Duke Energy just got approval to raise rates 18 percent to cover the continued rising price tag for its 630-MW planned coal plant in southwestern Indiana.
The new price tag? $2.35 billion, or $3,730/kW.
By my highly unscientific but quixotically regular analysis, that’s a new record, just topping AEP’s $3,700/kW proposed facility in Virginia. Way to go, Duke!
One note: This plant will not sequester its CO2, and $2.35 billion does not represent the full cost being borne by Indiana ratepayers:
On Wednesday, the commission also approved Duke Energy’s $17 million plan to study the plant’s potential to capture a portion of its carbon dioxide emissions as part of the company’s proposal to possibly store the gas permanently deep underground.
So not only is it expensive, but it’s also environmentally dangerous. But if we throw a few million ratepayer dollars at “studying” CO2 sequestration, maybe we can put a nice report together showing that someday in the future, it will only be expensive.
This apparently was insufficient to appease the environmental community:
Environmental and government watchdog groups oppose the plant and have sued to try to halt it, calling the project a huge waste of money that would be better spent on renewable energy such as wind farms. They also warn that its price tag could go even higher if Congress acts to impose caps on carbon dioxide emissions linked to global warming.
Crazy hippies. When will they learn? We need to burn more coal and raise power prices because coal is cheap. Why is that so hard to understand?
Top 25 reasons to give a damn about climate change
Comments
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Peter B. Meyer Posted 3:57 am
11 Jan 2009
Oil, cost per barrel: $95.67 in '08; $42.67 in '09
Coal, cost per ton: $56.88 in '08; $59.38 in '09
which fuel is continuing to go up in price?
(For the curious and for the record, the coal price forecast in early 2007 was around $40/ton)
... and they say coal is cheap? Let's get real!
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Sean Casten Posted 4:16 am
11 Jan 2009
None of which takes away from the larger point that coal-fired power is stupidly expensive given the high costs of capital - we simply shouldn't delude ourselves into thinking that coal is expensive on a variable basis. So long as we continue not to ascribe the health and environmental costs to coal, it will continue to have a variable cost advantage against most other fuels (and certainly all fossil fuels). But that in and of itself is no reason to build a coal-fired power plant. After all, solar and wind have vastly lower variable costs than coal...
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Jon Rynn Posted 5:16 am
11 Jan 2009
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GRLCowan Posted 11:32 am
11 Jan 2009
Except for the subsidies. I was going to say these are unpredictable, but they're not: they'll predictably go away if ever these electricity sources increase beyond token scale.
--- G.R.L. Cowan (How fire can be domesticated)
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Sean Casten Posted 11:36 am
11 Jan 2009
If you're making a point about all-in costs, that's fine. My point is simply that the oft-trotted line about coal being cheap is only true if you ignore the fact that the capital is absurdly expensive. So from a logical point of view, if the variable (e.g., fuel) cost of coal is sufficient justification to provide massive subsidies to coal plants - as we effectively do through guaranteed rate recovery - then there is an even stronger argument to build renewables. The center (of the logic, that is) cannot hold.
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Charles Komanoff Posted 12:33 pm
11 Jan 2009
I ask 'cause the fact that it's a combined-cycle plant suggests that it could have a much lower (better) heat rate than the 9,500-9,800 industry standard.
If so, couldn't one say that part of the plant's "record" high capital cost was justified in terms of lower fuel costs (and lower CO2) per kWh?
Which raises a further question: if the design heat rate were in fact a noticeable improvement (say, 8,000 vs. 9,500), and if Duke Indiana were to shut down equivalent capacity (adjusted for capacity factor) in a "swap," should that affect the stance of us climate / anti-coal activists toward the plant?
Charles
http://www.komanoff.net
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Peter B. Meyer Posted 9:29 pm
11 Jan 2009
My point is that the financial rationales for new energy plants tend to use current prices of fuel as the yardstick for projecting costs -- even though they may be predictably rising steadily over a multi-decade facility lifetime. Coal has done that over time, and its cost/btu has been rising relative to that of oil over time.
Its relative price will continue to rise as coal is 'sold' harder are a replacement for scarcer (and foreign) petroleum, even if there is no accounting for the higher environmental damage of burning coal. (That is, the more successful the "clean coal" movement, the higher the price of the fuel!)
This, then, is a further argument against new coal-fired plants ... and one that is sometimes easier to make in a politically, not empirically, driven debate.
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Sean Casten Posted 11:00 pm
11 Jan 2009
Noting that coal has releases about 60% more CO2 than natural gas per Btu burned, the net result is that you've got a cycle that's less efficient than the best gas cycle and innately higher carbon content. So no, you can't make the case for this on CO2 grounds. And you can't make the case for it on economic grounds either, since once you factor in the cost for capital recovery, you're essentially building a plant that has comparable economics to a gas fired plant.
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Sean Casten Posted 11:06 pm
11 Jan 2009
As a more power-relevant example, you could make a similar argument for natural gas which - unlike coal - does get used in power generation and - like petroleum - is down substantially off its highs from a year ago. Is that encouraging a shift? Not really - because the capital of coal plants is built to run on coal and the capital of gas plants is built to run on gas... and even with the fall off, gas is still way more expensive than coal.
Bottom line: power plant operators aren't stupid, and - as long as you're not worried about capital recovery or environmental consequences - coal remains a much more compelling economic option for a power-only central station power plant than any other fossil fuel.
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Charles Komanoff Posted 12:24 am
12 Jan 2009
I knew everything in your reply (I've been doing power plant economics about as long as your dad) and am a bit disappointed that you don't have the answer to my first question, about heat rate. And I'm surprised that you wouldn't have checked it yourself. After all, as we both know, a heat rate improvement due to the coal gasification feature equates to some capital cost savings.
It seems to me that to to flog the project's high capital cost w/o netting the fuel savings puts one in apples-and-oranges territory.
-- Charles
Charles
http://www.komanoff.net
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Sean Casten Posted 12:57 am
12 Jan 2009
In addition - as I don't need to tell you - the heat rate on a plant where fuel is so cheap is only a second order impact relative to capital. At $2/MMBtu fuel, the difference between a 5000 Btu heat rate and a 10000 Btu heat rate is a penny a kWh. Compared to 8 cents for generation plant recovery, another 2 - 3 cents for transmission and another 1 - 2 cents for O&M, it's inconsequential, unless you believe that the price of coal is about to go through the roof, which I've certainly not seen anyone suggest. (And even if it did, that would only favor gas plants all the more strongly which have much lower capex per kW.)
What are you seeing here that I'm not?
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Charles Komanoff Posted 5:26 am
12 Jan 2009
An 8,000 Btu/kWh heat rate (vs. 9,500) would effectively knock $200/kW off the capital cost of a coal-fired plant. (I assume a 30-year life and a 10% real cost of capital, which I'll defend against your 20-y and 12%; I also assume 80% CF, since a plant w/ that efficiency would be must-run.) That's worth noting. As is the capacity to make a kWh with 16% less CO2.
-- Charles
Charles
http://www.komanoff.net
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Sean Casten Posted 5:42 am
12 Jan 2009
Re: 30/10% vs 20/12%, you can make the case on either end, and the truth is that it ultimately depends upon the way that any particular utility commission interprets their obligations to provide returns that are "commensurate with the risks faced by similar businesses". I've always found that to be a bit of an Alice in Wonderland exercise, for the simple reason that I can't find any business that has a risk profile that looks anything like a regulated utility! (And indeed, when I've asked regulators about it, most confess the looking-glass quality and say that they pick rates comparable to what other commissions granted to their regulated utilities.) But generally speaking, they seem to range from 10 - 13%, over 20 - 30 year time horizons.
I'm picking the higher end now only because if I'm a utility exec going before a rate commission, I'd make the argument that my ability to attract capital demands a higher return in today's markets since liquidity has seized up.
But that's speculative, and shouldn't detract from the fundamental truth that the cost of new-build coal is dominated by capex, not opex.
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Sean Casten Posted 5:48 am
12 Jan 2009
I think geography is probably more important than heat rate, as the coal fleet capacity factor is as often as not limited by the volume of nuke and hydro in the region that falls lower on the dispatch curve, causing the coal to be the first to dial back. (Still running, just not as hard.)
Up until ~1990, the coal fleet capacity factor was growing faster than total demand growth, suggesting that we had spare margin and could run more just through economic dispatch. Since then, it's only grown as fast as load. Given as it's current ~70% CF is well below theoretical limits, it suggests (to me, at least!) that it is dialing back during the troughs in load when total load < [nuke + hydro + coal].
That said, I don't think you'll find it makes that much difference in the overall calculus. Even if we amortize $3730/kW at 20 years, 10% with an 80% load factor, we're still looking at 6.2 cents/kWh just for capital recovery, making that easily the biggest line item in it's overall delivered cost, swamping out any second-order impacts in fuel efficiency. And - apropos to this website - playing the role of an economic surrogate for $62/tonne carbon pricing!
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ids Posted 12:03 pm
12 Jan 2009
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David Mack Posted 11:35 pm
12 Jan 2009
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ids Posted 12:39 am
13 Jan 2009
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David Mack Posted 2:26 am
13 Jan 2009
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Sean Casten Posted 3:42 am
13 Jan 2009
Consumer advocates are not a part of the commission, but face the same problems with less budget. Unsurprisingly, this often causes them to fall victim to what academics have referred to rather quaintly as "regulatory capture", where the regulatory agency responsible for overseeing the regulated entity comes to see their responsibility as protecting the regulated entity. (See the SEC's handling of Mr. Madoff for an example of where this leads). This may sound impossible unless you know what to look for. When a consumer advocate or utility commissioner says "we need this plant to bolster system reliability", or "we need these rates in order to allow the utility to attract the capital necessary to fund their on-going operations", they are essentially repeating what they have been told by their regulatee. That's not to say there isn't any truth to those statements - simply that the nature of the rate-making process makes it vastly easier to accept utility-requested rates and investments than oppose, and tips the deck heavily away from the consumer interest, no matter what the public mandate of a given agency may say.
In other words, just as you are both clever enough not to presume that the Clean Coal Lobby is solely about cleaning the air, do not presume that a Consumer Utility Board's actions are made solely in the best interest of the consumer.
One other note: Tenaska has been fighting a rear guard effort in IL over the past year to get the legislature to guarantee their capital recovery, since they are not a regulated utility. I don't know how that was resolved, but it's worth noting that that is not the behavior of a company who really trusts their underlying investment thesis. I certainly wouldn't at those prices.
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ids Posted 7:54 am
13 Jan 2009
IN CUBs Fall 2008 newsletter:
Breaking news!
Illinois Senate passes
"clean coal" legislation
As The CUB Voice went to press, the
Illinois Senate passed a bill that brought
the state closer to building a "coalgasifi
cation" plant that would produce
environmentally cleaner power.
In the long-run, this could lead to
more aff ordable power and help revive
the coal industry. The bill , SB 1987, also
encourages Illinois to use "demandresponse"
programs to secure the
lowest price possible for consumers.
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David Roberts Posted 8:05 am
13 Jan 2009
I get the latter half, but tell me what possible case can be made that implementing a more expensive form of coal burning, and then attaching an expensive sequestration facility, will "lead to more affordable power." Honestly. I don't even see the dishonest case for that. I just don't see any case at all. WTF?
grist.org
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Sean Casten Posted 8:44 am
13 Jan 2009
Couple more glasses of truth serum and maybe we'll finally see those investors asking to go bankrupt in the name of cheap power! I'm sure it's just around the corner. Really. I'll start holding my breath to wait for it. Just... a... little... longer...
No? Ah well, maybe tomorrow.
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ids Posted 1:52 pm
13 Jan 2009
About WTF, I've been asking for months if not years and never receive a reply. Dave Kolata, executive director of Citizens Utility Board, (312) 263-4282, cell (312) 560-0929, (JavaScript must be enabled to view this email address)
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Sean Casten Posted 11:23 pm
13 Jan 2009
As a complete aside, I've always thought you can learn a lot about a state from the way they name their state agencies. The counterpart to MA's "Department of Energy Resources" in Virginia is labelled the "Department of Minerals, Mines and Energy", which tells you everything you need to know about their respective priorities! You could probably have some fun with other state comparisons by agencies if so inclined...
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Sean Casten Posted 12:30 am
14 Jan 2009
Groups question Indiana governor's dealings with Duke
January 14, 2009
Some groups in Indiana are concerned by a lack of response from Gov Mitch Daniels, R, about the relationship between his office and Duke Energy.
Four groups in October filed a public record disclosure request for any documents connected to a Duke Energy summit for Daniels about two months before his election.
The groups are seeking:
*
Any invoices and receipts for the costs of planning and staging of an energy summit, and
*
Any agreement or arrangements, whether actual or proposed, under which any private party would pay for, sponsor, underwrite or contribute as an in-kind donation, the cost of any product or program offered at the energy summit.
The goal is to find out what steps the Daniels Administration may have taken to promote a new power plant proposed by Duke.
Calls to Daniels' office seeking comment weren't returned.
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ids Posted 1:04 am
14 Jan 2009
http://www.timesonline.co.uk/tol/news/environment/article ...
Funny how mother nature doesn't bargain.
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Sean Casten Posted 1:15 am
14 Jan 2009
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