Can We Replace U.S. Coal Power with Clean Energy?
Coal electric power generation is under enormous regulatory pressure to substantially reduce stack emissions. The EPA requires huge reductions in most coal plant emissions including carbon dioxide (CO2). As a result, most new coal power plant projects are being cancelled and many existing coal plants are expected to shutdown prematurely.
Congress has recently developed new Clean Energy regulations that will effectively replace most coal power with clean energy power sources. Political supporters describe the regulations as facilitating the replacement of fossil fuels such as coal with ‘affordable’ and cleaner alternative energy. The average cost to comply with Congressional Clean Energy bills has been estimated by Federal Agencies at $100-$160 per household per year. To quote the EPA in 2009: (replacing fossil fuels) “would cost the average Household less than a postage stamp per day”.
Analysis of DOE/EIA evaluations of proposed Clean Energy regulations find extremely complex solutions involving expansion of all types of clean energy. In addition, the Federal solutions to replacing coal include very complex systems of emissions/clean energy credits, establishing a carbon credit system (cap-and-trade) and purchasing substantial world market carbon credits. My personal review and analysis of these proposed Clean Energy regulations and Government Agency’s evaluations finds the claimed compliance costs to be significantly underestimated. Although this analysis is fairly complex, I will present a brief summary of important details and major findings.
Recent U.S. Clean Energy Regulations – The House of Representatives passed the ‘American Clean Energy and Security Act’ in 2009 (H.R. 2454, ACES) which would create a U.S. carbon cap-and-trade system and require total CO2 emission reductions of 17% by 2020 and 80% by 2050. Study of CBO/EPA/EIA ACES evaluations finds that large amounts of foreign carbon credits are required for compliance. A major concern with purchasing foreign carbon credits is that validating actual CO2 emission reductions from many international sources is extremely difficult-to-infeasible and international carbon credits are effectively ‘foreign taxes’, which do not directly benefit the U.S. economy. The Senate did not approve the ACES.
The Senate is currently developing the ‘National Clean Energy Standard Act’ (S. 2146, NCES), which is supposed to facilitate developing all forms of clean energy including nuclear power. Although the proposed NCES does not directly limit CO2 emissions, Federal Agency evaluations indicate that future total U.S. CO2 emissions could be reduced by 40% in 2035. This is coincidently very similar to ACES requirements.
Cost Impacts and Support for U.S. Clean Energy Regulations – The developing NCES is advocated to hugely benefit the economy by substantially growing U.S. clean energy supply. Senate advocates state that NCES will have ‘zero’ impact on U.S. GDP and does not increase Federal tax revenues. A recent Harvard survey (Willingness to pay and political support for a US national clean energy standard, http://www.climateaccess.org/sites/default/files/Aldy_Willingness%20to%20pay%20and%20political%20support.pdf) indicates that the Public is willing to support the NCES and pay increased average power costs up to $162/yr. or about 13% increased annual average power bills. More recent Senate discussions would possibly limit average power price increases to 5% maximum.
Strategy to Increase U.S. Clean Energy Supply and Reduce Carbon Emissions – The Electric Power Sector’s coal consumption accounts for 31% of total U.S. CO2 emissions. Although petroleum consumed by the Transportation Sector accounts for 33% of total U.S. CO2 emissions, the options for reducing petroleum consumption are very complex and expensive. Substantially reducing Transportation Sector petroleum consumption and associated CO2 requires replacing most of the current U.S. 200 million cars, SUV’s and trucks with much more efficient vehicles. This includes substantially increased fleet CAFE standards, including building 10’s of millions of plug-in hybrid’s and electric vehicles (EV) over the next couple decades. Rapidly expanding EV production is still challenged by needed battery technology improvements and expanded re-charging infrastructure costs.
Coal accounts for 42% of total U.S. net power generation today. A very feasible strategy to quickly and substantially reducing U.S. CO2 emissions is replacing most or all of the coal consumed within the Electric Power Sector. The Power Sector consumes the vast majority of U.S. coal in about 600 power plants across the U.S. Replacing coal power with clean energy or clean power also provides an excellent synergy for reducing future Transportation Sector CO2 emissions. For future EV’s to eventually become ‘zero emission vehicles’ (ZEV’s) requires substantial reductions in fossil fuels used to generate U.S. electric power. Replacing all coal with clean power facilitates the actual development of future ZEV fleets.
Strategy for Replacing Coal Power – The options for replacing coal power with clean power include nuclear, natural gas, hydroelectric, wind, solar and other renewable power. Cost effectiveness of each clean power source varies considerably. The EIA has estimated the ‘levelized’ (relative) cost for different power generation technologies (Table 1. Estimated Levelized Cost of New Generation Resources, http://www.eia.gov/forecasts/aeo/electricity_generation.cfm). Levelized power costs vary from $66/MWH for natural gas combined cycle (NGCC) power up to $242/MWH for solar thermal. Although clean energy technology developments are being routinely made, a sound strategy for determining the most cost effective options to replace coal with clean power is to possibly build on the recent historic clean power successes. The two most successful clean power sources over the past couple decades have been on-shore wind and natural gas. In just the past 5 years, wind and natural gas power have grown by 250% and 13% respectively, which exceeds the growth of all other clean power sources combined by a factor > two.
The huge recent historic growth of wind and natural gas power has also been designed and built primarily to provide centralize power capacity for supplying regional and national power grids. An effective strategy for quickly displacing coal could be possibly installing 50% wind and 50% natural gas new clean power capacity.
Review of EIA Power Plant Capital and Operating Costs Data – The EIA uses a sophisticated computer model, National Energy Modeling System (NEMS), to make projections of future U.S. energy balances and costs, and to evaluate Federal regulations including ACES and NCES. Besides the 100’s of assumptions required to model different regulations, large numbers of energy supply cost estimates are required. To estimate the costs of new wind farms and natural gas power plants’ capital and operating costs the EIA uses data from a variety of sources (Table 1. Updated Estimates of Power Plant Capital and Operating Costs, http://www.eia.gov/oiaf/beck_plantcosts/index.html). Review of EIA power generation data found fixed & variable costs, capacity factors and heat rate estimates to be reasonable. However, a significant gap was found in estimated capital costs for new clean power capacity and the assumptions used for properly managing very large increases of variable wind power supply.
Rather than working through the EIA bureaucracy to hopefully gain access to the NEMS Electric Market Module, I developed a new economic model. Based on the latest EIA data and assumptions, the following Table 1 summarizes the results from this new model based on replacing all existing coal power with 50/50 new natural gas and wind power:
Table 1 – Unadjusted EIA Clean Power Costs
Annual Net Power Generation
‘Book’ and New Capital Costs
Total Annual Power Expenses
Average Delivered Power Costs
U.S. Power Technology
2011 Coal Power Plants
New NGCC Base-load Plants
New On-shore Wind Farms
Total New Net Power Capacity
Note: all costs are based on 2011 dollars and EIA MER 2011 data
The above calculation results indicate that replacing all existing coal power with new natural gas and wind power will require $0.84 Trillion in capital costs and increases annual power production costs from $68 Billion/yr. up to $90 Billion/yr. This results in a 13% increase in average delivered power costs for the fraction of total U.S. power supplied currently by coal. The increase in of delivered power costs based on replacing all coal with 50/50 natural gas/wind power results in total average U.S. delivered power costs increasing by 5%. These calculated results appear to agree reasonably well with EIA NEMS estimates.
Improving EIA Estimated Costs for Replacing Coal with Clean Power – My review of recent EIA Clean Energy regulation analysis reports found a number of assumptions that can contribute to very low cost estimates for substantial new wind and natural gas power capacity. Identified problematic EIA assumptions include: 1) all new clean power would be located adjacent existing facilities (off-site costs deficiency), 2) installing substantial ‘non-dispatchable’, variable wind power without adequate peaking power capacity (backup power cost deficiency), and, 3) not including the ‘stranded’ costs for prematurely shutting down existing coal power capacity (basic economics gap). Off-site costs should include multiple miles of power lines and natural gas pipelines infrastructures. Assuming all new clean power capacity is built adjacent existing power plants or wind farms and have access to existing public utility systems (makeup water, waste water treatment, etc.) is not a reasonable assumption on average. The new clean power should be built in optimal locations to access ideal wind conditions, and must adequately supply the existing power grids to ensure system supply-demand balance stability. This is required to displace existing fully ‘dispatchable, base-load’ coal power plants capacities. Grossly underestimating required off-site infrastructure costs was a major contributing factor to cancelling the T. Boone Pickens’ 4,000 MW Texas wind farm project a few years ago (Cost Estimates of T. Boone’s Colossal Wind Farm Keep Rising, http://gigaom.com/cleantech/cost-estimates-of-t-boones-colossal-wind-farm-keep-rising/).
All non-dispatchable, variable wind and solar power generation built over the years have benefited from existing excess ‘peaking’ power generation capacity. As wind and solar power supply drop off-line (loss of wind and sunlight), the lost power is supplied by quickly ramping up existing peaking fossil fuel power plant generation. Existing peaking power capacity is critical to controlling power grid supply-demand balances and providing reliable uninterrupted power supply to end-use customers. This past economic advantage, however, is rapidly coming to an end as wind and solar power continue to expand and exceed available spare peaking power capacity. To substantially expand wind power generation capacity from the current 3% level up to 23% of total U.S. net power generation will require installing new backup peaking power capacity. This is required to maintain stable power grid operations. Displacing 50% of current coal power requires increasing wind power up to 23%. This will involve installing new natural gas ‘combustion turbine’ (NGCT) peaking power plant capacity.
The combination of increased off-site infrastructure capital costs, required new NGCT peaking power capacity and paying all shutdown coal plant stranded capital expenses (assumes no bankruptcies) should significantly increase the original EIA clean power estimates to more reasonably accurate levels. Refer to the following Table 2:
TABLE 2 – Adjusted EIA Clean Power Costs
Annual Net Power Generation
‘Stranded’ and New Capital Costs
Total Annual Power Expenses
Average Delivered Power Costs
U.S. Power Technology
Shutdown Coal Power Plants
New NGCC Base-load Plants
New NGCT Peaking Plants
Up to 867
New On-shore Wind Farms
Total New Net Power Capacity
*Excludes stranded coal power capital cost. **Includes stranded coal power capital expenses. ***Includes incremental NGCT costs. Wind power total average delivered power cost = $0.116/KWH (standalone new wind farms) + $0.047/KWH (new NGCT backup peaking power).
The above calculation results show that by adjusting the original EIA estimates for more reasonable off-site costs, installing adequate backup peaking power capacity and covering all shutdown coal plant stranded capital expenses will increase the delivered average power costs from $0.099/KWH (coal power basis) up to a combined average of $0.138/KWH; an increase of 40% over original EIA estimates. This is equivalent to increasing the average Household’s annual power expenses by about $225 per household per year; well above the level the recent Harvard survey indicated was acceptable to the general Public.
‘Standalone’ new on-shore wind power (excluding future needed new NGCT peaking power) is calculated to deliver power at $0.116/KWH, which is greater than the current U.S. average market price of $0.100/KWH. This 1.6 cent/KWH ‘negative margin’ explains why The American Wind Association anticipates that construction of new U.S. wind power capacity will begin declining rapidly if Congress does not extend the current 2.2 cent/KWH subsidies that are scheduled to expire later this year (Wind-power firms on edge, http://www.wind-watch.org/news/2012/02/02/wind-power-firms-on-edge/).
Analysis of Clean Energy Cost Impacts – The estimated increase of clean power cost from $0.099/KWH (coal basis) up to $0.138/KWH equates to about a 16% increase in total average U.S. delivered power cost. This increase greatly exceeds the developing Senate NCES regulation, which may set the maximum power price increase at 5% or $70/Household-yr. Under NCES all Households would theoretically only pay $8.4 Billion/yr. of the total increased clean power costs. This implies that the Industrial, Commercial and Transportation Sectors will be required to pay the balance of increased annual clean power costs. The more likely reality is that all increased clean power costs will be passed through and eventually paid by Residential Sector consumers. This effectively increases Household annual direct + indirect expenses (assuming no markups) to $565/household-yr. Also, note that total capital costs increased from $0.84 Trillion up to $1.16 Trillion. This required $1.16 Trillion investment is about 8% of the total current U.S. annual GDP. Although replacing all U.S. coal power with clean power will realistically take 10-20 years, this level of investment is huge compared to most past Federal Government capital intensive initiatives.
Other Expanded Clean Energy Impacts – Replacing all U.S. coal power with clean power reduces total annual CO2 emissions by about 1,320 million metric tons per year (million MT/yr.). This is equivalent to a 24% reduction of total 2011 U.S. CO2 emissions. Average CO2 reduction costs would be about $51.50/MT.
Based on this analysis of replacing all U.S. coal power with clean energy, total U.S. CO2 emissions would also be reduced by almost 22% from 2005 levels; the ACES base year for target CO2 reductions. Assuming other clean energy alternatives are competitive to replacing coal power with natural gas & wind clean power (i.e. $51.50/MT CO2), the total average-annual cost to achieve the ACES ultimate 80% CO2 reduction target would be about $220 Billion/yr. This is equivalent to about $1,835 direct + indirect increased Household annual power related expenses or almost 4% of total average gross Household income. This means the estimated ACES one postage stamp per household per day could actually cost up to $5.00/stamp vs. the CBO/EPA original estimate of less than 44 cents.
Factors That Affect the Costs for Replacing Coal with Clean Power – Replacing coal power with natural gas and wind power is subject to many variables that can affect actual costs. These include relative inflation of materials & labor , fuel, land, etc. One important variable is the price of natural gas. The replacement of coal with 50% NGCC and 50% wind + NGCT backup power can increase U.S. natural gas consumption by almost 7 trillion cubic feet per year; a 28% increase from 2011. Depending on future increased production successes and the level of environmental barriers, actual natural gas prices could be above the $5.93/million Btu estimate (2011 dollar basis) used in this analysis.
Another factor that can significantly affect the increased clean power costs is the actual ‘capacity factor’ of wind power. To protect endangered birds and bats regulations are being developed, which will reduce the capacity factor of wind turbines significantly below EIA estimates (Wildlife slows wind power, http://www.wind-watch.org/news/2011/12/11/wildlife-slows-wind-power/). A 10% wind power capacity factor reduction (33% to 30%) will increase total calculated clean power annual costs by almost $5 Billion/yr.
About 23% of total annual costs for replacing coal with clean power come from building and operating new NGCT peaking power capacity. These backup power costs can be feasibly reduced by installing new commercial scale power storage such as hydroelectric pumped storage or other successfully developed new technologies. The need for some peaking power capacity could also be reduced by possible future ‘smart’ grid upgrades and significant expansion of current energy efficiency improvement initiatives. The feasibility of these power grid control-demand improvements off setting possible increases in natural gas prices, reduced wind power capacity factors, and other costs requires further study.
Future Clean Energy Development – During my 30+ year career I have designed, built, operated and managed many large energy related projects including refining units and co-generation power plants, and the associated utilities and infrastructures. I have experience with many successful projects that still operate profitably today, and projects that were cancelled due to poor scope development and economics.
Before the U.S. invests $100’s of Billions in future clean energy projects we need to be very certain that the estimated costs are reasonably accurate and the benefits justify the costs.
Image Credit: Danicek/Shutterstock
Energy Consultant and Professional Engineer. 35 years experience in petroleum & clean energy businesses. Education: Chemical Engineering/Chemistry degrees from U.C. Davis and MBA from Saint Mary's College/U.C. Berkeley. Lifetime student of the natural sciences. Experienced in refining design/operations/maintenance, economics & project development/management, business development, energy ...
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