Power Plant Efficiency Hasn’t Improved Since 1957
Editor’s Note: Today we are happy to bring to you a guest post from Sean Casten, CEO and President of Recycled Energy Development.
Americans have a habit of framing our scientific history as a series of Great Inventors, from Eli Whitney to Thomas Edison to Afrika Bambaataa. The history books say each was prodded by Adam Smith’s invisible hand to come up with the great technological advances that have made our country a home of innovation.
There’s a problem with this mythology: sometimes there’s no invisible hand. Sometimes short-sighted government regulations give preference to bad technologies over good ones — stifling innovation and blinding us to our own ability to make progress.
Nowhere is this mythology more evident than in our energy system, the most heavily regulated and subsidized industry in the country. A host of bad regulations have made this system grossly inefficient, contributing both to global warming and to high power costs.
The US today converts fossil fuel into electricity at 33% efficiency, throwing away two-thirds of every unit of fuel we burn in cooling towers and smoke stacks. That’s the same conversion efficiency we had last year. That’s the same efficiency we had in 1980. In fact, you have to go all the way back to 1957 to find a year when the electric sector wasted more energy than they do today.
During the same period, we’ve seen automobile fuel economy skyrocket (especially on a horsepower-adjusted basis). We’ve seen massive increases in the efficiency of our electric appliances. We’ve even seen boring old steam boiler efficiency increases with modern controls, recuperators and preheaters. And yet the efficiency of electricity generation is stagnant.
It’s not stagnant because we’ve hit any fundamental limit. Indeed, studies by the US Department of Energy and Environmental Protection Agency have identified a whopping 200,000 MW of potential (that’s 20% of the peak power demand of the US) for proven technologies that either recover waste energy from industrials and/or cogenerate heat and electricity from a single fuel source.
The worst of these technologies is twice as fuel efficient as the current electric grid. Fully deploying that potential would not only cut CO2 emissions by 20% — about the same as if we took every passenger car off the road — but would also cut our energy costs, simply by burning less fuel. And those are just the technologies we’ve taken the time to quantify.
So what’s holding these technologies back? Nothing more than our regulatory paradigm.
A couple of examples:
- Our century-old electric regulatory model pays utilities a return on their capital investment, but compels them to pass along all operating costs to consumers at zero mark-up. This creates a great incentive to build capital-intensive boondoggles. It completely isolates electric utilities from the economic principles that drive “normal” businesses, wherein capital and operating cost reductions are a route to greater profits. This has conspired to make our electric sector openly hostile to efficient power generation. It explains why their efficiency hasn’t moved since 1957, and why that sector now accounts for 42% of US CO2 emissions.
- The Clean Air Act mandates end-of-pipe pollution control technologies that universally impose
additional parasitic loads on industrials and power plants to run baghouses, catalyst beds, electro-static precipitators and any number of other technologies. All these parasitic mandates have the perverse consequence that our environmental policy mandates reduction in criteria pollution and mandates increases in CO2 emissions. Worse, a facility that has the temerity to improve the energy efficiency of their process will almost certainly trigger New Source Review, under which they will have to come into compliance with new, more stringent permits than the one they currently operate under. These two features of the Clean Air Act conspire to make many industrials openly fearful many otherwise sensible steps to lower their greenhouse-gas signature (and lower their operating expense.)
None of this is to suggest that we should not continue to pursue technological revolutions, of course. But if those technologies bring about cheaper, cleaner, more efficient energy, they will find themselves blocked by precisely the same regulations that are keeping existing technologies out of the market. Technology is important — but regulatory reform to remove our barriers to energy efficiency is the critical path.
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I’m predicting a Rod Adams comment very soon
I look forward to reading it…
Also, there are some other regulations that are certainly holding back enormous amounts of potential energy, and thus price reduction. Among the most important is the fact that no nuclear plants have been constructed for many, many years. That alone would provide an enormous amount of cheap energy, and for those who are believers of global warming, the nuclear facilities release no CO2 other than that released by workers. Also, the strict ban of oil drilling in this country is borderline insane, considering we are sitting upon a copious amount of our OWN oil. So, if we drilled it, we would not have to deal with as much of the oil “lords” in the middle east. Thus we would reduce prices, and also increase our national income which would result in a strong boost to our economy. But, the government says we cant. It is odd however, considering the government is simply an extension of the people and its sole job is to defend our rights of “life, liberty, and the pursuit of happiness”. So, please tell how building nuclear facilities or drilling our own oil would intrude on these rights? Especially when it would overall provide enormous benefits.
Removing the barriers to energy efficiency will be one of the biggest challenges for the next White House administration.
Typical efficiency for a modern gasoline engine is only 25%. At maximum efficiency it may achieve 34% efficiency. Diesel engines can average around 35% efficiency and can get a peak efficiency of around 42%.
Why cooling towers for power plants? Why not huge greenhouses? Why not pipe the heat as hot water to nearby houses for winter heating? Why not pump heat beneath streets for winter snow removal the easy way? Why not pump heat for sale to nearby industries? Why waste, are we really that rich?
Finally an article that is at least headed in the right direction. We don’t need more regulations, we need less. This is true for every industry. For every single regulation the government comes up with, they have to create two more to fix all the things they screwed up with the first. This goes on and on until everything is so messed up that Adam Smith’s invisible hand no longer exists.
McCain and Obama won’t fix these problems because at both of their cores they love the state. They are just big central planners. Kind of sucks but things will just get worse.
Mr. Graves,
Careful on nuclear. Regardless of what one thinks about the environmental risks, the truth is that a nuclear facility doesn’t make any economic sense. Yes, they’re cheap to run, but they are massively expensive to build. It is not coincidental that the nuclear fleet we have today was built almost exclusively by regulated utilities who had guaranteed cost-recovery in their rates. Without those guarantees, you simply can’t justify the expense. (In other words, you can get a much higher return on your money elsewhere.)
So yes - nuclear is really cheap if we’re willing to mandate that equity investors “take a bath” and simply sell power at the variable price. But I’m not aware of any equity investors who get really jazzed up about that kind of offer. You might want to look here for a more detailed look. Coal and nuclear appear cheap - and yet no one is placing equity bets on either. Either equity investors are stupid, or else they aren’t as cheap as they look. My money is on the latter.
Policy recommendations for a single “Clean Energy Bill”
1. Rewrite Clean Air Act to impose either permit-fees or taxes on mercury, sulfur dioxide, nitrogen dioxide, and other emissions. Stairstep these taxes in over 4 years, 25% of the total taxation/permit-fee each year.
2. Drop clean air act emissions restrictions entirely subsituted by the above fee structures.
3. Emissions testing must be performed by 3 outside accredited auditors. Organizations found to be ‘cheating’ will be fined 10 times the cost of the permit/tax, creating a strong incentive to come in well under the permitted amount.
4. Executives found to knowingly cheat are criminally liable per day of the occurrence.
5. Reporting of emissions must be made at least weekly with no more than a one-week delay from the original time of sensing. More frequent sensing and reporting makes it much harder to cheat.
This solves many of the clean air act problems.
Uncle B,
Great question. And it goes to the crux of our utility regulatory model. Utilities get their rates set to earn a revenue stream that provides them with a stipulate rate of return, typically on the order of 10 - 13%. Operating costs are passed through without markup. The theory is that this ensures that (a) they cannot charge monopoly rents on their commodity and (b) they can’t increase revenues simply by raising their salaries.
That seems sensible enough, but look how it subverts the logic of your question. If I build a power plant to recover heat and sell steam to a greenhouse, I’m now getting revenue from an unregulated commodity. Which means that any $ I receive gets passed along 100% to my customers. (So too if I build a greenhouse and grow tomatoes - another unregulated commodity!) All that effort for nothing. Meanwhile, if I replace my cooling tower with a much cheaper thermal pipe to sell heat to the cooling tower, I’ve reduced my capital basis in the plant. Which means that at a fixed return on equity, I now get fewer total $/year in dividends for my shareholders.
In other words, the regulation conspires to make utilities prefer to build expensive, inefficient plants. Utility managers aren’t bad guys - but they do have an obligation to their investors, and under these rules, the only way they can fulfill that obligation is to act in a way that is counter to society’s interest. Fix those regulations and we will unleash a flood of existing proven technologies - like the greenhouses you mention, and others. But if we keep those regulations in place, we simply retain obstacles to any new technology that would produce cheaper power with less capital. Dumb!
The slash-and-burn economic policy of capitalism is what got us into our current climate crisis, more ‘free’-market policies won’t get us out.