It's the economics, stupid

How to make the case against coal

Posted by Sean Casten (Guest Contributor) at 9:55 AM on 22 Feb 2008

Read more about: energy | coal | climate | renewable energy | energy efficiency

Synapse Energy Economics has recently put together a report for NRDC that ought to be required reading for anyone who objects to dirty or expensive power (e.g., coal-fired, central station power). The report, entitled "The Risks of Participating in the AMPGS Coal Plant" (PDF), is ostensibly only about a specific 960MW plant that AMP wants to build in Ohio. But their report speaks volumes about the larger economic and environmental challenges to coal-fired central station power, and provides a wealth of hard data to those who (admittedly, like me) believe that we have vastly cheaper and cleaner options to serve our growing power needs.

It is also notable for its self-restraint, arguing against the plant in purely economic rather than moral terms. For this reason among others, it ought to be mandatory reading for any environmentalist looking for a framework to support cleaner power.

The report is in large part a response to an independent engineering assessment of the plant done by consulting firm RW Beck. (See the public, partially redacted version of that report here (PDF).) The Synapse/NRDC criticism of that report is both harsh and highly specific, but before going to their criticism, it's worth noting a few rather striking concessions in the original AMP report:

They are estimating total capital costs to build the plant of $3.391 billion, or $3,532/kW. Outside of FutureGen, this would appear to be a new record.
They indicate variable plant costs of $34+/MWh, which is considerably above the retail industrial rates in many historically coal-dominated states. (Read: coal prices are up, and plant efficiencies are down.)
They concede that carbon pricing is coming, estimating a range of $0-20/ton of pollution.
They estimate total retail costs with 90 percent confidence of $75-100/MWh. (Uncertainties in their analysis are explicitly identified and could push the price up to $120/MWh.) For comparison, current delivered electric rates in the U.S. average $85/MWh, and that costs includes wires and other (noncoal) generation.

Synapse/NRDC takes the facts of the AMP filing and draws irrefutable conclusions from them. Specifically:

They point out not only that the high capital costs refute the thesis that "coal is cheap," but also show rather exhaustive pricing trends that are likely to push new coal plants up even more and virtually ensure cost-overruns. Ergo, an investor who doesn't factor this risk into their calculus is being irresponsible.
They point out that while all appear to be in agreement that carbon pricing is a question of "when, not if," most projections are substantially higher than the upper end of the range used in the AMP report. Ergo, even their high-case power price could be pretty low. Ergo, an investor who doesn't factor this risk into their calculus is being irresponsible.
They point out that in a "least cost" planning model used in the electric sector, one should not approve plants unless there are no lower-cost options available. They helpfully point out how much lower-cost renewables, energy efficiency, and CHP could be deployed to serve the same load.
Finally, they show how that region of the country has lots of existing gas-fired generation, which isn't running much because of high gas costs. But on the margin, it is cheaper to run the gas plants harder than to build new coal plants. Ergo, an investor who doesn't factor the risk that cheap gas will drive down their equity returns into their calculus is being irresponsible.

This last point is truly remarkable, and perfectly skewers the whole "coal is cheap" mantra, which so often compares coal to gas. Yes, on the margin coal is cheap. But if you have to pay for the capital, you're better off running marginal gas.

This is a brief summary, but it is well worth the time to read in some detail. The arguments used in this paper could be used against every coal plant in the country. And while the environmental costs of coal are huge, I think we gain much more traction by pointing out how economically irresponsible these investments are.

For story: It's the economics, stupid
6 Comments | Post a Comment

Yep it's the economy

Argue from the economic end of green power and how can you lose? You can't, it is less expensive. Contrast and compare coal or nukes to renewable.

Start with initial investment then to fuel costs then onto healthcare costs and waste disposal and cleanup. Cost per kwh generated.

Then start adding the costs of climate change, in terms of direct losses and lost GDP.

And then point out that green jobs will revive the economy with lower energy prices pushing the roll out of a boom that pays it's own way in savings. Tax savings on oil war and consumer savings on expensive, terror funding, imported oil.

In this case the best course would be to distribute extra gas fired generation capacity that uses waste heat recovery to heat buildings and domestic hot water. That way gas would be saved by replacing gas fired heating, and diverting it to electric power production to make coal unecessary.

That's really cheap power and heat! Expanding the financial argument.

R and D on solid oxide fuel cell/turbines for this application would be a good funding target. 70% efficient! A couple of breweries use these to generate power and steam from biogas produced from the brewery waste water.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

by amazingdrx at 10:12 AM on 22 Feb 2008

Coal Costs...

Yup, at NRDC, we think that the dollars speak for themselves on this plant and others.

We finished this report a few weeks ago. Since then, the financial argument has gotten even more persuasive as business journals have published articles about skyrocketing coal prices.

Cheap coal? The Wall Street Journal pointed out that coal futures on some New York futures markets have already doubled from last year and the trend will continue due to competition for the resource from China and other developing countries. Forbes predicted that the price of coal will double in the next year. Those price increases will be paid by business and home ratepayers---for the next 50 years (pretty scary terms on the agreement)! If Wall Street banks don't want to fund coal, why would ratepayers do it?

The numbers are not lost on smart cities like Oberlin. They brought in outside experts to conduct a study of the overall energy landscape. They weighed all the factors (cost, risk, flexibility, environment) and found that a variety of alternatives were viable and cost competitive to coal. So they pulled out of the plant. Others should follow.

Once we realize the true cost of coal, the other options (like wind, combined heat and power, biomass, and even natural gas) start to look like a bargain. But it all needs to start with energy efficiency. Let's figure out how to make the best use of the power resources that are already in place before jumping to new plants that will be tapping our wallets and darkening our skies for generations to come...

by Josh at NRDC at 1:12 PM on 22 Feb 2008

re: NRDC

So why is NRDC still heavily advocating for Coal?

The NRDC now shares EPA's giddy optimism toward carbon sequestration. In a letter to a California legislator, NRDC's George Peridas asserts that carbon sequestration can be "perfectly safe." And NRDC scientist David Hawkins was quoted recently saying carbon sequestration can be carried out with "very, very small risks." NRDC has a $437,500 grant from the Joyce Foundation to promote carbon sequestration on industry's behalf.
http://gristmill.grist.org/story/2007/11/10/151448/65

Bill Roe, Coskata Cellulosic Ethanol CEO:
Yes. We talked about the fact that food for fuel is a non-starter in many countries, but some of those countries are rich in other resources, either they have biomass or they have coal, which is a perfect feed stock for these, we just do not talk about much here because of the CO2 footprint being so much different. When you talk about India, or talk about China, those areas were loom large, we believe, and we will be able to use feedstock of that nature, for example, to make liquid fuels locally from their own raw material.
It makes sense from a raw material point of view if you use coal, period. Simply because it is relatively inexpensive. It is very concentrated. It is material handling into gasifiers as well known and well understood. The power of the CO2 footprint isn't as attractive, for obvious reasons, and so as a result, we think it is important to position the company in its early going as a company that can and will produce fuels from truly renewable resources. Now as soon as I tell you that, if you ask, "will these process ever be use to make fuel from coal?" I hope so. It would be stupid not to. So, as not confuse people with where we are headed and what we are really all about, that's next.
http://www.autobloggreen.com/2008/01/14/autobloggreen-qan ...
http://www.celsias.com/2008/01/15/biofuels-can-do-more-da ...
http://www.alternet.org/environment/76782/
http://www.autobloggreen.com/2007/10/03/nobel-prize-winne ...

-David Ahlport

by GreyFlcn at 4:30 PM on 22 Feb 2008

Or to reiterate on CTL from BioFuels.

It's equivalent to NRDC supporting the global implementation of shiny new 40 year investment coal fired plants, on a gentlemans agreement that they will all be powered by biomass, and not coal.

-David Ahlport

by GreyFlcn at 6:17 PM on 22 Feb 2008

Mega green lobby

http://amazngdrx.blogharbor.com/blog/_archives/2008/2/21/ ...

How about this Josh, will NRDC participate in a lobying campaign of all green orgs ro push a simple plan?

10 cents per kwh in subsidy for renewable electricity, and 5 cents per kwh for conservation.

Directly to homeowners, farmers, and busuinesses who invest in geo heat exchange heating/cooling, plugin hybrids, solar pV, wind farms, and biogas from farm waste. Skip all the trading, capping, and big hedge fund manipulation of the climate.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

by amazingdrx at 9:53 PM on 22 Feb 2008

grassroots use of economic data

Yes, grassroot activists have been using economic data well to fight new coal projects for years now. An article in the new issue of Orion magazine on 'no new coal' activists affiliated with the Energy Justice Network spells it out well.

Overland...has a talent for exposing the financial weak spots of proposed power plants, and she has coached others on the list: "If you want to kill a power project, focus on economics."
Overland had for over a year been probing into a proposed coal plant, Mesaba, in northern Minnesota, that most environmental groups were unwilling to challenge because it featured the new IGCC technology...Eventually, Overland discovered that the costs of Mesaba had been quietly escalating...The more information Overland received, the more she became convinced that an aggressive assault on the cost estimates for Mesaba might be the key to derailing the project.

They prevailed on the issue of that Mesabe power plant. Story is here:

http://www.orionmagazine.org/index.php/articles/article/5 ...

In the discussion forum attached to the article, there are anti-coal activists new to this idea receiving good $ info from some activists mentioned in the story, so that's cool to see.

Erik

The Orion Grassroots Network: supporting grassroots groups working for conservation, justice, & more

by Erik Hoffner at 9:21 AM on 23 Feb 2008

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