Energy and
Environmental
Policy
Carbon and the
Three Bears
Mark Spurr, IDEA Legislative Director
energy CHP, due to many of the same capital
and operating cost drivers that are affecting
central station power plants. However, while
there are relatively few engineers and contractors who can undertake large central
station projects, there is a broader range of
designers and contractors for delivering the
smaller projects that represent district energy
and CHP.
Some renewable power technologies,
although hit by cost increases for key
materials, are seeing capital cost decreases
as manufacturing costs decrease with
higher volumes.
As policy makers grapple with the
challenge of climate change, a variety
of policy solutions are being advocated. Although the policy options may differ
somewhat in their objectives, the bedrock
goal is the same: cost-effective reduction of
greenhouse gas (GHG) emissions. However,
there is strenuous debate regarding the
appropriate balance of the level of GHG
reductions and the extent of subsidization
of low-carbon technologies.
Just like the three bears, we want our
energy porridge ‘just right’ – not too costly,
but effective in reducing GHG. District energy
and combined heat and power (CHP) can
play a vital role in getting the carbon/cost
balance ‘just right.’
In the long term, GHG emissions trading
will most likely provide the primary driver for
reductions. In the near term, a variety of
mechanisms are being implemented to reduce
GHG emissions, including portfolio standards,
tax incentives and feed-in tariffs. As we
consider the policy alternatives, it is worthwhile to review the costs of a range of
options for low-carbon electricity generation.
Power Plant Costs Up
Capital and operating costs for all technologies have increased dramatically. Capital
costs have jumped as costs of materials,
including concrete, steel and copper, have
skyrocketed. With the drop in the U.S. dollar,
the costs of equipment sourced overseas
have increased even further. And with engineering and contracting companies extremely
busy, prices for design and construction have
jumped significantly. Overall, power plant
costs have increased 130 percent since 2000,
according to Cambridge Energy Research
Associates’ Power Capital Cost Index.
Power plant costs have increased
130 percent since 2000.
Total delivered costs for conventional
power plants are coming in at unprecedented
levels: more than $3,000 per k W for large
supercritical pulverized coal plants; $1,200
per k W for natural gas combined cycle plants;
and more than $6,500 per k W for nuclear
plants. Coal gasification plant projects still
can’t get off the ground as costs escalate
well past projected budgets.
Power plant operating costs have also
increased significantly. Fuel price rises are
driven by many factors, led by world oil
prices, which are topping $100 per barrel.
U.S. coal prices have increased dramatically
due both to foreign demand as well as higher
rail tariffs. Natural gas prices are poised to
jump again this year due to strong demand
and declining supplies. Rising global demand
is driving increases in liquefied natural gas
prices.
Costs are also increasing for district
Conventional Technologies vs.
CHP and Renewables
In the new cost environment, how do
the costs of central power generation compare with CHP and renewable technologies?
Clearly, there are many case-specific factors
that result in a wide range of costs per k Wh
for any given technology. However, to provide a useful basis for discussion of policy
options, figure 1 presents representative
costs per k Wh for a variety of power generation technologies. These calculations
do not include the impact of policy
incentives or carbon costs;
account for the total capital and operating costs of power generation but do
not address costs related to backup
power and overcoming barriers to
exporting power to the grid;
assume CHP fuel costs net of revenue
for thermal energy production from a
District energy and combined
heat and power can play a vital
role in getting the carbon/cost
balance ‘just right.’
gas boiler for gas-fired CHP and from a
50/50 mix of gas and coal boilers for
biomass CHP; and
assume fuel costs per MMBtu as follows: $9.68 for natural gas, $2.84 for
coal and $3.39 for biomass.
On-shore wind is competitive with conventional options, whereas solar thermal,
fuel cells and photovoltaic are significantly
more expensive. The total costs of CHP
options become competitive with conventional coal at plant sizes exceeding 15 MW,
