'Perfect Storm': The Challenge of Keeping Electricity Affordable
Reported by Michelle Hopkins
AnalysisOnline Editor
Introduction
The challenge came from Arizona Governor Janet Napolitano to leaders in
business and government across the state, joined by some of the nation’s
preeminent energy researchers:
How will Arizona meet the demand for electricity, which is projected
to increase from 75 million megawatt hours (Mwh) in 2008 to 95
million Mwh by 2018 after 1 million new households are added and then
eventually to 116 million Mwh by 2030? That’s a 27 percent increase in
10 years and 55 percent increase in just over two decades. Further,
can this challenge be met in a way that supports future
economic growth and environmental “quality of life” values
dear to Arizonans?
More than 60 leaders gathered on the downtown Phoenix campus of
Arizona State University to address this challenge at "Powering Arizona,”
an energy forum sponsored by The Thomas R. Brown Foundations, Arizona
State University, University of Arizona and The Communications Institute
on June 11, 2008.
Craig Cornelius, Craig Smith, Joseph Strakey, Juan Torres, and Joseph Simmons
Discussion was led and informed of the latest cutting-edge energy research by a
panel of experts that included:
Craig Cornelius, Principal, Hudson Clean Energy Partners
Phil Lopes, Arizona House Minority Leader (House Democrats)
Gary Pierce, Commissioner, Arizona Corporation Commission
Joseph Simmons, Director, Solar Energy Programs, University of Arizona
Craig Smith, Senior Scientist, Lawrence Livermore National Laboratory
Joseph Strakey, Chief Technology Officer, National Energy Technology Laboratory
and
Juan Torres, Manager, Energy Systems Analysts Department, Sandia National Laboratory
In addition, Joseph Kalt, Professor of Political Economy, John F. Kennedy School of
Government, Harvard University gave an overview of the economics of oil and global
trends influencing energy options.
Joseph Kalt
Timothy Considine, Professor, Department of Energy and Geo-Environmental
Engineering, Pennsylvania State University and Dawn McLaren, Research
Economist, W. P. Carey School of Business, Arizona State University presented
a draft study, “Powering Arizona: Choices and Trade-Offs for Electricity Policy,”
commissioned for the event and in response to Governor Napolitano’s challenge.
Timothy Considine, Pennsylvania State
University
Dawn McLaren, Arizona State University
Overview
The convergence of a number of critical elements is creating the setting for
a perpetual crisis in energy with the prospect of more rising prices, heightened
political and military conflict worldwide and the increased likelihood of Americans
falling victim to political demagogues preying on fears to offer false promises and
easy “solutions.”
Americans have enjoyed a downward trend in the real price (adjusted for inflation)
of gasoline and other energy for all but a few years of the last several decades,
said Kalt. Only in the last few months of last year did we begin to set record
gasoline prices. Now, in 2008, in real dollars, the U.S. is experiencing the highest
gasoline prices in its history.
Key Price/Supply Driver: The Developing World
The prospect for ever-increasing energy prices is fueled by burgeoning world
population growth, runaway economic growth in the developing world,
continued domination of oil in the upward trending of all energy prices and the
concentration of oil (and natural gas) resources in unfriendly regions of the
world, he said.
“Today, we have six billion people in the world, only one third of which enjoy
modern energy conveniences on the order of those in America,” Kalt noted.
“Another two billion people have only intermittent access to energy conven-
iences, while the final third lack any type of modern energy conveniences," he
said.
"A total of 4 billion people have relatively low incomes and don’t have the
energy conveniences we have in the U.S. On top of this, we will add another
two billion people to the world population by 2030.”
Leading the global competition for the earth’s finite oil resources (two-thirds of
which will be concentrated in the Middle East by 2030) is energy demand in the
developing world, where incomes have risen on the order of 40 to 45 percent
since 1980, said Kalt. In China alone, energy consumption has more than doubled
since 2000.
Given this level of demand growth, spurred by population and economic growth,
“the world needs to find 50 to 60 percent more energy in the next 25 years,”
said Kalt.
Economic growth in China, India, and the rest of the developing world, then,
is the first basic fact of six in the energy world today that sets the stage for
a perpetual crisis, said Kalt.
The second factor is that fossil fuels – oil, coal, and natural gas – continue to
dominate energy consumption, representing about 85 percent of energy use
in the U.S. and 86 percent worldwide.
Renewable energy forms – solar, hydroelectric, geothermal, biomass, and
wind – in 2007 represented only 7 percent of U.S. energy consumption,
according to the Energy Information Administration, said Kalt.
Both Republican and Democratic presidents have been pledging their
commitment to reduce U.S. dependence on foreign oil for more than 20 years,
but no one has been able to do it, Kalt observed.
“These are fertile fields for the demagogues - false
promises and false policy. It’s an opportunity for
people to play on fear and seek support of less
secure energy supplies.”
- Joseph Kalt
Americans are more dependent than ever, not less so, on foreign energy.
“The U.S. continues as a large net importer of energy, the third basic fact
that sets the stage for a perpetual crisis,” said Kalt. “We import 34 percent
of all energy we consume in the U.S. In 1970, we imported one-third of our
oil. Today, we import two-thirds."
“We are importing more energy, despite the fact that domestic production
is up. Coal production is up 90 percent since 1970. U.S. natural gas production
is up 45 percent since 1970. U.S. nuclear power is up 300 percent since 1970
and hydroelectric, wind power and other renewables also are up sharply,”
he said.
So what is the answer to our energy needs? Is it conservation?
“We have made a massive conservation effort. Energy use per $1 of Gross
Domestic Product is at about 48 percent of its 1970 level. Without conservation
since 1970, the U.S. would be using 75 percent more energy than it does today,”
said Kalt.
“Notwithstanding that massive energy conservation, U.S. energy demand is
rising (the 4th and 5th basic facts Kalt sees as supporting a perpetual crisis),
U.S. GDP has grown 140 percent since 1970 and energy use is up 30 to 35
percent,” he said.
Increasingly, world energy resources will be concentrated in unfriendly or
geopolitical sensitive regions (the 6th fact), and that will heighten the prospect
of world political and military conflict, Kalt believes. By 2030, the Middle East is
projected to have two-thirds of the world’s oil and two-thirds of those reserves
will rest with Saudi Arabia.
The traditional American belief is that we can solve any problem, deal with any
challenge, he said.
But then he pressed on to make a statement that created a palpable discomfort
in the room, particularly for participating lawmakers, who struggle on a daily
basis to assuage fretful constituents about the unprecedented rise of gasoline
prices to $4 a gallon or higher.
Kalt asserted:
Maybe this isn’t a solvable problem. Maybe we can’t solve it. We Americans
expect our leaders -- expect our nation – to solve problems. The whole
world is chasing after this very scarce resource (oil). We’re just a part of
that world. We’re not about to shut down the U. S. economy and say no
more growth.
Oil remains our marginal source of energy. What I mean by that is even
if you did unbelievably massive investment – you shut down all your
investment in education, all your investment in healthcare, and devoted
it to replacing oil, there’s so much to replace. Still at the margin, the U.S.
is going to be an importer. And the price of oil drives all the other prices.
The other unsolvable part of this has to do with climate change. It’s
what’s called a ‘prisoner’s dilemma.’ Everyone has an incentive to cheat
on the other guy. Consequently, these issues of carbon control, climate
change, fundamentally are challenging us because we don’t have worldwide
institutions to be able to strike and hold agreements. We may make a s
maller carbon footprint just to enable someone else to make one bigger.
Kalt’s underlying message – high energy prices, including gasoline, are here
to stay – has been summarized on AnalysisOnline on the Headlines (June 20,
2008, “Will Lifting the Ban Ease Pain at the Pump?”) and Knowledge at W. P. Carey,
(“A Fossil-Fueled Future: Growing Oil Dependence Puts U.S. on a Slippery Slope”).
“I couldn’t disagree more strongly with your conclusion that there’s nothing we
can do about it (our energy future), particularly when it comes to international
agreements,” responded Steve Farley, Democratic member of the Arizona House
of Representatives.
“We completely transformed our economy to
meet the war effort (in WWII). We can completely
transform our economy now if everyone is
opening their eyes and seeing the nature of the
problem.”
- Steve Farley
He recalled the tide of political will leading up to World War II when Americans
completely transformed the economy to support the war effort. “We can
completely transform our economy now if everyone is opening their eyes and
seeing the nature of the problem,” he said.
Conceding that his worldview was one filled with pessimism (“but I think it is
right”), Kalt predicted a future of sustained high energy prices and increased
political, even military conflict due to the concentration of fossil fuels in
unfriendly regions.
This, he said, is a world over which Arizona has very little control.
Arizona Confronts a ‘Perfect Storm’:
High Demand, Prices and Growth
amid Tight Supplies
The “energy crisis” of the 1970s, resulting from supply constraints on oil
in the stranglehold of the Organization of Petroleum Exporting Countries (OPEC),
may prove to lack the three-way punch of current events.
Several energy forum participants called what is occurring today nothing less
than a “perfect storm” in energy with the convergence of high demand, high
prices, rapid economic growth worldwide, particularly in developing nations,
and energy supplies severely challenged to keep pace.
It’s an “energy trifecta” never before seen, declared one participant:
-- Gasoline in 2008 breaking new ground by reaching its highest prices
(adjusted for inflation) ever in the U.S.;
-- Natural gas prices that threaten an even larger consumer backlash in the
next winter heating season than the one now being experienced in outrage
over prices at the pump; and
-- Electricity rates increasing exponentially as the nation turns to expensive
natural gas as its default fuel for power generation in an era marked by
concern over carbon emissions and climate change.
“The rule of thumb is that if you divide the price
of oil by 8, you get the international price of
natural gas on a per million Btu basis. You can
keep pushing coal (capacity additions) into the
future, but oil and natural gas prices are going
to go up. It’s inevitable.”
- William Strakey
The “perfect storm” in energy being confronted by the nation is mirrored in
Arizona’s economy. In fact, in many ways, Arizona may be an ideal laboratory
for alternatives to the energy conundrum.
All facets of energy’s “perfect storm” come together in Arizona with population
and economic growth, the desire to preserve pristine environmental qualities
that have been responsible for much of that growth, and rising energy prices
at every turn.
In addition, leaders at the forum expressed the political will and creative
capacity for innovation to tackle the challenge using a portfolio approach –
a full suite of energy options to maximize cost and economic benefit.
In Arizona, just as in much of the rest of the world, one of the main drivers of
growth in electricity consumption is population: Arizona’s population increased
from 2.7 million in 1980 to 6.2 million in 2006, Penn State University Professor
Timothy Considine and ASU Research Economist Dawn McLaren note in the
report, “Powering Arizona: Choices and Trade-Offs for Electricity Policy.”
However, since 1990, growth in Arizona’s residential electricity consumption
has exceeded population growth in part due to low growth in real electricity
rates.
In recent years, the declines in electricity rates have slowed and turned upward.
Power plant operating costs, capacity utilization and the amounts and types of
energy in the power-generating mix determine electricity rates.
Arizona generates 100 million Megawatt hours (Mwh) of electricity annually,
about 75 percent of which it uses and 25 percent of which is exported to other
states.
Mirroring national trends, coal is the leading source of electric power generation
and natural gas, rapidly on the rise, is second. Other sources include nuclear
and hydroelectric energy.
As the use of natural gas expands, Arizonans are losing the buffer against
higher electricity prices that abundant, low-cost coal provided.
The state is increasing its reliance on natural gas for electric power generation
as natural gas prices track upward with the rising cost of oil internationally.
The consequences of following this path to meet Arizona’s future electricity
needs, given projected population and economic growth, offers an untenable
prospect of much higher electricity rates.
“Russia controls about 25 percent of the world’s
natural gas. We know how they will use it. Saudi
Arabia controls roughly a quarter of the world’s
petroleum and we know how they use that.”
- Kelly Mader
Considine and McLaren, therefore, developed an econometric model to
examine alternative generation scenarios, based on the following assumptions:
-- Primary fuel supplies will remain tight and prices will continue high; Average
prices for 2008 of $110 per barrel for oil, $10 per thousand cubic feet of
natural gas, and $32 per ton for coal are projected to increase 4 percent,
3 percent, and 1 percent, respectively.
-- Based on current levels of electricity exports, Arizona’s total power
consumption for residential, commercial and industrial sectors is projected
to increase from 75 million Mwh in 2008 to 95 million Mwh in 2018 with the
addition of one million new households.
Therefore, 1 million more families in Arizona will require the addition of 20 Mwh
more electricity. By 2030, electricity demand is projected to rise to 116 million.
-- From 2008 to 2030, real generation costs in Arizona in the baseline forecast
are projected to double from $50 per Mwh to $100 per Mwh, due to rising
natural gas prices.
"If technology is not there and you go back to
natural gas, prices are really going up. Instead of
prices going up from $50 to $100, as in the baseline
forecast, they go from $50 to $200 in this scenario."
- Tim Considine
-- The baseline forecast, which assumes all new electric generating capacity
in Arizona comes from natural gas, projects that Arizona’s carbon emissions
will rise from 100 million tons currently to 133 million by 2030, an average
annual increase of 0.9 percent.
The Considine-McLaren study addresses this question:
If three-fourths of all new natural gas-fired capacity for generating electricity
now through 2030 were replaced by an alternative energy choice, how would
Arizona’s future electricity rates and carbon emissions be affected?
A baseline case was constructed, assuming all new electric-generating capacity
is natural gas, and compared with scenarios under which three-fourths of new
natural gas capacity is replaced with:
-- Scrubbed Coal
-- Integrated Gasification Combined Cycle (IGCC) using coal with carbon capture and
storage
-- Advanced Nuclear Energy
-- Solar Thermal Power with Plug-In Vehicle Hybrids
A final option considered was a portfolio approach of the last three.
Powering Arizona: Uncertainties Abound
The scenarios considered in the “Powering Arizona: Choices and Trade-Offs
for Electricity Policy” study are cloaked in uncertainties, Considine told energy
forum participants.
For example, there is no operating facility in the U.S. where carbon capture
and storage technology is being used on the commercial scale it will be
needed “and no one knows if it will work,” he said.
(A June 19 article in The Economist, “Dig Deep,” describes three carbon
capture and storage projects under way in Algeria, the North Sea, and in a
depleted oil field in Saskatchewan, but none of these is linked to generating
electricity and each handles about one million tons of carbon dioxide a year,
which pales compared to the 1.5 billion tons produced annually by the
American electric industry, the article notes.)
In addition, if the technologies envisioned by the alternative scenarios do not
materialize or are not adopted, Considine said, Arizona could have no choice
but to revert to the baseline case of natural gas capacity alone.
“If that happens, and it happens in other states, the price of natural gas will
go up. Our study determined that if this were to occur, natural gas prices
would double from already elevated levels. Electricity rates would more than
double by the end of the forecast period,” said Considine.
The study also examined the feasibility of reducing Arizona’s carbon emissions
by 15 percent from 2005 levels by 2020 through replacement of existing
coal-fired capacity with IGCC-nuclear-solar energy; using more natural gas if
these technologies are not available; or under a scenario of much higher
natural gas prices if other states also must turn to natural gas.
“No matter what choice you make,” said Considine, “you’re still not going to
reduce carbon emissions very much.”
Carbon Emissions under Different Capacity Choices
Weighing the energy alternatives on an axis of real generation costs per
megawatt hour of electricity and resulting carbon emissions, the study found
a fourth choice – a portfolio of all three technology choices (IGCC, Advanced
Nuclear and Solar with Plug-In Hybrid Vehicles) emerged as the best option
for Arizona, he said.
Real Generating Costs under Different Capacity Choices
Even if natural gas prices rise only by a real rate of 3 percent per year (which
could be questionable in light of recent volatile increases), Arizona electricity
rates are projected to increase by 20 percent through 2015; by 33 percent
through 2020; by 42 percent through 2025; and by 60 percent through 2030,
Considine noted.
“Even higher electricity rates are likely if governments adopt policies to cut
carbon emissions from current levels,” he said. More carbon-friendly options
come with a higher price tag.
“For example, replacing new gas-fired capacity with solar thermal plants
would raise rates 20 percent above the baseline forecast. So, instead of rates
rising 20 percent from now through 2015 under the baseline forecast, they
would rise 40 percent if Arizona would service new electricity demand with
solar capacity,” noted Considine.
A diversified energy portfolio that includes equal shares of all technology
options represents the best of both worlds (costs vs. carbon emissions),
particularly given all the uncertainties surrounding power generation costs.
“Arizona may wish to consider maintaining a diversified portfolio of generation
assets, continuing to build natural gas fired capacity and adding nuclear, coal
or IGCC when the time is right.
“While solar energy and other renewable energy offer great promise in meeting
growing energy demand, a headlong push to build large amounts of solar
thermal capacity may be counterproductive by raising rates too high, too fast,
and diminishing public support to achieve the real promising technological
breakthroughs that lie ahead” and abandoning coal and nuclear carries heavy
risk, Considine concluded.
Discussion:
Urgent Need, Long-Lasting Consequences
Require Political Will and Creativity
“Rapid growth, even during economic downturn, is causing our infrastructure
to be overwhelmed,” said Gary Pierce, Commissioner, Arizona Corporation
Commission. To meet its customers’ needs, Arizona’s largest utility, Arizona
Public Service Company, must double its existing capacity in just over
15 years, he said.
 
Gary Pierce, Arizona Corporation Commission "The world needs to find 50 to 60 percent
more energy in the next 25 years."
- Joseph Kalt
“APS will have to acquire 8,000 mw of generation resources by 2025. The
question is how? The decisions we make today will affect the state’s future for
the next 50 to 100 years,” Pierce remarked.
Currently, APS’ approximately 8,100 mw of electric generation capacity is fueled
by nearly equal shares of coal, natural gas and nuclear energy, or precisely:
38 percent – coal
32 percent – natural gas
28 percent – nuclear*
*The Palo Verde Nuclear Generating Station, about 55 miles west of Phoenix,
has been operating since 1992 as the largest facility of its kind in the U.S.,
capable of producing 4,000 mw of electricity, according to APS.
Some forum participants rebuffed the study as “too business as usual” and not
sufficiently “imaginative” in its approach, while others strongly asserted that
technology – far from being an option relegated to the future – exists today
for expanding Arizona’s energy choices,
For example, said Craig Cornelius, Principal, Hudson Clean Energy Partners,
“I want to make sure we are unequivocally clear on this. To be price competitive
in the Arizona state market, there are no new technology breakthroughs that
are needed in the solar photovoltaic industry today. We can profitably address
the Arizona market without any new technology.
“But with that having been said, there are new technologies that make it
easier to address this market while global subsidies inflate prices and that
make it easier to scale the manufacturing supply chain,” Cornelius added.
Solar Energy: Holds Promise, but Perspective is Important
High cost, intermittent supply, energy storage challenges, profit margins built
into the lengthy global supply chain and an unequal playing field inasmuch as
U.S. government subsidies have plagued both the perception and the progress
of solar energy, participants noted.
With federal government subsidies for solar and other renewables set to expire
by the end of the year, the role of subsidies in fostering clean technology
approaches was questioned.
“Subsidies have not played a very large role actually,” said Joseph Simmons,
Director of Solar Energy Programs at the University of Arizona. “They are very
important in keeping the industrial funding coming in but they have not played
a very large role in developing the industry itself.”
“Without mandates, we don’t think people
will be doing it (solar) because of the costs.
The costs are on the order of $15,000 to
$20,000 per household.”
- Thomas McKenna
Despite public perception, the solar industry has received far less in federal
government subsidies than nuclear, coal and natural gas, he said.
“From 1942 to 1999, commercial nuclear power received $145 billion in subsidies
from the federal government. From 1950 to 1977, coal and hydroelectric power
received $35 to $50 billion each from the federal government,” Simmons noted. “
“Today, in 2007, coal received $3 billion, of which $385 million was used for
emissions controls; nuclear energy received $1.3 billion, out of which $350 million
was used for environmental clean-up. In this same period, solar energy received
$14 million. When you start a new technology, it takes a lot of money. If we’re
going to look at market-driven things, let’s look at equal values,” Simmons said.
“A small amount of subsidy, maybe even much less than what’s in the sustainable
area today, would get solar to a point where the prices would come down. With
technology development, we’re looking at prices coming down by a factor of four.
If they do that, solar becomes very affordable,” he concluded.
Jonathan Fink, Director of the Institute of Sustainability at ASU added that the
University announced a rooftop solar installation on its Tempe campus to provide
about 2 megawatts of electricity immediately, growing to about 7 megawatts.
The project serves as a means to educate the public and policymakers that solar
is not just something futuristic, but something where existing technology can help
reduce society’s carbon footprint today.
Cornelius added that overseas markets are making strides adding solar
capacity and that “Spain will add on the order of 800 megawatts to 1 gigawatt
of electricity this year in a region that is somewhat smaller than Arizona.”
International subsidies and margin added at each step of the global supply
chain have inflated the cost of solar energy to Americans, he said.
“If you strip out the margin that’s been added and you look just at the direct
cost…the direct cost of installing either a commercial rooftop installation or
even a residential installation in Arizona is lower than the retail price of
electricity for the highest paying customers in this state,” Cornelius said.
Utility executive William Post, the chairman of Arizona Public Service, sought
to bring perspective to the role of solar energy in Arizona’s future. He also
cautioned against rhetoric that seems to convey the view that the choice
policymakers face is solar or something else, “when that’s the wrong argument.
We need to look at where solar is the most cost-effective and how to do it in
the most beneficial way,” he said.
“Solar plays a very important role for a segment of the market, but it’s not
going to deal with the whole issue of 50 percent new megawatts in 20 years
so you’ve got to be careful you don’t play one against the other. Solar has
unique value. The fact that solar is more expensive than nuclear energy right
now is really not the most important argument. The most important argument
is the load curve we have, particularly in the afternoons,” Post said.
Thomas McKenna, Vice president of Engineering for UniSource Energy
Corporation and Tucson Electric Power, agreed with Post that solar energy’s
value currently is in its role as a supplementary energy source to help shave
peak energy demand in the afternoons in Arizona.
“We would like to see legislative mandates to force new developments and
new subdivisions to pursue solar options because without mandates, we
don’t believe people will be doing it. The costs right now are on the order
of $15,000 to $20,000 per household.
"The direct cost of pv, either a commercial
rooftop installation or even a residential
installation in Arizona is lower than the retail
price of electricity for the highest paying
customer in this state."
- Craig Cornelius
Policymakers need to take their discussion of solar energy to the next level
by being careful to distinguish between the variety of solar technologies and
the unique role of each, as well as their costs, Post said.
“We talk about solar like it is one thing. Solar is many different kinds of solar
technologies and they can all be used in different ways. Solar thermal is
completely different from solar photovoltaic technology and its application
in terms of being able to meet energy needs is completely different. Like a
lot of things, it’s important for us to be focused on the details because there
really is opportunity in each of the different kinds of solar technologies,”
Post added.
Five universities, including ASU, have received a majority of U.S. Department
of Energy grants over the last year to pursue various solar technologies
(the other universities are MIT [Massachusetts Institute of Technology],
University of Delaware, Stanford University, California Institute of Technology
and the University of Colorado).
In addition to solar photovoltaics (which the DOE seeks to make cost
competitive with grid electricity by 2015 under its “Solar America Initiative”),
there also are concentrating solar power systems that use reflective material
to focus the sun’s energy to drive a generator and solar collectors that provide
low-temperature heat to be used directly. Solar thermal research refers to
concentrating solar power systems and solar water heating systems.
Coal and Natural Gas
Coal – both domestically abundant and comparatively low in price – has
served substantially as a buffer by helping to keep U.S. electricity prices low.
Some environmentalists who are focused on predictions of climate change
and coal’s position as the most carbon-intense fossil fuel strive to make coal
a dirty word.
But, the fact remains that the developing nations experiencing the highest
levels of economic growth are continuing to rely heavily on coal and if the U.S.
excludes this option, it may find its economic future in serious jeopardy.
“Globally, the use of coal is escalating everywhere. China is opening a new
coal-fired power plant on average of one per week,” said Kelly Mader, Vice
President of State Government Relations for Peabody Energy Corporation,
the world’s largest coal producer.
"Globally, the use of coal is escalating everywhere.
China is opening a new coal-fired plant on average
of one per week."
- Kelly Mader
“The U. S. has roughly 27 percent – the largest coal reserves in the world.
How do we use that? We can convert it to pipeline-quality natural gas. We
can convert it to transportation fuels. We can use it to generate electricity.
We’ve got to do that (to be using coal) just to maintain the standard of living
and the American dream,” Mader said.
Environmental pressures are forcing greater reliance on natural gas in place
of coal, exposing the U.S. to significant risk given the steady decline of domestic
natural gas production and increased concentration of international natural gas
supplies in unfriendly regions, such as Iran and Russia.
“Russia controls about 25 percent of the world’s natural gas. We know how
they will use it. Saudi Arabia controls about a quarter of the world’s petroleum
and we know how they use that,” Mader said.
Domestic abundance of coal makes it a superior option to bringing Americans
closer to their dream of energy self-reliance, rather than being unwitting victims
of international power plays.
Thus, these questions were posed: Where does the use of clean-coal technology
stand? How can we use coal more efficiently and cleanly with technology that
could be coming down the pipe?
“We’re working on zero-emission coal technology to fill this need and that’s
largely through carbon capture and storage,” Joseph Strakey, Chief Technology
Officer of the National Energy Technology Laboratory, offered.
“There’s a lot of work that still needs to be done, really in three areas:
(1) We need to prove the safety and permanence of carbon capture and
storage and develop the regulatory frameworks and monitoring techniques
we need;
(2) We also need to lower the cost because if we were to do CC&S now, it is
going to add considerably to the cost of electricity for integrated gasification
combined cycle;
it’s on the order of about a 35 percent increase in the cost of electricity using
the technology we have now. For the traditional coal plants like most of them
we have out there now, it is going to add 80 to 85 percent to the cost of
electricity. Through improved technologies and research and development, we
expect to get that cost down.
“And the third thing we need,” noted Strakey, “are some integrated plants
– a couple of large integrated facilities that capture and sequester the
carbon so that regulators and financiers and everyone else gets experience
with this technology.
"I’m pretty confident we can do it, but it’s going to take some time. We could
do it now, but there’s a higher risk associated with that. We capture the carbon
in enhanced oil recovery all the time; that’s nothing new. It would add to the cost,
but it’s certainly nothing new.”
Particularly troublesome to America’s energy future are recent trends that
show natural gas capacity dominating new additions since the 1990s while
coal capacity largely is pushed further and further into the future.
Combined, these trends increase American consumers’ exposure to volatile
natural gas prices, which soared 60 percent in the first five months of the year
(see AOH, May 30, 2008, “Natural Gas Prices Up 60 Percent, Supplies in Question”)
and, under increasing demand, are likely to rise much more.
"A lot of the pressure of higher prices
for natural gascustomers is due to
natural gas being used for generating
electricity."
- Eric DeBonis
Not only is natural gas plagued by rising prices, but supplies – especially the
international supplies on which the U.S. would largely depend – are not certain.
Frequently the U.S. loses out on liquefied natural gas to higher-bidding nations
closer to the source of production.
Even America’s neighbor to the north won’t have an abundance of supplies to
share. Forecasts show that Canadian natural gas projected in 2001 to be
destined for the U.S. instead will drop precipitously. Lost volumes are “the
equivalent of about 10 Alaska pipelines,” Strakey said.
Although increasingly in demand to generate electricity, natural gas offers
greater efficiencies when used directly as a clean-burning source for home
heating and cooking by residential customers, as well as by commercial and
industrial customers, said Eric DeBonis, Vice President of the Central Arizona
Division of Southwest Gas Corp.
“Natural gas, when it’s burned in a home, has 70, 80, 90 percent efficiencies,”
DeBonis said. “When natural gas is used to generate electricity, those efficiencies
are smaller. Not only do we want to look at what kind of fuel we want to use for
generating electricity, but we also need to look at what’s the best use – how do
we get the most out of every Btu of fuel that we have? That’s another thing we
need to look at when we talk about generating electricity using natural gas
compared with some of the other alternatives.”
Nuclear Energy:
Renewed Activity and the 800-Pound Gorilla in the Room
The U.S. nuclear industry has emerged from dormancy inasmuch as construction
applications for new reactors. Although 104 nuclear reactors remain in operation
in the U.S., a new construction license has not been approved for 30 years.
That could be changing.
The attractiveness of nuclear energy – a carbon-free energy source – as a solution
to America’s double dilemma of meeting spiraling energy demand without adding
substantially to greenhouse gas emissions has sparked a flurry of activity.
The Nuclear Regulatory Commission currently is reviewing applications for 13 new
reactors from eight states; seven more states plan to seek permits for a dozen
more reactors later this year; and the first new reactor could be built and operating
by 2016, according to an Associated Press article.
As the U.S. confronts a “perfect storm of increasing prices, restrictions on supply,
industrial development throughout the world and the greenhouse gas issue all
kind of conspiring at the same time to restrict our possibility of growth, nuclear
energy presents a more optimistic situation” than many of the alternatives,” said
Craig Smith, Senior Scientist, Lawrence Livermore National Laboratory.
He acknowledged that high capital costs and long lead times – factors that
plagued the nuclear industry before it fell into dormancy in the 1970s – continue
to be concerns, as does “the 800-pound gorilla in the room,” waste disposal.
“In India, it takes five years from inception to
generation of power for a nuclear plant. They’ve
been building one every year for the last five
years. To do the same thing in the U.S. takes
13 to 15 years – and we’ve never built a new
Generation 3 reactor in this country.”
- William Post
But, in Europe and other parts of the world, progress has been made over the
last 8 to 10 years with a “new generation of nuclear reactors,” he said.
Advanced nuclear technology holds the promise of greater efficiency, reducing
the risk of proliferation on an international level and enhancing safety,
closing the fuel cycle to unleash the full potential of uranium resources and
a smaller amount of residual waste that could be stored indefinitely into
“the long-distant future.”
"I think that ultimately the disposal of
spent nuclear fuel as we currently
think of it probably is not the right
way to go. It's probably better to
proceed with full utilization of the
energy resources."
- Craig Smith
Around the time of the energy forum in June 2008, the NRC had just accepted
two applications for construction of new reactors in Georgia and Maryland;
also, the license application for the much-debated Yucca Mountain nuclear
waste storage facility in Nevada was formally submitted.
“This is a tremendous milestone of potential progress,” Smith said. “My personal
belief is that it’s very important for the Yucca Mountain repository to be licensed,
even if it isn’t used exactly the way that it was originally intended.
"I think that ultimately the disposal of spent nuclear fuel as we currently think
of it is probably not the right way to go. It’s probably better to proceed with full
utilization of energy resources,” Smith said.
While the U.S. has not constructed any nuclear reactors utilizing advanced
technologies, like those overseas, the U.S. also appears laden with another
distinct disadvantage when it comes to nuclear energy – particularly long lead
times, noted Post.
“In India, it takes five years from inception to generation of power from a nuclear
power plant. They’ve been building one every single year for the last five years,”
he said. “Our estimate here (in the U.S.) is 13 to 15 years to do the same thing.
"One of our challenges as a country," noted Post, "is grabbing hold of this opportunity
in terms of nuclear energy and handling it in a very efficient way. There are some
35 nuclear plants under construction throughout the world. There are none under
construction in the U.S.”
Streamlining the regulatory process by combining construction and operating licenses
would help, Post said.
New generation designs (Generation 3 reactors) allow construction to occur much more
quickly. In Asia, these plants have been built in five years.
“This is a huge difference (compared to the time delays nuclear has experienced in the
past) when you realize that a nuclear power plant is a multi-billion dollar investment –
to have a multi-billion dollar investment sit idle for another 8 to 10 years creates a
major distortion of the economics of nuclear power,” Post explained.
“A nuclear power plant is a multi-billion
investment. To have a multi-billion investment
sit idle for an extra 8 to 10 years creates a major
distortion in the economics of nuclear power.”
- William Post
Political Will and Creative
(Not Linear) Thinking
As discussion progressed among Arizona’s public and private sector leaders,
there was clear evidence of a healthy respect for the sheer weight and magnitude
of the energy challenge ahead of the U.S. and Arizona. But no one was willing to
unfurl a white flag, signaling defeat.
Arizona House Democrat Steve Farley championed the human factor and the
power of collaborative innovation as a means of extending achievement beyond
the grim predictions that can be found in some energy forecasts.
“There is an endless number of ways we can work together, even if there is no
one ‘silver bullet’,” he said. “There are many wasteful systems in this country,
a whole series of things we need to attack.
“When we try to pick winners based on politics,
and not science and economics, I think that’s a
recipe for disaster. Government shouldn’t be
involved in creating a market for a technology
that isn’t ready.”
- John Kavanagh
Creating a portfolio of ‘solutions’ will require a deep vetting of science- and
technology-based concepts in an atmosphere that is less reactive to lobbying
interests and prone to political decisions, said John Kavanagh, Arizona Republican
Representative serving Scottsdale and surrounding areas.
“If you’re looking for a (traditional) legislative answer or an answer from any
elected government official or any government agency, I think you’re going to
wind up with a solution to the energy problem that is not optimal, one that
might even be bad,” he said.
Government shines brightest, he said, when it sets broad policy.
“Government has a right to influence safety standards, reliability, a balance of
different technologies, zoning and land use issues, power lines and transmission
lines,” Kavanagh asserted. “When you start expecting us to pick winners over
losers and to mandate percentages, this is a type of legislative action that is going
to cause real problems.
“When we try to pick winners based on politics and not science and economics, I
think that’s a recipe for disaster,” Kavanagh concluded.
Other participants agreed the Legislature may not be able to provide the full answer
to Arizona’s complex electricity needs through 2030, but neither should it be absent
nor shun a large share of the role in helping to lead efforts to address the problem.
What are the impediments to achieving
energy goals, "good" growth, and
supporting the quality of life?
"Lack of political will - that's probably
the biggest."
- Chad Campbell.
Democratic Representative Chad Campbell of Phoenix noted that a lack of political
will at the national level has been one of the leading impediments to formation
of a national energy policy and a well-coordinated response to the energy dilemma.
“Our job is to set parameters. We have to look at this problem in a more creative
way – to look at the opportunities, not just the problems. Answers to this problem
could help speed up the economy, not slow it down. It’s up to us to get the job
done,” he said.
Sessions like this energy forum – involving a broad base of representation from
government, industry, and energy research and technology as well as others that
could be included in the future – are well-suited to this type of complex issue, said
Theresa Ulmer, Arizona’s Democratic Representative from Yuma.
“We don’t have conversations at the Legislature. If we don’t bring in the specialists
and have these conversations and start thinking differently, nothing changes.
"The Legislature’s job is to make sure we’re leading, but often we don’t deal
with the really tough issues, and that’s problematic on all levels,” Ulmer noted.
Dynamics of Time, Perspective and Innovation
Several participants noted that the world of energy is filled with new ideas and
forward-moving research on every front, and that is a perspective that shouldn’t
be lost.
Jonathan Fink, Director of ASU’s Institute of Sustainability offered Solano
Generating Station, proposed by Arizona Public Service to provide electricity to
70,000 households. If built, it would be one of the largest solar facilities of its
type in the world.
“A year before this project became public knowledge, we wouldn’t have had
much discussion about solar thermal energy in the future of Arizona. But now
it’s real and the whole equation is different,” said Fink.
Solano Generating Station Project (APS, www.solanosolar.com/default.cfm)
Fink urged, as did other participants, that Arizona not limit itself to linear thinking
– extending only the tried and true options into the future – because that kind of
thinking, he said, is incapable of addressing Arizona’s energy future. “We need a
bit more imagination than that,” he said.
With that, a round-robin of technology ideas was unleashed.
Simmons of University of Arizona’s Solar Energy Programs spoke of how nano-
technology holds the potential of reducing solar costs in 10 to 20 years by
improving efficiencies and requiring less material in facility construction.
Hudson Clean Energy Partners Executive Cornelius said decoupling regulated
returns for utilities from net kilowatt hours served could stimulate innovative
solutions.
He also urged policymakers not to focus exclusively on the supply side of the
question, but to explore ways to “shape the load duration curve, especially
in a state like Arizona.”
For example, a suite of thermostats controlled at utility dispatch centers, as
well as other control and efficiency technology, can help balance future energy
use with available resources.
“We need peaking power for the next 10 to 15 years. We don’t need baseload
generation,” offered McKenna of Tucson Electric Power.
“We could use pumped storage hydroelectric power generation to help balance
load. Pumped storage is a giant battery within a mountain or abandoned copper
mines," he said.
"There are some developers working in Arizona to build pump storage that could
be good for 3,000 to 6,000 Mw of peaking capacity." McKenna said.
"Why not use abandoned mines? Pump our wind farms and solar facilities. A pumped
storage facility would solve our needs for 10 to 15 years while we figure out what
to do with technology.”
The event ended with a robust interest in not allowing Arizona's future to be
restricted by tentative political attitudes or reticence -- but to explore all possible
solutions through a diversified portfolio approach that seeks to address the state’s
goals by making the most efficient use of every available Btu of energy and, where
possible, curbing energy use and shaving peak demand.
The discussion concluded with some observations of "fundamental" issues by Juan
Torres, Manager, Energy Systems Analysis, who discussed the work his organization,
Sandia National Laboratory, is doing in Hawaii.
“Ninety percent of the electricity in Hawaii is generated from diesel. Basically,
100 percent of their transportation fuels is in the same mode. We are working to set
them on a path for developing clean energy for the state. Then the hope is we would
take what we learn there and bring it over to the mainland.
“We’re really faced with understanding in detail how you transform a state’s economy
to be structured around something like where you have a lot of renewables. It all
comes down to solving one of the basic problems, which is storage.
"Until we can develop technologies to
store the energy from solar or wind, we
definitely have to rely on traditional types
of generation to handle the base load."
- Juan Torres
"With the way we operate today, storage is built into the (fossil) fuels we use.
Energy is stored in the coal or the natural gas. But there is no storage in the
transmission system essentially so that between the point energy is generated
to the point it’s used, there really is no storage in between,” said Torres.
“So, we’re talking about renewables – wind. We get wind when the wind blows.
The wind comes up, then dies down. We have to find a way to back that up, to
handle that transition point.
"Natural gas can ramp up quickly, but it’s expensive. What we need is some sort
of base generation that has dispatchability, instead of having to deal with the
variability of renewables," said Torres
“What is the time frame for getting storage capacity (for renewables)?” he asked
rhetorically. “A long time. It’s going to be incremental. The problem is pretty big.
"On the mainland, you have transmission lines coming in from adjacent states.
In Hawaii, there is not that luxury. So we’re going to need to look at the
storage problem a lot harder.”
Consensus Statement
The charge for Arizona, as expressed by public and private leaders, aided by
national energy experts, was summed up Tara Jackson, President of Arizona Town Hall:
Tara Jackson captures the full sense of the day
and the mission of Arizona leaders as they move
forward to address Arizona's electricity future.
“If we want to support high quality economic growth and maintain our quality of
life, it is essential that we address Arizona’s energy needs. As we address these
issues, we need to be creative leaders.
"We need to take control of our future as opposed to having other parts of the
western region and even the world control what happens with our energy needs
and uses. Arizona needs to be the leader.
“Some specific ways to address our energy issues include maximizing energy
efficiency with incentives and encouraging real conservation of overall energy use.
"To reduce our dependence on other states and countries, we should think in a
more portfolio manner, which includes making it easier to move forward with
nuclear energy and exploring and increasing the use of renewables such as solar energy.
"We need to draw on all the resources available to us. This means not just looking
at sources of energy, but building additional methods for storing our energy and
exploring different methods of solving our future energy needs.
“The highly technological nature of solving our energy issues complicates the ability
of Arizona’s legislators to address real solutions based on facts as opposed to
lobbying interests.
"More forums like the one today that involve open dialogue with experts, legislators
and other members of the public will help Arizona develop the best solution to our
future energy needs.
"Most importantly, such forums will help create the political will to make those solutions happen.”
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