In light of that projection, two news items that flew under the radar at yearend raise an important question: are we approaching the end of cheap electricity?
Bellwether No. 1: New EPA air pollution rules have gone into effect. Predictions are that as many as 68 of the U.S.'s 600 coal-fired plants may close because of negative operating economics associated with making the plants comply with the EPA's stronger rules.
Bellwether No. 2: Global energy giant BP announced it's going to completely exit the solar business after 40 years, shuttering all of its large-scale solar operations. If a legacy energy producer like BP, the world's fourth largest company, can't find an upside and is ready to pull the plug after four decades of investment, could it signal the beginning of the end of solar?
Renewable Energy -- A Fool's Errand?
BP's announcement aside, a billion dollars worth of recent bankruptcies from the likes of Solyndra, Range Fuels, Evergreen Solar and a growing list of others throws up a forest of red flags. How much longer will investors pour billions of dollars into technologies that are hugely expensive, dependent on government subsidies and may never be practical for large scale adoption?
Former New Jersey governor Christine Todd Whitman got to the heart of the matter in an opinion article in which she pointed out that by 2035, America will need 24 percent more electricity than it consumes today. "And while renewable energy sources such as wind and solar offer tremendous clean air benefits, they aren't reliable enough yet to provide power when we need it the most and are not practical options for states where these resources are limited."
In the absence of a storage solution, solar may see limited use in distributed generation applications whose backers have deep pockets, and wind will continue to add a small percentage of intermittent power to the grid, but neither solar nor wind has the ability to supply the day-to-day baseload electricity needed to run an industrial society -- the electricity we now get from coal, oil, natural gas, hydro, and nuclear. Nursing homes, police stations and hospitals can't hang "closed" signs on the door just because the sun goes down. Trying to go all out renewable would result in a city-wide armada of smoke-spewing diesel generators firing up at dusk, pumping out smelly exhaust and carbon dioxide every night in order to keep the lights on.
Carbon Penalties and Geopolitics Will Push Up Prices.
Cheap natural gas will take up the slack for a while, but how long? In their report, ExxonMobil predicts a carbon dioxide penalty of $60 -- $80 a ton on coal by 2030, which would make coal "more expensive than natural gas, nuclear and wind power." They predict the demand for natural gas will rise by more than 60 percent through 2040. Like coal, natural gas is another fossil fuel that is vulnerable to a carbon tax. And today's prices for natural gas are hitting bottoms thanks in part to the vast shale gas reserve estimates. But if the price escalates as a result of geopolitical turbulence, a reduction in reserves, or environmental problems delaying its extraction, local power bills will follow suit.
What is the Solution?
Expand our reliance on nuclear energy. In the days following Fukushima, Germany and Italy declared they would pull the plug on their countries' nuclear energy, but while Japan began shutting down its reactors for safety tests, Prime Minister Noda stated that Japan needs its nuclear generation capacity for economic survival. If Germany follows through with its promise to replace its present nuclear capacity with renewables, according to a report by Versant Partners, the price tag for the German energy policy would be $2.177 trillion, or 68% of Germany's 2010 gross domestic product. Could they survive the economic impact? Meantime, China, India and Russia have fully embraced nuclear, putting their money where their mouth is by moving more than a hundred new nuclear plants through the planning-design-development-construction pipeline. Additionally, all three countries are scrambling to secure fuel supply by bidding for stakes in uranium deposits around the globe. And those aren't the only countries beefing up nuclear capacity. South Korea, Vietnam, South Africa, Saudi Arabia and numerous others are investing heavily in nuclear generation. The World Nuclear Association reports that worldwide uranium demand from power plants exceeds the amount of uranium annually mined by about 22 percent. For two decades the gap was bridged in the U.S. largely by enriched uranium converted from Soviet warheads. That contract is slated to end in 2013. Consequently, exploration programs and permitting for new U.S. uranium mines are moving ahead full speed in the western states -- most notably Wyoming and Texas, two states that fully understand and welcome the positive economics of robust resource development.
A Nasty Black Eye Begins to Heal.
There's no question that the nuclear industry's three accidents since 1979 and the wall-to-wall media coverage of them delivered a black eye to the public's perception of nuclear power -- despite the fact that nuclear energy holds the record as the safest source of electricity per kilowatt hour and could serve the clean electricity needs and meet any air pollution and renewable portfolio standards in the U.S. single-handedly for centuries. What is rarely reported is that in the aftermath of each of those accidents, the industry's plant designers and operators worldwide joined forces to improve plant design, safety systems, and operator protocol, delivering continuous improvement. As a result, today's generation of nuclear power plants is technologically more advanced, more efficient and safer than at any point in history.
On Feb. 9, 2012, the NRC voted to approve the first new nuclear power generator to be built in the U.S. in 33 years. As significant as this milestone is in and of itself, equally notable is the last paragraph of the NRC's press release in which they announced approval of the twin AP 1000 reactors at the Southern Company's Vogtle site in Georgia. In the release, they highlight a key design requirement: "passive safety features that would cool down the reactor after an accident without the need for electricity or human intervention." The industry learns, adapts and improves.
Conclusion: Say Goodbye to Cheap Electricity.
Why that conclusion? First, stricter EPA rules will lead to closures of coal plants during a period when demand for electricity is forecast to rise. Second, by 2025 carbon taxes will drive up prices for power generated by fossil fuels. Third, natural gas-fired generation plants will take up the slack from coal, but the price of that electricity is vulnerable to price swings of the fuel. Fourth, expensive large-scale solar begins to die out, but wind energy, loved dearly by government policy makers and paid for in large part by tax-payer subsidies, will be forced deeper into the mix to meet renewable portfolio standards. (When did a government mandated program not drive up costs?)
If we really want reliable, low cost, zero-carbon electricity to power the U.S. economy through the 21st century, the most efficient path to that goal is to expand the nation's fleet of nuclear power generators.
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