Category: Energy Business

Climate Change, Energy Business

Say This, Not That: “Solar Produces More Jobs Than Oil and Gas” Edition

Do you ever hear someone that you agree with use a terrible argument in a debate and shudder? Their position is the same as yours, but they’ve just used a questionable or downright misleading premise to back it up, weakening your position by association and opening you up to straw-man attacks. Now you’re locked into a debate within a debate, and nobody seems happy.

I’ve been there, on both sides. I’ve repeated some talking point I picked up without checking it first only to get called out, then furiously do 15 seconds of research on my phone that only confirms I’m wrong, then end up ashamed that I blindly accepted an argument just because it seemed to perfectly line up with the point I was trying to make. Why couldn’t I have just used a better argument?

I guess fake news is catchy on a Facebook feed, but that’s not the only culprit here. Real news, or “technically accurate” arguments presented in a way that is clearly misleading to people who are familiar with the area can be even worse. So I’ve decided I’m going try to call out some of these bad arguments and offer better substitutes in a series I’ll call “Say this, not that,” inspired by the popular healthy eating guide (Although more often than not I still choose “this” over “that” when it comes to their suggestions).

Today’s topic is a jobs-related talking point in favor of solar energy that has come up recently following President Trump’s recent decision to put a 30% import tax on solar panels among other things. I have discussed this topic before (these assertions are mostly based on energy job analysis that is a year old), but the headlines I keep hearing repeated seem to be particularly egregious now and increasingly cited without regard for the full content of the underlying articles or the broader energy picture.

Not content to merely indicate that the U.S. solar industry has created a lot of jobs (supporting a substantial 260,777 workers that spend greater than half their time on solar projects and an additional 113,730 jobs where people spend some portion of their time on solar projects), what I now hear is that Solar represents “more jobs than oil, gas, and coal combined.” This argument is not new and was already true last year, if limited to jobs relating to electrical power generation, as noted in this Forbes article. Other outlets such as like IFLS, ran with a headline reading “Solar Employs More People Than Oil, Coal, And Gas Combined In The US”. Other offenders were the Natural Resources Defense Council (U.S. Clean Energy Jobs Surpass Fossil Fuel Employment), The Independent (US solar power employs more people than oil, coal and gas combined, report shows).

Don’t get me wrong, that solar is employing such a large percentage of the electric power generation workforce is impressive, even if these jobs aren’t creating the most energy per job (that’s a different topic that I beat to death earlier and you can read about here). However, the number of solar jobs overall aren’t even close to the number of jobs that oil and gas creates because most oil and gas does not go into electric power generation. This is because, electric power generation only represents a relatively small slice of the US energy picture.

A few sources[i] peg the United States’ total electrical energy consumption from all sources at around 4,000,000,000,000 kilowatt hours (abbreviated kW-hr) per year. That’s the number four followed by 12 zeroes, and for reference a 60 watt light bulb would theoretically consume 1 kW-hr about once every 17 hours. Even converted to barrels of oil equivalent, this is an impressive 2,400,000,000 barrels per year, or about 6.5 million barrels per day. However, it is still important to note that despite creating a large number of jobs, for the 12 month period ending October 2017, Solar power in the US has had only produced 51,800,000,000 kW-hr, or a little over 1% of annual electric consumption in the US. Here’s a graph that show’s how production numbers break down[ii].

US_Electricity_by_type (1)

If my math is right, Solar’s production is the rough equivalent of 83,500 barrels of oil per day. For comparison, the U.S. consumes close to 20 million barrels of actual oil per day (about a fifth of the total world consumption) and is expected to produce over half that amount. In addition, the US consumes about 27.5 trillion standard cubic feet of natural gas, about 13 million barrels of oil equivalent per day, and is projected to produce even more gas than it consumes.

As for how absurd the lack of the qualifier “electric power” caveat skews the jobs argument: For US jobs overall, Oil supports 502,678 jobs, only 12,840 of which are associated with electric power generation. Natural Gas supports 392,869 jobs, only 88,242 of which are associated with electric power generation. If you want to see all the numbers yourself, they’re actually presented in a really clear fashion in the Department of Energy’s U.S. Energy and Employment Report published in January 2017 (link), which I would note is the same report on which all of the aforementioned articled were based.

This is where I should probably mention that article headlines are engineered to be clickbait, and in most media aren’t even written by the author of the story, but instead by people marketing the story in a way that attracts the most viewers.

So for this round of debate on the 30% tariff on cheap solar panels from China, please don’t tell me Solar generates more jobs than Oil and Gas, that is wrong. Don’t even tell me Solar generates more jobs within the electric power generation sector, which while technically correct sounds weak and opens the Solar industry to (unfair) attacks of lagging efficiency on a per job-basis. Instead, mention that the Solar industry already employs hundreds of thousands of Americans and is still growing incredibly quickly. Mention that solar power emits no CO2. Mention that Solar could provide a way to eliminate many of the environmental and safety risks associated with hydrocarbon exploration and production; Curtailing the need for energy firms to explore production of sources areas that are controlled by hostile governments, or that are environmentally sensitive, or contain oil that is costly or dangerous to produce.

Most importantly, acknowledge that there are no silver bullets to the world’s energy issues, and listen to the people you are arguing with, even if they seem like your ideological opposite. They probably have some good points and ideas too, and in my experience people are much more likely to consider your evidence if you hear them out first.

 

[i] http://bfy.tw/GETM Yeah, I’m feeling that lazy with the endnote references today.

[ii] By Wikideas1 -https://www.eia.gov/totalenergy/data/annual/showtext.php?t=ptb0802ahttps://www.eia.gov/electricity/monthly/, CC0, https://commons.wikimedia.org/w/index.php?curid=64602758

 

Energy Business

What Drives The Price of Oil?

This is a topic that has been written about a million times already and many of you reading this will know most of the things I am about to write. However, for my friends who don’t follow the industry or never took a macroeconomics class, this is something I find interesting and therefore believe you will as well. I hereby declare a hearty “You’re Welcome” for publishing this article that none of you asked for[i].

Here’s the short version: Oil costs money to extract from a reservoir, and the amount of money it costs to produce varies wildly based on the oil reservoir location, physical properties, and method of extraction among other variables. Some of the world’s oil can be produced profitably at $20, but a lot more can be produced profitably at $100. The price point at which oil production shifts from a money loser to money maker is referred to as the “breakeven” price.

“Breakeven” price is often used to describe specific oil fields or types or even companies themselves. If more oil is produced than is used, usually due to higher production or reduced demand, oil inventories start to grow and the price of oil drops until inventory levels stabilize again. If oil prices are low enough, this stabilization can occur because oil producers simply shut off production from sources that have higher breakeven prices than the current price of oil. For example, a well with a breakeven point of $45/barrel may be produced when the price of oil is $50, but shut down when the price falls to $40 to avoid losing money. If enough wells are shut off that inventories return to normal levels, prices should stabilize around the new point.

Although how quickly production is shut down depends on how easily is it to stop and restart production and short term price projection, this drop in price will cause some of the oil production with the highest breakeven price to stop. This in theory rebalances supply and demand, stops the growing inventory, and stabilizes the price of oil. Well, in theory.

Alright, so that is the basics. Let’s look at some of the variables[ii] at play here. To keep things somewhat manageable, fort his post I’ll limit my scope to looking at oil cartels, increased production from fracking companies, inventory, and trading Impacts on oil price.

Price Fixing and Oil Cartels

Because of historic uncertainty around oil price due in large part to periodic flooding of the oil market with new production that caused price collapses, oil cartels such as the Texas Railroad Commission or the Organization of the Petroleum Exporting Countries (OPEC) have spent most of the last century trying to stabilize (or maximize, depending on who you ask) the price of oil by restricting member production to balance supply with demand. The word “cartel” generally has a negative connotation in the US because price fixing is a decidedly un-capitalistic behavior for private players. The activities of the Texas Railroad Commission on private producers were constrained to only prevent physical waste associated with improper extraction of oil and not allowed to impose production to prevent “economic waste” associated with price crashes[iii]. This role has fallen to OPEC for the last 60 years.

It would be an understatement to say that OPEC was not very popular with most people I knew in college in the mid-2000’s when oil prices soared and it began costing over $20[iv] to fill up gas tanks like the one in my 1992 Chrysler New Yorker.  However, since oil is traded on the world market, OPEC’s imposition of production restrictions have provided assistance US suppliers by allowing them to produce at a much less restrained rate by preventing them from bearing the burden of price collapses that would have occurred had all oil producers continued seeking to maximizing their own output.

Of course, the US has long been a net-importer of oil and thus the maximized profits of these US companies has come largely from the hands of US consumers, but the profit has at least been disproportionately transferred to US producers over OPEC members as US producers. US producers have been rapidly eating away at OPEC’s access to the US market with the explosion of production that has occurred in the last few years. This is why OPEC decided not to cut production in 2014, to protect their market share against the rapidly growing US producers that would have benefitted from these cuts. By many accounts, this tactic to allow the price to crater to drive US production out of the market has not succeeded as well as OPEC had hoped, and they have since reversed course with a series of cuts that should continue through 2018.

Frackers Won’t Die

OPEC’s move was transparent, and while many small companies may have driven out of business by the move, many are kept afloat by their investors and continue to plug along posting loss after loss because a rebound in oil price would quickly erase those losses and them some. It also doesn’t hurt that there is a lot of extra capital in the world that people are desperate to put anywhere, inflating the value of stocks, housing, Snapchat, and whatever else might continue to rise in value[v].

The broader, non-oil market may or may not be about to crash, but the potential downside does seem to be growing relative to the upside. The same thing can’t necessarily be said about many smaller oil stocks, which can be had at a tiny fraction of what they cost a few years ago. A sudden swing in oil inventories, unrest in a major oil producing nation, or any number of factors could send the oil price back to 60 or 70 dollars, which would probably be enough to double or triple the value of some of these firms, especially ones that have found ways to more efficiently make production targets and chip away at their breakeven price. They could go to 0 as well, but that’s part of the fun I suppose.

As long as this extra production stays online, OPEC will have trouble balancing oil supply without continued output cuts. Additionally, as these companies get more efficient in how they produce oil and continue to grow their production and reduce their breakeven price, they could end up setting, and gradually lowering, a price ceiling in the oil market. The theory is that if there is a large chunk of production with similar per barrel production cost, the price will have trouble overshooting this production breakeven cost for long periods of time, if their supply ends up representing the key barrels of oil that causes global inventory increase rather than decrease or stay flat.

By the way, this is probably a good time to point out that I am right now (On January 19th, 2018) continuing a half-finished post, which based on the timestamp was last saved on June 8th, 2017. Since then, prices have turned around dramatically and as of this moment, WTI (US Marker Crude) is sitting at $63.45 per barrel while Brent (UK Marker Crude) is at $68.68 per barrel. As for my prediction with regards to price, most larger oil producing and refining companies have done very well in the last 7 months, but so has the overall market. Smaller companies that have taken on a lot of debt have not really double or tripled in stock price, although the value of their production has certainly increased. I suppose the market did a good job of pricing in the eventual turnaround in price, but the jury is still out for a lot of companies on how well the higher prices will allow them to emerge from their piles of debt. This seems like the part where I disclose that I own a small stake of Chesapeake Energy Corporation (CHK), which hasn’t yet seen its price rebound along with oil and seems to be constantly zipping along a knife’s edge when it comes to solvency (you can do it, buddy!).

 

Inventory Management

Oil inventories is a word you hear a lot when hearing industry financial news. They serve as a buffer to differences between supply and demand, and because of this the quantity and rate of change in oil inventory becomes one of the key drivers of oil price as mentioned earlier. When more oil is used than produced, there is a drawdown on oil inventories to make up the difference, while inventories increase when excess oil is produced. However, because inventory represents actual physical oil in a location, different places can have different inventories and different ways of tracking it. Some have said that OPEC governments intentionally shifted inventory away from the US and to other countries because the US inventory is more rigorously tracked, while oil could hide in other markets. Additionally, there is quite a bit of floating inventory in the world, tankers loaded with oil wandering about while prices are low, although improving markets started to reverse this trend in late 2017. Of course, even poorly tracked inventory can’t hide forever, but any increase in oil price until it returns is free money in the seller’s pocket. Current world energy consumption is nearly 100 million barrels of oil per day[vi], which means that every day the price is increased by a dollar represents an additional $100 million dollars in profit every day. Stretch that one extra dollar out for a whole year and you can split and extra 36.5 billion dollars between the world’s oil producers.

 

Trading

Regardless of what is happening, the price of oil is going to be set by those buying and selling it. In 2007 when I was graduating college and oil prices were surging, oil speculators were a common bogeyman for people alleging price inflation. Although traditional economics would suggest that an efficient world market would consider all of off the important, publicly-known factors and dictate a price perfectly in line with those, weird things happen in the oil market and you end up with situations where oil reaches impossible to maintain highs (>$150/bbl in 2008) and lows (<$30/bbl in early 2016).

Before I talk about traders, I should mention something that makes the oil market harder than other. An Important factor driving swings in prices is the relative inelasticity of the demand curve for oil. That last sentence was full of pretentious business words, but think of it this way: Say you love Cracklin’ Oat Bran, which costs $3.89 per box at Target right now[vii]. Would you still buy that cereal if the price tripled to $12? OK, there’s not a great replacement cereal for Cracklin’ Oat Bran, so maybe you would, but overall sales would probably plummet immediately. However, if your car ran on Cracklin’ Oat Bran and you needed it to get to work, you probably wouldn’t run out and buy a car that used less Cracklin’ Oat Bran, or a new house that required you to fill up your Cracklin’ Oat Bran tank less often[viii].

To be honest, when gas prices skyrocket last, I didn’t even go out and check the air pressure in my tires, which was the go-to ‘helpful’ recommendation everyone tried to give for decreasing oil consumption. Sorry, saving 0.6% of my gasoline bill on average is not worth my time regardless of what the price is, try harder. Speaking of that…

Don’t even get me started on this nonsense.

So back to traders. Many oil traders are companies trying to hedge their bets to avoid a financial shock due to shifting oil prices. Though they can make quite a bit when prices shift suddenly, they can just as easily find themselves on the wrong side of that same trade. This means that while speculation can exacerbate prices, it’s not as if the traders are the ones reaping the reward at your expense. Instead, a lot of that money is traded between the people doing the trading, and the people that make the good (or lucky) trades end up making money from the people doing the bad trades, allowing you to rest comfortably with the knowledge that most of the money you spend at the gas station is still going to the good folks that get oil from the ground and into your car and not traders pushing money around. Or if you don’t work for a major oil company like me and you don’t really care why the price is dumb sometimes, at least you clearly have a lot of free time to get to the end of a long article like this one.

There’s a lot more I could write on oil prices, but this has already become a lot longer than I intended, and I should probably just post this before I get sidetracked for another 7 months and the market changes in a way that invalidates everything I said. Thanks for reading, let me know what you think in the comments.

 

 

[i] I assume if you clicked on this article you and I at least share some of the same interests, and there is scientific evidence that if you and I share the same preferences then you may also find this interesting. From the American Psychological Association 2010, Vol. 46, No. 2 Article entitled Children Reason About Shared Preferences, Christine A. Fawcett and Lori Markson from UC Berkeley explain:

In sum, the present study shows that by the third year of life, children are capable of recognizing another’s preference, determining whether that preference matches their own, and using this knowledge to make inferences about that person’s behavior to guide their own decisions.

https://pages.wustl.edu/files/pages/imce/children/fawcettmarkson_2010.pdf

Therefore, anyone who clicks this article and thinks that I am being presumptuous to assume you would find this interesting is either a liar or lacks the developmental maturity of most 2-year-olds.

[ii] I love using the word “variables,” it makes any analysis sound scientific and gives it the veneer of mathematical rigor, even when it’s dumb business garbage where people are basically trying to guess how much money a bunch of guys in New York can create out of thin air. As you can see, my grasp on basic business concepts is incredibly strong.

[iii] For more information on the Texas Railroad Commission’s efforts to restrict oil production to prevent economic and physical waste (as well as the entire history of oil) I would suggest reading Daniel Yergin’s The Prize. However, for those of you that don’t have time for an 800 page biography of oil there’s a very short version of the mission of the TRC here: https://www.tsl.texas.gov/exhibits/railroad/oil/page6.html

[iv] I began driving myself to high school after I turned 16, and my parents would reimburse me for one tank of gas a week. To maximize the amount I could drive I would let the tank get as close to dry as possible. I remember wishing I had printed a receipt the week my fill up cost $23 and my Dad seemed certain I was lying. Also, I’m guessing I had gleefully skipped into the house and informed him of this cost like a smug entitled jerk, which at 32 I now realize was probably the bigger issue.

[v] After spiking and crashing during the beginning of the great recession, S&P 500 price to earnings ratios have risen steadily for the past several years, gradually inflating the value of the companies in the index relative to the actual earnings those companies report (see http://www.multpl.com/table). People have used P/E ratio to say the market is overvalued for at least the last two years, but the money keeps flowing into the market. Although I say this is relation to almost everything, someone must know something I don’t.

[vi] U.S. Energy Information Administration (EIA) short-term outlook from January 9th, 2018: https://www.eia.gov/outlooks/steo/report/global_oil.php

[vii] Dang, I’ve actually paid $5.50 for a box of that cereal before, but mostly because I was bringing it to a buddy in Brazil who couldn’t find it there. $3.89 makes me want to go pick some up, but I digress.

[viii] I like not bringing the analogy back to oil directly, because the work Cracklin’ Oat Bran is pretty fun to read and write. Cracklin’ Oat Bran.

Climate Change, Energy Business, Process Data Analysis

What is *Really* the Cheapest Source of Energy?

DSC05271 (2)

Spoilers: It’s not elephant power.

A friend of mine in college recently posted the following open question:

There has been a lot of brouhaha recently about “there are X times the number of jobs in ‘green energy’ than in coal.” Relating to the number of jobs, can someone tell me how many megawatts/gigawatts are produced on a per capita basis in each of these energy “sectors?”

My initial though was that this was really a loaded question, a fallacious argument that ‘green energy’ wasn’t as efficient because the cost to build out new capacity (often referred to as Capital Expenditure, or CAPEX) far exceeded the operating expenditures (OPEX) required to maintain power generation from existing plants. Of course coal plants are less labor and cost intensive, they already exist! I also knew from my previous research on this subject that overall costs of solar plants were approaching parity with traditional coal plants. My initial instinct was to pour cold water on the whole argument[i].

However, before I hit send, I thought about the question a bit more. I recalled what I knew about oil refiners in the US, and how building new capacity usually costs much more than simply buying or expanding existing facilities, and thus no new refineries have been built in decades. Maybe my friend was right, and reports of cost parity of green energy sources relied too heavily on a fallacy of their own, mistaking the alternative not as new coal plants, but rather maintenance and expansion of existing units.

I left a comment saying this might be something that would be interesting to look into. I assume Facebook’s algorithm took note of my reply because it then put a comment made by another of my friends five days earlier on the top of my feed:

It’s amazing to me that the solar industry flaunts its terrible productivity as a selling point. “We produce the least terawatt-hours using the most workers!” That’s not a benefit!

That comment was issued with a link to a Fast Company article trumpeting that in the US, solar energy now provides twice as many jobs as coal.

I do agree with both of my friends that claiming certain investments create jobs is dubious, and I would rather focus on the cost of each alternative in dollar terms to make sure these investments are economically sustainable or at least approaching sustainability to make sure any jobs they create do not suddenly vanish once political winds change or subsidies expire. For that reason, understanding how close green energy is to competing to legacy energy sources economically is the exercise I took on here. Note that when I say energy in the scope of this post, I am referring to electric power generation and not discussing fuels directly used for personal transport.

The Data

The first data point I wanted to explore was something that was said in the aforementioned Fast Company article, which stated:

While 40 coal plants were retired in the U.S. in 2016, and no new coal plants were built, the solar industry broke records for new installations, with 14,000 megawatts of new installed power.

If my hypothesis was that existing coal capacity would be more competitive than newly-built capacity, the fact that 40 existing coal plants were shut down with no new ones built would seem to indicate that this is not true. However, following the oil refinery model where refineries have been closing for decades without replacements being built, this could also just mean the lost capacity was being offset by increases in production in other units. Following the article’s source for the statement led me back to the US Energy Information Administration (EIA), a reputable government source which I have used multiple times for other pieces on this blog. The EIA provides tons of data as well as projections, both of which can be used to infer how different technologies will compete for utilization now and in the future.

The EIA provides monthly spreadsheets tracking almost all US power generators with some exceptions, and each one appears to contain details for all individual US power generation plants with capacities over 1 MW[ii] as well as planned plant retirement times. There are 20,870 plants listed in the “operating” tab of the nearly 7 megabyte Excel spreadsheet that in all have 1,183,011 MW of total listed nameplate capacity.[iii]

By filtering the data for the most recent spreadsheet from March 2017, I can see that plants representing 26,614 MW of capacity have planned retirement dates between March 2017 and December 2021. Only 215.5 MW of this retired capacity represents ‘green energy’, and of this 215.5, 207.6 is the result of the planned retirement of some of the capacity of the Wanapum hydroelectric plant in Washington State, which has been in operation since 1963, although a quick Google search makes it appear that this capacity is actually going to be replaced and expanded. In terms of capacity, most of the retirements affect coal (12,163 MW), Natural Gas (9,320 MW), and Petroleum Liquids (778 MW) facilities.

While the total capacity being retired between now and the end of 2021 is very low in terms of total capacity, replacing this with renewable resources would account for over two-thirds of the EIA’s current projected green energy growth between 2017 (207,200 MW) and 2021 (244,630 MW)[iv]. The “Planned” plant tab of the EIA generator spreadsheet backs this up, with the 113,698 MW of planned capacity to be started up between now and 2027 much more heavily tilted towards green (or at least “Carbon-free”) energy sources than the existing energy mix. These plants include wind (22,570 MW, 19.9%), solar (9949 MW, 8.8%), nuclear (5,000 MW, 4.4%), as well as hydroelectric and geothermal combining for an additional 997 MW (0.9%).

This is good and bad news for the future of green energy. On one hand, it would appear to support my position that there is significant growth available for renewables to compete with other sources where new infrastructure is required. The downside of this is that following the EIA projections through 2050 only gives a total green energy capacity of 433,490 MW, well under 5% of the total electrical generation asset mix.

The Alternative

You might have noticed that the “Carbon-free” energy sources only represent about a third of the total planned capacity to be added. But there are no coal mines replacing the ones being shut down. Instead, almost two-thirds of the planned new plants utilize Natural Gas (72,659 MW, 63.9%).

If green energy has a real threat going forward, natural gas is a…uh, erm…natural choice[v]. In terms of price per unit energy, Natural gas has cost only a fraction of what oil does, even when oil prices crashed[vi]. The current price of Natural Gas is approximately $3/million BTU, and a barrel of oil contains about 5.8 million BTU, making the cost of Natural gas approximately $17.4 per barrel of oil equivalent (BOE).

From an environmental perspective, Natural gas is cleaner than coal and produces about half the amount of CO2 per unit energy produced. This is primarily because Natural gas has a higher heating value per unit weight of fuel than coal (Coal heating value is generally between 7,000 and 14,000 BTU/lb, while Natural gas is up to 21,500 BTU/lb). In fact, the US’s aggressive shifting to Natural gas-based electricity generation was cited by many as a reason the Paris climate accord was unfair to the US, as we had already reduced our Carbon emissions quite a bit because of technological advances that allowed the US to replace chunks of coal power with Natural gas:

As I indicated in my comments yesterday, and the president emphasized in his speech, this — this administration and the country as a whole — we have taken significant steps to reduce our CO2 footprint to levels of the pre-1990s.

What you won’t hear — how did we achieve that? Largely because of technology, hydraulic fracturing and horizontal drilling, that has allowed a conversion to and natural gas and the generation of electricity. You won’t hear that from the environmental left. –EPA Head Scott Pruitt, June 2nd, 2017

I don’t want to wander back into climate change again (although that is and will continue to be a recurring theme here), but I do bring this up because when judging renewable energy on its cost merits, I believe too much emphasis has been placed on coal and not enough on Natural gas.

And the Winner Is?

So, if you think the EIA has been pretty informative about this whole topic, you’re right. In fact, they basically have the answer to the cost question already spelled out, but that wouldn’t have made for a great discussion. Here’s what EIA says the CAPEX and OPEX numbers say for Natural gas compared to the most cost-effective wind and solar options (for those of you that did not bother to click the link above to see the raw data, EIA did note that these are unsubsidized costs based in 2016 dollars). The CAPEX and OPEX numbers are what I pulled from EIA, while the hypothetical CAPX and OPEX were calculated in Excel based on a theoretical 100 MW plant.

First up, conventional fired combined cycle Natural gas:

Natural Gas (Fired Combined Cycle)  Conventional  Advanced Natural Gas (Advanced with Carbon Capture and Sequestration)
CAPEX ($/kW) 969 1013 2153
OPEX (Fixed, $/kW-yr) 10.93 9.94 33.21
OPEX (Variable, $/MW-hr) 3.48 1.99 7.08
Hypothetical CAPEX, 100 MW Plant $96,900,000 $101,300,000 $215,300,000
Hypothetical Annual OPEX, 100 MW Plant $4,141,480 $2,737,240 $9,523,080

Fired Natural Gas Turbine (this is what we use on the FPSO where I work)[vii]:

Natural Gas (Fired Combustion Turbine) Conventional Advanced
CAPEX ($/kW) 1092 672
OPEX (Fixed, $/kW-yr) 17.39 6.76
OPEX (Variable, $/MW-hr) 3.48 10.63
Hypothetical CAPEX, 100 MW Plant  $109,200,000  $67,200,000
Hypothetical Annual OPEX, 100 MW Plant  $4,787,480  $9,987,880

Finally, Wind and Solar:

Wind, Solar Solar (Photovoltaic) Wind (Onshore)
CAPEX ($/kW) 2277 1686
OPEX (Fixed, $/kW-yr) 21.66 46.71
OPEX (Variable, $/MW-hr) 0 0
Hypothetical CAPEX, 100 MW Plant $227,700,000 $168,600,000
Hypothetical Annual OPEX, 100 MW Plant $2,166,000 $4,671,000

Based on the EIA numbers, the cheapest option by far is advanced or conventional Natural gas plants. However, if you include carbon capture and sequestration (CCS) costs, wind and solar would seem to come out on top (although solar only marginally so on the strength of its much lower OPEX in that scenario).

There is a significant cost differential created by the need for CCS that shifts the equation. However, given that even using Natural gas without CCS does significantly cut overall CO2 emissions when replacing coal facilities, there is still some environmental driver to employ that technology even without CCS, as a “stepping stone” to environmentally friendlier power generation.

For those looking for a talking point against Natural gas, from a long-term environmental viewpoint, the amount that cheap Natural gas will stall efforts to install permanent green energy solutions could stall and by some estimations could eventually leave us in a worse position than we are currently. Also, cutting our carbon footprint in half is great, but if a country like India increased their per capita electricity usage to even a quarter of the US using Natural gas than the net impact would be an increase in CO2 emissions[viii]. It may seem ironic that our great achievement in cutting CO2 emissions through the installation of Natural gas fired generation facilities would result in absolutely massive overall increases if replicated throughout the world, but that is a natural consequence of living in a fully developed country with energy demands an order of magnitude higher than that of the developing world.

In any event, EIA projects based on our current path that even the application both of these technologies will not result in a dramatic shift CO2 emissions by 2050, with or without adherence to the Obama Administration’s Clean Power Plan (CPP). The US per-capita carbon footprint will fall from its current 16.3 metric tons/year to either 12.7 (22.1% reduction) with CPP or 14.0 (14.1% reduction) without it.

I won’t be researching the projected external costs and consequences of climate change in this article, but I can state with confidence that investment in Carbon-neutral energy will have to accelerate at a much faster pace if we plan to effectively mitigate them. Of course, as is the case with emerging technologies, I’m not sure what green energy might look like in 5 or 10 years. I used to think that green energy was a great idea but an investment with costs an order of magnitude higher than conventional fuels. This isn’t the case, and if there are even a few marginal breakthroughs left to be found the field, the situation could easily be flipped on its head, with Carbon on the losing end. I don’t know how/if/or when this might happen, but I may take that on as a separate entry later.

How Does This Money Support Jobs?

Going back to the original question in this post, CAPEX money is generally a one-time cost for construction of a plant. As noted, this is very labor-intensive and why the solar and wind energy companies can boast about how many jobs they create compared to coal. Variable OPEX costs generally refer to fuel, which is why these are 0 for wind and solar. However, money paid for Natural gas will directly support jobs in the Natural gas industry. Fixed OPEX costs are more likely to include maintenance and repairs, which also require skilled labor.

For me, while I concur with my second friend that from an economic standpoint it’s generally better focus first on the per-capita value from the jobs you create than the quantity, I don’t necessarily agree that the idea that the only thing we get in this case is energy. Without an honest discussion about how to quantify the costs of externalities associated with CO2 emissions, we can’t really pass judgement.

Thanks for making it to the end. I didn’t make it easy this time, only one safari picture/sight gag (I may add some later if anyone has any ideas). As always, let me know what you think, especially if you think I screwed something up.

[ix]

[i] It’s amazing how often I, and everyone else, mistake gasoline for ‘cold water’ when trying to end an internet argument. I’ll talk about that more in another post.

[ii] Although the notes on the file claim “Capacity from facilities with a total generator nameplate capacity less than 1 MW are excluded from this report.  This exclusion may represent a signifciant portion of capacity for some technologies such as solar photovoltaic generation,” there are some plants with a capacity of <1 MW in the list. Also, the word “significant” is misspelled in the report and this seems a suitable forum to issue a public service reminder that Excel doesn’t spell check cell text by default.

[iii] As mentioned in a previous blog post, US electricity consumption is 3,913,000,000,000 kW-hr/year, which converts to 446,689 MW on a continuous basis. It seems important to note that plant nameplate capacity is generally the highest designed usage, generally whatever the highest anticipated peak usage for the facility, which will be much higher than the average use.

[iv] From a separate projection provided by the EIA. You can find theire energy projections here: https://www.eia.gov/analysis/projection-data.cfm#annualproj

 

[v] I can’t tell you how much I hate myself for this joke. Oddly, I can’t seem to make myself remove it.

[vi] US Natural gas has cost is currently about $3/Million BTU between 1 and 11 dollars per thousand cubic feet for decades (https://www.eia.gov/totalenergy/data/browser/?tbl=T09.10#/?f=M), and about 5800 cubic feet equal a barrel of oil equivalent (BOE). This puts the range of prices in BOE as approximately $5.80 to $63.80, well below the

[vii] EIA did not include estimated costs if Carbon Capture and Sequestration were to be applied to Gas Turbines. I’m not certain whether this is due to a lack of data or technical limitation that prevents CCS from being applied to gas turbines (I can’t think of one but if anyone knows this please let me know).

[viii] From the IEA (different than EIA), US per-capita electricity consumption is 13 MWh/capita compared to 0.8 for India. India also has 3 times the population of the US. Therefore if the US cuts the carbon footprint of electricity generation by a factor of two through the use of Natural gas, India could wipe out all of those gains by installing the exact same plants “more environmentally friendly” plants in order to lift their per capita energy consumption to 3 MWh/capita, less than a quarter of the US per capita demand. This is why I find it dishonest to claim that countries like India aren’t doing their fair share in multi-national climate accords that show their total emissions rising while countries like the US decrease.

[ix] I’ll get back to this in a later post. I’ve already written too much.