The Free Market in Alternative Energy
by John Laumer, Philadelphia 
on 01. 5.06
We so like letters to editors that grumble about government incentives for green designs. Typical buzz: 'Hybrids are a waste of money. They'd drop from the market without those express lane invitations'. Or how about this one? 'Wind power can't work in a free market. Take away the tax incentives and loan programs and only hippies would buy the power'. Suppose that these claims have a glimmer of truth; how is it that government support of coal gasification projects does not get the same cycnism? While we thought about his we saw the Duluth News Tribute of December 30th 2005 with the headline: "Developers of energy plant want to force Xcel's business" A few exerpts explain: "Developers of a $2 billion coal-gasification electrical generation plant proposed for the Iron Range are asking the Minnesota Public Utilities Commission to require Xcel Energy to purchase electricity from the plant... The plant would create synthetic gas from coal. The gas would be burned to make steam for steam-powered turbines that generate electricity. The plant's first power-producing unit would produce 603 megawatts".
...Excelsior Energy has secured an $800 million loan guarantee from the federal government....In exchange for allowing Xcel Energy to extend storage of spent fuel from its Prairie Island nuclear plant, state lawmakers in 2003 cut a deal making Excelsior entitled to enter into a contract with Xcel..However, Xcel hasn't been quick to reach a power-purchase agreement with the Wayzata, Minn.-based Excelsior...Without an agreement with Xcel, Excelsior would have to find other customers.
Back of the Envelope
603 MW equates roughly to 402 wind turbines of 1.5mW output capacity each. When the wind is blowing. We're talking about maybe three to five big wind farm projects here. Think the Western Minnesota prairie could handle that?
Lets hold off with the NPV and ROI stuff for the time being. $2billion dollars of total capital, if allocated instead to wind turbines, would be nearly $5 million per turbine install. With numbers like that, Enron could have stayed in business. Note that, in this imagined scenario, the $800 million dollar government loan would provide only 40% of the per turbine allocation. We have no clue how much, on average, one of the 1.5 MW turbines actually costs to site and install, but a 40% position would certainly reduce the financial risk of the project, what with escalating interest being a trend. And the green power might be pretty attractive to the citizens of Minnsota.
Now let's compare the coal gasification project to a solar equivalent. We'll assume each home would need a SPV system rated at 3kW. The 603 MW sum capacity would power 201,000 homes. Let's further assume that homeowners would pay for part of the capital cost of their systems and that the utility would own the remainder. In this second imaginary scenario, the utility gets to resell the unused electricity from each home. and they also are responsible for scheduled maintentance.
Divide the total $2 billion coal project budget by 201 thousand homes. That would let the utility allocate almost $10,000 to each individual home's solar system, $4,000 of which is federally backed loan. The total allocation is probably at least a third of the total installed system cost per home. That would shorten the individual homeowner's payback period considerably. To even out the comparison you'd figure in the cost of electricity that needs to be bought over the design life to make up for down time and so on. And the homeowner could also figure in some tax deductions.
Both envelopes look like some more detailed calcs would be interesting.
Per our opening statment, a larger question emerges. Why, if government incentives are acceptable for a coal gasification project, which is still an experimental technology, are not detailed cost comparisons made for a wider range of proven alternatives, including a mix of renewable and non-renewable options? And if Minnesota should act with urgency to add more generating capacity, as some have indicated, why not get rolling on the fast stuff? Wind farms need only a year from start to finish.
Just wondering.
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thanks JL--a little perspective always helps see clearly.... up here in canada we give $5Bn tax credits to tar sand companies and 70% tax cuts for oil & gas flow-through circles... this doesn't even go near the 'subsidizing' that happens in the form of sprawling roads & sewers. many things that are bad for the environment are subsidized like mad (I heard that a hamburger would cost $7 if water was paid for) its funny to see that the ghost of Ed Anger is still writing letters.....
one thing tho-- wasn't Enron (ok they sucked, but) really good for wind turbine development?
=== author's response follows =====
Actually I think Enron sold its' turbine business in total to GE before things really went south. Now GE is making good on it. I've nothing against coal gasification by the way --- just looking for balance and a broader understanding that innovation often gets a helpful boost from government.
Minor technical detail: Change all those "mW" (milliwatts) to "MW" (megawatts) otherwise you're off by a factor of 10e9.
====
Done...thanks. JL
Interestingly enough, this discussion of cost does not address operating cost. While a wind turbine is naturally CO2 benign, a coal gasification plant can capture carbon and do what? Well, we would pump it under ground, where we get our natural gas. Even though this is not fool-proof, it is highly expensive to do. So why are we working so hard and paying so much to make coal work? Regardless as of what the commercials propose, coal is never clean, and following the news out of West Virginia, never cheap.
great response to an ignorant statement.. I would have just said "everything is subsidized you friggin idiot" but you had a great response. sometimes I wonder if people realize how harsh a true free market economy would be
"Clean coal" isn't inherently clean, but it is a lot easier to clean out a small stream of fuel pre-combustion rather than the huge post-combusion stream that is mixed with air. You still have to clean it out, but the goal is to make the system cost effective. When used with a combined cycle generation system (gas turbines take the input gas, and the waste heat is used to run a steam cycle) the net (including gasification) efficiency is looking to be in the 50% range, vs. 60% for a natural gas fired combined cycle (GE's Class H system, off the shelf). A plain old coal fired steam cycle is 37% efficient.
Though renewables will have to be used eventually out of necessity, coal is going to be a very important segment of our electrical generation system, and we might as well get it as efficient as possible. If solid oxide fuel cells (which operate hot! and can handle carbon monoxide, not like those weak PEM cells that need a CO free steam to operate) are used to replace the combustor in the turbine, which they can do since the fuel cell's exhaust gasses are still very hot, the system efficiency goes up even higher, by a notional 20%, though they're still under development and that number is an estimate right now. Also bear in mind that once the gasification technology is proven it can be outfitted in lots of other plants, which will have lower costs than the first ones.
Confucious say,
EU have head start on wind turbine, US get head start on coal, perhaps get extra government contracts with China where dirty coal in abundance, and help reduce ludicrously huge war derived deficits, address balance of payments, and give Halliburton and Bechtel something to do when dumb ass US electorate wake up and vote the other guys in... if clean coal not come to China, all the wind in America won't be able to touch the resultant impact on climate change....
Ancient Chinese Proverb