CW
1. “Putting a price on greenhouse gas emissions will drive
businesses to relocate to lower-cost markets that don’t
participate. The US should not sign any international
agreements until China and India are on board in the
name of national competitiveness.”
 This only makes sense if GHG pricing raises overall economic costs. It
doesn’t.
2. “GHG pricing will drive up costs of power plant
construction and operation, increasing electric rates.”
 This assumes economic optimality, such that we cannot lower fossil fuel
use per kWh (e.g., lower opex) without economic pain (e.g., bigger
capex). We can.
3. “Putting a price on GHG emissions will force the lowest
cost generation on our grid out of the market”
 This assertion presumes that coal is cheap. It isn’t.
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The Grid Story
The Carbon Price Story
The Coal Story
The Opportunity
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Electric industry regulation is
antithetical to efficient capital
allocation.
US Electric Industry Fuel-Conversion Efficiency
70%
Recovered Energy
60%
U.S. Average Electric Only
50%
40%
30%
20%
10%
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
1890
1880
0%
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Implications: heat and power are
67% of US GHG emissions.
2005 US GHG Emissions By Source
(Tg CO2-eq)
1425, 25%
2381, 42%
1893, 33%
Electricity Generation
Transportation
Thermal Energy Gen
Source: www.epa.gov/climatechange/emissions/downloads06/07ES.pdf
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Regulation not only makes utilities
agnostic towards efficiency, but also
in favor of high capital costs.
US Average Capex ($/kW installed)
92% of US
Grid
8% of US
Grid; only
4% of this
(0.32%
total) by
regulated
utilities
Generation
T&D
Line Loss &
Redundancy
Total $ per
new kW load
Central
Approach
$800 - $2,700
$1,400
1.44
$3,160 - $3,900
Local
Generation
$1,000 $3,000
$140
1.07
$1,140 - $3,140
Local Gen.
Capital
Comparison
Adds $200 to
$2400
Saves $1260
Saves .37
Saves $760 to
$2,020 per KW
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The Grid Story
The Carbon Price Story
The Coal Story
The Opportunity
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States that have looked seriously at
GHG reduction have found that most
approaches have negative costs.
AZ CCAG Options Ranked by $/MTCO2e 2007-2020
$80
$60
$/MTCO2e
$40
$/MTCO2e
$20
$0
a
1 9 1
6 8
3 8 1
1 6 9 -4 a
4 5 2
2 2 -2 -9 2 3 3
7 3 4 2
b
-1
U CI- CI- -1 CI- CI- ES- LU F-3 F-3 CI- CI- A- CI- S-1 LU LU U-1 U-1 A- A-1 ES- A- F- CI- ES- - 1 F- ES- AU
R R
R E
R
TL R R ES R R
T
T T TL TL
L
T
-$20
-$40
Reduce Land
Conversion
-$60
-$80
Carbon Intensit
Targets
-$100
AZ CCAG Policy Option
Electricity Pricing
Clean Cars
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DG & CHP
Appliance Efficiency
Standards
Building
Codes
DSM
RPS
Increase
Reforestation
Truck Speed Limit
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…and would create $billions of GDP
growth and jobs.
Source: www.azclimatechange.us
Estimates of the net impacts of stabilizing atmospheric
CO2 between now and 2020 suggest an NPV of over $1
trillion globally, even before consideration of
environmental externalities.
Source: Ken Colburn
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The Grid Story
The Carbon Price Story
The Coal Story
The Opportunity
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Inflation-adjusted electricity rates
are increasing for the first time in 25
years – why?
14.0
13.0
c/kWh (2006 $)
12.0
11.0
10.0
9.0
8.0
7.0
6.0
1975
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
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Partial answer: no growth in nuke
capacity since 1990.
120
c/kWh (2006 $)
13.0
100
12.0
80
11.0
10.0
60
9.0
40
8.0
20
7.0
6.0
1975
Nuke Capacity (GW)
14.0
0
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
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14.0
100%
13.0
90%
12.0
80%
11.0
70%
10.0
60%
9.0
50%
8.0
7.0
40%
6.0
30%
1975
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
CF shown is 5-year trailing average
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Nuke Capacity Factor
c/kWh (2006 $)
Partial answer 2: we had “room to
give” on nuke until 2003.
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Partial answer 3: no growth in coal
capacity since 1990.
14.0
350
300
12.0
11.0
250
10.0
200
9.0
8.0
150
Coal Capacity (GW)
c/kWh (2006 $)
13.0
7.0
6.0
1975
100
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
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Partial answer 4: Coal CF appears to
be increasing steadily, but…
14.0
75%
70%
12.0
11.0
65%
10.0
60%
9.0
8.0
55%
7.0
6.0
1975
50%
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
CF shown is 5-year trailing average
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Coal Capacity Factor
c/kWh (2006 $)
13.0
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14.0
5.0%
13.0
4.0%
12.0
3.0%
11.0
2.0%
10.0
1.0%
9.0
0.0%
8.0
7.0
-1.0%
6.0
-2.0%
1975
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
Growth % shown is 5-year trailing average
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(Coal Gen Growth) - (Retail Sales
Growth)
c/kWh (2006 $)
…has been constrained by total load
growth since 1990.
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14.0
450
13.0
400
12.0
350
300
11.0
250
10.0
200
9.0
150
8.0
100
7.0
50
6.0
0
1975
1985
1995
Natural Gas Capacity (GW)
c/kWh (2006 $)
Partial answer 5: The recent price
spike in natural gas dulled our love
for new plants…
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
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…and stranded lots of assets (see:
merchant power collapse).
35%
c/kWh (2006 $)
13.0
30%
12.0
11.0
25%
10.0
20%
9.0
8.0
15%
7.0
6.0
1975
10%
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
CF shown is 5-year trailing average
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Natural Gas Capacity Factor
14.0
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14.0
140%
13.0
120%
12.0
100%
11.0
80%
10.0
60%
9.0
40%
8.0
7.0
20%
6.0
0%
1975
1985
1995
2005
Source: US DOE, Energy Information Administration (www.doe.eia.gov)
% NG additions shown is 5-year trailing average
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% of New Capacity Additions from
Nat. Gas
c/kWh (2006 $)
Q: if coal is so cheap, how come
we’ve only built gas?
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A: Because coal isn’t cheap.
•
“…well north of $2,500 per kilowatt for supercritical coal plants…” (Energy Biz
Insider, 7/6/07)
•
“Duke said that would cost $1.83 billion [for an 800 MW plant in NC]” (NYT,
7/10/07) = $2,300/kW
•
“GE… company executives Monday gave figures… of $2,000 to $3,000 [per
kW for new coal-fired power plants]” (NYT, 7/10/07)
•
“Indiana utility regulators approved Duke Energy's proposed $2 billion coalfired… 630 MW power plant” (E&E News, 11/27/07) = $3,174/kW
•
FutureGen: “The cost of a [275 MW] federal project… cleanly burning coal and
sequestering carbon dioxide emissions has nearly doubled to $1.8 billion”
(Greenwire, 11/12/07) = $6,500/kW
•
$2,500/kW/20 year/11% capital amortization = $314/kW/year for capital
recovery, or 5 c/kWh.
•
•
+ T&D @ $1400/kW = 2 – 3 c/kWh;
•
+ operating expense = 2 – 3 c/kWh = 9 – 11 c/kWh retail prices.
FutureGen @ $6,500/kW will need to realize retail rates of 17 – 19 c/kWh.
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…and even worse once you factor in
externalities & subsidies.
•
Increased asthma downwind of coal plants impose health care costs:
•
•
•
Add in premature fatalities…
•
Ontario Medical Association study: 12 c/kWh
•
US Army Corps of Engineers study: 6 c/kWh
Add in Societal costs from global warming: ???
•
•
But UK says higher than any purported cost of GHG regulation (Stern Report)
Guaranteed equity returns to regulated utilities enable cheaper debt
•
•
Portugal study: 2 c/kWh.
0.5 – 1.0 c/kWh based on current coal plant prices, capacity factors.
Add tax breaks, gov’t grants.
•
GAO: $16.8 billion to fossil industries (primarily coal) from 2002 – 2007
•
This is 2/3rds of $25.2 billion to all electric sources during same period ($6.2 nuke, $4.2
renewables)
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Upshot: we no good central choices
to serve our (inexorably growing)
demand for new electricity
1. Run the gas-fired plants harder. At $8/MMBtu natural
gas (current price), this is ~10 c/kWh delivered power, or
a 17% rate increase.
2. Build new nuclear plants. Effectively irrelevant because
of historic ~10 year construction times and NIMBY.
3. Build new coal plants. ~ 10 c/kWh per previous. Plus
significant equity risk associated with future GHG
regulation.
4. Build new coal plants with carbon sequestration.
Really really expensive, ~18 c/kWh, or a 112% rate
increase. And will the CO2 “stay down”?
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The Grid Story
The Carbon Price Story
The Coal Story
The Opportunity
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Crisis = opportunity
•
The fact that the conventional wisdom is wrong means
that we have a massive opportunity to lower GHG
emissions, reduce costs and transition away from coal.
•
Crisis: Our most pressing environmental challenge has
been accelerated by our preference for inefficient power.
(And the beneficiaries of that preference actively resist
change.)
•
Opportunity: It’s not too late. We can start deploying
cleaner generation now that will lower costs and GHG
emissions. Fix the rules and private capital will rush in.
Our problem is not economic pain, but wealth transfer.
That is a political problem, but an economic opportunity.
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Win/win opportunities in the power
sector.
Generation Cost (Cents / kWh)
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Central Generation
Options
Renewable
Energy Options
Solar PV
Coal gasification +
CO2 sequestration
15
New Combined
Cycle Gas Turbine
10
Remote Wind
New Coal
New Coal
Gasification CCGT
5
Balanced
CHP
Existing Coal – no
new T&D
0
Average Retail Power
Price 8.1 c/kWh
Average Industrial
Power Price 5.5 c/kWh
Recycled
Industrial
Energy
Recycled Energy Options
3
(33% h)
2
(50% h)
1
(100% h)
0
Average Fossil Heat Rate
(Units of fossil fuel per unit of delivered electricity)
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-1
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What does recycled energy look like?
• 95 MW recovered from the exhaust of 268 coke ovens.
• Saves host ~$40 million/year, after capital recov + profit
• Annual CO2 savings ~ annual CO2 savings from all gridconnected solar worldwide
Courtesy Primary Energy
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Scale of opportunity (US only)
•
Balanced CHP potential: 135 GW (US DOE)
•
Waste energy recovery potential: 65 GW (US EPA)
•
Waste heat recovery potential alone is >50 GW (RED)
•
Compare: total US generation fleet = 1000 GW
•
If fully deployed, this ~200 GW opportunity would:
•
•
Reduce power costs
•
Lower total US CO2 emissions by 20%
•
Enhance competitiveness of US businesses
But it doesn’t fit well into current paradigm
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Problems with the paradigm
•
Creates incentive for high-cost capex, ignores opex.
•
Regulatory model is socialist, in the classic sense. It is
lousy at identifying or encouraging the private sector.
•
CHP/RE opportunities require close integration into
industrial hosts, commercially and technically complex
“deals”. Paradigm requires quick installation of many MW
that cannot tolerate this complexity.
•
Investor-owned utilities have inherent conflicts between
customers and shareholders.
•
An IOU has no economic incentive to provide cheap power, nor to allow
others to do so – numerous regulatory barriers have been erected as a
result.
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The extent to which we lower GHGs
and enhance the economy is limited
only by political ambition.
Full T&D
access
Net Econ. / Envt. Benefit
(= Societal Gain)
True
competition
Anti-trust
enforcement
Retail
access
“Throwing away the
whole paradigm”
Unbundling
“Tweaking the paradigm”
Standard
Offer
2007
Energy Bill
“Throwing away ½ of
the Paradigm”
Decoupling
$ to clean
tech, RPS
IC Stds
0
“Tweaking within the paradigm”
Status
Quo
Degree of Regulatory Reform Required
(= Political Risk)
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