Electricity generation subsidies

All forms of electricity generation involve an economic subsidy for the generator.

Think coal fired generation for instance:

  • Sulphur oxides and nitrogen oxides are almost always produced. They are put up into the atmosphere whence they fall in dissolved acidic form in rain. They deteriorate surface water by acidifying it. Most coal fired plant owners do not pay for the pollution damage.
  • Cadmium, chromium, and other heavy metals are deposited into the environment around coal fired power stations. The damage to health is paid for by the State or the families affected, not by the owners.
  • Unburnt carbon rises into the high atmosphere and gets deposited a long way from the coal plant. Due to this mechanism the glaciers in the Himalayas are getting blacker. Instead of reflecting radiation from the sun, these black spots absorb it and cause the glacier to melt. It may take one or two centuries to do away with the glaciers but then maybe the great river systems that sustain China will have dramatically changed as a result. These effects will be paid for by the then current generation of Chinese inhabitants.
  • Every tonne of coal produced releases 3.1 tonnes of CO2 when burned. Tyndell proved the greenhouse effect 2 centuries ago, pointing out how without it human life on this planet would not have been possible. We humans have elevated the CO2 content of the atmosphere 40% above the level at which it had existed for 800,000 years. The atmosphere is heating up and nobody is sure if we can contain this temperature rise. Lord Stern has proposed that all governments spend 1% of GDP making the transition to zero carbon now. He has calculated that it will cost much more if we wait for our children to do it.
  • Many coal fired operations are inland and use is made of fresh water in the steam cycle as well as in the condensing of process steam. Depending on the country and on the method of condensation the costs of water can be significant

So coal fired generation is subsidised, but perhaps not in the way that one normally thinks about subsidies.

What about gas?

  • Gas is subsidised in many ways including tax breaks for exploration. A new and interesting subsidy exists in the USA. Gas exploration underground is not subject to environmental impact assessment. Thus by comparison with any surface based form of fuel exploitation, gas is in effect subsidised. Environmental impact assessments cost, a lot. They always involve the expenditure of high risk capital. They cost time as well, in many cases 2 years are spent studying birds, bats, visual impacts etc.
  • Of course gas is a fossil fuel. It produces nitrous oxides just like coal. It also produces CO2. For every tome of gas burned 2.8 tonnes of CO2 is produced.

Nuclear is a special case, being the oldest of fossil fuels

  • The great thing about nuclear is that when it is fissioned to make electricity there is no CO2 released into the atmosphere. The other great thing about it is the fuel, which despite the huge expense involved in producing it, contributes very little to the cost of generated electricity.
  • The generation process does however produce plutonium, strontium, cesium, and iodine, in their radioactive forms. Plutonium is a real beauty. I once read that an orange of plutonium equally distributed across the globe would kill all life…..just from its toxicity.
  • This is an unrealistic and maybe irrelevant statistic. What is not irrelevant is the fact that these are radioactive elements, and 3 of them are identical to what the body needs to function properly. Iodine plays an important role in the thyroid gland. Cesium and Strontium are similar to calcium, for which they are able to substitute in our bones. These latter two, in their radioactive form, have a half life of approx 30 years. They have to be stored for at least that period after the nuclear reactor has finished making electricity. Someone has to pay for this. In fact it is usual for States to pay for this. Most nuclear plant insurance comes with a state guarantee, or else it could not be afforded. If anything goes seriously wrong with a nuclear plant, as happened with Fukushima Daiichi, there is but one entity that can afford to manage such an event. That is Government.
  • The residual risk arising from plutonium is much greater, its half life being 24,000 years. Future generations will have to safeguard themselves against its hazards. Again the current electricity consumer receives a non transparent benefit from the rest of society, and from future generations.

If oil were used in electricity production then the same arguments used in the cases of gas and coal would apply. Added to them would be the cost of using various armies to protect supply lines.

And so to renewables:

  • Wind and solar photovoltaics are the commercial renewable generating methodologies. Both are getting cheaper, and we see much possibility of further reductions in the installed price of photovoltaics.
  • As the new kids on the block, a market had to be created for them. Otherwise they would not have been able to achieve scale production, which was probably the principle reason for their price reduction. They were and are subsidised.
  • It is however hard to compare the subsidisation effect of renewable generation with that of fossil fuels or nuclear. Firstly all renewable generation is subsidised up front. The only cost that needs lowering by a support scheme is the capital cost. There is no ongoing degradation of the environment caused by them. Use is made of free primary energy, without the use of water in the production cycle.
  • What the user pays is totally transparent. It lasts for a definite period. Thereafter there is no subsidy. The cost of making electricity from wind or solar falls to whatever it costs to operate and maintain a plant with zero fuel cost.
  • As a final comment it can be said that that wind plant is very lowly stressed compared to thermal generation. Temperatures are low and pressures don’t get much above ambient. In principle wind plant lasts a long time. The blades will have to be replaced after 25 years; certain rings in the gearbox have a 7/8 year life expectancy. The major components, like the tower, the nacelle bed plate, the blade hub, the foundations, the electrical substation should all with care last indefinitely. Again it is hard to capture the customer and societal benefit from this longevity. The only point to be made here is that the benefit exists, and will continue to benefit future generations, instead of costing them as all thermal technologies do.

3 Responses to Electricity generation subsidies

  1. David Abbott September 1, 2011 at 10:10 am #

    Fancy a barrage, Eddie? In terms of longevity, they win hands down, and if the option is a lagoon, they can overcome the renewable’s problem of irregular supply. Dams (for that is what a barrage is) can last 120 years. Or more.

    The problem is that with project IRR’s required of 10-11%, the value of an asset 120 years hence is pretty small. £200/MWh isn’t going to get past many investment committees. This means that they will only get built as a policy (call it security of supply, call it capacity balancing, call it anything) decision.

    In other words, we don’t need tree hugging Dave Cameron. We want a Keynesian Dave C, with the red blood of Mitterand’s grands projets in his veins.

  2. Michael Bermingham June 25, 2012 at 4:19 pm #

    Good to re-iterate. To elaborate on the point of long term asset value, a thermal plant also has assets of long term value like gas and grid connections. However these assets are only as valuable as the long term contracts for fuel supply and power purchase. Wind power is only exposed to power purchase volatility. It is inherently a less risky investment strategy than investing in thermal power converters.

  3. Tom McDermott June 30, 2012 at 3:34 pm #

    First of all its incorrect to compare windfarms and thermal plants. Thermal plants are a dispatchable form of power generation, energy is available at the touch of a button. Wind energy is non-dispatchable and will always be. Wind energy will also always require thermal backup generation.

    So to condemn thermal generation when it is required for wind farms to work is a hypocritical stance.

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