Clean Electricity Generation Kevin Choi Humanities 10-5 The Economics of Oil and Energy May 5, 2012

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1 Clean Electricity Generation Kevin Choi Humanities 10-5 The Economics of Oil and Energy May 5, 2012 I. The Coal Problem Electricity is, without a doubt, a necessity in our lives. In fact, we use 39% of the electricity generated 1 into running our appliances and heating, cooling, lighting our homes, while the other goes into industry and commercial buildings. Where does this electricity come from? Most of the electricity in the US is generated from steam turbines, fueled by coal. Coal is the largest source of energy in electricity generation and accounts for approximately 45% of the US energy production, as well as about a third of our fossil fuel consumption. Today, at an average of 11.6 cents per kwh, 2 electricity is both affordable and accessible, thanks to coal. The problem is, coal is dirty. Coal is the most abundant fossil fuel produced in the US. It is a nonrenewable energy source, made of mostly carbons and hydrocarbons from compressed dead plants. The primary emission from coal is CO 2. According to a report by an interdisciplinary faculty group at MIT, "The United States produces about 1.5 billion tons per year of CO 2 from coal-burning power plants." 3 CO 2 is the biggest man-made greenhouse gas contributor to global warming, a phenomenon in which the average temperature of planet Earth gradually rises, due to human activities - specifically in this case, burning coal. 84.8% of all the emissions produced in the US is CO 2, and burning coal produces 41% of CO 2 emissions. 4 There are also other emissions such as sulfur dioxide and nitrogen dioxide which contribute to water pollution, as well as pollution from mining and transporting coal to the power plant. Coal keeps electricity relatively cheap while meeting the massive electricity demand. Coal is the fastest and dirtiest way to make ends meet. The electricity problem, or more specifically, the coal problem, is the fact that as electricity demand inevitably increases (due to population growth), more coal is needed to meet demand. Burning more coal means more CO 2 in the air, and more CO 2 in the air means increased global warming. 1 US Energy Information Administration. n.d. (accessed Mar. 17, 2012). 2 US Energy Information Administration. n.d. (accessed Mar. 17, 2012) 3 Deutch, John, Ernest J. Moniz, Cecil Green, and Ida Green. The Future of Coal. 14 Mar (25 Mar. 2012). 4 US Environmental Protection Agency. n.d. (accessed Mar. 25, 2012). 1

2 II. Coal with Carbon Capture and Solar PV There are many cleaner electricity generation technologies that we can choose from. There are renewable electricity generation technologies - wind, hydro, geothermal, solar thermal, and solar photovoltaic systems. There are also non-renewable technologies, such as natural gas, nuclear, or coal with carbon capture. However, in terms of utility-scale electricity generation that is quickly scalable and clean, there are two emerging technologies that show much promise. The first is coal power plants with carbon capture, and the second is utility-scale solar PVs. Carbon capture and storage (CCS) technology deals specifically with CO 2 emissions. CCS technology is an emerging technology that can be combined with coal, and it promises to reduce carbon emissions from coal by up to 80-90%. 5 There are three main steps in the coal with CCS process. First, the carbon must be captured, either before or after coal combustion. Then the carbon has to be transported, and finally, it has to be stored. Amongst many different CCS technology, Integrated Gasification Combined Cycle (IGCC) with carbon capture is the most popular. To put it simply, IGCC is a technology that turns the coal (pre-combustion) into a gas so that it is easier to remove most of the CO 2 and impurities from coal. The second and third steps of CCS is transportation and storage, which consists of transporting compressed CO 2 and sequestering it into the ground. Sequestration is the process of injecting carbon dioxide directly into certain underground formations. Safe transportation, as well as safe injection and storage, is crucial. CO 2 is transported in pipes to designated places for storage. The appeal of CCS technology comes from the fact that the excess CO 2 can be stored exactly where they came from - the ground. Ultimately, the allure of clean coal comes from the belief that it can be done in the foreseeable future, to immediately mitigate the effect of global warming by coal. Clean coal is also touted as the next step in coal technology and a green future for coal by major coal companies. However, CCS isn't a permanent solution. The nature of CCS is a short term solution that will drastically reduce carbon emissions from one of the biggest sources of pollution. Its goal is to mitigate the effects of greenhouse gases until there is an adequate advanced technology that can fix, or at least relieve, global warming. A utility-scale solar photovoltaic system is an emerging technology that uses a system of multiple solar panels that takes sunlight and converts it into electricity. Unlike the traditional rooftop small-scale projects, a utility-scale solar photovoltaic system is a large scale power plant attempts to provide electricity to a larger portion of the population. Large scale solar PV projects are relatively new - for decades, solar thermal plants have been used to provide electricity during peak hours. Solar thermal power plants, unlike solar PV power plants, do not chemically convert sunlight into electricity. Instead, solar thermal plants have mirrored plates that collect the sun's energy at certain points to heat water. The heated water, steam, is then used to spin a turbine. The biggest appeal of solar thermal was that the heat could also be stored medium such as a molten salt mixture. It was only until recently that utility-scale solar PV projects started being 5 Renvall, Mats. Five reports on the realistic costs of Clean Coal. 7 Apr (17 Mar. 2012). 2

3 constructed. 6 As PV panels become cheaper, solar PV becomes a more viable option. Also, solar thermal plants require a lot water, used in both steam and cooling. Solar PVs also require less land for the same amount of energy output. Solar PV is a zero-emission green technology. It shows a lot of promise, and prices on solar panels are constantly decreasing. In terms of scalability, solar PV is a lot more flexible than its renewable counterparts - its fuel (sunlight) is consistent and predictable. However, there are location limitations as well as high initial capital costs. III. Comparison Method In order to compare two very different energy generation technologies, we can use a simple technique to calculate the cost of generating electricity over a given span of time for each energy source. This is also called the levelised electricity cost (LEC) or electricity generation cost (EGC). At the very core of the EGC calculation, it is just the total cost of the project divided by the total amount of electricity generated over its lifetime. Ultimately, our EGC will provide a cost-per-energy value: dollars per kwh. With two EGCs for both solar PV and coal IGCC with CCS, we are able to compare the two vastly different technologies. Formula for EGC from the IEA report on the projected costs of electricity 7 : EGC = n It+O&Mt+Ft Ht t=1 (1+r) t E n t t=1(1+r) t EGC = Average lifetime levelised electricity generation cost I t = Investment expenditures in the year t O&M t = Operations and maintenance expenditures in the year t F t = Fuel expenditures in the year t H t = Avoided heat production costs in the year t E t = Electricity generation in the year t r = Discount rate t = year The numerator is the sum of the yearly amortization costs, while the denominator is the total amount of energy generated. We will ignore the avoided heat production costs. We will also assume that the discount rate for the two power plants are the same. Both of the calculations are done over the same period of time (25 year power purchasing agreement) with the same discount 1 rate r. Since is a constant, we can take it out of the summation and simplify the equation (1+r) t (we still get the same EGC). We can do this because both calculations are done over the same time period with the same discount rate. EGC = n It+O&Mt+Ft Ht t=1 (1+r) t E t = n 1 t=1(1+r) t n t=1 I t +O&M t +F t H t n 1 t=1(1+r) t n t=1(1+r) t n t=1 E t 3 = n t=1 I t+o&m t +F t n t=1 E t 6 Farrell, John. Busting 4 Myths About Solar PV vs. Concentrating Solar Power. 3 Mar (30 Apr. 2012). 7 Projected Costs of Generating Electricity 2005 Update (IEA) (1 May 2012).

4 Also, we assume that yearly investment expenditures, operations and maintenance expenditures, and fuel expenditures are constant and predictable. There is no wear-and-tear of the machines, there is no deterioration, constant efficiency, no fluctuations on coal price, etc. Since the numbers are constant and don't depend on time, we can just multiply both the denominator and numerator by 25 instead of a summation. EGC = n t=1 I t+o&m t +F t n t=1 E t = 25(I t+o&m t +F t ) 25(E t ) = I t+o&m t +F t E t Our simplified formula will give us a levelised cost of electricity over a 25 time period from just the yearly expenditures and yearly electricity generation. We can compare state-of-the-art technologies from both coal with carbon capture and solar PV. It was crucial to choose an existing technology - one that isn't outdated nor unimplemented. The projects that were chosen are in or planned for construction. We will also neglect any government subsidies and other discounts in order to acquire a more wholesome levelised electricity generation cost so we can compare and determine which technology is cheaper. A word of precaution - the biggest assumption we make in this paper is that these two emerging technologies are somewhat representative of all current state-of-the-art carbon capture and solar PV power plants. However, we have to make this assumption in order to easily be able to compare two extremely different sources of electricity generation. IV. Solar PV The Topaz Solar Farm is a 550 MW utility-scale solar photovoltaic power plant that is currently under construction in San Luis Obispo County, California. 8 It is being developed by First Solar with a 25-year power purchasing agreement from Pacific Gas and Electric Company. 9 It started construction in late 2011 and is expected to be operational in It has a capital cost of about 2.4 billion dollars. 10 We can assume that the calculations are done over a 25-year period, the length of the power purchasing agreement. Calculating the amount of power generated yearly by the Topaz Solar Farm Looking at the average amount of sunshine and the average amount of daylight 11 in SLO, where the Topaz Solar Farm is located, there is an average of hours of sunlight and 3.5 hours of non-sunlight daylight per day. Sunlight is defined as sunshine that is directly hitting the solar panels, which is stronger than daylight 12. Daylight is the combination of all ambient and natural light that the solar panel can use to generate energy. Annually, there is a total of Topaz Solar Farm. n.d. Farm/Overview (30 Apr. 2012). 9 Public Utilities Commission of the State of California. 25 Feb (30 Apr. 2012). 10 Buffett Plans Additional Bond Offering for Topaz Solar Farm. 2 Mar (n.d.). 11 San Luis Obispo Climate Guide. n.d. (29 Apr. 2012). 12 Daylight & Sunlight. n.d. (29 Apr. 2012). 4

5 sunlight hours and daylight hours. Assuming the solar panels have peak outputs during sunlight hours and a 70% output during daylight hours: Yearly electricity generation from sunlight: 550 MW * sunlight hours = MWh per year Yearly electricity generation from daylight:.70 x 550 MW * daylight hours = MWh per year Total yearly electricity generated by the Topaz Solar Farms: MWh per year Calculating the total yearly cost of the Topaz Solar Farm There are two main factors that contribute to the price of solar PV: the initial costs of installing solar panels, and operations and maintenance costs. Unlike coal with carbon capture, solar PV doesn't have any fuel costs. Sunlight is both predictable and consistent, not to mention free. Solar PV's major disadvantage is the high initial capital costs. In this case, the Topaz Solar Farm has an initial capital cost of $2.4 billion. Yearly investment expenditures (annual payments from initial capital costs): $2.4 billion / 25 years = $96 million per year Unlike other electricity generation technologies, solar PV has no moving parts, so operations and maintenance expenditures are a lot smaller in comparison. Yearly operations and maintenance expenditures (per MWh): 13 Fixed O&M per MWh: $19.40 per MWh Variable O&M per MWh: none Total O&M per MWh: $19.40 per MWh Total O&M per year: $19.40 per MWh * MWh per year = $34.5 million per year To find the total yearly expenditures for the Topaz Solar Farms, we have to add both the yearly investment expenditures and the operations and maintenance expenditures. Total yearly expenditures for the Topaz Solar Farms: $130.5 million per year Using our formula for the levelised cost of electricity, we can divide the total yearly expenditures by the total electricity generated to get a value in terms of dollars per kwh. Levelised electricity generation cost: $130.5 million per year / kwh per year = $0.06 per kwh V. Coal with Carbon Capture The Texas Clean Energy Project is a 400 MW IGCC coal power plant with carbon capture (90% capture rate) and storage. 14 It is the first of its kind (IGCC with carbon capture), and it is located in Ector County, Texas. It is being developed by Summit Power Group, Inc. and will start 13 Tidball, Rick, Joel Bluestein, Nick Rodriguez, and Stu Knoke. Cost and Performance Assumptions for Modeling Electricity Generation Technologies. Nov (2 May 2012). 14 Texas Clean Energy Project (TCEP) Fact Sheet: Carbon Dioxide Capture and Storage Project. 2 Mar (30 Apr. 2012). 5

6 construction in late It is expected to be operational in 2014, with a 25-year power purchasing agreement from CPS Energy. 15 It also has a capital cost of about 2.4 billion dollars. 16 We can assume that the calculations are done over a 25-year period, the length of the power purchasing agreement. Calculating the amount of power generated yearly by the Texas Clean Energy Project: TCEP will generate 400 MW at its peak load and 377 MW at its normal baseload. Baseload is the constant amount of energy the power plant needs to output to satisfy electricity demand, while peak load is the maximum amount of energy the power plant can output. Also, since carbon capture requires extra energy, MW of the energy generated will be used for carbon capture and other processes, and another 15.7 MW of energy will be used to compress CO2. 17 Then, the useable amount of electricity during peak load is MW and its baseload is MW. Also, assume that daily peak hours correspond to the average daily sunlight hours: peak hours and off-peak hours. Yearly, this means peak hours and off-peak hours. Assuming the power plant has peak outputs during peak hours and baseload outputs during the rest of the day: Yearly electricity generation during peak hours: MW * peak hours = MWh Yearly electricity generation during off-peak hours: MW * off peak hours = MWh Total yearly electricity generated by the Texas Clean Energy Project: MWh per year Calculating the total yearly cost of the Texas Clean Energy Project: Unlike solar PV, there are many more factors in CCS that contribute to costs: the initial installation of capture technology, the fuel required in both combustion and the carbon capture process, the transportation of CO 2 from the plant to sequestration sites, the storage/sequestration process, and finally, the operation and maintenance costs associated with the power plant. Carbon capture technology is expensive. In this case, the Texas Clean Energy Project has a projected capital cost of 2.4 billion dollars. Yearly investment expenditures (annual payments from initial capital costs): $2.4 billion / 25 years = $96 million per year The extra energy required by CCS technology makes up the bulk of the increased costs. Capturing carbon, by means of extracting CO 2 before, after, or during combustion, is an energy intensive process. This means that CCS enabled coal plants need more energy to actually use the carbon capture technology and to provide electricity. Ultimately, there will be additional costs from the extra coal needed to provide the energy for carbon capture. To calculate fuel costs, we 15 Texas Clean Energy Project to Sell Power to CPS Energy in 25-year PPA. 20 June year-ppa/ (30 Apr. 2012). 16 Texas Clean Energy Project (TCEP) Fact Sheet: Carbon Dioxide Capture and Storage Project. 2 Mar (30 Apr. 2012). 17 Texas Clean Energy Project (30 Mar. 2012). 6

7 will assume that the plant will only use bituminous coal, which is cheap, plentiful, and most widely used in coal power plants. Bituminous coal has an energy content of 30 MJ/kg, 18 which is the same as 7.56 MWh per short ton. We know that a coal power plant has an efficiency of 33 to 43 percent 19 - in this case, we will assume that the Texas Clean Energy Project is 40 percent efficient. We can also find the average real bituminous coal prices (ignoring inflation) from , which have pretty much stayed constant, to be $40.16 per short ton. Yearly fuel expenditures: MWh per year / (.40 * 7.56 MWh per short ton) = short tons of coal short tons * $40.17 per short ton = $30.73 million per year CO 2 is transported through pipes, like natural gas. Transportation of CO 2 must be safe and reliable, because any leakage would be dangerous. Also, the CO 2 has to be transported to specific sites where CO 2 can be sequestered - if that means offshore sequestration or somewhere further away from the CCS coal plant, there would be an even larger increase in cost. Unlike natural gas, CO 2 is currently a useless commodity; there are less incentives for companies to build more pipes that transport something that won't bring any revenue. In this case, we will neglect transportation costs. Carbon capture is not without storage. Storage is what gives appeal to CCS as a short term potential over renewable energy. There are more costs associated with finding safe and reliable places to store massive amounts of CO 2, as well as maintenance so that no CO 2 will leak out. Again, we will neglect storage costs. Unlike solar PV, coal IGCC with carbon capture requires a lot more operations and maintenance expenditures. Converting coal into a gas, as well as compressing CO 2, requires high pressures, and higher pressures mean that the power plant needs to be constantly repaired/maintained. Since there are a lot more moving parts in a coal IGCC power plant, yearly O&M expenditures are significantly greater than solar PV's. Yearly operations and maintenance expenditures: 21 Fixed O&M per MWh: $29 per MWh Variable O&M per MWh: $3.30 per MWh Total O&M per MWh: $32.30 per MWh Total O&M per year: $32.30 per MWh * MWh per year = $74.72 million per year 18 Supple, Derek. Units & Conversions Fact Sheet. 15 Apr df (3 May 2012). 19 Deutch, John, Ernest J. Moniz, Cecil Green, and Ida Green. The Future of Coal. 14 Mar (3 May. 2012). 20 Annual Energy Review. 19 Oct (2 May 2012). 21 Tidball, Rick, Joel Bluestein, Nick Rodriguez, and Stu Knoke. Cost and Performance Assumptions for Modeling Electricity Generation Technologies. Nov (2 May 2012). 7

8 To find the total yearly expenditures for the Texas Clean Energy Project, we have to add the yearly investment expenditures, the operations and maintenance expenditures, and the fuel expenditures. Total yearly expenditures for the Texas Clean Energy Project: $ million per year Using our formula for the levelised cost of electricity, we can divide the total yearly expenditures by the total electricity generated to get a value in terms of dollars per kwh. Levelised electricity generation cost: $ million per year / kwh per year = $0.09 per kwh VI. Conclusions The levelised cost of electricity for solar PV turns out to be $0.06 per kwh while coal with CCS is $0.09 per kwh. Note that the levelised cost of electricity does not mean the price of electricity when implemented by these technologies will be strictly $0.06 or $0.09 per kwh - the levelised cost of electricity is just the breakeven point. This is purely a comparison - using a variety of assumptions and educated guesses, we were able to come to a conclusion about which technology, without any subsidies or tax breaks, is cheaper. We came to the conclusion that solar PV is 3 cents cheaper than coal with carbon capture. Coal with carbon capture is 50% more expensive than solar PV. It would be hasty to say that our search for a greener electricity generation technology is completed. However, we can say that solar PV, in this case, is a better alternative than coal with carbon capture. Even without accounting for carbon transportation and carbon storage, solar PV is cheaper than coal with carbon capture. There are many points that can be made in favor of solar PV, especially with the outcome of this paper. First of all, solar PV is a greener technology than coal with carbon capture - it has no emissions at all, while coal with carbon capture has some. There is also no need for CO 2 storage and risk of leaking. Second, prices on solar panels are steadily decreasing, and is projected to decrease as technology improves. There are many types and concepts of carbon capture technologies, but there is only one working theory to solar cells: sunlight is absorbed by solar cells and is converted to electricity. Lastly, as noted, solar PV can be potentially cheaper than coal with carbon capture. Even though location might be a limitation, in certain places where there is an adequate amount of sunshine, solar PV is definitely a better choice than coal with carbon capture. What should we do with this knowledge? Knowing that solar PV can be potentially significantly cheaper than coal with carbon capture, we have to shift our focus of research, development, and funding from carbon capture technologies to solar technologies. Ultimately, we should spread awareness and the knowledge that there is a greener and cheaper alternative to carbon capture technology. 8