By Phil Scalzo, a Principal of Merit Energy Ventures, LLC and Adjunct Instructor, Enerdynamics

Months after the election, President Obama has taken charge of a struggling economy, rife with debt, a surging dependence on foreign energy, and an environmental mandate that, even in good times, would be daunting. Just like every other sector in the global economy, the energy sector is bracing for a decade or so of unprecedented changes and disruptions. Change can be exciting, but it can also be unnerving. As a financial trader might observe, consternation is highly correlated with disruption.

As the idiom implies, the glass is always half full when it’s half empty. Given the same set of seemingly inevitable changes, some people will break Champaign to toast their victory and ring in a new era while others shake their heads in dismay and warn the so called agents of change that they will “rue the day.”

Science Driven Policy: Two Perspectives

For years and years, we’ve heard retorts echo from some in our industry that supply and demand imbalances have been exacerbated by grueling “environmental initiatives.”

While it’s certainly true that we’ve experienced protracted periods of supply and demand imbalance, it is equally true that we have managed to keep the lights on, even in California, albeit at terrific expense; accommodating one environmental initiative after another.  Sure, there were some casualties along the way, but not so many that it caused the environmental aficionado pause. This time around, with all eyes trained on Greenhouse Gases and Global Warming, the electric industry faces a future of all most certainly insuperable challenges. Why the defeatism?

The capture and sequestration of CO₂, the principal GHG that’s blamed for global warming, presents challenges that cannot be overcome practically with on-the-shelf technology and gobs of money. And, even when the more promising capture technologies meander from the bench top to commercial scale, there’s still the issue of sequestration.

Taking a Trip Down Memory Lane

There are some of us still around who responded to frets about soot blowing out of the coal plant’s stack.  Over the last three decades, we’ve installed bag houses and ESPs to capture particulates, SCRs and NSCRs to reduce nitrogen oxides, scrubbers to all but eliminate sulfur oxides, and, most recently, ACI systems to snag those elusive particles of mercury that are measured in parts per billion.  Just like Broadway musicals, every so often we can expect to see the revival of an old, favorite pollutant like sulfur. There was a time when a coal plant could pass muster by simply blending its coal to beat down sulfur.  Compliments of CAIR, it is scrubber or bust time. There’ still some grousing, but life goes on.  A few geriatric coal plants will rely on sulfur credits to carry them through their golden years.  If these credits become too expensive, then these old-timers will start making megawatts in the afterlife.

With respect to our fossil fueled power plants, controlling soot, acid rain, smog, and the threat of insidious mercury poisoning was made possible because money and technology begrudgingly coalesces when necessity is the binding agent. More artfully stated, “Necessity is the mother of invention” — the operative word being necessity. Even the staunchest industrialist whose profits have shrunk because of high electric rates would be hard pressed to argue for acid rain and smog. There’s simply no denying that the combustion of sulfur strewn coal produces sulfur oxides.

Similarly, there’s no doubt that these same oxides, produced in huge volumes by “uncontrolled” power plants, wreak havoc on our environment. And so, in the case of SOx, NOx, and even mercury, science has driven policy, and net-net, the world is better for it.

When Barack Obama took his oath of office (twice), the playing field changed. As Marine-One flew off after the inauguration with George Bush and his pro-industry veto stamp, a sense of resignation took hold in the boardrooms of coal companies and electric utilities. According to some, it’s been a long time coming, but CO2 regulation is now at the coal plant’s front door. A sweeping carbon bill will “bubble up” from the Congress this year, or next, and will surely become law with the stroke of the Presidential pen. Some will say that the way has finally been paved for responsible environmental policy. There are others - probably many others - who will rumble only amongst themselves (it isn’t cool to defend global warming); that the safety net has been removed and irresponsible environmental policy will doom America’s economy and our way of life.  Yikes.

We, as an industry, are now obligated to meaningfully reduce the amount of CO₂ produced purposefully through the combustion of fossil fuels in the vast majority our power. There is no obvious near-term solution. The situation that we in the industry face is paradoxical - the irresistible force of empowered environmentalism facing off with the economic and technological reality that the combustion of fossil fuels provides the heat for almost ninety percent (90%) of the electricity in our already economically beleaguered country.

There is accepted science that unwaveringly links “greenhouse gases” to global warming. The consequences of sustained global warming are frightening. Like SOx and NOx, CO₂ is a product of fossil fuel combustion.  It is that heat of combustion that makes the steam that spins the turbine, which turns the generator that makes the electricity that powers the plasma television. CO₂ is the most infamous of dozens of naturally occurring and man-made greenhouse gases that percolate into the earth’s atmosphere. Of the 750 Billion tons of carbon stored in the atmosphere in the form of CO₂, about 5.3% is attributable to man-made sources (excluding water vapor).  Of that 3.2% or roughly 38 Billion tons are inexorably tied to fossil fuel combustion, about 40% comes from electric power generation, 28% from transportation, and 19% from industrial manufacturing.

Here’s where the science, in some people’s minds, falters. In the big scheme of things, can a case sans reasonable doubt be made that fossil fueled electric generating plants are causing the Wilkins ice shelf to break off and float away?  After all, 40% of 3.2% is a just 1.3%.  Some policymakers surely must wonder if fossil generation is truly to blame for global warming.

It would seem that the scientific community and almost everyone inhabiting the planet have taken the position that it is a priority to substantially reduce, or even eliminate all together, the production of manmade greenhouse gases. Why not, it can’t hurt, right?

Oh, yes it can hurt!  By some estimates, just the sequestration chunk of the cost of mitigating about 3 Billion tons of CO2 annually, at anywhere between $15 and $50 per ton of CO₂, will massively impact the cost of producing energy-intensive commodities like glass, aluminum, and steel.

It’s tough to say what the cost to capture this carbon will be in terms of incremental capital investment and lost output due to increased parasitic loads, because no particular technology has reached commercial scale. An educated guess would be $1,000 per Kilowatt of installed generation. To put things into proper perspective, that’s $3.434 x 10¹¹.

Add another $13 Trillion for the cost of sequestrating 20 years of CO2 production from just our existing coal power (using $32/ton of CO2) while a replacement fleet of new nuclear plants are built at a cost of $1.7 x 10¹².

So, even if the stunning price tag can be rationalized, most likely carbon capture and sequestration is still too problematic to implement any time soon. There is a strong argument that sequestering CO₂ is, at best, a way to push our environmental crisis forward to a future generation (think Yucca Mountain on steroids).   And then there’s the environmental risk associated with the long term sequestration of CO₂. Who, for example, wears the risk of a catastrophic release that potentially suffocates thousands of people?

One practical approach might be to simply allow presently operating coal plants to die a natural and timely death.  Place a global moratorium on new builds. Take the notion of “economic life extension” off the table.  No exceptions.  As fossil plants reach mandatory retirement age, and load concurrently continues to grow, simply commission new, state-of-the-art emissions free renewable and nuclear generators. Can the world’s precarious climate accommodate another twenty or so years of new carbon?

The practical life of a well maintained fossil-fueled power plant is probably 60 to 80 years. The average age of the coal power plant fleet is rapidly increasing. Over the next few years, dozens of coal plants will reach retirement age. Between the more stringent CAIR requirements and the mounting risk of CO₂ regulation, even if there is no prohibition to extending the life of a geriatric coal plant, the owners may very well be loathe to the notion of placing additional capital at risk.

Given that there is optimistically some semblance of a silver lining in most black clouds, a protracted period of seemingly insurmountable challenges is accompanied by unlimited opportunities for accomplished and reputable firms who possess the vision and gumption to succeed in an exigent milieu (demanding times).  Such firms’ value and support innovation and commit the resources required to tirelessly pursue bona fide solutions. In less tortuous terms, there will be companies positioned for success.

Let’s return to the notion of “Science Driven Policy.” It’s not a new mindset. After all, it was science that caused the nation to suspend its nuclear power program shortly after Three Mile Island, right?  Science linked the electromagnetic fields surrounding transmission lines to increased occurrences of cancer in children, right?

Now, policy shapers seem to favor nuclear over coal.  Advocates of renewable energy promote new transmission lines as the means to transport power from remote wind farms to load centers. The science hasn’t changed. After all, a current moving through a conductor still produces a magnetic field, and nuclear plants still split atoms.  Apparently, public opinion weight-ranks science and drives public policy. Naively the vast majority of the environmentally-inclined public believes that its opinion is shaped by solid science proffered by truthful, pragmatic people. A red flag should spring up.  Great care must be taken to ensure that unflappable advocates not abuse science to score a victory. The end never justifies the means.

About Me: I’ve been in the energy business for nearly 30 years. I began my career training nuclear plant operators post-TM I , and moved onto numerous other roles in corporate planning and then, power marketing and trading. I left the utility where I worked for 15 years to help build Williams’ energy marketing and trading business. At our peak, we controlled about 15000 MW of electric generation. I left Williams in 2006 to start my own consulting firm Merit Energy Ventures. I have a BS in Physics and an MBA in finance. Unlike most guys my age in the power business, I am a bad golfer.