It turns out that building a combination of new natural gas and new nuclear plants, while maintaining existing hydroelectric and nuclear plants as long as possible, gives us the cheapest and most reliable energy future.
With the exception of hydroelectric, all of America’s electricity generation will need to be replaced by mid-century, most of it within the next 25 years. We all have our favorite mix of energy sources, but we really need to know how much each energy source will cost before we can plan on what this replacement energy mix should be for the country.
The Levelized Cost of Energy (LCOE) is a way to combine all the construction, fuel and operational costs into a form that can be compared among all energy sources. The LCOE also has assumptions about financing periods, taxation, depreciation and owner costs that are hard to compare between short-lived systems like wind and long-lived systems like large hydro and nuclear.
Legislators and other decision-makers use the LCOE as the primary means to compare power plant costs for electricity generation when planning for the future.
New data on the LCOE shows that existing hydroelectric and nuclear power plants are the two cheapest sources of electricity generation in America – right now. But when constructing new power plants, natural gas and nuclear become the two cheapest sources of electricity generation for the near-future.
Based on data from the Federal Energy Regulatory Commission (FERC) and the Energy Information Administration (EIA), a new report from the Institute for Energy Research compares the cost of electricity from existing generation sources with the cost from new generation sources that might be constructed to replace them.
The first conclusion of the report is obvious – all existing power plants have lower costs compared to their most likely replacements. New plants start their life cycle with a full burden of construction debt and equity investment that they have to pay off in their first ten years or so, while existing plants have already paid most of those debts. Once power plants pay off their original debts, they have far lower fixed operating costs and are capable of supplying electricity at lower costs, often at significantly lower costs. This is especially true for hydro, where the large dams were constructed decades ago when labor and materials were much less expensive.
This last point is the reason that all power plants should be run for their complete life-spans and not shut down prematurely for other reasons. In fact, their lives should be extended for as long as possible. This is especially true for hydro and nuclear.
The levelized cost of electricity for each generation source is given below, in cents per kWh produced, from both existing power plants (LCOE-existing) and from newly constructed power plants (LCOE-new), using fuel prices from 2014, combined cycle for gas, and capacity factors averaged over America’s fleets for each source. Solar, biomass and geothermal were not considered in the IER report, and the values shown here are from EIA and various other sources for comparisons of new construction.
Source LCOE-existing (¢/kWh) LCOE-new (¢/kWh)
Coal 3.8¢ 9.8¢
Natural Gas 4.9¢ 7.3¢
Nuclear 3.0¢ 9.3¢
Hydro 3.4¢ 11.7¢
Wind NA 11.3¢
Biomass NA 10.3¢
Solar NA 13.0¢
The final results show that hydro and nuclear are the least expensive of all existing power plants, while natural gas and nuclear are the least expensive of all new power plants. This strongly indicates that the least expensive, and most reliable, mix of electricity generation in the next few decades is a combination of new natural gas and new nuclear plus existing hydro and existing nuclear.
This mix would also drop America’s carbon emissions to well below our 1990 value of 6.3 billion tons of CO2 equivalents, and would meet any target emission goals proposed by the Administration and most NGOs.
Cost and/or environmental impact are the two most important factors to Americans, so some variation on this mix as a solid base could be very effective. You can then add on other renewables to round out the final mix to replace even more fossil fuel.
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