Is renewable energy a safe, long term investment - or will it soon crash?

The author claims to discredit all climate models simply by stating that "they are complex". Question. If in fact an accurate model should show, as you predict, that no climate change will result from adding CO2 to earth's atmosphere, wouldn't the range of outcomes of a large group of models show about 50% of them predicting reductions in temperature and 50% of them predicting increases? Instead, we have NONE of them predicting reductions, all predicting increases of (agreed, of varying amounts).

Every renewable project that stands to benefit from subsidies not only makes clear the risk of losing said benefit, they intimately base their payback estimates on it. The author clearly has no knowledge of the article's subject whatsoever.

I would challenge the author to show that any nuclear or efficient coal plant prospectuses itemize the following risks to those that bear the greatest exposure to that risk - i.e. the end customer.

a) The risk of their fuel or labor cost skyrocketing in an undersupplied market feeding growing demad.

b) The risk of the political environment legislating policy that causes escallating 'uncontrolable' expenses.

c) The risk that any ill-willed individual or even small group could disrupt service to a large group of customers who will have no recourse.

d) The nimby, economic and environmental risks of resultant mining or even future transmission eminent domain.

e) The risk that the management will game the system for profit once said plant is operational.

f) The risk that the public will be left with the bill for any unexpected expenses like disasters, additional transmission expenses or paying off closed plants should the fledgling renewables industry mature and actually make them uneconomic.

Since corporations are profit driven by law and only have surface concern for any external risks, the above risks will never be seriously considered. This is essentially why we are facing the current crisis that we are.

However, I doubt that their actual investors are informed of the risk of the proposed plant becoming mothballed from issues not unlike those of the 80's nuclear industry. Many of the possible reasons stem from a head-in-the-sand attitude toward their competition.

As someone who represents customers for a living, I have noticed that places like France rely heavily on nuclear power and have real good rates. I am not aware of any place that relies heavily on renewable power having decent rates, nor do I expect to see one based on the economics of some renewable resources and the intermittent nature of others. When someone bets heavily on renewables and actually wins, I'll consider changing my view.

Here in Connecticut, renewable projects are selected based on politics, not science or economics. I imagine we're not alone. I expect that some will say that nuclear or coal projects are also based on politics, but at least once they are built they provide baseload power in massive quantities. People need electric power, not promises or fantasies.

Excellent article Bryan. A breath of fresh air amongst the religious zealots of the climate doom and gloom brigade who are driving this headlong irrational rush into stupidity.

In Canada Governments are paying 42 cents Cdn per KWhour for solar electric power on 20 year contracts. This is ten times the cost of power produced by coal and nuclear. Even at that price there is concern from the providers of such power that it may not be enough to cover their costs. Of course this power can only be available during the day...if I am not mistaken the very best one could hope to achieve from a solar plant is a 50% capacity factor (This comes from the scientific and provable observation that the Sun does not shine at night).

But of course nuclear plants are criticised if they get less than 90% - a strange paradox indeed.

Solar electric plants in a cold not-very-sunny climate like Canada are an engineering and economic non-starter but with such generous payouts from the taxpayers pocket no doubt we will see many more of them covering the landscape. Economic stupidity of the first order of magnitude.

But the public has been duped into believing that such projects are going to prevent the world from climate induced disaster whereas if anything they make matters much worse. Manufacturing solar cells is a very energy intensive business so a large amount of fossil fuel had to be burnt to manufacture them....of course that is always overlooked. No doubt some fine person on this forum will have some facts to tell me about. And, because solar cells cannot operate for more than 50% of the time the energy return is abysmal.

Perhaps there is a case for installing them on household rooftops (and I suspect that is very marginal too) but solar farms are dead in the water without massive subsidy.

With respect to Todd, yes there may be a case for distributed power and there are advantages that I can see for it but what is actually being put into place is large wind and solar farms that are subject to all the problems of disruption he has mentioned. What is the difference between a transmission line carrying solar generated electricity and one carrying nuclear powered electricity?

Of course the great advantage of nuclear is that its fuel is such a tiny percentage of its operating costs that large increases in fuel costs can easily be accommodated with little impact on price. In any case nuclear energy is a renewable energy source by any definition of the term and its fuel supply is virtually limitless with current technology. The French already know this.

And Joseph you are exactly right. These projects are politically driven by people who are eco-religious zealots that base their theories on faith in Mr. Gore rather than science or economics. Unfortunately it will take blackouts and shortages to make people realise that their comfortable living standards are dependent on those big baseload power plants that work rain or shine, day or night, wind or no wind. When they are no longer there to provide the massive amounts of power that they do now we will see how reliable wind and solar really are.

And for Len, the key consideration of the possible effects of CO2 on the world climate is to state its contribution relative to other factors that affect the climate and to determine exactly how much of the predicted rise in temperature is caused by carbon dioxide. In addition one needs to have at leaast some idea of the range of error of the computer models to determine if the contribution is in the error range and therefore not significant.

When Dr Renwick - the lead author of Working group I of the IPCC 4th assessment reports states that his organisation (NIWA - New Zealand Institute of Water and Atmospheric research) is only able to get climate predictions right 48% of the time (that is 2% worse than a pure guess) and can only predict two weeks ahead at best you really need to question every single pronouncement that comes from the IPCC who are trying to predict decades out.

I was taught to question question question and not to believe anything until it is proven with observation and measurement.... that leads me to be very sceptical of anything the IPCC puts out. As I have stated in earlier posts one meter or more increases in sea levels were predicted that have not occurred. Is no body willing to stand up and state the reasons why the predictions were miles out? What happened to the ice age that was predicted in the 80's.

As I said this a religion not science.

Malcolm

So you don't believe in economic (i.e. econometric) forecasting models, Bryan. Well I was a great teacher of econometrics for several years, and I would like to say that manipulating matrices and writing econometric equations on the blackboard was unadulterated joy.

Scientifically of course it was nonsense, or perhaps fraud is a better word - except for the math. The same can be said for the trivial equations and misuse of economic logic in Sir Nicholas Stern's prestigious study. Somebody else will have to deal with this matter, but unless I am mistaken the "science" that made President Bush a believer doesn't have anything to do with econometric-like models or misleading algebraic equations.

As for Malcolm's comments, personally I can buy a large share of them. At the present time a great deal of the faith in solar cells, and distrust in nuclear, is nothing less than economic stupidity - in the case of nuclear, gross economic stupidity - and I also make a point of tuning out when the IPCC goes into their song-and-dance. But even so there is no point in denigrating the fear of nuclear that many people have. If you take Sweden, what happened at Chernobyl could just as easily have happened just across the Baltic, in which case I would probably have a selection of fur-lined pajamas' in my wardrobe or perhaps would be residing in Pago-Pago or Guadacanal. And as for the religion versus science dilemma that you mention Malcolm, I can never forget one of the Nobel laureates in physics saying that science was and always would be inferior to religion, which he implied was a good thing, and which it is.

Here's a large dis(respect) to those accusing me of being influenced by politicos like Al Gore. I was convinced of the logic of the basic science of climate mediation by GHG's long before I ever knew he was even aware of the issue. Please at least do better than that as a basis for (dis)cussion.

Len,

I fully understand your reluctance to have your views associated with, no less incorrectly sourced from, Albert A. Gore, Jr. It was surely a dis(service) to you and to this dis(cussion). How dis(gusting)!

Remember, though, it was not the AGW "deniers" who selected the former US vice president to be the "high priest" of the "Church of AGW"; and, it is not the AGW "deniers" who continue to affirm him in that role. However, his "massive" stature in the "movement" is beginning to shrink just a bit, as "An Inconvenient Truth" encounters some inconvenient facts.

I'm amazed that, with only a couple qualifiers, I'm in full agreement with all the comments above. There are only two addendums I would like to add. The first is that my AGW views seem to be roughly 1/3 emotion and only 2/3 based on the facts I have come across. Both still seem to be in agreement so far though.

The second is regarding the sentiment against renewables taking on a large portion of our energy supply in the future. I would like to clarify a couple points on this. Current renewables on both the utility scale and the home scale do have many problems. IMHO wind is only a good choice in two areas. Small regional niche farms where it's windy and the people don't mind it and future projects (not available yet) where entire wind farms are 'flown' at 30,000 ft altitude like a kite across restricted no-fly zones in the northern climates. The energy and financial economics of these projects are phenominal but there are hurdles.

Regarding solar, there are 4 types to consider but only 3 types have become available so far. PV can make sense if you're only looking to offset peak power on either utility scale or residential scale. Beyond that it is definitely a non-starter. Solar thermal or CSP can be designed for peak or day/night baseload. If one is to consider the specific plant's economics based on what it was designed around, it is usually a good choice. With today's high peak price, it hasn't been called to duty yet for anything but non-storage peak 'opportunity' generation. That is not the fault of the technology, but the planners. The last and newest form of solar has yet to complete the development stage but offers the best energy, environmental and economic benefits. Residential solar thermal can provide 2-4 times the efficiency of PV and still make valuable heating and cooling use of the remaining heat (i.e. CHP). It is an onsite solution that displaces both electric and natural gas transmission load. Like large scale CSP, it can be configured with storage to provide reliable AND dispatchable power - even in climates reaching into Canada. Some systems available now offer only parts of this whole puzzle while others are concentrating on putting the entire package together in an attractive modular way that promises to undercut the central energy suppliers' prices.

For the time being, there is definitely justification for skepticism, especially given the subsidy gaming taking place everywhere, but not outright dis(missal). I believe that this one renewable will become the largest source for society by providing a larger, more dispersed industry that will employ both blue collar workers and local bankers, replace our dependance on foreign resource dependance with increased US product exports and increase homeowner equity growth. It is going to take a little time yet, unless the granting entities, clean tech investors or professional researchers actually wake up and see the sunlight.

There are other renwables that have a good shot but I don't really see any with the potential available on our collective roofs or the EROEI of shiny metal.

I am interested in knowing from Len the key scientifically provable observations that lead you to believe (irrespective of the Al Gore hypocrisy) that the variations of temperature are anything other than naturally occurring variations in the Earths climate. If I implied that you were influenced by Mr. Gore then I duly apologise but there are many people who are and as far as I am concerned the man is a menace to proper scientific discussion of observations.

Todd, I do agree with you that there are technologies coming that may assist in meeting energy demands but as I have said before I have a difficult time understanding how you would power the many energy intensive industries that support our standard of living without having large centralised stations to support them. And surely it is cheaper to build a large plant than many many small plants. That money must come from somewhere. Of course many city dwellers in high rise condominiums would have a difficult time installing any rooftop power system or windmill.

I can do these things at my house in the country on a large lot but in a city condo...I doubt it. But I am not agaionst these ideas...I just think they are far too expensive.

Malcolm

"And surely it is cheaper to build a large plant than many many small plants"

Economies of scale work both ways. You can make less larger thingies or cookie cutter out many cheap ones. How much do you pay for a Happy Meal Toy?

Who is paying that money and who is benefitting from the equity? At least the customer is building equity for his/her dollar with DG. No such thing with the central plants that still pass their costs down the food chain.

"how you would power the many energy intensive industries that support our standard of living without having large centralised stations to support them"

My understanding is that most factories, commercial buildings and superstores have very large roofs. For example, the 3800 US Wal-Mart stores alone could provide nearly 95 GW on a 24/7 basis. That's distributed power which would need to be transmitted less distance on average than from central plants. That's just one chain out of many that could contribute in addition to the overall residential surplus.

I keep waiting for Professor Banks to weigh in on this topic. Surely he understands that an equity purchase is preferable to unending monthly 'service' fees. Without regard to the other technical/energy/social issues, this fact alone can become a significant attraction.

Mr. Leyland

I assume you are in possession of a limited outlook. In addition, you have very limited facts to work from. I disagree with your approach. I have done a through analysis of the emerging solar-hydrogen energy and find that it is "alive and well" and growing like "gang busters". (see my Plenary Lecture, SPIE solar conference, 23 August 2007, San Diego).

Denmark already gets 29% of its electrical needs from wind power. The U.S. is building not one but two of the world's largest solar-Stirling engine power plants of 300 MWe(with later expansion to 900 MWe) and 500 MWe (with later expansion to 800 MWe) delivering electricity at a contract price of $0.06/kWhr. These are being built at 1/5 th cost of an equivalent nuclear power plant. Germany is phasing out its nuclear power by 2020 and has just started the world's largest PV array (40 MWe). Two 24/7 solar-hydrogen power plants of 200 MWe and 800MWe are also being planned for the U.S.

Europe now produces 3.3% of its electricity by wind power. The European Commission has set a goal of 22% electricity by solar by 2010. A $2.4 billion "Hydrogen Vision Program" was started in 2006. 18 European countries added 7,588 MWe wind power in just 2006 which is a 23% increase over 2005. Global PV market grew 19% with 1,744 MWe added worldwide in 2006. Japan is now over 85% in home solar PV installed

No, Mr. Leyland, the Solar-Hydrogen economy will not "crash" as $billions are being invested in it. It is a booming economy. It is all very piecemeal and no one seems to notice its growth. It is the greatest investment in history and will dwarf the past PC and Internet growth by 10 fold !

Warren Reynolds

Perhaps we should get Professor Banks to evaluate whether providing tax-raised funding to clean renewables is "subsidy" or "payment for use of commons".

Todd, I need to know the basis for your statement concerning 95 GW available from putting solar collectors on the roofs of 3800 Walmart Stores. You are claiming that this is the equivalent of building more then 100 1000MW nuclear plants. I believe that if this was so easy Walmart would start building tomorrow. What is the basis for this claim?

Warren, what is the source of hydrogen in your solar hydrogen systems. The analyses I have seen shows that producing hydrogen is a waste of energy. There is also a real water shortage problem associated with the production of hydrogen from water. Maybe my nuclear engineering oriented brain has absorbed to much radiation but I am really confused.

Warren, while everyone is asking for references, may as well include a link to the $0.06/kWhr solar-Sterling engine power plants. I've seen references to the plants, but not to them signing any contracts to produce power at that price. Or at that low a capital cost.

All I could find was this quote: "None of the companies would give a price for building the solar sites or disclose the rates the utilities will pay for power, but both said the cost would be similar to traditional coal or gas. "

And this one: "This is all on paper so far," he said. "They haven't delivered anything yet. And until they do, we can't say what it will cost."

Maybe you were refering to their claim of "...similar to traditional coal or gas."

As for actual cost, we're talking about "construction on the 500-megawatt facility is expected to begin in mid-2008, and should take three to four years. Each dish can produce up to 25 kilowatts, and the site will eventually have 20,000 dishes stretching across 4,500 acres of desert." That's just under 8 square miles. Okay for deserts, not so good for urban areas.

Just off the top of my head, for simialr captial cost outlay, given that a 500 MW nuke station costs about $1 billion, to be equivalent the solar sterling engines would have to cost no more than $50,000 each, installed, including infrastructure.

That number seems low, or every neighbourhood of every community in Arizona, Nevada, New Mexico, etc. would have one, wouldn't you think? Of course, they would only be good for peaking power wouldn't they. No storage capability. That remains a problem with all intermitent power sources, except solar thermal.

Paul, The actual quote for $0.06/kwh is probably from http://www.treehugger.com/files/2006/08/worlds_largest_4.php, however simply dividing their expected cost of $50K / dish over 20 years comes to $0.045 / kwh. (at 6 hours per day - these were only designed for peaking power) Interest and O&M probably made up the difference.

For capital cost, $2k / kw is fairly high since the goal of many up & coming systems is the same for 24/7 output from storage. That would be an even better price for small modular systems targetting urban rooftops.

Oh, and Kenneth, my appologies. Ouch. That should have been 95 GWH / day which is 4 GW. I lost the "H" doing math in my head again. Keep in mind though, that's just the electricity generated. Onsite needs can make use of much of the additional 1-4 GW (thermal) that is available from CHP.

Todd, We seem to agree on the reduction in costs associated with mass production of anything. The more you make the cheaper each unit gets. I am sure Professor Banks would entirely agree.

The assumption of course is that nuclear power has benefitted already from mass production and that solar power and other energy sopurces have not.

Having worked on many different reactor designs one thing I can say with absolute certainty is that mass production has indeed been the very feature totally absent from the nuclear industry. The only nation I am aware of that has built more than 5 units identically is France.

So I would argue that properly applied to the nuclear industry the economic gains of mass production will dramatically reduce both capital and operating costs.

I am certain that producing 50 or 100 PWR/BWR.CANDU/Pebble Bed reactors exactly the same will reduce the cost of electricity production to far below present values.

At the same time I am equally certain that the same will occur for solar systems.

The only discussion will then be the amount of time these systems can operate for the same dollar investment...ie their capacity factor...and on that score nuclear (@ well over 95%) will always outperform solar (which can only perform @ 50% or less).

So will you invest your dollar in a system that can operate day or night rain or shine or do you invest your dollar in a system that will only produce electricity (and therefore cash flow) half the time.

I do like the notion of distributed energy - it has some attractive advantages - but to argue the case on cost and availability vs nuclear power ... well not sure the numbers add up.

As one commentator noted if there was money in it you can be sure WalMart would have every roof top of every store covered in solar collectors.

In fact I do recall MacDonalds stores going to solar hot water heating on their many many roof tops....none to be seen now because it just does not work economically.

Households with the availability of large roof areas could benefit because then one is competing with the retail cost of energy but the costs of these systems needs to come down drastically for this to make any economic sense.

Also remember that WalMart and other Corporations can deduct the capital costs of such ventures against their income. Homeowners cannot unless they run it as a business.

Should individuals be given the same tax breaks as Corporations then the situation may be different but I suggest there is a great deal of reluctance on the part of the various taxation authorities to do that.

So the distributed energy supplier is really up against the odds in making these systems economic.

In Canada (Ontario) the Provincial Government is buying electricity for 42 cents (Cdn) a KWh from solar electric producers. That economics is based on the assumption that only a few MW will be produced that way because if all the electricity was produced that way then the price of electricity in Ontario would be 42 c/KwH and the Province would essentially be out of business.

But the most productive way of applying the mass production techniques is to mass produce nuclear power plants instead of the myriad of mostly one-off designs that we currently work with. Then you'll see the price of electricity plummet.

Distributed energy does have advantages but I doubt it will catrch the wave so to speak on a large scale.

Malcolm

Malcolm, it would be lovely if someday you encountered the new prime minister of Sweden and explained to him and his birdbrained advisors some of the things in the previous post. Just this morning he announced that he was washing his hands of nuclear. I can't figure it out: my students in Bangkok had no problem understanding economies of scale and decreasing costs to increased production volumes (over time).

Makes you wonder about the people in this country. They want more of everything that could be bought if this energy thing were correctly handled. Oh well, remember what Einstein said: "The Universe and human stupidity were eternal, and sometimes he wasnt sure about the universe."

My question to Malcolm is, if "mass produce nuclear power plants instead of the myriad of mostly one-off designs that we currently work with. Then you'll see the price of electricity plummet " works, why aren't present utilities doing it / have done it in the past? What explains the myriad of designs existing? Perhaps present decisionmakers have no interest in seeing "the price of electricity plumet"?

Len,

Or, perhaps, regulators interrupted construction of many plants to require changes to previously approved designs, thus forcing the next design to be different from the previous one. Much of the cost of the US nuclear fleet is the result of interest on construction work in progress (CWIP) accumulated during pauses in construction for redesign and re-approval and then capitalized with the physical plant.

Perhaps Westinghouse and Tenneco, or some other group, will resurect the 30+ year old concept of "cookie cutter" floating nukes on massive barges, anchored off shore behind massive artificial breakwaters.

You might also ask your question about one-off designs to the developers of alternative sources of energy. One of the toughest questions to answer is always: "Is it good enough?"; or, in the case of nukes: "Can it ever be good enough?"

Edward,

Check out the Russians. They are in the process today of constructing and selling bardge mounted systems.

Edward, you are right on with your comments re: regulators/politicos interupting construction.

Darlington NPP in Ontario is a favourite target of anti-nukes as an example of cost over runs. They neglect to mention that the newly elected government of the day (a popular left leaning party, darling of the environmentalists) put a two year hold on the project, midway through construction, when interest rates peaked at 21%, back in the '80's.

Of course, the trained construction force of 5000+ workers who were working for Ontario Hydro drifted off to other jobs. A whole new crop had to be hired, trained and integrated into the contruction process (involving rad training, quality control etc.) when the Darlington project was inevitably restarted.

Guess what. The cost of construction escalated and that "proved" nuclear isn't viable.

Malcolm, I view nuclear as necessary to get through the Energy Predicament we are facing in coming years. I also think that money invested in renewables will pay off down the road when energy prices soar as natural gas and oil production declines. If not for the subsidies, utilities would keep their heads in the sand, making 20 year forecasts based on the current energy situation, and keep building natural gas plants.

As for "In any case nuclear energy is a renewable energy source by any definition of the term and its fuel supply is virtually limitless with current technology."

Here's one definition:

The American Heritage Science Dictionary renewable (ri-n'?-b?l) Pronunciation Key Relating to a natural resource, such as solar energy, water, or wood, that is never used up or that can be replaced by new growth. Resources that are dependent on regrowth can sometimes be depleted beyond the point of renewability, as when the deforestation of land leads to desertification or when a commercially valuable species is harvested to extinction.

Doesn't sound like uranium fits there.

Randy Park www.EnergyPredicament.com

Interesting direction we've taken. Many of these comments are based on some fundamental misconceptions that Malcolm continues to muddy the waters with. His contention that the (near) future renewables are anything like today's crop is misleading. The current offering of solar PV is nothing more than profit taking of the low hanging fruit. As I've said many times before, they don't offer a real full scale solution. Their problems of low efficiency and high manufacturing cost (in dollars, resources and energy) are just the issues that are in today's spotlight. The real issue is that they need to use electrical-based storage with those same issues to get through the night.

The 'other' solar, solar thermal, has been proven to be easy to store at very high efficiencies (>98%) with extremely low resource use. The lucrative peak generation market is the only reason it is not being used now, but it was proven cost effective 20 years ago. The smaller the system, e.g. residential sized, the more sense it makes to integrate storage into the system. In fact, some new systems will only run from this storage meaning they won't know whether the sun is out or not. Engineering for this type of system is easier and cheaper since it is very predictable and this further lowers cost. Load following is just a step away supplying both baseload and peaks, which nuclear cannot do well.

The reliability of each individual system will be comparable to that of a major appliance which is much higher than 95%. The inherant capability to disconnect from a failed grid and run 'remote' insulates each user from any common grid problems, further enhancing reliability. Large regional blackouts become virtually impossible rather than a regular winter occurance.

This brings up another issue. When discussing economies of scale, a few caveats must be included. With ever larger central plants, increased transmission is needed. This takes more rights of way (and threatens more health issues to those who believe in that), raises the price per mile of those lines and increases the number of miles of lines needed. In other words, it doesn't scale linear with plant size. Extrapolate that issue to the 1/3rd or more people in the world that currently have no lines and watch the environmentally conscious opinions go nuts. There is no one size fits all answer for transmission for the whole world. Larger cities definitely need more concentrated transmission, but there are just too many places where it only makes sense to run local lines. After all, who's going to pay for 30 miles of wire and poles to run a small 100 person village? Without the Rural Electrification Act forcing utilities to in the 1930's (?), many US towns still wouldn't have it because it just doesn't make any sense.

Another factor that doesn't scale linearly is the insurance, aka the redundancey and complexity solely needed to safeguard the proper operation of ever larger systems of any kind. Be it an enormous nuclear plant, an HVDC transmission line or anything massive, it's a major event when a single failure occurs. This means an increased percentage of effort must be undertaken to ensure that it can't fail ever. A residential system with only that house's reliability at risk needs so much less 'insurance' that these costs actually benefit from mass production. At a large enough production volume, they may become relegated to a promotional attraction.

The single biggest factor though has got to be the difference between purchasing a tangable product within a home mortgage and paying a lifelong inflation-based service fee. Any product will retain value which increases equity and will most likely be financed within the mortgage. Most home interest is deductable and at relatively low rates. Compare this to the perpetually increasing monthly fee that is further taxed in multiple ways after being paid with after-tax money. Once they product's payoff period is reached, their full capital expense goes away. Does your local utility company reduce your rates by that portion once their plant is paid off?

Regarding "good enough", there will always be new developments. My question is which scale can still benefit from economies of scale when new developments come once each year? When each plant takes longer than a year to build, no two would every be the same. But hey, if you need 2-4 GW all within a 50 mile radius, then the only choice that makes sense is nuclear.

Lots of interesting comments here... but nobody addressing the subject of the article... Is renewable energy a safe, long term investment - or will it soon crash?

As an investor, I look for facts. There are a few points that need factual correction in this article.

1) Mr Leyland states, "The enthusiasm for renewable generation is driven entirely by fears of dangerous man-made global warming and a belief that spending large amounts of money on renewables will solve the problem and thus save the planet from a wide range of disasters." This is not true.

The POTUS, Mr Bush, has made energy independence a priority... on national security grounds. He has called for massive investment in renewable energy so that America can kick the oil habit and become more energy independent. The enthusiasm for renewable generation is driven by a variety of factors that include, but are not limited to national security, capital appreciation, and environmental benefits. This is fact.

2) Mr. Leyland correctly points out that government policy has helped renewable energy companies. He ignores the fact that oil, gas and nuclear companies receive massive benefits from government policy as well. He then tries to scare off investors by raising the threat of diminished government support for renewable energy. The truth is that America is in the process of moving large amounts of subsidy away from polluting energy sources toward cleaner renewables. The current risk of an energy crash based on the removal of subsidies is very low.

The more recent debate on the need to reduce GHG emissions obscures the more down to earth cause that preceded it with respect to renewables. I can remember a time when reducing demand and forestalling the construction of new "conventional" power plants was a goal that most people could agree upon. Renewables have a serious part to play in that process, especially if one focuses on the full societal cost of energy production and not just the cost to the consumer. No single renewable energy solution is the "silver bullet" of course, and we would do well to remember that reducing consumption through energy efficiency measures and other demand side measures should be the first item on our agenda.

I live in very sunny Arizona. I have calculated that if I don't have a reduction in efficiency, spend no more on maintenance of my solar cells, and they last for 30 years (all dubious assumptios) my cost of generation with no capital costs considered will be about 10 cents per KWH. Not a very good investemnt and that's in Arizona! Why are we financing solar in NY, CT, upper mid-west, and even Canada? New nuclear plants including capital and a 60 year life span would be generating power for less than 5 cents per KWH - and not just during the day.

As Michael says, energy efficiency first and then there is a plethura of on site generation technologies to fit the need of the end user. A plan needs to be put in place, starting with cfls or led lighting and working through the end users other energy efficiency needs. PV solar, wind, geothermal, thermal solar, fuel cells, microturbines; make a pick for the end user to gain optimum performance. Subsidies (utility driven) for a process may make better sense rather than picking the "flavor of the day" generation technology. Just take one percent of yearly nuclear subsidies and apply to a facility plan for an energy audit, and that will certainly tell the facility where to go and how to go with their energy needs and responsibilities.

Mr. Drury,

There is no question that energy efficiency improvements, broadly implemented in the market, could somewhat delay the construction of new powerplants of any type, as well as reduce per capita emissions. There is also no question that demand side measures, if they offered sufficient incentives for compliance, could somewhat delay the construction of new powerplants of any type, though they would not reduce per capita consumption and emissions. You are certainly correct regarding their priority in the process.

Intermittent renewables, combined with appropriate and sufficient storage could also delay the construction of new conventional fossil-fueled powerplants. However, intermittent renewables must combine excess generation capacity with significant storage, at substantially higher capital costs than non-intermittent sources.

Demand for power will continue to grow as the result of population growth. The growth rate might be slower as the result of efficiency improvements, if the economics of implementing the efficiency improvements were attractive; arguably, the economics are not broadly perceived as being sufficiently attractive today. Demand growth might also be slowed by demand side measures, if the economics of demand shifting are perceived to exceed the costs of the inconvenience associated with shifting demand; arguably, the economics are not broadly perceived as being sufficiently attractive today.

Legislative and regulatory interest in power reliability has increased as a result of the northeast blackout. Broader reliance on intermittent generators is inimical to achieving increased power system reliability.

I wish you luck in determining the "full societal cost" of energy production and use. That is an issue which seems to rear its ugly head about every 10 years. Most agree that fossil fuel use produces environmental externalities; however, that is usually where the agreement ends.

http://www.te-software.co.nz/blog/jester.htm

The Author is also a member of a 'non-profit' filled with paid lobbyists that represent Exxon, Phillip Morris, Fox News, and other non-biased, fact-based organizations, committed to the betterment of the planet.

All in all, it's another lobbyist refuting global warming on Energy Pulse.

"Does your local utility company reduce your rates by that portion once their plant is paid off? "

Excellent question. IMHO one of the primary incentives for de-regulation was to put in place the "wholesale market system" which accompanied it in every jurisdiction. That quite wierd (and in economics, unique) auction market only works in economic theory IF paid-off plant assets are regularly re-valued at higher capital values as the debt load reduces in order to maintain a stable "cost of production", a process which is clearly designed mainly to benefi brokerage houses.

Mr. Salamay,

Consumers are not concerned with optimum performance. They are concerned with optimal economics, as they perceive them. For most consumers, the economics of the technologies you mention are currently not attractive. Arguably, they could be made sufficiently attractive if the "full societal cost" of conventional energy production and use were set high enough.

Len,

Utilities are permitted to earn an "allowable rate of return" on their ratebase. Each component of ratebase has an assigned "useful life", over which it is depreciated. Utility depreciation is almost exclusively "straight line", rather than accelerated.

Therefore, the answer to your question above is: "Yes, the utility reduces the fixed asset recovery portion of its rates as the ratebase is reduced through depreciation." The utility also increases the fixed asset recovery protion of its rates as facilities are added to the "used and useful" ratebase.

Len,

I should have stated that the ratebase reductions are implemented as part of ratecases. Ratebase does not change automatically between ratecases.

Bryan,

If I may be so bold to condense your article, what you appear to be saying is that

• renewables are an expensive form of carbon dioxide abatement;

• the current rapid expansion of renewable energy world wide has been made possible by subsidies and tax breaks;

• if AGW is shown to be nonsense, there will be no need for carbon abatements so the need for renewables will disappear;

• if AGW is found to be real, renewables will still disappear because the finite funds available for carbon abatement would be better spent on other more effective measures;

• either way, renewables are doomed; governments around the worlds will see sense one way or the other and pull the plug on the subsidies and the tax breaks, leaving investors heavily out of pocket; and

• renewable energy investment prospectii do not warn potential investors of the "uncertain" science behind AGM theory and associated projections, or of the political risk that the support currently enjoyed in any given country may be withdrawn.

Being a cynical financier, I look at risks, the probability of any risk occurring, and the consequences of an occurrence.

I do not enter into debates as to whether AGW is happening or not. I wouldn't trust an electrician to give me advice on macro-economic policy, so why should this forum trust anything a usurer has to say about the climate?. However, I cannot ignore the possibility that AGW may be occurring. So I look at the evidence presented by specialists and make a judgement. For example, having been presented with incontrovertible evidence for accelerating movement of Greenland glaciers into the Atlantic (unpublished research not included in the IPPC report) I now take into consideration the possibility of sea level rises affecting any coastal power station located less than 12 feet above sea level.

In this case the probability that the plant will flood is less than the probability that insurance will become either exorbitant or unavailable, however the consequences of either happening are significant, and the investment is tailored accordingly.

The other side of the coin is that I also take into account the political risk that any government can withdraw or reduce support for renewables at any time (or for nuclear for that matter).

My view is that the probability of this occurring is quite high, given the on-off nature of the production tax credits in the US, or the recent changes to renewables support mechanisms in the UK & Spain. However, in most cases the consequences where this has occurred have not been so significant as to fatally weaken existing investments, although they have resulted in new projects being cancelled or deferred. In the case of wind power, every project I have worked on can more than cover its operating costs with the wholesale market electricity price, so a total withdrawal of subsidies would not stop any existing turbines.

My estimate is that renewables will continue to be supported/subsidised for the foreseeable future. Leaving aside the AGW debate, which most European governments have bought into, there is the issue of security of supply which has been debated in the past in this forum. Which do you think western governments value more highly; a kWh generated by an indigenous wind turbine, or a kWh generated using Venezuelan/Russian/Indonesian/Iranian gas?

Whilst I am under no illusions as to the fallibility of the financial sector with regards to the energy sector (just mention Enron and we all start squirming), I can assure you that we do warn investors of all of the risks of which we are aware. It is just that our perception of risk is not the same as yours.

Joseph Rosenthal writes

"I have noticed that places like France rely heavily on nuclear power and have real good rates. I am not aware of any place that relies heavily on renewable power having decent rates...."

France gets 38.9% of its primary energy from nuclear but also gets 5.3% of its primary energy from hydro (BP statistical review 2007).

French electricity rates are not that good compared to other countries in the EU;

French electricity rates would be much higher if they could not spill their surplus generation into the rest of Europe outside of peak demand;

French nuclear and hydro plant were built at a time when the EU (then the Common Market) permitted state subsidies to the power industry. The rates would be higher otherwise

Successive French governments justified the subsidies on the grounds of security of supply, as France has very little in the way of economically exploitable fossil fuels.

Ed, Given that it is often quoted that 'most' of the cost of nuclear energy is capital, permits and construction costs as opposed to fuel and operating expenses, answer this question. How correlated is that ratio to the ratio of reduction seen by the end customer as a result of depreciation based rate reductions? In other words, I've never heard of someone's 'generation portion' of their bill going down by anywhere near the 95% that I've heard should be someday paid off. Surely if that was so, they would realize at least half that in monthly savings.

"However, intermittent renewables must combine excess generation capacity with significant storage, at substantially higher capital costs than non-intermittent sources."

You wouldn't need excess capacity if you stored the resource first and generated electricity from that reserve. In that case, resource 'capacity' is completely separate from generation capacity. Then generation capacity and reliability is only a result of how much storage time was designed into the system.

Todd,

Plant depreciation is "booked" annually. It is reflected in rates, ratecase by ratecase. However, do not forget that generation, transmission and distribution plant is added and/or renewed and/or subject to "life extension" projects on a continuing basis as well. Finding the impact of the depreciation of 1 powerplant in the ratebase of a major electric utility in a consumer electric bill is not very likely. However, a detailed review of the book value of individual powerplants, which are part of the public record, would show the depreciation of that powerplant.

The author makes the mistake of using science when it's convenient then debunking it when it doesn't serve his ideology. If, as he says, "...it is difficult to get accurate predictions even a few years ahead", why use scant climate data from 1998 to prove his own assertions?

As far as "prudent risk management" goes, the precautionary priniciple must always be weighed. So, if we suspect that our current power producing and transportation systems may be fouling our environment - why stay on such a path?

It never ceases to amaze me when pundits of the contempary power regime ignore the externalities associated with coal and nuclear while comparing them to renewable energy sources. The polluting byproducts of current power production methods are never calculated as a cost; they should be. Originally, air was clean, readily available, and free - to make it less so should come at a price.

And what's wrong with paying a premium for clean energy? People demonstrate their willingness to pay a premium for all sorts of commodities that provide benefits to health; take organic food for instance.

If anyone were to tell me with a straight face that coal, nuclear, and oil are not subsidized, I would suggest that they remain in this debate at the risk of seeming foolish.

While I cringe at the thought of having to place value on the very thing that sustains us, on our own umbilical cord, for economic reasons, I would suggest that we could start by quantifying all the medical costs (asthma, etc.) associated with dirty air, plus all the costs associated with acid rain, plus all the costs associated with tainted groundwater, plus all the costs associated with lost worker productivity due to pollution-borne illnesses. Add it all up and spread the costs around in the form of a carbon tax. Now how much does it cost to produce a kilowatt of electricity from coal?

When your done figuring that out, I have many more costs/externalities for you to add to the equation.

If man-made climate change does become catastrophic in its ramifications, countries will blame each other, the profiteers will be long dead, and the pragmatists will ask, "There's no going back so what do we do now?"

To those who would condemn renewables because they are too costly a proposition to maintain a clean, healthy environment, I would say that we are ruining and degrading our natural resources far too cheaply.

Which brings us to the question: Is renewable energy a safe, long-term investment - or will it soon crash? Insofar as safe and long-term are a concern, renewable energy, or at least clean energy, is the only safe bet. For investment purposes, as soon as the real price of coal, oil and nuclear includes the real costs associated with them and after a few more generations of technological advances, you'll start to see renewable energy, unsubsidized renewable energy, looking like a real investment alternative. Don't hold your breath. Until such time, your best returns will come from energy efficiency.

Mathew: One point: What externality are you aware of which is not included in the cost of nuclear energy?

Gentlemen, I'm probably older than any of you, and was active in the nuclear power field back in the 1950s. There were more goernment subsidies provided to this technology, to get it started, than are currently being provided to renewables. Both are good and necessary investments in the nation's -- and the planet's -- future well being. (And don't forget, no additional nuclear plants will be built without the new subsidies in the 2005 Energy Act. So let's not be so critical of subsidies!)

As Al Lewandowski just noted, "Oil Wars" have got to end -- they have cost us a few trillion dollars over the past 40 years. Domestic energy sources must be tapped ever more heavily. The best future will have both some nuclear power, a lot of renewables, and a lot of improvements in energy-use efficiency in all sectors. Peak Oil is just around the corner, and peak NG may not be far behind (interms of amounts we can get delivered to the U.S. and into our pipelines).

Len asks what externalities are not included in the cost of nuclear power? The two I can think of are risk/hazard and Price-Anderson Indemnification of plant owners against losses that exceed insurance coverage.

Also, It is disingenuous to blame "regulators" for the high cost of building the last generatiion of plants. Poor management of the projects by several utility-owners was more at fault. Poor management by a few plabt operators persists even today. As RR said, "Trust but verify" is the only way to be sure the safet operating record since 1979 continues.

No one knows the cost of future nuclear plants, and there is no guarantee that they can be financed after the initial subsidies provided in the 2005 Energy Act are gone.

The argumant that some renewables are not available around the clock is also a bit specious. The grid needs power generation that matches the load curve, which generally peaks on a hot summer afternoon -- there is a fairly good correlation between solar-originated generation and power demand. Electricity produced in gas-fired peaking units will cost around $0.25/kWh in a short while, so solar is not outlandishly expensive -- and it's price does not inflate with time.

Bryan, I do not know where you get your facts. My wind farm generates a positive cash flow without subsidies ot RECs based on a twenty year cash flow model. The sibsidies and RECs improve the financial model of the project. You seem to have ignored the subsidies we give oil, gas, nuclear, coal, etc. If we took all these subsidies away and took off the gloves I am confident renewables would gain a significant market share. The playing field is not level now when nuclear does not have to pay insurance or for waste disposal, oil drillers do not pay royalties, the coal industry does not cleanup after it self, etc. If you want so much nuclear where are you going to mine it from.

I will not argue climate change or global warming with you. The case for renewables make simple economic sense you produce a product with almost no by product (pollution), you do not have to go to the Middles East or Russia to get fuel, and the jobs stay here. One day we will be able to cost effectively make hydrogen from the renewables and change the whole equation.

I will agree with you that solar PV does not appear to be cost effective based on classical economic models today. But it maybe a way to offset summer peak electricity without building more central electrical plants, investing $100 billion plus on beautiful transmission lines, producing the pollution during the worst air quality times of the year (hot summer days), increasing health related issues during those times, and the resultant reduction of the cooling load on the building they are installed.

Make sure the economics include all cost and benefits of the options we have. The public good and health related issues of renewables will offset some of the narrrow economic analysis made in this article.

"The grid needs power generation that matches the load curve, which generally peaks on a hot summer afternoon -- there is a fairly good correlation between solar-originated generation and power demand." - Agree, however, most grid operators refuse to even purchase ANY excess electricity at ANY price even at peak times from a small distributed generation unit. Is that economics, or market power?

Len: In many states net metering rules allow the "sale" of excess generation from certain DG systems (typically, PV and wind) below a specific capacity rating (10 kW in some states; 2 MW in others) to the grid at a price equal to the retail charge. ("The meter runs backward" in concept if not in fact.) Some call this an unjustified subsidy, but others believe it is justified because (1) it feeds nonpoluting power to the grid at a location where it can offset power generation and generation from a remote location, (2) avoids a "lost opportunity,) and (3) is a step needed to get new technologies more widely accepted. "Beauty or beast" is in the eye the beholder.

I am not going to join in the debate on the reality or myth of man-made global warming. However, I am struck by the zealotry of those claiming to speak from a science and economics perspective when supporting centralized nuclear and coal-fired plants as the right way to build our power supplies. It seems they are themselves as "religious" in their views and as blind to science and economics as they claim their counterparts are when supporting renewable, distributed energy plants.

The first part is how they isolate renewable energy as the sole beneficiaries of government subsidy. This is ludicrous, to say the least. The quoted cost of nuclear and coal fired energy used in these arguments ignores many costs that are borne by other government coffers or are simply ignored. Where is the cost of insurance to cover for another 3-Mile Island or Chernobyl event? Where is the anticipation of declining supplies and the inherent increase in fuel costs (e.g., uranium prices are skyrocketing currently)? Where is the cost of clean-up from the outputs from these methods of energy generation? Where is the cost of regular budget overruns and unanticipated (and very costly) maintenance and repairs?

- A (unpublished) study undertaken by the Ontario government (Canada) in the early 80's concluded that when all known costs where accounted for using true cost accounting, the cost of nuclear energy was actually north of $0.15 / kWH - and that was in 80's dollars. That means this form of energy was being subsidized for more than $0.12 / kWH back then. Further, when the cost of clean-up and storage of spent fuel was factored in, the costs rose to $1.75 / kWH.

- The cost of cleaning up from acid rain and smog resulting from coal fired plants,(even clean ones) is not estimable. In Ontario alone, it is estimated that smog from coal fired plants adds billions of dollars in health care costs. This does not even factor in that the loss of a human life to this kind of short-sighted, "cheap energy" is king" attitude is a travesty in and of itself.

For those who claim to be using sound economics to support these antiquated methods of generation, what about the billions of dollars of debt that has been written off or is being collected through addtional service fees (in Ontario, it is politely referred to as the "Debt Retirement Charge")? What about our aging transmission systems and the enormous society-wide costs incurred when they fail (e.g., the August '03 blackout)? These require trillions of dollars in reinvestment and yet are covered up by nervous governments trying to avoid political fall-out.

The move to renewable, distributed energy is subject to a far more open and accountable process than energy production has ever been subject too. Perhaps this very openness is what fuels the skepticism of many of the centralized plant model advocates. A return to government monopolized systems where subsidies are covered up by a shell-game of taxes and service fees, where system failures and bankruptcy are ignored for political expediency and where the fall-out from these failed systems is moved to hide responsibility and accountability is nothing short of absurd.

The wind and the sun are renewable resources that we can harvest almost forever. Biomass, when managed properly (not in the hyper mode we are currently operating under), also is renewable. Coal and uranium are not. Let's stop thinking about the next 10 years and look with vision and passion to the future. Let's stop the cycle of passing on massive debts, economic, health and environmental, to our future generations and get it right for a change. In the end it will be cheaper all round.

I would like to make one other comment about the economics of renewables. Renewables do not require water to function. Most central power plants require cooling towers or a water heat sink to operate efficiently. Fresh wate is becoming a scarce resource. Do we use it to drink or run our power plants. Power is needed in the interior US where renewables are most cost effective and water is the scarces.

I disagree with the fundamental premise of this article - that renewables are driven by climate change concerns. Renewables are being driven just as much (if not more so) by oil depletion concerns. The remaining oil reserves are becoming concentrated in a smaller number of unstable countries. Our nation and the West are more dependent on oil imports than ever before.

So the answer to your question is a qualified yes - some renewable efforts are a safe long term investment. But some of the stupider ideas (ethanol, hydrogen fuel cells, and a few others) will eventually crash.

I'd vote for plug-in hybrids, renewable methane (from biomass), solid oxide fuel cells, non-PV solar electric, wind, CHP, and a few other things.

I want to qualify that I do not support "throwing" money at the problem and the problem is vast and complex.

Am I correct in assuming you don't think CO2 is a major contributor to global warming and it's future/potential effects, etc are not substantiated (theoretical)? And the criteria for ANY investment in the reduction of CO2 and our oil dependency should only be it's investment potential? Then my question is this: What if you are wrong about global warming, CO2, it's effects, etc.???????? What will your opinion about investment potential be worth if in the future we do have rising sea levels, severe weather and there are other catastrophic disasters which are due to global warming? It's possible those few billions ($) we could spend today may save us from a much worse situation tomorrow and in fact may even be pultry.