Category — Energy Sources

In a post on his blog and then again on the Huffington Post, Joe Romm challenged me to a wager on oil prices, claiming prescience concerning the price rise in the past decade compared to my 1996 forecast of low prices for two decades.  He seems to be implying that that I have refused to wager him, having closed the webpage to any further comments.

I find myself taken aback, as my experience with the blogosphere is somewhat limited.  My experience is primarily as an academic, writing articles for refereed journals and books, as well as working papers, with an intention to make them carefully sourced and referenced.  A blog can consist of nothing more than a rant, and the comments appended to them often worse (and usually anonymous).  I will not however yield to the temptation to follow suit (even if our illustrious moderator would permit it, which he won’t).

Having put up approximately 20 posts on the subject of peak oil, it might be thought that Romm is an expert on the subject. But so far as I know, he has a grand total of one article on oil, his famed, “Mideast Oil Forever” Atlantic Monthly piece (co-authored with Charles Curtis), which is the source of his pride on the subject.

A careful reading of “Mideast Oil Forever” shows that his argument was not so much that prices would soar, but that global dependence on Middle East oil would soar, which has not happened.  My argument was that the forecast of rising Middle East market share was likely to be incorrect, and it was (see Figure), so that economic fundamentals would not imply ever rising prices.

Forecasts of OPEC Market Share from 1996/97

Which is a far cry from saying my forecast was wrong and Joe’s correct.  In my testimony, I specifically stated,

“The reality is that prices may go up in the future.  And Persian Gulf oil production and exports will rise.  However, the most likely scenario, given what we know about oil supply and demand and what we have learned about forecasting in the last 10 to 15 years, is that OPEC is going to be under continued pressure for at least the next 10 years, possibly for much longer, that they will be fighting with each other for market share.  And, it’s going to require some very substantial changes in the world to see prices rising.” (See my opening statement on pp. 127-128.)

Arguably, the price collapse leading to the rise of Hugo Chavez, the September 11 terrorist attacks and the Bush Administration’s decision to invade Iraq, are those ‘substantial changes’.  Certainly, not the soaring Middle East market share predicted by Romm.  (Since he downloaded the transcript of the hearing, it’s not clear how he missed this.) [Read more →]

In August 2009, the U.S. Nuclear Regulatory Commission (NRC) issued its fourth Early Site Permit for two new units at Southern Nuclear’s Vogtle site and its first for the Westinghouse AP1000 pressurized water reactor design. The two new units planned for Vogtle also became the reference plant for the AP1000 under NuStart in June 2009. This means Vogtle Units 3 and 4 will be the first licensed installations of the new AP1000 reactor design.

On February 16, President Obama announced that the DOE has offered Plant Vogtle terms for a loan guarantee that could provide up to 80% of the project estimated cost of $14.5 billion with the Southern Nuclear only paying a credit subsidy fee.

That’s a lot of commitment from taxpayers–$11.6 billion worth. Perhaps rapidly rising construction costs of new nuclear plants is partly why the owners want such large protection up front. But there are problems with fundamental economics comparing nuclear to the best foregone opportunity.

My back-of-the-envelope calculations comparing a natural gas-fired combined cycle plant to a new nuclear plant raise more questions than answers.  For example, assume a utility has a baseload need of 2,400 MW in the future (like the new Vogtle units). Next, use the EIA future price projection of about 12 cents/kWh for nuclear and 8 cents/kWh for a gas-fired combined cycle produced electricity.

At today’s gas prices (yes, the prices have historically been extremely volatile), the combined cycle plant would use about $750 million a year of fuel. The 4 cents/kWh difference in busbar cost of generation is also equivalent to about $750 million per year in lower cost electricity generation. In essence, it’s an economic dead heat. However, the first cost of the no-risk gas combined-cycle plant is about a fifth of the nuclear plant, the latter which requires large government subsidies.

Simple math suggests that the gas-fired option should be back on the table. Moderate the fuel price risk with financial instruments with Grade A corporations. Obviously, there are major competitive problems with the nuclear plants to require such a large government subsidy–more explanation is invited in the comments by those in the know.

Background

The Alvin W. Vogtle Electric Generation Plant (Plant Vogtle) is one of Georgia Power’s two nuclear facilities and one of three nuclear facilities in the Southern Company system (Figure 1). Southern Nuclear, a subsidiary of Southern Company since 1990, is the licensed operator of Plant Vogtle, which is located about 25 miles south of Augusta, Ga. The plant is jointly owned by Georgia Power (45.7%), Oglethorpe Power Corp. (30%), Municipal Electric Authority of Georgia (22.7%), and the Dalton Utilities (1.6%). [Read more →]

[Editor’s note: With the author's permission, MasterResource reprints a probing analysis of a recent study by the Department of Energy's Lawrence Berkeley National Laboratory, The Impact of Wind Power Projects on Residential Property Values in the United States. Albert Wilson critically examines a genre of analysis used by wind proponents, including government bodies and environmentalists, that produces a desired result. Comments are invited on this paper as well as on other examples of where methodological tricks are used to justify wind power and other politically dependent energy technologies. (Mr. Wilson's Bio is at the end of the article.)]

WIND FARMS, RESIDENTIAL PROPERTY VALUES, AND RUBBER RULERS©

by Albert R. Wilson

I recently examined a document published by the Department of Energy’s Lawrence Berkeley National Laboratory titled “The Impact of Wind Power Projects on Residential Property Values in the United States: A Multi- Site Hedonic Analysis” (hereafter “Report”). I express no opinion concerning the impact of wind power projects on residential property values and instead focus on the underlying methods used in the development of the Report, and the resulting serious questions concerning the credibility of the results.

As stated in the title, the primary bases for the conclusions drawn in the Report are hedonic analyses of residential real estate sales data. A hedonic analysis in turn is based on the assumption that the coefficients of certain explanatory variables in a regression represent accurately the marginal contribution of those variables to the sale price of a property.

While I have other issues with the Report (and again reiterate that I have no opinion on the influence of wind farms on residential sales prices), the concerns I have addressed here lead to the conclusion that the Report should not be given serious consideration for any policy purpose. The underlying analytical methods cannot be shown to be reliable or accurate.

The reasons for the conclusion may be summarized as:

1) Lack of access to the underlying data prevents the independent validation of the data, replication of the analysis, testing of alternative analyses, or testing of the conclusions against the real market.

2) The peer review process used for both the literature and the Report can only determine the acceptability of the papers for publication. It cannot reveal the validity, accuracy or reliability of the work behind the papers.

3) Given the peer review actually conducted, the fact that no published and recognized standards for the development of an accurate and reliable regression on sales price were used render the Report of highly uncertain value for any purpose.

4) The exclusive use of a test of statistical significance only indicates that the coefficients for Distance and View variables are not conclusive. What we do not know is what those coefficients actually represent. Only tests of economic significance would provide an answer, and none has been conducted.

5) Low explanatory power: 13% less than an acceptable minimum for an accurate regression on sales price.

The technical analysis underlying this conclusion follows: [Read more →]

A good default proposition regarding the government’s role in the economy would state that the government should not loan money to an enterprise if the enterprise in question cannot find one single market actor anywhere in the universe to loan said enterprise a single red cent.  It might suggest – I don’t know – that the investment is rather … dubious.

Alas, like all good propositions regarding the government’s role in the economy, this one is being left by the roadside by the Obama administration.  Unfortunately, the only complaint being made by a not insubstantial segment of the political Right – frequently, the political crowd that is busy decrying “Bailout Nation” – is that the loan guarantees are not fat enough.

I write, of course, about the $8.3 billion federal loan guarantee announced by President Obama this week for Southern Company to build two new nuclear power plants.  The money will be used to guarantee the loans being made by the federal government (via the Federal Financing Bank) to partially cover the cost of Southern’s projected $14 billion nuclear construction project at their Vogtle plant near Waynesboro, Georgia. 

The loan guarantees were authorized by Congress in the 2005 Energy Policy Act and, we are told, are the first installment on a total package of $54 billion that the President would like to hand out to facilitate the construction of 7-10 new nuclear power plants (Congress, however, has only authorized $18.5 billion to this point). 

The claim being made by some – that the loan guarantees are necessary to jump-start investor interest in new nuclear power plant construction – is not quite correct.  Even these lavish loan guarantees aren’t enough to do that.  In a letter to the U.S. Department of Energy dated July 2, 2007, six of Wall Street’s s then-largest investment banks – Citigroup, Credit Suisse, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley – informed the administration that, contrary to the government’s expectations, anything short of a 100 percent unconditional guarantee would be insufficient to induce private lending. 

Why is it risky to build nuclear power plants?  [Read more →]

Why has California expressed concern over the EPA holding up approvals for natural gas-fired power plants?

Answer: because state regulators know that California’s gas plants are crucial for establishing new wind and solar projects. After all, firming intermittent power sources is essential short of employing cost-prohibitive battery packs to continuously match supply to consumption.

But the analysis can go a step further. What if the gas backup actually runs more poorly in its fill-in role than if it existed in place of the wind and/or solar capacity? It does run less efficiently, in fact, creating incremental fuel use and air emissions that cancel out the fuel/emissions “savings” from wind.

Thus California should go a step further than just allowing new natural gas capacity. Regulators should rethink the rational of wind per se and block its new capacity–if only by removing the government subsidies that enable industrial wind power in the first place.

Background

Parts I to IV (links provided at end) introduced an analytic framework and calculator as a working hypothesis to assess the impact of industrial-scale wind on fossil fuel consumption and CO2 emissions. This post, Part V, provides an update to the calculator. The methodological framework has not changed, and the need for confirmation from actual performance data using extensive real-time local dispatch analysis at finely grained time intervals capable of accurately and sufficiently assessing how wind affects all the variables within the electricity system remains. In summary, the calculator:

(1) refines the emissions rates for the fuel plants modeled;

(2) improves the manner in which fossil fuel consumption is calculated, which increases the amounts previously reported; and

(3) adds a coal plant scenario.

This update also includes examples of the use of some of the input parameters to incorporate subtleties not considered in Part I and Part II. [Read more →]

The typical pulverized coal power plant in the U.S. is about 35 years old, yet the fleet will continue to operate for many years to come. New coal-fired plants, meanwhile, will continue to enter service but at a slow rate. There may not be a future price for carbon dioxide (CO2) given the dramatic scientific and political developments that we are going through, but cheap natural gas makes it difficult to justify the higher up-front costs of a new coal plant.

Still, there is significant new electricity generation capacity is possible from these older plants, perhaps as much as 30,000 MW–twice EIA’s projected growth of coal power over the next two decades. In addition, new technology upgrades have the potential of improving the operating efficiency by 3% to 5%. But the impediment for such win-wins is the risk of a New Source Review violation, years of litigation, and possibly fines.

Given the Obama Administration’s stance against coal, many attendees of the National Coal Council’s December meeting were caught flat-footed when DOE Assistant Secretary for Fossil Energy James Markowsky suggested an exception be made under Clean Air Act’s New Source Review (NSR) program. Mr. Markowsky proposed easing the NSR requirements for power plants that make modifications to improve their operating efficiency–assuming those plants would be good candidates for a later retrofit of a carbon capture and sequestration (CCS) system.

Markowsky’s trial balloon also suggested that candidate plants would already have installed flue gas desulfurization (FGD) systems. The concept is intriguing but doesn’t go near far enough in solving the nation’s energy woes.

NSR Definitions Remain Murky

NSR is the process established by the Clean Air Act (CAA) that requires utilities to add a host of new and expensive emission controls should they make any “major modifications” to the plant that increase emissions. The definition of a major modification has been the subject of numerous court battles since the Clinton Administration yet stills remains murky. Even when upgrades were discussed with the EPA in advance of their installation, Justice has routinely lowered the legal boom on utilities that made common maintenance changes to their plants The usual result has been a decade of legal maneuvering followed by a consent decree agreement where the utility agrees to install new emission controls and pay a fine. [Read more →]

The New York Times dutifully featured this week two media events primed to gin up public—and Congressional—support for industrial wind technology.

The first was a “study“ by the Department of Energy and authored primarily by David Corbus of the National Renewable Energy Lab. It claims that, for a startup cost of around $100 billion public dollars, “wind could displace coal and natural gas for 20 to 30 percent of the electricity used in the eastern two-thirds of the United States by 2024.” Corbus acknowledged that such an enterprise would require substantial grid modification but said the $100 billion was “really, really small compared to other costs,” which the Times failed to identify.

A few days later, the paper of record ballyhooed the annual report of the American Wind Energy Association (AWEA), which touted the growth of wind last year and projected that the country would soon get 2 percent of its electricity from wind energy. The report fretted about the American wind gap with Europe, which AWEA alleged gets 5 percent of its electricity from wind, compared to only about 1 percent in the USA, while stating “Denmark has essentially achieved that goal already, and sometimes produces more wind power than it can use.”

AWEA’s stalking horse for this PR event, energy consultant Tim Stephure, said, “By 2020 wind’s installed capacity could be five times higher than it is today, reaching about 180,000 megawatts.”

To achieve this goal, from its present base of 35,000 wind turbines and an installed capacity of about 35,000 MW, the industry must build, in each of the next ten years, an installed capacity of 14,500 MW.  This is pure speculation and, more accurately, nonsense. [Read more →]

Press reports in the Financial Times and other news outlets describe a wind project in Oregon with 338 machines of 2.5 MW each, giving a total capacity of 845 MW. The project sponsors claim that they will provide enough energy to serve 235,000 households and reduce CO2 output by 1.5 million tonnes annually.

Part I demonstrated that the served-household claims is fanciful. In reality, no more than 49,000 households could be “supplied”, and these with only a minimal degree of assurance. Indeed, the wind project is more costly than a diesel backup scheme that would actually be capable of supplying reliable power to several hundred thousand households. The wind project is also three times more costly than a replacement of just 211 MW of older coal capacity with new technology that would provide a similar reduction in emissions, while supplying firm power to the NW Power Pool’s customers.

Opportunity-cost economics, anyone?

The key to wind’s providing some degree of fuel and emissions savings is its ability to deliver reliable electricity without shadowing or backup by hydrocarbon-using plants. These shadowing/backup requirements in the Northwest (NW) Power Pool may be able to take advantage of existing surplus hydro capacity in that region during off-peak periods (spring and fall), thereby permitting the proposed plant to reduce hydrocarbon consumption and emissions somewhat during those periods. It is not reasonable to expect to achieve the claimed emissions savings, but lower figures, less than half the publicized savings, may be possible.

In particular, the addition of wind generation, with shadowing/ backup provided by reservoir hydro, may be able to reduce overall CO2 emissions in California, the ultimate customer for the electricity produced by the GE project during Oregon’s two surplus seasons. But during the winter and summer peak demand periods, less hydro output is available, peak demand is greater and the shadowing backup will be provided by some combination of gas-fired and coal plants. What it is critical to keep in mind is that maintaining stability in the NW Power Pool requires the pool to shadow/backup not only the proposed new project, but the other 6.4 GW of existing wind as well.

Going further, our analysis shows there are less costly and more effective alternatives readily available that rival or exceed the claimed benefits of this wind project. [Read more →]

In the midst of a bitter winter in North America and Europe, General Electric has announced a large wind project to be built in Oregon. Press reports in the Financial Times and USA Today describe a project of 338 machines of 2.5 MW each, giving a total capacity of 845 MW.

With power grids strained due to heating demand, increments to generating capacity are to be welcomed. But along with the usual hoopla about homes served and CO2 emissions savings, it is time for some “devil’s advocacy” by asking: – how much energy and capacity will this project really create? How much CO2 will be saved? And when the chips are down will consumers and grid operators be pleased that their funds have gone into wind rather than into some other generating source?

We strongly suspect that neither consumers nor grid operators will benefit greatly from this plant. Our brief analysis of this announcement shows that the claims for houses served and carbon saved are not supported, though some incremental, useful energy supply may be possible under some circumstances. All such claims depend on the system operator’s ability to use the wind farms’ output to offset hydro generation, the key generation resource in the Northwest United States (NW). [Read more →]

The higher costs and inferior reliability of government-mandated wind power and solar power are well known to students of the electricity market. Many analyses on wind and solar have documented their real-world problems.

But another negative aspect of wind and solar technologies is their failure to live up to their raison d’être: emissions reduction. As I have explained in a four-part post, firming intermittent electric generation requires very inefficient fossil-fuel generation that creates incremental emissions compared to a situation where there is not wind or solar and fossil-fired generation can run more smoothly. This is a huge insight, a game changer, that could take the renewable energy debate in a new direction entirely.

 A number of studies are emerging that quantify both the cost premium of politically-forced renewables and the minimal amounts of emissions reduction (and even notable emissions increase) resulting from their use. Country-specific studies (such as the one under review) present a methodology that is applicable to other jurisdictions (such as the U.S.) to better assess policy options and their consequences for all stakeholders, including taxpayers.

Peter Lang’s important new study, Emissions Cuts Realities – Electricity Generation, analyzes five options for the Australian electricity system for cutting CO2 emissions over the period 2010 to 2050 compared to business-as-usual (BAU) in terms of cost. The range of CO2 emissions reductions by 2050 compared to 2010 is from zero to 80%.

The conclusions that Lang draws include:

1. The nuclear option provides the largest reduction in CO2 emissions – 80%.
2. Any CO2 emissions reduction achieved with wind and solar thermal (there are arguably none and even increases) is “achieved” at a very high cost – 250-300% of 2010 costs.

Lang’s analysis is very conservative. The author’s preference seems to be to gain an unassailable beachhead in a very contentious debate. But in reviewing his data, I see confirmation that new wind or solar capacity provide marginal reduction in CO2 emissions at best. I would even argue that there are emission increases because any reductions due to new renewables are dependent upon solar thermal technology development by 2020 providing sufficient thermal storage to allow operation for 8,000 hours per year.

Other conclusions that can be reached are:

1. The nuclear option provides an effective ‘bridge’ to future generation technologies.
2. The extraordinarily large funding required for the implementation of new renewables in this period would be better spent on energy efficiency/conservation programs and in research and development for other technologies, such as carbon capture and storage (CCS), nuclear waste management, nuclear fusion and solar.

In summary, Lang’s study and other considerations provide another illustration of the failure of industrial-scale new renewables, particularly wind and in the near future, solar, to meet societies’ goals. They do not provide the impact that is needed in terms of energy independence, avoidance of fossil fuel use and reductions in CO2 emissions that conventional wisdom, with all its inadequacies, dictates.

My summary of Lang’s paper follows. [Read more →]