Cost of Development for Energy

Cost of development, also called overnight capital cost, is the cost of building the infrastructure and development for different energies. For nuclear energy, nuclear reactors must be built. For natural gas and coal, burning generators must be built. For renewable energy, wind and solar farms need to be built. These costs are not universal, though, and can depend on location and management. Under bad management or inopportune locations, costs can be higher than normal. Under perfect conditions, costs can be lower than normal. Furthermore, what is exactly the “normal” cost of development is difficult to determine precisely since there are so many factors that can go into this cost. To determine costs of development, recent projects for wind and nuclear will be examined as well as data from the U.S. Energy Information Administration for all sources.

In 2016, the first nuclear reactor in 20 years was built in the United States. The reactor, Watts Bar Unit 2, is overseen by the Tennessee Valley Authority and took 44 years to be constructed. However, there was a long hiatus of no construction for 22 of the 44 years. The reactor cost as total of $4.7 billion, and will add 1,150 megawatts of electrical capacity to Southern Tennessee. For every dollar spent on capital in this project, about 0.0002446 kilowatt hours are added in capacity. According to the U.S. Energy Information administration, the overnight capital cost of a dual unit nuclear plant is $5,530 per kilowatt. The fixed operation and maintenance cost is $93.28 per kilowatt-year. Nuclear energy has the most expensive capital and development costs out of the examined energy sources.

In Colorado, Xcel Energy is constructing its first wind energy farm, the Rush Creek Wind Farm. The wind farm is located east of Denver, and is estimated to be finished October of 2018. The wind farm will cost a total of $1.1 billion and will add 600 megawatts of electrical capacity to Colorado. For every dollar spent on capital in this project, 0.000545 kilowatt hours are added in capacity. According to the U.S. Energy Information Administration, the overnight capital cost of an onshore wind farm is $2,213 per kilowatt. The fixed operation and maintenance cost is $39.55 per kilowatt-year.

Coal and natural gas have multiple types of generators that can be used. For coal we will examine a single unit advanced pulverized coal generator and a single unit advanced pulverized coal generator with carbon capture and storage. For natural gas, I will examine a conventional combined cycle generator and an advanced combined cycle generator with carbon capture and storage. How these generators specifically operate is unimportant to this analysis, and only their costs will be looked at.

For a single unit advanced pulverized coal generator, the overnight capital cost $3,246 per kilowatt. The fixed operation and maintenance cost for a single unit advanced PC is $37.80 per kilowatt-year. For the same kind of generator with carbon capture and storage, the overnight capital cost is $5,227 per kilowatt. The fixed operation and maintenance cost is $80.53 per kilowatt-year.

For a natural gas conventional combined cycle generator, the overnight capital cost is $917 per kilowatt. The fixed operation and maintenance cost is $13.17 per kilowatt-year. For an advanced carbon cycle generator with carbon capture and storage, the overnight capital cost is $2,095 per kilowatt. The fixed operation and maintenance cost is $31.79 per kilowatt-year. Natural gas has the lowest capital and development costs out of the examined energy sources.

Lastly, for a photovoltaic, solar array, generator, the overnight capital cost is $4,183 per kilowatt. The fixed operation and maintenance cost is $27.75 per kilowatt-year. With these numbers, it can be seen that nuclear energy has an extremely high overnight capital cost, and a high, though comparable, fixed operation and maintenance cost.

Current Energy Production and Consumption in Colorado

Colorado is a leader in the United States for energy production. The state ranks 7th in total energy production with 3,042 trillion BTUs produced in 2014. Of this energy production, a large majority of this production comes from oil, which the state produced 9,200 thousand barrels in November of 2016, and natural gas, which the state produced a total of 1,704,836 million cubic feet of in 2015. There is no nuclear energy produced in Colorado.

For total electricity generation, Colorado ranks 27th with 4,332 thousand megawatt-hours generated in November of 2016. By source, the large majority of this electricity is produced by coal at over 2,500 thousand megawatt hours generated in November of 2016, meaning coal provides Colorado with over half of its electricity production. This is followed by nonhydroelectric renewables, which produced 985 megawatt hours, and natural gas fired generation, which produced 722 megawatt hours.

Colorado’s electricity prices rank 25th highest in the country at an average retail price of $0.1216 per kilowatt-hour.

For consumption, Colorado is not as significant compared to other states as they are with production. Colorado ranks at 34th most energy consumed with 276 million BTUs consumed per capita. According to the US census, the Colorado population was roughly 5,349,648 in 2014. In total this puts Colorado consumption at a total of 1.476 quadrillion BTUs.

Breaking this consumption down by source, the most significant sources of consumption are natural gas and coal. In 2014, natural gas accounted for 497.2 trillion BTUs consumed. Coal accounted for 350.5 trillion BTUs consumed. Gasoline for motors, such as cars, trucks, etc., accounted for 250.3 trillion BTUs consumed. All renewables, biomass, hydroelectric, solar, wind, etc., put together account for 131.4 trillion BTUs. Nuclear energy accounts for none of the energy consumed in Colorado. By sector, the most significant sectors of consumption are industrial and transportation, which account for 29% and 28% respectively. Residential accounts for 24%, and commercial accounts for 19%.

What does it mean to be agnostic on energy?

Simplistically, it means that we support the free market methods of finding a preferable energy source, whether it be renewables, fracking, nuclear energy, or some other energy production method.

It seems that there are many conservatives and libertarians across the United States that are against renewable energy, namely wind and solar, in and of itself. However, this shows a complete misunderstanding of the free market position. Oil and natural gas are not libertarian sources of energy, whatever that may mean. The whole point of a free market is that it is undesigned. There are no winner and losers chosen, but instead our energy source is “chosen” through consumer demand, prices, supply, and a multitude of other factors.

The truth is that I have a soft spot for renewable and clean energy. The environment is important to me, and I wish for people for years to come to enjoy the same Rocky Mountains I have enjoyed my entire life. I hope most people would think it would be absurd to claim otherwise. However, I still do not think it is appropriate for the government to mandate or skew markets for the sake of what a few may determine is a preferable energy supply, as it would most certainly be arbitrary.

For example if I were to choose, I would probably choose nuclear energy as a preferable form of energy production as it is clean, really awesome (totally not a value statement), and relatively effective. However, nuclear energy is not perfect as it can be really expensive to build the infrastructure for and takes incredibly specialized professionals to do the job. If some environmental leftists were to choose, I assume they would choose wind energy. Wind energy production doesn’t create emissions, and the wind is a resource that won’t be going away anytime soon. However, wind is not a reliable enough source of energy to depend on and the materials used to build these farms are not environmentally friendly either. Similar things could be said about solar energy. If a traditional conservative were to choose, they might choose hydraulic fracturing, which is relatively cheap and cleaner than crude oil drilling. However, fracking is not emissions-free and is also not currently politically desirable in many ways.

So when we set up a system that chooses winner and losers, the winner is only dependent on who the chooser is, which is not something that I think anyone is particularly interested in.

However, that does not mean we can’t have an effect on the energy being used today. We certainly can, but we can’t use government preferences for these ends. Consumer demand is a powerful element of a market, and it is something that we all can affect. If you are interested in cleaner energy, educate people about it. Make people really desire having cleaner energy or whatever form of energy you think is best. This isn’t an impossible task, but it is more difficult than using the government as a tool to your ends.

Furthermore, as surprising as this may sound, we must check our own privileges when discussing sound energy policy. Yes, the environment is important and we should protect it, but this does come with a higher bill. While this higher bill is mostly affordable to the high and middle class, the same can’t be said for the less fortunate and lower class. While they would certainly benefit from a cleaner environment, I am not sure they would find the tradeoff of being able to afford more food, better clothes, and so on desirable. However in a free market of energy, they could make such a choice if they so desire.

When it comes down to it sound energy policy is quite difficult, and even more so when you think the government should pick winners and losers in the market. People think that it is so easy when they post things to Facebook like “of course the government needs to subsidize renewable energy” yet they know very little about the costs of such a policy and who it effects. Likewise, people think it is so easy to say “oil and gas is the cheapest therefore the best”, but they don’t even bother to consider the externalities of such a decision or how different people may value its environmental effects.

Trevor Burrus, a research fellow at the Cato Institute, recently wrote about the difficulties of gun policy in which he explains that the gun control argument is not as obvious of an argument as its advocates would like you to believe and the gun rights argument is not as obvious of an argument as its advocates would like you to believe. The same could be said about energy policy, and most policy matters. It is hard. It is nuanced. There is no cure all policy or energy source, for that matter.

This is why I am agnostic on energy sources, and this is why the free market is so important. There are certainly market failures in addressing issues throughout history, but freeing up the market takes the hard decisions out of the hands of an arbitrary decider, or deciders, and into a complex system in which we all are a part of.