I'm annoyed by the sudden anger with oil companies for paying out big dividends. That's what you're supposed to do in a dying industry - give the money back to your investors so they can go reinvest it in something else. That's what moving away from oil looks like!
Right. I think the schizophrenia comes from "move off of oil, it's bad" and "I wish we were producing more oil, cuz gas is expensive" aren't super compatible.
Energy policy around 'The West' is downright stupid. We have spent the last few years making policies making it more difficult to drill for more oil and gas, and more difficult to get those companies to raise finance. The policies were half hearted and not designed to work effectively, but likely had an impact on the margin. Complaining that companies aren't drilling enough is rich given that a year ago we didn't want them to drill.
As for Germany, I haven't got a clue what they were doing. A few months ago, the plan was to close nuclear plants and open a new gas pipeline from the hostile regime nearby. Now the plan is to totally reverse this, after the hostile regime blindsided everyone by doing something hostile.
As always, the problem is a failure to own the fact that trade-offs need to be made. We would prefer nuclear plants not to be working with dangerous radioactive stuff, but nuclear is the nearest thing we have to an actionable solution to both climate change and ensuring reliable energy for all. Renewables can produce a lot of electricity but they don't appear to be very reliable when there is no wind and limited sun intensity. If an environmentalist can suggest what a non-nuclear solution is to this problem that doesn't involve living like a feudal peasant, I'm all ears.
>> but nuclear is the nearest thing we have to an actionable solution to both climate change and ensuring reliable energy for all. Renewables can produce a lot of electricity but they don't appear to be very reliable when there is no wind and limited sun intensity.
This just isn't correct. We currently don't have shovel ready nuclear power technology that can be built at a reasonable cost. The current generation has failed and the more promising nex-gen won't be ready for a decade or more.
There isn't much disagreement among grid planners about the direction power generation is headed over the next decade or two. Economics is driving massive renewable buildouts, bolstered by battery storage. Within a decade or two, renewables will account for the vast majority of generation on most grids. Natural gas, hydro, and other storage will provide the last 10-20% of output. Government policies will impact the speed of this buildout and might push on the generation mix at the margins, but that's the trajectory we're headed and there's little disagreement about this.
What happens after that isn't as clear and depends on which next-gen tech wins the day.
Check out the links in my post above. They're not cherry picked. There isn't a single example in the west of a nuclear power plant being built within the last 20 years that came in on time or on budget. Construction times run about 10 to 15 years and costs are usually double or triple the initial estimate. On an all-in cost basis, nuclear power runs about 5 times the cost of other alternatives.
There are lots of theories as to why this is so, but it's the reality. Some people say China is building them economically, but that's suspect because China has been trying to export its nuclear power tech as part of belt and road and it hides the true cost of its completed projects and often quotes figures that exclude finance costs to make their projects look more competitive.
It’s possible China can build them economically because they don’t have to deal with the kind of insurance and regulatory issues that democratic nations do. Nuclear plants are not easy projects but dedicated opposition makes them that much harder
Ok. What are the theories as to why it is so? What do those theories tell us we can do to build nuclear on-time and on-budget? How can we test those theories?
This Austin Vernon post makes the case that nuclear isn't currently cost competitive with wind and solar for utility scale power generation due to the inefficiencies inherent in the physics of boiling water to run turbines, even assuming the most efficient international construction cost examples for new nuclear power plants. https://austinvernon.site/blog/nuclear.html
The most popular current theory is to use an approach called Small Modular Reactors (SMRs). There's lots of research interest in this and even some fully funded pilot projects that should be completed within the next 5 to 10 years.
I'm a big proponent of funding these sorts of long-shot projects that have a chance to be revolutionary. In fact, Biden signed a bill last year that provides serious money for this sort of research and demonstration projects.
OTOH, back in 2010 when Obama launched his "all of the above" energy plan, his loan program (remember Solyndra?) helped fund construction of two nuclear power plants using what was then deemed to be the industry's latest answer to their cost problem. After a series of schedule and cost overruns and several bankruptcies, one plant has been cancelled and one is still limping along at 3x over budget and years behind schedule (see Summer and Vogtle wiki links above).
>Energy policy around 'The West' is downright stupid.
It's not stupid. It's ideological. The whole point was to export energy-intensive industry to somewhere else, leaving the West with a "clean" economy cubicles and service-sector work. This wasn't only done for environmental reasons, but to drive down labor costs (eg: your wages) and decrease entanglement with politically unreliable natural-resource exporters.
There are plenty of pathways that solve climate change and ensure reliable energy for all the don't involve nuclear long-term. They are also actionable, but not in the short term. Deploying enough storage and transmission capability to handle the intermittency of solar/wind is a multi-decade project.
The desire to shut down nuclear plants ASAP is being driven by long standing hostility to nuclear among many environmentalists, including the Green Party in Germany. It is not the most clear-eyed policy at this point in time.
There are, I believe, 47 Jones Act tankers currently active. So the fleet isn’t large. The argument I’ve heard for the Jones Act is that it supports National security, by helping to maintain a U.S. ship building industry, and therefore maintaining some domestic knowledge of ship building that could be surged to support naval ship building. I buy that argument to some extent, but the Navy has been arguing for massive fleet expansion for years, which I imagine would more directly support the ship building industry than the Jones Act.
Thank you! So there are… 47 ships that transport everything in the US? That seems crazy! Maybe I am misunderstanding? I am sympathetic to maintaining a domestic shipbuilding industry but couldn’t we address that with direct subsidies?
Anything between two US ports. A typical use for Jones Act tankers is moving oil from Alaska to California, or Louisiana to Florida, for example. Many more tankers supply the US via foreign ports, but those aren’t Jones Act tankers.
And to be clear, these are for ocean going movements. There are many more barges that move oil via rivers and inter coastal waterways.
Thanks! That’s a bit more plausible in terms of a small number of ships being capable of moving the goods required. That said, while I’m strongly pro-Jones Act repeal, if we build 47 more Jones Act ships domestically, would it make any difference? Or is the issue that building 47 more ships would be too expensive?
It actually cuts in the other way. There are vastly more ships capable of handling “Jones Act movements” and only a small few that are Jones Act eligible, those 47 tankers. Competition for Texas->Florida or NYH->Savannah movements would dramatically increase by repealing the Jones Act, and likely have a noticeable impact on the final price of petroleum products in those areas. US ship building is expensive and uncompetitive with the main international builders in South Korea and the Netherlands.
I understand the Jones Act rules and that there are plenty of _capable_ ships. My question asked if, without repealing the Jones Act, we could make a dent in the problem by just building more than 47 qualifying ships domestically.
American shipping companies and collective action is how they win. They care a lot about it and 95%+ of Americans have probably never heard of it and don't have an opinion. As a congressperson it's an easy win to go with the people who are very invested in the policy staying in place.
Thanks for the response, but I understand _how_ entrenched special interests win, I just don’t know who they are in the case of the Jones Act and the degree of economic influence they actually have. Is it really just American shipbuilders? And how big is that lobby? Basically, I’d like to know, specifically, who they are and how many people they represent.
I’m really surprised by how dishonest that read of the “cost of carbon” dispute was. The administration introduced the concept as a way to limit Oil Leases without risking legal challenge by banning them outright. That’s why they responded to the stay by pausing all leases. It’s the exact same policy approached in different ways.
To frame it as DOI just trying to be fair with costs and then getting jammed by a judge is just not what is happening here.
I agree that’s not what’s impacting gas prices, but you can’t pretend the admin didn’t think/hope that 2019 supply increases had put a ceiling on price and they could take advantage by limiting domestic drilling without a political hit. They’ve said as much themselves.
The one thing missing from this analysis is that "now more than ever" these Big Oil companies are being faced with their first almost existential risk, in the push away from ICE vehicles worldwide by governments, etc.
While that will not eliminate demand for gasoline or oil, it will at least impact out that in such a way that under the right circumstances a recession driven demand crash could threaten some of the poorly situated majors.
Additionally, you had many people screaming that we should "let them fail!" back in 2020 when oil companies got access to American Rescue Plan momeny....
So now there is a perpetual fear in corporate leadership that the next Bust will be "the big one"....and no one wants to be caught off guard with lots of debt on the books for future production they won't need.
This is right. Most people have no idea how terrible the outlook for fossil fuels is over the next 20-30 years. The economics of EVs, heat pumps, renewables and battery storage are already favorable over their fossil fuel counter parts and each of these technologies is moving down a learning curve and reducing costs.
I wouldn't be surprised to see fossil fuel demand drop to half or even 1/4 of current demand over the next twenty or thirty years. While this will be great for the climate, It's going to be a bloodbath for the fossil fuel industry and will have major impacts on the geopolitical landscape. Most are completely unprepared for what's coming.
The one good argument I can find for preventing anyone in the Middle East from building nukes for a decade is that all of the main players are likely to be burnt-out, civil war-crippled husks unable to keep track of their arsenals in fifteen years.
Yes, and this reverberates through the industry more generally.
Pensions and long-term funds generally no longer fund drilling projects because there's too much long-term downside risk. Similarly, younger professionals are not going into the industry, and folks looking to build businesses for the long-term are starting them in other sectors.
There's still short-term investment in re-entering existing fields. That will help get us through this period.
But folks with longer-term time horizons have heard the predictions/threats about the future of the industry loud & clear. It's cutting investment (economic investment we measure, and all the other ways folks invest in an industry they believe in) by a lot.
I've thought that was a bad idea. I'm biased. But I'm also not entirely uninformed, and it has always seemed to me that we were going to need this resource more and longer than we seemed to think or were planning for. This crisis illustrates that, as do our other efforts to make happen the future we insist must happen (for climate reasons) and is inevitable. It's a crummy equilibrium leaving us more vulnerable and unstable, and ultimately less prosperous for noble but nebulous gains.
I work in the energy sector. Specifically on gas turbine power plants. Except I have nothing to add. Though I will point out that even power plant users of Natural Gas can profit from higher prices. Gas prices increase 20%. Electricity rates will also increase by 20%. This is a generalization… but the Utilities 10% profit margin is higher with higher prices. Now admittedly Utilities will move to other energy sources. Who in turn will also profit from higher prices, but be relatively cheaper. In the short term it doesn’t really help renewables since they (especially solar) already provide max capability. I am sure on the margins there will be increased capability built though in the future. The big winner is Coal. They also have latent capability to sub in for Gas… however the Utility are also balancing CO2 requirements.
I guess I did have something to say. Postscript. I’d like to see more investment in research. Batteries, Solar, and Nitrogen.
On a side note…. Nitrogen is one of those always promised technologies… but one good thing is you can mix Hydrogen with natural gas. And end up with turbines that burn cleaner. It also makes it easier to transport. That is nitrogens one advantage. It’s not an either or thing. As the capability to produce nitrogen matures, you can just introduce it into the fuel supply. Note I am simplifying here.
My company Siemens Energy is investing a lot of money in HYDROGEN production and gas turbins that can handle the embrittlement and heat from HYDROGEN .
Anyway, I hope everyone is doing good. I am at a job up north of Pittsburgh right on the Ohio border. Have a great day.
I assume he means as a working fluid to change the thermodynamics within the power section for greater efficiency, not as a source of energy per se. But I'd need to do a little reading to be confident in that statement.
Just as a very broad statement, it's stupid to fight climate change by making fossil fuels more expensive when you could instead fight climate change by making zero-carbon energy sources less expensive. Instead of increasing taxes on carbon, increase "negative taxes" on zero-carbon energy. This is not a false choice. The current progressive position is to do both, but we should instead do half as much of the former and twice as much of the latter.
No, it is a false choice. When we make a green technology cheaper to the consumer, we must subsidize it. When we do so, we are able to afford less of other things, including carbon energy. This is the same as making carbon energy more expensive.
By way of analogy, suppose we spend our income on buying bread. It makes no difference to us whether the price of bread doubles, or our income is halved. Either way, we are able to afford less.
The whole point is to increase the price differential in a politically palatable way.
The end outcome being identical is literally the goal.
A $7500 EV subsidy is palatable, $8.00/gallon gas is not.
The latter thus carries the grave risk of provoking a backlash that vastly prolongs the era of fossil fuels due to state subsidy and favorable treatment.
On the subject of increasing production and specifically towards your comment that oil companies have already started drilling the “best wells” so any additional investment would be directed towards less optimal wells:
While that’s obviously true, one data point that is interesting, which was mentioned at CERAWeek in Houston this week, is that if you look at the IRR for oil and gas projects for new investments that have reached FID (final investment decision) there is clearly a higher standard for new oil projects. Traditionally, oil and gas companies target a 15% IRR for new projects and we see that with gas projects that have been green lighted. In contrast, new oil projects are projecting IRRs of 30-40% which is a very high bar, and reflects the uncertainty in future demand and regulatory change. Those IRRs are driven by the financial industry and investors.
Whilst reading this article I kept thinking there was one solution that could really hit both problems - the reluctance of domestic energy producers to invest in new output, and decarbonisation. A minimum domestic oil price.
The Federal Government sets a floor for oil prices in the US (below the current price but at a price that still makes most shale production viable) and restricts imports. This gives producers the security to invest in domestic production. However a minimum floor for oil prices also stimulates investment in green energy, because it makes alternative methods of energy production more effective.
It has all the usual drawbacks of these kinds of interventions - overproduction, general market distortion and the vested interests thereby created would make it difficult to adjust policy once the policy had outlived its purpose. But in the medium term at least it could prove useful in dealing with current problems.
There aren't really global electricity markets or other nonlocalized price fluctuations for forms of energy other than gas and oil. As long as a country's domestic energy market is subject to global fluctuations in the availability and price of gas and oil, it's difficult if not impossible to create a stable business climate for other energy industries.
Of course (although states can of course set whatever minimum price they choose - similar to how here un the UK we created a minimum price for the supply of green energy to encourage investment in renewables). But the point is that if there were a minimum fixed price for oil that was high enough, users would have an incentive to switch to other forms of energy usage (obviously in this scenario you'd need a minimum price for coal too, to prevent that becoming the favoured substitute!).
>> Elon Musk is right that Europe should reverse its de-nuclearization. For some reason maybe related to his solar power business, Musk didn’t mention that basically the same logic applies to Diablo Canyon and Indian Point and other facilities in the United States.
It's disappointing to see Matt jump on this bandwagon without doing some research on the economics that's driving these closures. No one told PG&E it has to close Diablo. The plant is being closed because it can't compete and it's getting less and less competitive as more and more cheap renewables and battery storage get added to the grid.
The reason for this is something called the "merit order effect." Generation on a grid is scheduled based on the marginal cost of running each available generator. The cheapest generators are scheduled first, then more and more expensive generators get scheduled until load can be satisfied. The problem for nuclear power is that compared to most other generators, its very expensive to schedule (eg has higher marginal cost). In addition, its inflexibility (eg can't run for just a few hours) makes this problem much much worse. To satisfy a 4-8 hour energy shortfall after the sun sets with nuclear power means signing up for 3-4 days of expensive nuclear power output.
Once a grid has renewable generators satisfying most of the load, grids end up with an excess of power for several hours of each day, then a shortfall for a few hours after the sun sets (if it's not windy). It turns out that batteries are a very economic solution to this problem because they can charge very cheapy with low or zero cost energy during periods with excess generation, then instantly turn on during periods when renewables aren't generating enough to satisfy load.
The marginal costs of nuclear are low, it is the capital costs that are high. According to PG&E, it is moving to close Diablo due to consumer demand. Given the choice, Californians are choosing higher priced electricity that isn't nuclear. One might quibble with the rationale for the anti-nuclear decision, but if that is what the citizens of California are choosing, then so be it.
What does it mean to say that "customer demand" is closing Diablo and "Californians are choosing higher priced electricity"? It's not like individual customers are selecting which power source generates the electrons that arrive in their homes. It's all a big mix that changes over time.
I confess I don't understand the relationship between CALISO and the CCAs. The former is the purchasing operation for 80% of California electricity demand (most of the rest is LADWP where I am). It buys electricity based on lowest marginal cost, ability to meet demand and long-term goals and oversees transmission. I'm simply ignorant about how these CCAs can tailor what CALISO delivers to them.
It's true that nuclear used to be the lowest marginal cost generator, but its costs are really not that low. Nuclear power running at a 100% capacity factor has a marginal cost between $30 and $50 per MWh. Lately, natural gas has often come in cheaper (in the US) on a marginal cost basis.
The big problem for nuclear is that most of its operating cost is fixed cost (not tied to output). A nuclear power plant needs 500-1000 employees versus a couple dozen for a gas plant. So as nuclear capacity factors fall due to cheaper alternatives winning the bid much of the time, say down to 50%, their operating costs jump from $30-50 up to $50-80 per MWh because those fixed costs are spread over less output.
This is the main reason these plants are getting closed but no one in the media seems to understand this. The key is that this trend is locked in now and will get much much worse as renewable and battery storage deployments increase.
The obvious policy response there is “subsidize nuclear enough to make sure *gas* is the least profitable snd gets the axe when renewable capacity comes online.
But really, this is often not the optimal way to do it. The obvious policy response is to allocate each subsidy dollar such that it reduces as much carbon emissions as possible.
Right now on most grids subsidizing batteries would give you more carbon reduction per dollar spent than subsidizing existing nuclear plants.
But really, clearing out regulatory hurdles so renewables, storage, and transmission can get built more quickly offers an even bigger bang for the buck.
Right now, regulatory capture and astro-turfed local opposition to new energy projects are the main tools that fossil fuel interests are using to slow clean energy growth.
I'm curious if you know anywhere that details what the combined cost of solar and battery or solar and gas peaker are for California?
Building new nuclear is definitely very expensive, but I would be shocked to see that existing nuclear steady state isn't cheaper than the combination of solar + battery. Last I looked, storage is still pretty expensive. That may change in a decade as prices have been and are expected to continue to fall rapidly, but didn't think we were there yet.
But imo, even this source, which is excellent, seriously overestimates the cost of storage compared to reality because they use a cost of finance in the 8-10% range when in real life these projects are getting financed for significantly less because they've been delivering such reliable cash flows.
Also, a lot of the plant closure decisions are driven by big ticket maintenance and upkeep costs that the plant owner doesn't think they can recover. For example, I think with Diablo Canyon a major driver was a $1 billion upgrade they need to do on the plant's cooling system to keep it operational.
Interesting comment about it delivering reliable cash flows. My understanding of the life expectancy for most current batteries is between 5-15 years, with the average probably at the 9 or 10 year mark. It seems like something with a sharp upfront capital costs, cash generation with fairly rapid depreciation, and then a subsequent sharp uptake in capital costs again.
As I understand it, battery life is mostly measured by the number of cycles and that's sort of built into the math project developers do before they undertake a project.
Somewhat counter-intuitively, with grid storage applications the way to get the lowest levelized cost of storage (eg all-in average cost) is to cycle the batteries very frequently (eg daily or twice daily) as long as market conditions support doing that.
Each cycle generates a bunch of cash flow and the idea is that the faster you can "use up" the battery life and pull in all of its potential cash flows, the better off you'll be because you'll pay less overall in financing costs compared to dragging everything out.
This is why batteries aren't great for long-term storage applications (say weekly versus daily).
With less frequent cycling it takes so long to "use up" the battery life that you end up paying a ton in finance costs over the life of the project (eg 5 year life versus 35 year life).
For mobile/transport applications, a battery with 70% of original capacity is barely fit for purpose unless it was pointlessly over-engineered in the first place.
For fixed storage, that just means it still works fine at 70% of original capacity, and you make up for it by slightly overbuilding in each new installation to account for the depreciation curve of past ones.
Physical storage will work more like a peaker plant; 100% capacity until the day it fails outright.
Re "swing-producers": can freshly drilled oil be stored easily, if someone builds the capacity? I know there's a "strategic petroleum reserve" that the government has. Could a company build sufficient storage to justify running wells even when oil prices are low so they can sell the oil later when prices are high? I realize some oil speculation is essentially "leave oil in the ground when prices are low and get it when they're high" but since the price variance is high (and will remain high, given geopolitics), there's room for a faster responder: in high-price times, releasing from storage would be much faster than reactivating idle wells.
There's gotta be a billionaire or company that can build a bunch of storage - again, assuming oil doesn't, like, go bad like gasoline does - near the relevant oil fields.
The difficulty is financial. Oil extraction companies are risky outfits with high discount rates. Even if they knew oil would increase 12% in the next 12 months and storage were free, they wouldn’t buy and store because their discount rate is higher than 12%. Add storage costs and uncertainty and only the government will play the storage game.
Okay, but does it have to be an extraction company? Plenty of companies are sitting of piles on uninvested cash. Surely someone with a few billion doesn't have a 12% minimum IRR.
An excellent in-depth analysis. I spent the first half of my corporate finance career working for an oil and gas producer (long since swallowed up by multiple mergers). Oil (and natural gas) price volatility is the single biggest obstacle to stable levels of both capital investment and employment. And on the consumer side, who wants to buy an expensive electric vehicle if there’s a decent prospect that a year from now, gasoline will be relatively cheap again? So I think both the price-driven refilling of the SPR and imposing higher (but price-sensitive) taxes on gasoline are excellent ideas.
For the short term in terms of oil availability, this seems like an excellent time to not just do something, but stand there. Oh cosmetic things, like opening the SPR, are fine, if that helps calm the public's nerves. But in terms of opening of new areas for exploration or making drilling easier, then no.
World oil demand is about 100M barrels/day. Russian exports are around 5M. Take those away (or make it appear that that will happen) and surely prices will spike. And it would be great if our wonderful allies in the Persian Gulf stood with the civilized world and opened up the spigots a bit more to make a dent in that 5M barrel hole, but that's not how they roll, and I seriously hope we have some frank discussions with them after this is over.
But the US can make up a big chunk of that just by the magic of the market. US oil production reached a historical peak in February 2020, with 13.1M barrels/day. With COVID, production fell 30% by August 2020. It's now recovered to 11.6M barrels/day (https://www.macrotrends.net/2562/us-crude-oil-production-historical-chart).
That huge runup ending in early 2020 came when West Texas Intermediate prices hovered in the low $50/barrel range. As of this morning, it's $110/barrel. I assume that the 1.5M barrel/day difference between now and two years ago is mostly from capping wells or slowing extraction from working wells. While I'm not a petroleum engineer, I imagine it's not too hard to crank those up again and get that 1.5M back on line fairly quickly. Even more, I assume we weren't producing flat out even at 13.1M/day and with the incentive of a doubled price, we could probably push production from current wells above the historic high, even with no new exploration or drilling.
In other words, just through market incentives and just here in the US, we could make a huge dent in the Russian deficit. And turning a blind eye toward Venezuelan and Iranian exports to other markets in the world would bring that down even more.
Lots of good stuff in this post on longer-range issues, but otherwise, I'd say let's wait for the market to work.
I'm annoyed by the sudden anger with oil companies for paying out big dividends. That's what you're supposed to do in a dying industry - give the money back to your investors so they can go reinvest it in something else. That's what moving away from oil looks like!
If the oil industry dies we all die with it.
Right. I think the schizophrenia comes from "move off of oil, it's bad" and "I wish we were producing more oil, cuz gas is expensive" aren't super compatible.
Energy policy around 'The West' is downright stupid. We have spent the last few years making policies making it more difficult to drill for more oil and gas, and more difficult to get those companies to raise finance. The policies were half hearted and not designed to work effectively, but likely had an impact on the margin. Complaining that companies aren't drilling enough is rich given that a year ago we didn't want them to drill.
As for Germany, I haven't got a clue what they were doing. A few months ago, the plan was to close nuclear plants and open a new gas pipeline from the hostile regime nearby. Now the plan is to totally reverse this, after the hostile regime blindsided everyone by doing something hostile.
As always, the problem is a failure to own the fact that trade-offs need to be made. We would prefer nuclear plants not to be working with dangerous radioactive stuff, but nuclear is the nearest thing we have to an actionable solution to both climate change and ensuring reliable energy for all. Renewables can produce a lot of electricity but they don't appear to be very reliable when there is no wind and limited sun intensity. If an environmentalist can suggest what a non-nuclear solution is to this problem that doesn't involve living like a feudal peasant, I'm all ears.
>> but nuclear is the nearest thing we have to an actionable solution to both climate change and ensuring reliable energy for all. Renewables can produce a lot of electricity but they don't appear to be very reliable when there is no wind and limited sun intensity.
This just isn't correct. We currently don't have shovel ready nuclear power technology that can be built at a reasonable cost. The current generation has failed and the more promising nex-gen won't be ready for a decade or more.
https://en.wikipedia.org/wiki/Virgil_C._Summer_Nuclear_Generating_Station
https://en.wikipedia.org/wiki/Vogtle_Electric_Generating_Plant
This is not just a US problem:
https://en.wikipedia.org/wiki/Olkiluoto_Nuclear_Power_Plant
https://en.wikipedia.org/wiki/Hinkley_Point_C_nuclear_power_station
Even France, long touted for its nuclear power expertise, can't built them economically anymore:
https://en.wikipedia.org/wiki/Flamanville_Nuclear_Power_Plant
There isn't much disagreement among grid planners about the direction power generation is headed over the next decade or two. Economics is driving massive renewable buildouts, bolstered by battery storage. Within a decade or two, renewables will account for the vast majority of generation on most grids. Natural gas, hydro, and other storage will provide the last 10-20% of output. Government policies will impact the speed of this buildout and might push on the generation mix at the margins, but that's the trajectory we're headed and there's little disagreement about this.
What happens after that isn't as clear and depends on which next-gen tech wins the day.
"We currently don't have shovel ready nuclear power technology that can be built at a reasonable cost."
Around the world, we literally use nuclear power stations built in the 1950s and 60s.
Check out the links in my post above. They're not cherry picked. There isn't a single example in the west of a nuclear power plant being built within the last 20 years that came in on time or on budget. Construction times run about 10 to 15 years and costs are usually double or triple the initial estimate. On an all-in cost basis, nuclear power runs about 5 times the cost of other alternatives.
https://www.lazard.com/perspective/levelized-cost-of-energy-levelized-cost-of-storage-and-levelized-cost-of-hydrogen/
There are lots of theories as to why this is so, but it's the reality. Some people say China is building them economically, but that's suspect because China has been trying to export its nuclear power tech as part of belt and road and it hides the true cost of its completed projects and often quotes figures that exclude finance costs to make their projects look more competitive.
The last half sentence is spot-on, that is *exactly* what’s happening.
I’ve talked to enough folks on those projects to know no one trusts the numbers.
It’s possible China can build them economically because they don’t have to deal with the kind of insurance and regulatory issues that democratic nations do. Nuclear plants are not easy projects but dedicated opposition makes them that much harder
Ok. What are the theories as to why it is so? What do those theories tell us we can do to build nuclear on-time and on-budget? How can we test those theories?
If you want to build nuclear reactors on-time and on-budget, budget 5x as much money and 3x as much time.
Ah, the true engineer's solution.
Reposting this comment:
This Austin Vernon post makes the case that nuclear isn't currently cost competitive with wind and solar for utility scale power generation due to the inefficiencies inherent in the physics of boiling water to run turbines, even assuming the most efficient international construction cost examples for new nuclear power plants. https://austinvernon.site/blog/nuclear.html
The most popular current theory is to use an approach called Small Modular Reactors (SMRs). There's lots of research interest in this and even some fully funded pilot projects that should be completed within the next 5 to 10 years.
I'm a big proponent of funding these sorts of long-shot projects that have a chance to be revolutionary. In fact, Biden signed a bill last year that provides serious money for this sort of research and demonstration projects.
https://www.world-nuclear-news.org/Articles/Nuclear-supporting-infrastructure-bill-becomes-US
OTOH, back in 2010 when Obama launched his "all of the above" energy plan, his loan program (remember Solyndra?) helped fund construction of two nuclear power plants using what was then deemed to be the industry's latest answer to their cost problem. After a series of schedule and cost overruns and several bankruptcies, one plant has been cancelled and one is still limping along at 3x over budget and years behind schedule (see Summer and Vogtle wiki links above).
>Energy policy around 'The West' is downright stupid.
It's not stupid. It's ideological. The whole point was to export energy-intensive industry to somewhere else, leaving the West with a "clean" economy cubicles and service-sector work. This wasn't only done for environmental reasons, but to drive down labor costs (eg: your wages) and decrease entanglement with politically unreliable natural-resource exporters.
There are plenty of pathways that solve climate change and ensure reliable energy for all the don't involve nuclear long-term. They are also actionable, but not in the short term. Deploying enough storage and transmission capability to handle the intermittency of solar/wind is a multi-decade project.
The desire to shut down nuclear plants ASAP is being driven by long standing hostility to nuclear among many environmentalists, including the Green Party in Germany. It is not the most clear-eyed policy at this point in time.
Who are the people in the Jones Act lobby and how are they so powerful? How many jobs does it actually represent?
There are, I believe, 47 Jones Act tankers currently active. So the fleet isn’t large. The argument I’ve heard for the Jones Act is that it supports National security, by helping to maintain a U.S. ship building industry, and therefore maintaining some domestic knowledge of ship building that could be surged to support naval ship building. I buy that argument to some extent, but the Navy has been arguing for massive fleet expansion for years, which I imagine would more directly support the ship building industry than the Jones Act.
Thank you! So there are… 47 ships that transport everything in the US? That seems crazy! Maybe I am misunderstanding? I am sympathetic to maintaining a domestic shipbuilding industry but couldn’t we address that with direct subsidies?
Anything between two US ports. A typical use for Jones Act tankers is moving oil from Alaska to California, or Louisiana to Florida, for example. Many more tankers supply the US via foreign ports, but those aren’t Jones Act tankers.
And to be clear, these are for ocean going movements. There are many more barges that move oil via rivers and inter coastal waterways.
Thanks! That’s a bit more plausible in terms of a small number of ships being capable of moving the goods required. That said, while I’m strongly pro-Jones Act repeal, if we build 47 more Jones Act ships domestically, would it make any difference? Or is the issue that building 47 more ships would be too expensive?
It actually cuts in the other way. There are vastly more ships capable of handling “Jones Act movements” and only a small few that are Jones Act eligible, those 47 tankers. Competition for Texas->Florida or NYH->Savannah movements would dramatically increase by repealing the Jones Act, and likely have a noticeable impact on the final price of petroleum products in those areas. US ship building is expensive and uncompetitive with the main international builders in South Korea and the Netherlands.
I understand the Jones Act rules and that there are plenty of _capable_ ships. My question asked if, without repealing the Jones Act, we could make a dent in the problem by just building more than 47 qualifying ships domestically.
American shipping companies and collective action is how they win. They care a lot about it and 95%+ of Americans have probably never heard of it and don't have an opinion. As a congressperson it's an easy win to go with the people who are very invested in the policy staying in place.
Thanks for the response, but I understand _how_ entrenched special interests win, I just don’t know who they are in the case of the Jones Act and the degree of economic influence they actually have. Is it really just American shipbuilders? And how big is that lobby? Basically, I’d like to know, specifically, who they are and how many people they represent.
And also where are they?
I’m really surprised by how dishonest that read of the “cost of carbon” dispute was. The administration introduced the concept as a way to limit Oil Leases without risking legal challenge by banning them outright. That’s why they responded to the stay by pausing all leases. It’s the exact same policy approached in different ways.
To frame it as DOI just trying to be fair with costs and then getting jammed by a judge is just not what is happening here.
I agree that’s not what’s impacting gas prices, but you can’t pretend the admin didn’t think/hope that 2019 supply increases had put a ceiling on price and they could take advantage by limiting domestic drilling without a political hit. They’ve said as much themselves.
Good thing Twitter progressives and progressive staffers don't exist entirely in the fantasy world you mentioned in the final sentence.
The one thing missing from this analysis is that "now more than ever" these Big Oil companies are being faced with their first almost existential risk, in the push away from ICE vehicles worldwide by governments, etc.
While that will not eliminate demand for gasoline or oil, it will at least impact out that in such a way that under the right circumstances a recession driven demand crash could threaten some of the poorly situated majors.
Additionally, you had many people screaming that we should "let them fail!" back in 2020 when oil companies got access to American Rescue Plan momeny....
So now there is a perpetual fear in corporate leadership that the next Bust will be "the big one"....and no one wants to be caught off guard with lots of debt on the books for future production they won't need.
This is right. Most people have no idea how terrible the outlook for fossil fuels is over the next 20-30 years. The economics of EVs, heat pumps, renewables and battery storage are already favorable over their fossil fuel counter parts and each of these technologies is moving down a learning curve and reducing costs.
I wouldn't be surprised to see fossil fuel demand drop to half or even 1/4 of current demand over the next twenty or thirty years. While this will be great for the climate, It's going to be a bloodbath for the fossil fuel industry and will have major impacts on the geopolitical landscape. Most are completely unprepared for what's coming.
The one good argument I can find for preventing anyone in the Middle East from building nukes for a decade is that all of the main players are likely to be burnt-out, civil war-crippled husks unable to keep track of their arsenals in fifteen years.
Yes, and this reverberates through the industry more generally.
Pensions and long-term funds generally no longer fund drilling projects because there's too much long-term downside risk. Similarly, younger professionals are not going into the industry, and folks looking to build businesses for the long-term are starting them in other sectors.
There's still short-term investment in re-entering existing fields. That will help get us through this period.
But folks with longer-term time horizons have heard the predictions/threats about the future of the industry loud & clear. It's cutting investment (economic investment we measure, and all the other ways folks invest in an industry they believe in) by a lot.
I've thought that was a bad idea. I'm biased. But I'm also not entirely uninformed, and it has always seemed to me that we were going to need this resource more and longer than we seemed to think or were planning for. This crisis illustrates that, as do our other efforts to make happen the future we insist must happen (for climate reasons) and is inevitable. It's a crummy equilibrium leaving us more vulnerable and unstable, and ultimately less prosperous for noble but nebulous gains.
I work in the energy sector. Specifically on gas turbine power plants. Except I have nothing to add. Though I will point out that even power plant users of Natural Gas can profit from higher prices. Gas prices increase 20%. Electricity rates will also increase by 20%. This is a generalization… but the Utilities 10% profit margin is higher with higher prices. Now admittedly Utilities will move to other energy sources. Who in turn will also profit from higher prices, but be relatively cheaper. In the short term it doesn’t really help renewables since they (especially solar) already provide max capability. I am sure on the margins there will be increased capability built though in the future. The big winner is Coal. They also have latent capability to sub in for Gas… however the Utility are also balancing CO2 requirements.
I guess I did have something to say. Postscript. I’d like to see more investment in research. Batteries, Solar, and Nitrogen.
On a side note…. Nitrogen is one of those always promised technologies… but one good thing is you can mix Hydrogen with natural gas. And end up with turbines that burn cleaner. It also makes it easier to transport. That is nitrogens one advantage. It’s not an either or thing. As the capability to produce nitrogen matures, you can just introduce it into the fuel supply. Note I am simplifying here.
My company Siemens Energy is investing a lot of money in HYDROGEN production and gas turbins that can handle the embrittlement and heat from HYDROGEN .
Anyway, I hope everyone is doing good. I am at a job up north of Pittsburgh right on the Ohio border. Have a great day.
I haven't heard of nitrogen being used for power generation. Did you mean hydrogen, produced by electrolysis?
Sorry. It was early.
He means ammonia.
https://en.wikipedia.org/wiki/Ammonia#Fuel
Lol. I meant Hydrogen. I was half asleep. Yes. We also use ammonia.
Maybe I've got this wrong, but I think Ammonia is more of a way to store hydrogen that's been created by electrolysis.
https://cen.acs.org/business/petrochemicals/ammonia-fuel-future/99/i8
I assume he means as a working fluid to change the thermodynamics within the power section for greater efficiency, not as a source of energy per se. But I'd need to do a little reading to be confident in that statement.
No. I was talking about a fuel. It was early. Wrong gas. I meant hydrogen.
Just as a very broad statement, it's stupid to fight climate change by making fossil fuels more expensive when you could instead fight climate change by making zero-carbon energy sources less expensive. Instead of increasing taxes on carbon, increase "negative taxes" on zero-carbon energy. This is not a false choice. The current progressive position is to do both, but we should instead do half as much of the former and twice as much of the latter.
No, it is a false choice. When we make a green technology cheaper to the consumer, we must subsidize it. When we do so, we are able to afford less of other things, including carbon energy. This is the same as making carbon energy more expensive.
By way of analogy, suppose we spend our income on buying bread. It makes no difference to us whether the price of bread doubles, or our income is halved. Either way, we are able to afford less.
I get what you’re going for, but… no shit.
The whole point is to increase the price differential in a politically palatable way.
The end outcome being identical is literally the goal.
A $7500 EV subsidy is palatable, $8.00/gallon gas is not.
The latter thus carries the grave risk of provoking a backlash that vastly prolongs the era of fossil fuels due to state subsidy and favorable treatment.
This is some real galaxy brain stuff.
On the subject of increasing production and specifically towards your comment that oil companies have already started drilling the “best wells” so any additional investment would be directed towards less optimal wells:
While that’s obviously true, one data point that is interesting, which was mentioned at CERAWeek in Houston this week, is that if you look at the IRR for oil and gas projects for new investments that have reached FID (final investment decision) there is clearly a higher standard for new oil projects. Traditionally, oil and gas companies target a 15% IRR for new projects and we see that with gas projects that have been green lighted. In contrast, new oil projects are projecting IRRs of 30-40% which is a very high bar, and reflects the uncertainty in future demand and regulatory change. Those IRRs are driven by the financial industry and investors.
Whilst reading this article I kept thinking there was one solution that could really hit both problems - the reluctance of domestic energy producers to invest in new output, and decarbonisation. A minimum domestic oil price.
The Federal Government sets a floor for oil prices in the US (below the current price but at a price that still makes most shale production viable) and restricts imports. This gives producers the security to invest in domestic production. However a minimum floor for oil prices also stimulates investment in green energy, because it makes alternative methods of energy production more effective.
It has all the usual drawbacks of these kinds of interventions - overproduction, general market distortion and the vested interests thereby created would make it difficult to adjust policy once the policy had outlived its purpose. But in the medium term at least it could prove useful in dealing with current problems.
There aren't really global electricity markets or other nonlocalized price fluctuations for forms of energy other than gas and oil. As long as a country's domestic energy market is subject to global fluctuations in the availability and price of gas and oil, it's difficult if not impossible to create a stable business climate for other energy industries.
Of course (although states can of course set whatever minimum price they choose - similar to how here un the UK we created a minimum price for the supply of green energy to encourage investment in renewables). But the point is that if there were a minimum fixed price for oil that was high enough, users would have an incentive to switch to other forms of energy usage (obviously in this scenario you'd need a minimum price for coal too, to prevent that becoming the favoured substitute!).
>> Elon Musk is right that Europe should reverse its de-nuclearization. For some reason maybe related to his solar power business, Musk didn’t mention that basically the same logic applies to Diablo Canyon and Indian Point and other facilities in the United States.
It's disappointing to see Matt jump on this bandwagon without doing some research on the economics that's driving these closures. No one told PG&E it has to close Diablo. The plant is being closed because it can't compete and it's getting less and less competitive as more and more cheap renewables and battery storage get added to the grid.
https://www.utilitydive.com/news/pge-proposes-64-gwh-battery-storage-plan-in-response-to-californias-115/617646/
The reason for this is something called the "merit order effect." Generation on a grid is scheduled based on the marginal cost of running each available generator. The cheapest generators are scheduled first, then more and more expensive generators get scheduled until load can be satisfied. The problem for nuclear power is that compared to most other generators, its very expensive to schedule (eg has higher marginal cost). In addition, its inflexibility (eg can't run for just a few hours) makes this problem much much worse. To satisfy a 4-8 hour energy shortfall after the sun sets with nuclear power means signing up for 3-4 days of expensive nuclear power output.
Once a grid has renewable generators satisfying most of the load, grids end up with an excess of power for several hours of each day, then a shortfall for a few hours after the sun sets (if it's not windy). It turns out that batteries are a very economic solution to this problem because they can charge very cheapy with low or zero cost energy during periods with excess generation, then instantly turn on during periods when renewables aren't generating enough to satisfy load.
The marginal costs of nuclear are low, it is the capital costs that are high. According to PG&E, it is moving to close Diablo due to consumer demand. Given the choice, Californians are choosing higher priced electricity that isn't nuclear. One might quibble with the rationale for the anti-nuclear decision, but if that is what the citizens of California are choosing, then so be it.
https://www.cnbc.com/2021/10/02/why-is-california-closing-diablo-canyon-nuclear-plant.html
What does it mean to say that "customer demand" is closing Diablo and "Californians are choosing higher priced electricity"? It's not like individual customers are selecting which power source generates the electrons that arrive in their homes. It's all a big mix that changes over time.
http://www.caiso.com/todaysoutlook/pages/supply.aspx
If you read the article, it discusses that Community Choice Aggregators (e.g. local community power coops) are refusing to buy power from Diablo.
I confess I don't understand the relationship between CALISO and the CCAs. The former is the purchasing operation for 80% of California electricity demand (most of the rest is LADWP where I am). It buys electricity based on lowest marginal cost, ability to meet demand and long-term goals and oversees transmission. I'm simply ignorant about how these CCAs can tailor what CALISO delivers to them.
It's true that nuclear used to be the lowest marginal cost generator, but its costs are really not that low. Nuclear power running at a 100% capacity factor has a marginal cost between $30 and $50 per MWh. Lately, natural gas has often come in cheaper (in the US) on a marginal cost basis.
The big problem for nuclear is that most of its operating cost is fixed cost (not tied to output). A nuclear power plant needs 500-1000 employees versus a couple dozen for a gas plant. So as nuclear capacity factors fall due to cheaper alternatives winning the bid much of the time, say down to 50%, their operating costs jump from $30-50 up to $50-80 per MWh because those fixed costs are spread over less output.
This is the main reason these plants are getting closed but no one in the media seems to understand this. The key is that this trend is locked in now and will get much much worse as renewable and battery storage deployments increase.
The obvious policy response there is “subsidize nuclear enough to make sure *gas* is the least profitable snd gets the axe when renewable capacity comes online.
We are currently throwing a ton of subsidy money at nuclear power:
https://www.ft.com/content/faba7e8a-1983-4b47-9b70-ec903351a373
https://www.cnbc.com/2021/11/20/illinois-nuclear-power-subsidy-of-694-million-imperfect-compromise.html
But really, this is often not the optimal way to do it. The obvious policy response is to allocate each subsidy dollar such that it reduces as much carbon emissions as possible.
Right now on most grids subsidizing batteries would give you more carbon reduction per dollar spent than subsidizing existing nuclear plants.
But really, clearing out regulatory hurdles so renewables, storage, and transmission can get built more quickly offers an even bigger bang for the buck.
Right now, regulatory capture and astro-turfed local opposition to new energy projects are the main tools that fossil fuel interests are using to slow clean energy growth.
I don’t disagree with any of this, but I should clarify that I meant within the context of our current politics on the matter.
I'm curious if you know anywhere that details what the combined cost of solar and battery or solar and gas peaker are for California?
Building new nuclear is definitely very expensive, but I would be shocked to see that existing nuclear steady state isn't cheaper than the combination of solar + battery. Last I looked, storage is still pretty expensive. That may change in a decade as prices have been and are expected to continue to fall rapidly, but didn't think we were there yet.
One of the best sources I know of for cost data is this annual analysis by an investment banking firm called Lazard:
https://www.lazard.com/perspective/levelized-cost-of-energy-levelized-cost-of-storage-and-levelized-cost-of-hydrogen/
But imo, even this source, which is excellent, seriously overestimates the cost of storage compared to reality because they use a cost of finance in the 8-10% range when in real life these projects are getting financed for significantly less because they've been delivering such reliable cash flows.
Also, a lot of the plant closure decisions are driven by big ticket maintenance and upkeep costs that the plant owner doesn't think they can recover. For example, I think with Diablo Canyon a major driver was a $1 billion upgrade they need to do on the plant's cooling system to keep it operational.
Interesting comment about it delivering reliable cash flows. My understanding of the life expectancy for most current batteries is between 5-15 years, with the average probably at the 9 or 10 year mark. It seems like something with a sharp upfront capital costs, cash generation with fairly rapid depreciation, and then a subsequent sharp uptake in capital costs again.
As I understand it, battery life is mostly measured by the number of cycles and that's sort of built into the math project developers do before they undertake a project.
Somewhat counter-intuitively, with grid storage applications the way to get the lowest levelized cost of storage (eg all-in average cost) is to cycle the batteries very frequently (eg daily or twice daily) as long as market conditions support doing that.
Each cycle generates a bunch of cash flow and the idea is that the faster you can "use up" the battery life and pull in all of its potential cash flows, the better off you'll be because you'll pay less overall in financing costs compared to dragging everything out.
This is why batteries aren't great for long-term storage applications (say weekly versus daily).
With less frequent cycling it takes so long to "use up" the battery life that you end up paying a ton in finance costs over the life of the project (eg 5 year life versus 35 year life).
Theres a bit of an issue defining “life” here.
For mobile/transport applications, a battery with 70% of original capacity is barely fit for purpose unless it was pointlessly over-engineered in the first place.
For fixed storage, that just means it still works fine at 70% of original capacity, and you make up for it by slightly overbuilding in each new installation to account for the depreciation curve of past ones.
Physical storage will work more like a peaker plant; 100% capacity until the day it fails outright.
Re "swing-producers": can freshly drilled oil be stored easily, if someone builds the capacity? I know there's a "strategic petroleum reserve" that the government has. Could a company build sufficient storage to justify running wells even when oil prices are low so they can sell the oil later when prices are high? I realize some oil speculation is essentially "leave oil in the ground when prices are low and get it when they're high" but since the price variance is high (and will remain high, given geopolitics), there's room for a faster responder: in high-price times, releasing from storage would be much faster than reactivating idle wells.
There's gotta be a billionaire or company that can build a bunch of storage - again, assuming oil doesn't, like, go bad like gasoline does - near the relevant oil fields.
The difficulty is financial. Oil extraction companies are risky outfits with high discount rates. Even if they knew oil would increase 12% in the next 12 months and storage were free, they wouldn’t buy and store because their discount rate is higher than 12%. Add storage costs and uncertainty and only the government will play the storage game.
Okay, but does it have to be an extraction company? Plenty of companies are sitting of piles on uninvested cash. Surely someone with a few billion doesn't have a 12% minimum IRR.
any futures speculator does and storage costs are non trivial
An excellent in-depth analysis. I spent the first half of my corporate finance career working for an oil and gas producer (long since swallowed up by multiple mergers). Oil (and natural gas) price volatility is the single biggest obstacle to stable levels of both capital investment and employment. And on the consumer side, who wants to buy an expensive electric vehicle if there’s a decent prospect that a year from now, gasoline will be relatively cheap again? So I think both the price-driven refilling of the SPR and imposing higher (but price-sensitive) taxes on gasoline are excellent ideas.
For the short term in terms of oil availability, this seems like an excellent time to not just do something, but stand there. Oh cosmetic things, like opening the SPR, are fine, if that helps calm the public's nerves. But in terms of opening of new areas for exploration or making drilling easier, then no.
World oil demand is about 100M barrels/day. Russian exports are around 5M. Take those away (or make it appear that that will happen) and surely prices will spike. And it would be great if our wonderful allies in the Persian Gulf stood with the civilized world and opened up the spigots a bit more to make a dent in that 5M barrel hole, but that's not how they roll, and I seriously hope we have some frank discussions with them after this is over.
But the US can make up a big chunk of that just by the magic of the market. US oil production reached a historical peak in February 2020, with 13.1M barrels/day. With COVID, production fell 30% by August 2020. It's now recovered to 11.6M barrels/day (https://www.macrotrends.net/2562/us-crude-oil-production-historical-chart).
That huge runup ending in early 2020 came when West Texas Intermediate prices hovered in the low $50/barrel range. As of this morning, it's $110/barrel. I assume that the 1.5M barrel/day difference between now and two years ago is mostly from capping wells or slowing extraction from working wells. While I'm not a petroleum engineer, I imagine it's not too hard to crank those up again and get that 1.5M back on line fairly quickly. Even more, I assume we weren't producing flat out even at 13.1M/day and with the incentive of a doubled price, we could probably push production from current wells above the historic high, even with no new exploration or drilling.
In other words, just through market incentives and just here in the US, we could make a huge dent in the Russian deficit. And turning a blind eye toward Venezuelan and Iranian exports to other markets in the world would bring that down even more.
Lots of good stuff in this post on longer-range issues, but otherwise, I'd say let's wait for the market to work.
I have been been on Variable Oil Tax island for years, preferably with indexed brackets.
Dumb question: why don’t administrations use the strategic petroleum reserve to lower gas prices before elections? Illegal?
I don't know overall, but Bill Clinton authorized the release of oil from the SPR in the fall of 2000 and there were accusations that was intended to help Gore: https://www.nytimes.com/2000/09/23/us/clinton-approves-releasing-some-oil-from-us-reserve.html
Not sure, but my guess is because it's pretty obviously a cynical move that's also not super effective.
Bad for industry/donors.