Energy Futures, Fears, Hopes, and the Invisible Hand

The generation of electrical, mechanical, and thermal power has always been interesting to me, since it underlies so much of the advancement, strength, and health of our societies. There has been a lot of fear and hope recently in the world and the U.S. regarding how the use of energy affects jobs, imports/exports, development, and the environment. What I’m starting to realize after being in the energy field for several decades is that renewable technologies have finally evolved to the point where a myriad of them can be very competitive with the classic baseload  plants (such as coal and nuclear), and the pace of this evolution has been dazzlingly swift in the past few years, so much that it’s caught me a bit by surprise. As a result, the outlook for new engineers entering energy-related careers might be changing swiftly as well.

This post was in part spurred by a presentation I gave in the Caribbean recently. The presentation had a figure showing levelized costs of electricity (LCOE) of various technologies, and the study was from 2014. I really liked how the figure was composed, and figured that even though it was a year or two old, it would be close enough for what I was trying to convey. However, after the presentation one of the attendees (politely) told me that the value for solar photovoltaics (PV) was out of date. I agreed and promised to myself that I would do a deeper survey of these trends and consider how they might be affecting our energy outlooks.

So what has the U.S. energy mix used to produce electricity looked like over the years, how is this changing, and what might it imply? Let’s start with how things have changed since 2001 – not so very long ago. This table using data from the U.S. Energy Information Administration (EIA) and commentary will get a little wonky and long but please bear with it. It shows U.S. annual electricity production, characterized by fuel source.

Let’s cover some terms:

• Conventional energy sources might be those that our societies have historically used over the past century for ‘baseload’ (continuous) electrical generation. Coal, nuclear, diesel, simple cycle natural gas turbines, and combined cycle natural gas turbines. The major sources of air pollution, including CO2.
• Renewable energy sources: although there are many, let’s start with hydro, solar PV, solar thermal, wind (onshore and offshore), geothermal, and biomass.
• Installed capacity: the ‘nameplate’ rating of the generators connected to the grid.
• Annual net generation: the total quantity of electricity generated in a year (units of kWh, MWh, GWh). Usually an equivalent sized capacity baseload plant (say, a 100 MW coal plant) will generate more electricity annually than the same sized intermittent renewable installation such as solar PV. This difference is usually expressed by a capacity factor, or the annual energy generated by a facility divided by its (rated capacity x hours in a year). A baseload plant usually has capacity factors of 90+%; an intermittent source such as solar or wind without storage perhaps 30+%.
• Levelized cost of electricity (LCOE): using the plant performance, cost, and a variety of financial assumptions, including discount rate, LCOE is an estimate of an ‘average’ cost of electricity from a plant over its life (traditionally 25-30 years, although many installations have longer lives). Although not a perfect measure, it’s one way to compare the cost of electricity from different sources.
• Power purchase agreement (PPA): contracts for the sale of electricity between a generating company and a consumer (typically a transmission utility). The PPA costs in cents per kWh (or the measure I prefer, $ per MWh) have some relationship to the LCOE.

Let’s say the opening table reflects stock performance – indeed, there is a lot of time and money at stake in terms of your career or investments. Overall the total annual generation in the US has been around 4 thousand GWh per year; consumption has only crept up slightly in the past 15 years. But the share of the market has been shifting perceptibly, as the costs of fuels and technologies have changed. In the 1990s my initial work was in nuclear power, and a touch of diesel and coal. But it’s evident that nuclear has been flat over that period; other than maintaining the existing plants, it’s probably not going to take off and be a huge source of new jobs (engineering, construction) in the future. As much as I like the concept of clean, economical, silent energy from hydro, it too appears pretty flat. Oh, plants get built here or there, and need to be staffed, but nuclear and hydro are not experiencing explosive growth.

In contrast coal output has been plunging, from 54% to 34% of U.S. generation from 2001-2015, and its share of generation has clearly been displaced by natural gas and renewables. Despite coal’s historical reputation as one of the lowest LCOE baseload sources, would I tell a new engineer “the future is in [‘clean’] coal? Seems like that would be a disservice. Much like nuclear, large coal plants can face significant local public opposition, the externalities (other costs to society like environmental risks including worker health or pollution) are high, and there increasingly are better options, such as natural gas combined cycles, which emit about half the CO2 and reduced other pollutants, even for a fossil fuel. Is there a compelling argument that we should do anything other than let the existing coal plants slowly be retired? It is a possibility that politicians saying something else may not be either informed or candid.

Some will say ‘jobs’, thinking that if regulations are eliminated, coal and nuclear will come back to the fore, with more construction projects and plants delivering lower energy costs to consumers. That seems unlikely, and here’s where the rapidly changing landscape of the invisible hand of energy economics plays out. The following table is from an August 2016 Energy Information Administration (EIA) report. I’ll state right off that every project is different, and some of the values in the table seem different than what I’ve experienced, but let’s present and then dissect it.

So, some observations on LCOE and trends:

•  Coal: if you care about carbon emissions, clearly new construction of these is abhorrent, and if you try to put a carbon capture and sequestration (CCS) process on it, the economics are not encouraging. A new coal plant without CCS might come in with an LCOE around 70-100 $/MWh (depending on a range of assumptions). If you don’t care about climate science, and you have access to a paid-for existing facility, perhaps you can generate electricity at low cost, say $40/MWh. I’m not real thrilled about any of the other externalities with coal – environmental impacts from mining, spills, tolls to workers, but let’s say you don’t care about any of those either – even so, the economics aren’t bad, but they aren’t that compelling considering the tradeoffs. You also need hedges for coal prices long into the future.
• Natural gas combined and simple cycles: it’s clear that their economics and flexibility in dispatchability (ability to ramp up or down their generation) make them currently a leading contender, for countries that have access to economical fuel. 60 $/MWh seems very competitive for baseload power, though it does sign you up for long-term fuel contracts, or risk that costs will escalate later due to forces outside your control.
• Nuclear: is this anything to get too excited about, given other options that are faster to deploy, have lower capital costs, and don’t have as significant long-term waste disposal issues? I was in the nuclear field myself but honestly, if I were a salesman, it would be tough to pitch that with a straight face to someone that had any better options.
• Geothermal: this is my current line of work, and it can be a very good fit if you are fortunate to have the resource, but it’s fairly localized. The number in the EIA table seems low for a new plant, but these plants do offer baseload capability and a small physical footprint.
• Hydro: still economical and can be baseload, but like geothermal, not available everywhere.

Now let’s talk wind and solar. These are so site- (or region-) specific that it is difficult to assign an overall LCOE that is very representative. It’s also true that as intermittent sources, it’s a bit unfair to compare them directly to the dispatchable resources. In essence, until storage technologies become more economical (and they are improving), you might say that an installation of solar or wind requires a corresponding investment in e.g. combined or simple cycle gas turbine plants to better match varying supply with varying demand.

However, even given those caveats, the pace of development of wind and solar PV in the right locations has been staggering, to the extent that the publications and our awareness may not be keeping pace. Let’s focus on solar, and consider some of the PPAs for these technologies that have been signed in the past few years.

Headlines, or Things are Getting Crazy Recently

2014: Dubai Shatters Solar Price Records Worldwide – Lowest Ever! Developers bid as low as 60 $/MWh for a solar PV project in Dubai (Upadhyay, 2014)

2015: Average Utility-Scale Solar Price in U.S. Falls to 5c/kWh [50 $/MWH] (Markham, 2015)

2016: The Price of Solar is Declining to Unprecedented Lows (Fares, 2016). The article describes installed costs falling by 12% in 2015, and PPAs coming in under 50 $/MWh.

Taking a more conservative approach, the 2016 study “Utility-scale solar: the path to high-value, cost-competitive projects” by SEPA shows more modest LCOEs for installations. If you have a decently sunny, dry climate like we have in Idaho, with a capacity factor around 30% even at a modestly high latitude, LCOEs around 60 $/MWh seem achievable, depending on panel prices. Very competitive with conventional sources.

So what does this progress mean for us?

Environmental and Personal Implications

Coal LCOEs at an existing plant might be low, sure. But is this technology going to make a major comeback with a lot of new construction in the U.S., promoting job growth and lowering electricity prices? The numbers would not lead one to think so. Even coal executives admit as much, that expectations for a reboom should be tempered. While it’s difficult to make predictions, especially about the future, the truth is that existing paid-for coal plants will continue to operate, but likely will be gradually retired. Would one lobby strongly for new coal or nuclear plants to be built in developing nations, especially those without indigenous resources? Would that kind of work be something you’d look forward to, work unpaid overtime on, get enthused about? Not me.

Thus, environmentalists hopefully will take some solace in the fact that the invisible hand of economics will likely continue to tip the scales in the favor of renewable, lower-carbon electricity generation. Perhaps it will come too slowly to stem anthropogenic climate change and its effects. But the technical/economic trends seem powerful, and changes in what technology is installed seem to be shifting towards renewables at a rate faster than anyone anticipated. This effect may be more potent than reactionary politics. It might be hoped that developing countries could leapfrog over some of the conventional technologies straight to more economical/lower impact ones, simply due to market forces and not first world moral suasion (which is usually insincere, given our fossil-heavy infrastructure).

On a worldwide scale, these trends are encouraging, but on a personal level, one can feel obsolete if one isn’t currently in the hottest field. There are still and will be horses, buggies, blacksmiths, nuclear plant workers, and coal miners, but what fields I found myself working in decades ago may well not be that economically competitive globally going forward. It is quite possible that 10-15 years from now, despite my interest in geothermal in the U.S., wave power in Scotland, offshore wind in the Great Lakes – well, perhaps these will be niche, localized installations in 2020, 2025, 2030 and beyond, and the specialized skill sets I have with regard to a particular industry just will not be that applicable to other more booming ones. Someone may still work at a coal plant in Ohio, design a hydro plant in Michigan, or supply equipment for a solar thermal project in Arizona, and that’s useful for their family and that specific plant, but those technologies just may not be the major thrust of new development. People may not realize it unless they look at the recent numbers, but despite (or because of) our talking about renewables for decades this period of rapid transformation in energy technology/economics is happening now. Backing out of the Paris Agreement won’t change fundamental power plant economics for the better, and it’s doubtful the U.S. should want to relinquish leadership in future tech to the rest of the world.

The appropriate psychological approach or advice to students is probably not to bemoan or fight the inevitability of  change in our particular energy field (as for other industries such as textiles, manufacturing, etc. which face similar struggles) but for an engineer to develop a set of skills that are sufficiently flexible and adaptable. Fluid flow, thermodynamics, statics/structures, pumps, piping, generators, motors, heat exchangers, transmission, instrumentation, controls, project management, design team communication: broad-based knowledge is a fundamental tool that will never go out of style, regardless of the progression of an individual industry or technology. It can be tough to be stoic about how the changes in the energy landscape affect us if we are linked to particular ‘favorites’, but it’s best to view and plan for scenarios realistically.

Postscript:

A related but far superior article by a more august personality can be found here, although it talks more about climate change.  I tend not to linger on climate change because there are some people that don’t believe in the science (“It is difficult to get a man to understand something, when his salary depends on his not understanding it” – Upton Sinclair). I think a strong case can now be made for renewables (or at least, against coal) regardless, and then it just becomes overwhelming when one adds in other effects.