Friday, June 4, 2010

Ice will melt

Moral argument will not win the day (or the century) for climate change remediation. Discussion must express change in economic terms; analysis of loss, gain and national competitive advantage. Climate remediation advocates, even thoughtful sites like Real Climate, continue to dwell on science and omit dollar signs. It gets personal with voters before we meaningfully change course. This post provides an example of why, with a look at our dependence on coal for electricity production.

All data used to prepare this post was obtained from the U.S. Energy Information (USEIA).

Fifty-two percent of U.S. electricity produced in 1990 relied on coal. Sixteen years later, coal accounted for 49% of U.S. electricity production. Scant progress in reducing dependence on coal was made smaller still by proportional decline in non-carbon sources. The coal reduction is explained by increased use of natural gas.

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The portion of electricity produced from non-carbon energy actually fell from 1990 (31%) to 2006 (29%). As environmental rhetoric grew increasing strident, dependence on carbon-based energy went in the wrong direction. More than two-thirds of U.S. electricity came from carbon-based energy in 2006.

If we strip away carbon-sourced electricity production, we're left with an interesting fact: reliance on nuclear as a non-carbon energy source increased from 1990 to 2006, from 62% to 67% of all non-carbon sources.

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Sources other than nuclear and hydro accounted for 7% of non-carbon production in 1990. This ratio hadn't budged by 2006. The combined nuclear + hydro share of total U.S. electricity production peaked in 1996 and has been on a downward trend ever since. Nuclear electricity production grew 40% between 1990 and 2007, while hydro power fell 17%. While this helps explain stubborn coal dependency, it hardly points the way to clean energy.
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Two key points from presentation:
  • 60% of nuclear electricity generation is concentrated in 10 states.
  • Hydro is very concentrated - only four states (Washington, Oregon, California and New York) - account for almost two-thirds of U.S. hydro electricity.
The next chart summarizes 2007 electricity production, by energy source & state. It's sorted from highest-to-lowest level of coal dependency. Thirteen states got at least two-thirds of their electricity from coal, including environmentally-friendly Colorado. Natural gas use is nearly ubiquitous but note gaps in nuclear, hydro and wind power. Some states didn't have access to those types of energy. Coal use is wide-spread. Thirty-six states obtained at least one-quarter of their electricity from coal.

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Stubborn coal dependency may be best explained with a question: how do you feel about doubling your electric bill? It may seem like an outrageous question, but recent history points in this direction. As we saw in the prior chart, use of coal to produce electricity is wide-spread but uneven across the U.S. For example, Connecticut in 2007 got only 11% of its electricity from coal, vs. 98% in West Virginia.

Two other questions define further inquiry:

  • How widely do electricity rates vary across the states?
  • Do electricity rates inversely correlate with coal dependency?
We address both questions with the next two presentations, which juxtapose rates and coal dependency in 10 states with the highest rates (left side) with the 10 lowest (right side). Data covers 1999-2007. Rates are expressed as cents per kilowatt-hour (KWH). The rainbow bars report coal dependency.

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The two previous presentations show that:
  • Coal dependency in the highest rate states is far below the national average, in all years.
  • Except for outliers that benefit from concentrated availability of hydro (Washington, Oregon, Idaho), the lowest rate states are all heavily dependent on coal. Non-outlier coal dependency is above the national average, in all years.
  • The 10 highest rates exceeded the 10 lowest rates by a range of 50% to more than one order of magnitude (compare blue bars, left to right).
  • Consistent patterns are seen over 1999-2007.
  • There was greater rate inflation in the high-rate states vs. low rate (compare blue bars, vertically), for example, from 1999-2007:
    • California went from $0.1064 to $0.1442, a +36% increase
    • West Virginia went from $0.0627 to $0.0675, an +8% increase
The next presentation drills down into rate inflation and coal dependency by comparing five states with the national average. Prior presentation reported only residential rates. We now look at the four rates classes reported by the USEIA, including residential.

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  • Low rate inflation in coal-dependent states over the 18-year period covered by data.
  • The two coal-dependent examples (West Virginia and Missouri) were significantly below national average residential and commercial rates and were also below national average industrial rates after 2000.
  • Examples of high rate, low coal dependency states (New Jersey, California, Connecticut) were way above national averages, in all rate classes, in all years.
  • Examples of high rate, low coal dependency states show significant rate inflation, beginning roughly in 2003, which is not seen in coal-dependent states.


What it means

Coal is the cheapest energy source for producing electricity. Coal fired power plants tend to be older and less expensive to operate. State public utility commissions set rates using return on capital. States with older, depreciated plants (burning cheap fuel) have a capital base that's lower relative to population, so each consumer pays less. The converse is true for high-rate rates, although the mix of technologies and local issues varies. Media focus on cap 'n trade ignores established rate-setting mechanisms that will ratchet up rates according to the level of capital investment needed to replace coal-fired technologies. There's nothing amiss here, it's simply how the system works.

The environmental cause is better served by bracing voters for substantial, perhaps order-of-magnitude increases in their electric bills. Eighteen years recent history show that states in which coal contributes little to electricity production have rates that can exceed 2x those of coal-dependent states. This information isn't clearly predictive, but it strongly suggests that a coal-free future is purchased only at substantial cost to the voter.

The risk of voter rejection is proportional to the pace of change. Public utility commissions designed rate-setting rules in an environment defined by long-lived assets and infrequent technological change. Higher costs of infrequent new plants could be smoothed out against older, depreciated capacity. Potential near-term replacement of one-half to two-thirds U.S. generating capacity, plus new capacity needed by a nation of 400 million people (40 years hence), risks economic shock and populist backlash. The accelerating pace of climate change compels salesmanship, not PowerPoint sermons.

(All analysis by: TheRaven)

1 comment:

  1. Hydro power generation fluctuates with rainfall. So your charts do not prove conclusively that there drop is as big as it would seem. In Sweden, where Nuclear power and Hydro power together make up almost all of the electricity generation the electricity price fluctuates a lot due to year to year differences in rainfall. This probably accounts for the spike in 1997 and the dip in 2001 in your chart since I doubt Hydro plants were built or razed to that extent in that period. What we can not however is that Hydro does not seem to be heavily invested in at the moment.