Being in the Oil & Gas industry allows me a potential greater familiarity with many of the energy sources we went over this week. The company that I used to work for, CB&I, got into massive financial trouble because of the issues that came with the most recent acquisition of the Shaw Group several years ago. There was a big bet made by the Shaw Group in nuclear power, which dried up quickly after Fukushima and massive cost overruns on the two nuclear projects that Shaw was the EPC firm for. I also dealt with cutting-edge proprietary gasification technologies for coke (coal) and petcoke (refining residue from petroleum) and therefore have familiarities with nuclear and coal.
Having said that, I did manage to learn something new in this week’s module!
- Describe the item that challenged your thinking and how it contradicts what you had previously thought or known. A: Levelized Cost of Electricity is a concept that completely makes sense but wasn’t fully articulated before. I’ve expounded upon this before when talking about the benefits and value of renewable energy to the Chicago-based consumer for ComEd. I ran a company that was responsible for the enrollment of Chicago consumers to a renewable energy option based on the partial deregulation of electricity.
- Identify why you thought the way you did before. Was it something you learned in school, a friend, the internet, etc.? A: My way of thinking was based on the economics of technological implementation vs operation. In 2010, it was still exorbitantly expensive to build windmills and fields of SPV cells. I factored in the similar benefit of nuclear energy, which is that the facilities can run a long period of time. If one amortized the initial cost of production of the renewable energy over the lifetime of the facility, I was arguing that renewable energy would have lower LCOE than coal and natural gas. The primary driver of this was the operational costs of solar and wind are minimal. We do not have to worry about the pension plan for the wind. We do not have to worry about COLA wage adjustments for the sun. Coal and Natural Gas plants have significant operational costs on wages alone, and besides occasional maintenance and repair, solar and wind do not have those costs.
- Do you think that your previously held position was influenced by bias in any way? Was the position based on un-investigated assumptions? A: I believe as I was tasked with enrolling customers into a renewable energy program that I was carrying a fair bit of bias into my argument and belief. The investigation of my claims were at the time not necessary, as it was simple economic fact and the laws of amortization are not negotiable.
- Are you rethinking your previously held position or not, and why? What evidence changed your mind, or reinforced your previously held position? A: What is nice now is that because of advancements in technology and economies of scale, the upfront cost of building renewable facilities is nowhere near as high as they used to be. This means that the break even point for energy producers is much quicker and the savings can be passed on to the consumer. Something that isn’t mentioned very often and I believe is often overlooked is the contributing value that the existing facilities have on affordability. The concept of economies of scale really takes off after surpassing a certain threshold of units produced. We apparently have finally surpassed that number. Electricity costs can start creaping to the low single digits at this pace and producers still “generate” a profit. Ha ha ha, pun intended.
You almost made it through a whole post without a bad pun or joke. I thought you were actually going to do it this time! LCOE is an important concept, and power companies are increasingly choosing wind, and to a lesser extent utility-scale solar in lieu of combustion-based generation b/c of the levelized cost, even without incentives. That last part is a really important aspect. Though LCOE does not tell the whole story (e.g. availability and reliability), so there are some caveats. Once cheap storage options come online, IMO it’s mostly over for fossil fuels and nuclear energy.
I never gave any thought to some of the additional labor costs you describe, but that makes sense.