Under deconstruction

The cost of fixing climate change

by Ketil Malde; December 24, 2016

We need to find altnerative sources of energy, to replace our dependency on fossil fuels. There is a lot of talk about solar, about how economically profitable it has become, how all this free renewable energy is waiting to be harvested, and how the prices keep plummeting.

Being, I hope, of a somewhat economic mindset, I don't believe in the existence of hundred dollar bills on the pavement. The large solar plants I can find numbers for (e.g., Topaz) seen to cost about USD 2.4 billion to deliver slightly more than 1 TWh/year. And solar panels drop in cost, but obviously a construction site many square miles in size is going to be expensive, no matter the cost of materials.

Another issue with solar - recent price drops seem to be as much caused by moving production to the Far East. This means leveraging cheaper labor, but perhaps even more so, leveraging cheap, subsidized power, mostly from coal. Currently, I suspect the solar industry consumes more power than it produces, meaning it currently accellerates climate change. (This will change when growth rates drop, but at 0.2% of our global energy coming from solar, this could be some years off)

And large installations in the Californian desert is one thing, but up north where I live? There aren't many real installations, and thus not much in the way of numbers. There is a Swedish installation in Västerås claiming it will be able to produce power at about the same cost as Topaz. This would indeed be remarkable. Neuhardenberg in Germany cost €300 million (15% of Topaz), but only produces 20 GWh (2%), which seems remarkably low again. I find it hard to trust these numbers. Another comparison: the UK invests around US$5 billion per year in photovoltaics, and generated electricity seems to rise 2-3 TWh. This points to $2/kWh/year, a Topaz-level ROI, which is actually rather impressive for a rainy country far to the north.

All of this ignores necessary infrastructure; we need a way to store energy from sunny days, and in the north, from the warm summer to freezing winters, where energy use for heating quadruples my electric bill. Yes, we can pump water uphill for hydroelectric backup, but this has both a construction cost, an efficiencly loss in the pumps and turbines, and, I think, an opportunity cost, since if you have the opportunity of building a hydroelectric plant, you might consider just doing that, and generate clean power without an expensive solar installation. The alternative backup power for those who aren't blessed with rainy, tall mountains, seems to be natural gas, which of course is a fossil fuel, and where the quick single-cycle plants are considerably less efficient.

There was an interesting, but perhaps overly pessimistic paper by Ferroni and Hopkirk calculating that taking everything into account, solar panels at lattitudes like northern Europe would never return the energy invested in them. Others disagree, and in the end, it is mostly about what to include in "everything".

If you look at many total cost of power estimates, nuclear is often comparable to solar. I find this difficult to swallow. Again looking at actual construction costs, Olkiluoto may cost as much as €8 billion. But the contract price was €3 billion, and it is unclear to me if it was the contractor who messed up the estimates, or the later construction process - so it is hard to say what it would cost to build the next one. And in any case, the reactor will produce 15 TWh/year, so you get maybe thirteen Topaz'es worth of energy at two to four times the investment.

I think solar and nuclear make for a good comparison, both technologies are extremely expensive to build, but are then quite cheap to run, and for nuclear, much of the variation in total cost estimates depend on discounting rates, and decommissioning cost. Financing costs should be the same for solar, and although nobody talks about decommissioning, Topaz is 25km² of solar panels that must be disposed of, that's not going to be free either. We can also consider that reactors can run for maybe fifty to seventy years, solar panels are expected to last for 25 to 30.

In the end, both solar and nuclear can supply energy, but nuclear appears to be a lot cheaper.

* * *

If you look at what's happening in the world, the answer is: not much. Sure, we're building a couple of solar power plants, a few reactors, a handful of windmills. Is it simply too expensive to replace fossils?

I did some calculations. Using Olkiluoto as a baseline, a country like Poland could replace its 150TWh coal-fired electricity production for €30-80 billion. A lot of money, to be sure, but not outrageously so. (Of course, coal-fired electricity is just a fraction of total fossil use, think of transportation - but it's a start, and it's the low hanging fruit).

Another comparision: on the 'net, I find US total consumption on oil to be equivalent to something like 35 quadrillion BTUs. My calculations make this out to be 10 000 TWh, and somewhat fewer than 700 reactors would (if we assume we get better at this, and that after building the first hundred or so, we can do it for USD 3 billion, about the original price tag), something over two trillion dollars.

Which happens to be the current estimate for the cost of the Iraq war. Isn't it ironic? In order to attempt to secure a supply of oil (and by the way, how did that work out for you?), the US probably spent the same amount of money it would have taken to eliminate the dependence on oil, entirely and permanently. And which, as a byproduct, would have avoided thousands of deaths, several civil wars, millions of refugees, and -- almost forgot: helped to stop global warming. (The war in Afghanistan seems to have been slightly cheaper, but that was a war to eradicate extremism and terror, and although it seems hard to believe, it was even less successful than the war in Iraq. I can only look forward to our coming intervention in Syria. But I digress.)

* * *

Back to climate change. It isn't sufficient to produce enough alternative energy, of course, what we want, is to stop the production of fossil fuels. In a global and free market economy, oil (like any other product) will be produced as long as it is profitable to do so. In other words, we must supply the alternative energy, not to satisfy our current consumption, but to drive the price of energy low enough that oil extraction no longer turns a profit.

Some oil fields are incredibly inexpensive to run, and it's highly unlikely that the price will ever drop so low that Saudis are going to stop scooping oil out of the dunes. But with recent oil prices above $100/barrel, many newer fields are expensive. Tar sands in Canada, fracking and shale oil, and recent exploration in the Arctic - I suspect these projects are not profitable, and they certainly have a high degree of financial risk.

Yet, people go ahead, and we just got some new licenses issued for the Barents sea. I'm not an analyst, but its difficult for me to imagine that these will ever be profitable, and yet they go ahead. But similar to solar and nuclear, oil extraction requires a huge initial investment, and when the field is in production, keeping it producing will stil be profitable. In Norway, the oil business is a mixture of government and private sector initiatives, and my bet is that companies are racing to get the investments in place. And either the public sector guarantees for the investment, or the companies gamble on later bailouts - in either case, the people involved get to keep their jobs.

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