“Commercial-scale solar developers are already offering utilities electricity at 14 cents or less per kWh. Duke Energy and Progress Energy are limiting or rejecting these offers and pushing ahead with plans for nuclear plants which, if ever completed, would generate electricity at much higher costs — 14–18 cents per kilowatt-hour according to present estimates.”
This is the research conclusion from a study entitled Solar and Nuclear Costs — The Historic Crossover authored by John O. Blackburn, PhD, Professor Emeritus of Economics and former Chancellor, Duke University.
The study’s premise is that traditional energy supplies including fossil and nuclear energy are experiencing what economists called “upward cost curves” or in other words, their costs keep going up and are not likely to ever go back down. However, the research claims of Blackburn/Cunningham are that renewable energy has achieved a “downward cost curve” over the last decade, namely that their prices have gone down and there is a strong likelihood that they will continue to fall in price.
The forces behind renewable energy’s downward price curve are technology innovation combined with the emergence of a global manufacturing base that is producing economies of scale (lower unit prices achieved from mass production efficiencies). Fueling this push for innovation and mass production is the emergence of a global renewable energy market with examples that include China’s recent announcement to increase their wind power supply by 50% beyond their world leading growth levels and Ontario’s success in attracting 8,000 MWs of solar development proposals from their feed-in tariff. Today wind power is price competitive on a kWh basis with coal fired power plants and tomorrow’s post will outline the facts behind the drop in the cost of PV utility-scale solar panels from approximately $6 per watt to less than $2 per watt in just five years.
While renewable energy has been achieving lower costs, fossil fuel prices are being driven higher by a combination of increasing global demand compared to global supply plus the higher risks facing fossil fuel suppliers as they increasing source supplies from high risk locations, either deep below the seas or from a foreign country with heightened profit expectations or political instability, or both. For example, coal prices have reached $100 per ton as China grows into a net coal importer and oil now trades in the $70-80 per barrel range. Only natural gas has been able to achieve price stability at around $4-5 per mmbtu as fracturing drilling technology creates an increasing, global supply of natural gas. The claim of the Blackburn/Cunningham study is that nuclear power also faces an escalating price scenario based upon their reference of a study by Mark Cooper, Senior Fellow for Economic Analy- sis at the Vermont Law School’s Institute for Energy and the Environment that concludes “…a new nuclear plant will produce electricity at costs of 12–20 cents per kilowatt-hour (with a mid-range figure of 16 cents) at the plant site, before any transmission charges.”
A major issue that confronts an assessment of which energy supply is truly least cost is the confusing, lobbyist driven array of government subsidies that appears to have been given to every energy resource. This large quantity of taxpayer subsidies is distorting the consumer’s and voter’s ability to understand an energy resource’s “real cost” at the pump or meter. As a result, the debate on energy policy now includes fossil vs. nuclear vs. renewable energy advocates pointing fingers at each other over which fuel is the most subsidized. The Blackburn/Cunningham study also attempts to address this issue as to whether solar or nuclear is the greater beneficiary of taxpayer subsidies. The obvious answer is that taxpayers are subsidizing all energy sources and the obvious question is why?
What insight can be drawn from analysis like that of Blackburn/Cunningham? The first conclusion is that the future price of electricity is going to be much higher! The current average national price for retail electricity is in the 10 cents per kWh range. Energy prices from either solar or nuclear energy at their projected costs per kWh will drive consumer prices above current national averages!
The second observation not addressed by the Blackburn/Cunningham study is the need for an increased electricity supply. Yes, conservation is needed because the USA is an energy hog compared to other countries. U.S. Energy Information Agency statistics document that while we account for approximately 5% of the world’s population we consume approximately 21% of the world’s energy. A Jato Dynamics study found that “…33.9 percent of vehicles sold in the U.S. still fall within a 15 mpg to 20 mpg consumption bracket, compared with Europe where only 0.28 percent of vehicle sales in Europe fall within that bracket and only 0.63 percent of sales in Japan.” Conservation and energy efficiency is America’s least cost solution compared to the consumption of fossil, nuclear or renewable energy.
However, even with the anticipated benefits of conservation and energy efficiency, our country is entering a new wave of electrification that will increase the demand for electricity. Transportation electrification is emerging as a solution to both our dependence upon foreign oil, higher gasoline prices and the environmental consequences of fossil fuel consumption. The promise of transportation electrification is an electric car industry offering consumers a lower fuel cost per mile, acceleration and performance that is a car enthusiastic dream plus solutions to fossil fuel emissions and energy independence.
The shift to digital information is also a key driver in the growing demand for electricity. Digital information is the technology that is enabling the unprecedented labor productivity being achieved by Corporate America. The scale of these labor productivity gains are paradoxically generating higher profits even as Corporate America’s revenues face the headwinds of a global recession. Digital information is also transforming our every day life-experiences offering increased transportability and lower costs compared to the historical fossil-based carbon-based products sold through a retail outlet-centric supply chain consuming vast quantities of energy. While the digital age is producing “Cost Less, Mean More” results in the form of lower prices, increased benefits and positive environmental results, its backbone is electricity.
Digital age applications applied to our current electrical grid does offer the promise of a quantum leap in consumer conservation and more efficient use of energy. However, this will not be enough to satisfy the growing demand for electricity when we are recharging our electric cars while also running our businesses and homes off of a “cloud” of connected, smart computers and appliances. Voltage maintenance (best appreciated as lights dim and electric motors make unusual noises during extreme hot spells when electricity demand is so high that it stresses the electrical system) will challenge currently designed utility electrical systems as A/C compressors, refrigerator compressors, machine motors, computers and the electric car create a combined local load level that the electrical distribution systems was not designed to handle.
A re-engineering of the local distribution grid utilizing renewable energy supplies combined with enhanced distributed battery storage technologies plus smart grid technologies could address both voltage and supply issues. The public policy question confronting this scale of innovation is the utility industry’s 100 years of legacy law and rulemaking now operating through local, state and federal agencies, commissions and courts. This legacy system links utility profits to the utility building and owning assets, a logical linkage during the 1930-60’s when the technology benefits of large central power plants connected to a transmission grid were delivering annual rate decreases to consumers. In today’s applications of this legacy system the utility is often confronted with a tightrope walk between doing what is best for the consumer vs. what is best for the investor. For example, a utility profits from investing in approved power plants but does not profit from least cost energy purchased from a third party or from encouraging consumer conservation. In addition, regulatory oversight is very focused upon management’s cost prudence with little linkage between the level of profits a utility is allowed to earn and the utility’s achievement of customer satisfaction, system reliability, reduced environmental footprint and competitive pricing.
While the issue of nuclear vs. renewable vs. fossil technologies merit such commendable efforts of analysis as provided by Blackburn/Cunningham, the issue that would most enable a least cost analysis is rational economic public policy that aligns rather than divides business incentives behind creative, least cost innovations (including cost analysis that incorporates environmental/wellness cost/benefit impacts) that will enable the benefits of transportation electrification and the digital age.