All Generation Methods Aren’t Equal, Pt 2

Until recently, the objective was to produce electricity at the lowest possible cost.

This was seen as being best for consumers, who need to use electricity for lighting, refrigeration, air-conditioning and other modern day necessities, where the cost of electricity can jolt consumer pocket books.

It was also deemed best for industry, where low-cost electricity improved industry’s international competitiveness.

The advent of renewables and a drive to cut CO2 emissions has turned this on its head.

As a result, government is providing large subsidies for renewables. While some claim that fossil fuels and nuclear receive larger subsidies, the facts seem to say otherwise. See Fossil Fuel Subsidies.

Today, largely because of the drive to cut CO2 emissions, renewables are seen as being  more important than generating electricity at low cost.

Table I shows the cost of building various types of power plants based on their nameplate ratings¹. These investments need to produce a return to those who provide the funds for building the power plants.

The effect of capacity factor can be seen in Table II, where the investment cost is adjusted for the amount of electricity each dollar of investment actually produces.

The cost of fuel is not included in this assessment, but it would require large amounts of coal or natural gas to offset the disparity in costs between coal-fired or NGCC power plants, and these renewables.

This representation of costs is dramatically more revealing than levelized cost of electricity (LCOE) calculations that can be affected by various assumptions, such as the life of the equipment, interest rates and capacity factor. The EIA and others also may include a cost for carbon in the LCOE calculation that further distorts comparisons.

For example, the EIA statement on LCOEs says that a 30 year life is used for their calculations, but wind turbines only have a 20 year life — and possibly less. The EIA also adds a cost for carbon when calculating the LCOE for coal-fired power plants.

Without subsidies, investors probably wouldn’t be able to obtain a satisfactory return on wind and solar investments.

Until the subsidy for new wind farms ended last December, new wind farms received 2.2 cents per kWh for the electricity they produced … whether the electricity was needed or not. Now there is a push to revive this subsidy.

Without subsidies, it’s doubtful people would invest in wind farms. Wind farm owners have sold the electricity they produced at a loss, so as to get the 2.2 cents / kWh subsidy.

Americans need to decide whether their interests are best served by low cost electricity or using tax payer dollars to cut CO2 emissions.

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