Capital Cost Information

Over the past few weeks in class we have started to gain a sense of the energy resources available to us here in the United States and, more important, how long these resources could last if the United States were to consume them at our current rate of consumption. One of the more interesting sources we have covered is the abundance of natural gas trapped in shale rock formations across the US. Two of these major shales, the Barnett and the Marcellus, could continue to provide a huge source of our electricity for decades to come. To the fans of renewable resources, this is probably a mixed bag result: it's great that we have a cleaner fuel source than coal but nonetheless carbon dioxide will still be emitted. So why not more renewables for the grid?

One thing we have not covered in class (as of yet) are the capital resources required for generation technologies. One of the more interesting things I learned while working for El Paso corporation this summer was the wide swath of capital costs for generation technologies. In other words, what does it cost per dollar (in construction costs) to generate a megawatt hour of electricity from different generation sources? The Federal Energy Regulatory Commission put together a nice report this summer when energy prices were skyrocketing to address some of these issues. A presentation of this report can be found here. So let's take a look at some of the figures:



First off, we need to keep in mind that these figures were generated before the recession was in full effect but the major point still stands: it is very cheap to build a combined cycle nat gas plant relative to other generation technologies. In 2004 dollars we can see a CC gas plant had a very narrow range of estimated costs over just over $600/kW. Compare this to a wind turbine where costs range from $1000/kW to $1300/kW. These figures represent the costs for nameplate capacity- the maximum power deliverable. We must not forget to slap the requisite capacity factors on the costs. A good wind farm in the panhandle might have a capacity factor of roughly 35%, whereas a combined cycle plant in ERCOT may hit 70% (ERCOT is a heavily gas-fired generation ISO). So in layman's terms, the combined cycle plant is generating nearly twice the power on average of nameplate capacity that a wind farm will. Or to put it another way, divide the cost estimates above by respective capacity factors and you start to see why natural gas is a very desirable source for power going forward.

One may argue that the variable costs of renewables are nearly zero and in the long run this will be enough to recover the costs of a high capital investments. This may be true in an uncertain commodity environment but after the commodity bubble burst this summer it's going to be hard to beat natural gas:



Finally, and most important, the Achilles heal hampering renewable sources like wind and solar is their intermittent generation. Grid operators dispatch power as it is needed in a security constrained economic order. What this means is that the operator will continually dispatch the most cost effective generator that can meet load without compromising the integrity of the grid. We cannot call on wind and solar to dispatch power as needed; we simply manage a net load (load minus renewables) Power is consumed as it is generated; we do not have the ability to store this energy cost effectively in most balancing areas of the US grid. Admittedly, this is becoming easier for grid operators with advanced IT solutions, but there is simply a limit to how much renewable penetration we can attain with such small geographical balancing areas. I intend to cover this in another post sometime down the road that covers the challenges of major transmission buildouts.

Sources:
www.ferc.gov
www.futuresource.com