02 July 2012

Comparing Costs of Energy Production

This article is adapted from material previously published on Al Fin Energy blog

RCE Summary of James Conca at Forbes

The editors of Real Clear Energy took a look at a recent attempt to compare lifetime costs for different electrical power sources:
[James] Conca differentiates between lifetime costs and other ways of comparing costs, specifically overnight costs and levelized costs:

"By life-cycle costs, I mean the total costs of building, operating, maintaining, fueling and decommissioning a thermal power plant, a solar array, a wind farm or hydroelectric dam over its life, that is, 15 years for a wind turbine, 40 years for a fossil fuel plant, 60 years for a nuclear plant, or 80 years for a large hydroelectric dam. Dividing those total costs by the amount of energy actually produced, not theoretically possible or installed capacity but actually produced, gives a life-cycle cost in ¢/kWhr. How we finance this cost is a totally different issue, one at which we generally fail as a society."

As the graph shows, hydro has the lowest costs at 3.3 cents per kWhr. This is due mainly to almost zero fuel costs and the 80-year life cycle of hydroelectric dams. Nuclear is second lowest with 3.5 cents, largely because of low fuel costs and the 60-year life expectancy of nuclear reactors. Coal is 4.1 cents, wind 4.3 cents, natural gas 5.2 cents and solar is the most expensive at 7.7 cents per kWhr.

Although fuel costs are free for wind and solar, their intensive capital costs, aggravated by the enormous amount of collection facilities that must be built, drive up their lifetime costs. It takes 9,500 windmills, for instance, to equal the life-cycle output of one AP1000 nuclear reactors, which is not the biggest reactor being built. Wind requires ten times the steel, concrete and copper per kWhr than any other energy source.

Natural gas plants are relatively cheap to built but are entirely dependent on future prices of natural gas, since fuel supplies make up 90 percent of the cost. _RCE Summary of James Conca at Forbes

James Conca Energy Cost Comparisons in Forbes suggest natural gas as the current frontrunner, although Conca cautions about future changes in fuel costs. Full set of references included.

A comprehensive analysis would have to include several other factors which are rarely included in a cost comparison. But it is good to have more people working on this problem.

The following images come via "Neutron Economy"'s article: Deconstructing anti-nuclear economic myths - a response to Veronique de Rugy. (h/t 111th Carnival of Nuclear Bloggers at Yes, Vermont Yankee)

This image looks at EU countries by residential costs of electricity. It can be seen that nations which depend upon big wind and big solar -- such as Germany and Denmark -- pay a high price for power. And their costs are just beginning to build, as they double down on stupid.

The above image looks at levelised costs for producing electricity by source. Solar and offshore wind score particularly badly by this metric. But regular onshore wind would score almost as badly if the costs of intermittency were included in overall costs. That is one of many deficiencies in the "levelised cost" metric, failing to account for all the costs of intermittency -- which over the long run is the largest cost of big wind power besides the short lifespan of the powerplant.

Cost effectiveness of nuclear power for surface ships

The above study looks at US navy ships, but the cost comparisons should hold across the board for all long voyage, ocean going vessels.

More: Japan restarts Ohi reactor No. 3

Despite irrational green-fueled public protest, Japan carried through with the re-start of one nuclear reactor over the weekend. This should be only the first of many re-starts, as it is uneconomical to allow expensive power plants to sit unused in the midst of a power shortage. Particularly when the cost of nuclear fuel is extremely low in comparison to other forms of fuel.

Japan's political challenge of re-starting its nuclear facilities points out the global challenge of combating lefty-Luddite dieoff.orgiast anti-nuclear greens -- whether in Japan, Germany, Australia, the UK, or the US. Greens are leading Germany down a treacherous slope which will result in energy catastrophe unless a wiser leadership steps in.

Devising a wise energy strategy is difficult, due to the many factors involved, and the various approaches to comparing different methods of power production.

You must look at capital costs (or overnight costs), as well as costs of operation and maintenance, along with costs of replacement or decommissioning. But what is almost never included in the calculations -- at least for intermittent unreliable sources such as big wind and big solar -- are the costs of intermittency that must by absorbed by the grid and by grid customers.

Below is a table from the US EIA using data from 2010, comparing a wide range of power plant capital costs along with operating and maintenance (O&M) costs:

2010 USEIA Power Plant Costs PDF

Notice that variable O & M costs for wind and solar are listed as $0.00 -- quite a joke! When the true costs of all O&M and intermittency are included with the nominal costs of wind and solar, the true nature of the boondoggle quickly becomes apparent.

The same criticism should always be applied to "levelised" costs of power production, such as the third graphic from the top, above. If the costs of intermittency and O&M are not included in the calculations -- along with all capital costs, government subsidies, and costs of insurance, financing, legal fees, likely changes in fuel costs, decommissioning, etc. etc., it is difficult to plan energy strategies over a multi-decadal time span.

If everyone follows the irrational, knee-jerk route taken by Germany and perhaps Japan -- which is the path preferred by the US Obama administration -- the western world is in for some very serious trouble in the not-so-distant future.

Supplement: Calculating Levelised Cost of Energy (One Method) --

The basic formula used is based on the US NREL formula for the levelized cost of energy (net): Net COE = ICC * CRF / AEPnet + (LLC + O&M + LRC + MOE) – PTC, in US $/kWh

where ICC = Initial Capital Cost (total debt), $
CRF = capital recovery factor, 1/yr = int / (1 – (1 + int)^-Life)
AEPnet = Net Annual Energy Production, kWh/yr (net of plant own use) = (kW capacity) * (capacity factor) * (hours/year)
LLC = Land Lease Cost, $/kWh
O&M = Levelized Operating & Maintenance Expense, $/kWh
LRC = Levelized Replacement/Overhaul Cost, $/kWh
MOE = Miscellaneous Operating Expense, $/kWh
PTC = US Production Tax Credit, $/kWh

__Energy Technology Expert

Such methods for calculating levelised costs are conspicuous for what is left out -- namely all costs of intermittency, plus all governmental influences pro and con, plus all costs of necessary ancillary infrastructure, etc.


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Blogger Chuck said...

It's not clear to me whether the 'costs' used include the absurd regulatory/licensing/startup costs that nuclear is usually saddled with before a single watt can be generated?

Monday, 02 July, 2012  
Blogger sykes.1 said...

The capacity factor for wind (27%) appears to reflect only the most favorable ocean-shore sites. Otherwise wind is down below 10%. Also, I doubt very much that solar has an average capacity factor of 20%. On a annual basis, it has to be less than 50% for any site. And unless we are talking deserts, cloud cover will reduce that substantially.

Your point about including the cost of the so-called backups is crucial. Solar/wind are essentially supplements to gas turbine fueled by natural gas. So, they should be judged as fossil fuel plants with unnecessary add-ons.

Monday, 02 July, 2012  
Blogger Bruce Hall said...

What is neglected entirely is that wind and solar energy generation relies on coal/gas/nuclear to provide the energy when conditions prevent wind and solar power from being produced. The converse is not true.

Thus, the cost of wind and solar energy production is understated to the extent that a significant portion of coal/gas/nuclear reserve plants would be either idle or excess if wind/solar were considered the primary sources.

Tuesday, 03 July, 2012  
Blogger al fin said...


The extra cost to maintain spinning reserve backup to wind and solar is manifested as extra fossil fuel costs, increased maintenance to backup power plants, and shorter lifespan for the backup power plants -- requiring expensive replacement.

More here: http://alfin2300.blogspot.com/2012/03/mit-report-managing-large-scale.html

Since wind turbines do not last very long compared to other types of power plants, and often require millions of dollars of maintenance (bearings, blades, gearboxes, etc. etc.) just to limp along to the end of their short lifetimes, one might wonder why these expensive bat-killing monstrosities are built at all.

Eventually the truth will come out, but not before the politically connected crony developers and faux environmentalists make off with $billions of ill-gotten gains.

Tuesday, 03 July, 2012  
Blogger Loconeko said...

It's bordering on the hilarious to see that all costs of waste management have been ignored. Add them for coal, gas, and nuclear plants, and your graph is basically reversed.

Tuesday, 17 July, 2012  

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