Home > Market Commentary > The Economics of Alternative Energy

The Economics of Alternative Energy

Posted by J.D. Kaad.

The need to implement alternate sources of electricity will continue to increase as the price of fossil fuels continues to rise and the availability these resources decreases.  This article compares the most feasible alternatives that are commonly considered when considering the transition away from carbon-based power. The various costs associated with hydro-electric, geothermal, wind, nuclear, tidal, and solar power are described below. Based on these data we conclude that a heavy reliance on nuclear fission power is likely as the technology necessary to implement other sources continues to develop. [1][2][3][4][5][6][7][8][9]

Hydro-Electric dams offer a reasonable cost in terms of initial startup capital ($1.58 million / Mw) and operating costs (.85 cents / KwH).  These low costs can be attributed to the lack of fuel needed to operate Hydro-Electric plants and the high power output of these plants, which are capable of generating up to 9,800 Megawatts of power. The use of hydro-electric plants can also be controlled and scheduled to meet the power requirements of any grid. The only negative aspect to hydro-electric power is its reliance on rivers and reservoirs, which makes mass implementation difficult. [2][7]

Geothermic sources of electricity are more expensive in terms of initial startup capital ($2.5 million / Mw) when compared to wind, nuclear or hydro-electric, but have lower operating costs ($.01 / KwH) than all other options except for Hydro-Electric. If it was not for two major issues with geothermal energy it would be an ideal option. The first issue is that this method of generating energy is only feasible in locations that have pockets of geothermal heat that can be tapped. Second, geothermal power plants currently do not have enough generating capacity to support the United States’ infrastructure. The average geothermal power plant puts out anywhere from 85-90 Mw, which is miniscule compared with the 976 Mw that an average coal plant produces. [4][10][11]

Wind Turbine generators offer the lowest capital cost per generating capacity ($1.5 million / Mw), equaled only by nuclear power. Wind power’s operating costs ($.015 / KwH) are the third lowest of the options explored in this article. Wind Farms can be used in almost any location as long as the average wind speed is between 10 to 50 mph. Wind farms also offer an efficient use of land; for example, a wind farm that occupies 12,000 acres of land would directly utilize only 6 acres. This allows for electricity to be generated by the turbines and leave the land available for other uses. The only problem with wind power is that wind is unpredictable and cannot be scheduled on a power grid. [3][12]

Nuclear Fission Reactors are currently the most feasible replacement for fossil fuel power plants. Nuclear Power has reasonable initial capital costs ($1.5 million / Mw) because the total generating capacity for these plants is large — over 2,000 Mw. Nuclear power’s operating costs ($.0172 /KwH) have become less expensive due to improvements in fuel production and refining. Waste disposal has also been improved in nuclear plants; the overall cost of disposal accounts for $.001/KwH of its total operating costs. Furthermore, the volume of waste from nuclear plants has significantly decreased with improvements in waste reprocessing. [1][13][14]

Tidal power is not reasonable in terms capital cost ($5.45 Million / Mw) — it is the highest of the options explored. Tidal power’s operational costs ($.03 / KwH) are also less attractive due to the difficulties in transmitting power to nearby power grids. New tidal power generators feature ducted impellers, an improvement that has caused power outputs to triple. These new units are unfortunately controversial due to their environmental impact. The main benefit tidal power has over wind power is that tides are extremely predicable and thereby easy to schedule on a power grid. [5][8][15]

Currently, solar power is the least attractive of alternate power sources. This energy source features the second highest capital costs ($4.16 million / Mw) and the highest operating costs ($.13 / KwH). To make matters even worse, these estimates of solar power’s operating costs include government subsidies ($.23 / KwH without subsidization). Solar is unpredictable, and therefore difficult to schedule on a power grid. Moreover, solar uses land inefficiently — it takes 400 acres of collectors to generate 75 Mw of capacity. [6][9]

In conclusion, to phase out fossil fuels as our primary source of electricity in the most economical fashion we would need to rely heavily upon nuclear power. This power source is the only one that does not have reliability issues or location requirements. Hydro-electric, wind and geothermal energy should also be implemented as circumstances allow. Tidal and solar power’s time has yet to come; they currently fail to beat the cost of coal ($.0221 / KwH), but with technological improvements, the future looks bright for these options. [1]

Advertisements
  1. September 21, 2008 at 5:33 pm

    I think the focus on all alternative forms of energy is necessary. Based on the price of gasoline and oil, it is essential to explore all plausible options. Another option to foreign oil is offshore drilling. Recently, the house approved a partial lifting of the drilling ban. This allows oil companies to drill offshore, yet many argue that unless the ban is lifted to allow drilling to occur inside the fifty mile mark, little progress will be made. Federal studies have shown that 85% of oil reserves are within this scope. http://primebuzz.kcstar.com/?q=node/14439.

    Offshore drilling continues to be a huge focus of the economy, especially in the election. Exploring options and being innovative in our approach to lowering our dependence on foreign oil is critical and will shape how the United States progresses as a nation over the next decade.

  2. Jessica Collins
    September 21, 2008 at 8:04 pm

    James, this is a well-written, straightforward comparison of alternative energy sources. Nice work. I agree with your conclusion – of the alternatives you compared, nuclear energy is the most promising candidate to consistently satiate an appreciable portion of energy demand. It’s ‘environmentally friendly,’ efficient, and, at least at this point, large supplies are available at reasonable prices.

    In order to feasibly implement nuclear power on a wide scale, I think two main obstacles will have to be overcome: (1) public opinion; and (2) waste management issues. Regarding public opinion, events like Chernobyl and 3-Mile Island coupled with the whole Cold War mentality have really worked against America forming a collectively positive opinion on nuclear energy. However, with rising energy costs and an emphasis on reduced emissions, I think nuclear energy, the most commercially viable alternative energy source at this point, will become increasingly more popular in the short and intermediate term. In the long term (50+ years), uranium, itself a limited, non-renewable resource, could cause a replay of the current oil situation. However, implementing nuclear power plants now would provide extra time for commercialization of other alternatives and/or creation and implementation of new alternatives. Nuclear energy is a very viable and, as you pointed out, an economic ‘bridge technology’ for weaning the world from its fossil fuel dependence.

    In terms of waste management, you make an excellent point that methods of efficiently handling nuclear waste have improved. However, further improvement would not only help the logistics of operating nuclear facilities, but would also contribute to encouraging the public to accept nuclear power on a wide, commercial scale.

  3. September 23, 2008 at 3:07 pm

    J.D. is correct to focus on uranium fueled power plants as a key to solving an energy policy dilemma: how to reduce fossil fuel use on the one hand and still maintain a reliable supply of reasonably priced electricity on the other. Sadly, I believe Collins is correct re the likely resistance of the American public to a new generation of nuclear power reactors.

    Here are ten points I believe must be satisfied for any US energy policy to succeed.

    1. Any electricity policy that would degrade electricity’s reliability or supply will fail. (This is why wind is only a small piece of the solution.)
    2. Renewable sources of electricity will not eliminate the need for new coal or uranium fueled plants.
    3. Any electricity policy that does not include new coal and new uranium fueled plants will fail. (20% of current electricity supply in the US comes from uranium fueled plants. About 50% from coal. These plants are wearing out. No new nuke has come on line since the late 80’s. Few large coal plants have been built since the 80’s. If not coal and uranium fueled state of the art plants, what electricity sources will replace the existing plants as they wear out?)
    4. Any energy policy that does not meaningfully reduce CO2 emissions will fail. (Whether caused by human activity or natural cycles, rapid climate change is happening. To ignore that fact would be foolish. To take the chance that human activity is not at least a contributor if not the principal cause would also be foolish.)
    5. Any CO2 reduction policy, to be successful, must address all major sources of greenhouse gas emissions, not just fossil fueled power plants.
    6. No successful renaissance of uranium fueled power plants will emerge until the political riddle of high level radioactive waste disposal is resolved. (Collins is correct that the technology exists to safely dispose of low and high level radioactive waste. Unfortunately, the political resistance to development of a legally mandated high level facility at Yucca Mountain in Nevada has been stalled for years by shortsighted state and federal politicians – nothwithstanding that 100’s of millions of $ have been collected from consumers of nuclear generated power to develop this facility. All this money seems to have fallen into the same hole as social security payments – our political leaders have demonstrated no more leadership here than they have, for example, with Medicare funding and Social Security, but that’s another story. One possible solution to this problem is to begin again to reprocess spent nuclear fuel. This would have two benefits: a. it would greatly increase the effective supply of uranium fuel, and b. it would greatly reduce the volume of what needs to be disposed of. We in the US did reprocess fuel up to the 70’s. The French and the Japanese reprocess fuel. President Carter stopped this practice. His concern was that a by product of reprocessing is weapons grade plutonium. Certainly, this is a worthy concern. But the fact is that we know how to deal with dangerous substances and the consequences of turning our backs on this energy conserving practice could prove fatal to the environment.)
    7. Conservation and efficiency, while they are good and proper energy practices to promote, ARE NOT SOURCES OF ENERGY. (At the end of the day, we need some source of power to turn on the lights. Conservation and efficiency, for sure, will reduce the amount of energy needed to power the lights, but they will not power the lights!)
    8. The push to legally mandate conservation and efficiency standards suggests that they are not economic in all cases. (There is no substitute for market based prices as a means to bring the best solutions to the fore.)
    9. As we have become more efficient in extracting energy sources such as coal, oil, and gas and uranium, more efficient in converting those energy sources to electricity, and more efficient in using electricity, we have used more electricity, not less. (Electricity is the cleanest and most efficient and most versatile form of energy known to exist. Our lives are better because we have substituted electricity usage for so many relatively inefficient, dirty, and inflexible forms of energy.)
    10. Ultimately, the potential for renewable sources of electricity and conservation and efficiency to reduce the need for new coal and uranium fueled plants depends upon the choices of those who use electricity, not the wishes of politicians and regulators or the producers that supply it. (How, for example, with the most ubiquitous supply of publicly available potable water in the world can Americans justify the carbon footprint of bottled water?)

    Just a little fuel to add to this smoldering fire.

  4. Joshy Madathil
    September 28, 2008 at 5:55 pm

    Kevin,
    You make a great point regarding increasing offshore drilling to supplement current oil supplies; however, many locations where available oil exists would take several years before any impact would be felt. Even if all obstacles were removed from offshore drilling immediately, “opening America’s coastal waters to oil drilling…is unlikely to provide Americans with more oil for at least seven to 10 years.” http://www.e2.org/ext/doc/20080617McClatchy-OffshoreDrillingYearsToPayOff.pdf;jsessionid=C454ADBBEF143CFCC28BCF0E443AD74D

    Opening the Gulf of Mexico won’t help US consumers until 2030. http://www.heraldtribune.com/article/20080825/COLUMNIST/808250327/2257/NEWS?Title=Nelson_won_t_back_offshore_drilling

    Many believers of the peak oil theory argue that even offshore drilling will not save us. The peak oil theory states that world oil production is at or near an inflection point, after which it will fall inexorably and fail to meet projected future demands. http://money.cnn.com/2008/09/15/news/economy/500dollaroil_okeefe.fortune/index.htm
    According to Matt Simmons, we have already passed that peak. And while we’re not going to run out of it anytime soon, the era of easy oil is over, and the world is about to enter a period of convulsive change. Id. Simmons was transformed overnight from an influential industry expert to an A-list pundit by the publication in 2005 of his book “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” a fairly technical read which argues that Saudi Arabia’s oil supplies are much more limited than everyone thinks.
    Additionally, believers of the peak oil theory feel we have nearly reached a point where “we are running out of the cheap pumpable oil that has fueled the economic development of the 20th Century.” More oil may exist beneath the earth, but it is a finite resource that becomes more expensive to obtain as we go further and further beneath the ground. Advances in technology have allowed us to continue this practice thus far. http://www.hubbertpeak.com/summary.htm

  5. November 10, 2015 at 1:28 pm

    Does this need an update in light of the sharp, Saudi-Arabian caused drop in oil prices?

  1. February 23, 2015 at 10:07 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: