The Global Solution for the Coming Energy Crisis
by Ralph Nansen
Copyright 1995 by Ralph Nansen, reproduced with permission
Chapter 10: The Path to Two-Cent Power
The subject of economics is probably one of the most discussed and controversial subjects known to man. This is true because every human being on earth today is a practicing economist with their own ideas and views. There are very few decisions we make in our daily lives which do not consider cost to some degree, even if it involves bartering instead of money. In its simplest form, it is a question of whether we have enough money in our pocket to buy today’s newspaper, or in a more fundamental society, whether an exchange of a bunch of bananas is worth a t-shirt. As we move up the scale of economic decisions, the choice of personal transportation stands out—do we buy a new car, and if so, which one? Or, for a laborer in Beijing, China, can he afford to buy a bicycle. In India, it may simply be a decision to buy a new pair of sandals.
Further up the economic ladder comes the selection and purchase of a home. This factor looms very large in our personal lives. It is not a decision made hastily. We consider many things: its cost and whether we can really afford it, how much we will have to give up in other ways, how badly we really want a family room, what type of heating it has, whether it’s in a good neighborhood and matches our lifestyle, how long we plan to live there, whether it will be easy to maintain, what the taxes and insurance are and will it appreciate or depreciate with time, and will it be easy to resell if we have to move. What it boils down to is whether we can afford it and whether it’s the place we want to live and spend our brief time on earth. Buying a new home is probably the single most important economic decision we make in our personal lives, yet to how many of the above considerations can we actually give an absolute monetary value?
The critical cost factors can be evaluated with great accuracy, such as the down payment and the monthly payments, including tax and insurance, as well as the likely utility costs. In essence we ask ourselves whether our income-generating capability is sufficient to meet the costs. If the answer is “yes,” then the real decision is made on the other points. The cost issue acts only as a sieve. After that, other considerations dominate and theoretical economics become totally entwined with human behavior and emotions.
When we make our decision on a home purchase, we need to know the costs with reasonable accuracy before we can make a decision based on the remaining features. The same is true of a grand venture such as the solar power satellites. In this case there are two types of cost we must consider.
The first is to estimate what the development costs will be. These are the costs incurred prior to the construction and operation of a system. They are often referred to as front-end costs and are the most difficult to estimate, since the risk is usually high. In commercial businesses, amortization of the development costs must be spread over many production units, and it is not always certain how many units will be sold. With government involvement, development is usually considered to be a national investment, without attempting to reclaim the cost from direct sale of the product. This is true of military hardware and most government-sponsored research and development. In the past this has included aeronautical development, nuclear energy development, medical research, and many others.
The second cost category is how much each unit will cost as it is produced. These costs are generally easier to predict accurately if we can define the product with reasonable detail. In the long run, these costs are by far the most important.
The issue of cost of a large new energy source is important to us as individuals since those costs determine the cost of energy that we buy and use in our daily lives. They are also critical to the general economy that provides us with jobs and the opportunity to improve our lives. If they are too high the cost of energy will be too high and there is no reason to make the investment. So the first issue we must consider is what will be the cost of energy for the consumer if it is generated by solar power satellites compared to other sources. It must be much lower in order to win our support to make the huge investment required to develop the satellites needed to gather solar energy in space.
To make this initial comparison I will use the cost estimates generated by my Boeing team for the NASA/DOE studies, which were based on a satellite that had an output of five thousand megawatts. The cost estimates to produce a single satellite was $12 billion. This cost was developed in 1979 dollars, and includes the cost of the satellite, the ground receiver, and the cost of transporting the satellite hardware to space. The $12 billion would escalate to $24 billion in 1995 dollars.
These numbers do not include research and development costs nor the cost of the infrastructure required to support satellite development. These two items will be discussed separately in order to keep the comparison as consistent as possible. They will be treated as a national investment in the same way that nuclear power was developed.
How do Solar Power Satellites Compare to Other Systems?
There are several ways to compare costs of different energy systems, and most of these comparisons are slanted toward the business and investment community and how they make investment decisions. In the electric energy generating business this approach often results in minimizing investor risk at the expense of the consumer and results in higher costs of electricity.
The reason for this is that the cost of fuel is seldom included in any comparisons made by investors. Fuel does not represent a capital cost and therefore is not included in the original costs that must be financed to build the plant. Fuel costs are routine month-to-month operating expenses that are passed on directly to the consumer, so investors do not consider that it has to be counted. However, for one coal plant with an output equivalent to a five-gigawatt solar power satellite, the fuel cost will be between $40 and $250 billion over a 40-year lifetime. The range depends on whether there is any inflation and the rate of inflation. It seems to me those are pretty big numbers to ignore, particularly when they will ultimately be passed on to us, the consumers.
Another reason fuel costs are ignored is because most current economic theories use discounting analysis, levelized costing, or present value factors to make economic decisions. All these theories attempt to place mathematical formulas around all criteria with a cost equivalent number assigned. No value judgments are allowed. Based on these formulas the economists say that a dollar in the future will be practically worthless. Or conversely, we can afford to spend $10 to $100 twenty years from now in order to save one dollar today and anything that doesn’t produce immediate profit is not a good investment today. Lucky for us our ancestors did not think that way.
When these economic theories are used, only the money spent today is evaluated in the equation; money spent for fuel in the future does not affect the result. They are nice theories, but like so many theories trying to explain complex interacting relationships, they disintegrate in the face of reality. They fail to consider the value of investing in capital expenditures for future benefits.
Some of the economic woes in the United States, besides those being driven by the high cost of energy, were brought about by this economic philosophy. The steel industry is a case in point. Through the years they failed to make the capital investments that would keep them competitive with the Japanese or Europeans, ending up with obsolete plants and processes that were labor and energy intensive. When difficult times came, the bottom dropped out for them.
In our comparison I will not use any of these theories. Ours will be a straightforward economic approach to compare the costs of electricity using the same method as for a typical state-regulated utility company. The cost will include the cost of buying a power plant, operating and maintaining it, and also the cost of fuel to provide the energy. The cost of buying the plant includes the cost of borrowing the money and paying interest over a 30-year period as well as the cost of taxes and insurance. All of these costs plus a profit margin are then passed on to the consumer. The plants in our comparison will be sized to have the same total output capacity over a 40-year life span. Forty years is about the maximum life for a typical fossil fuel generating plant. The life of a space solar power plant will be much longer than 40 years because of the benign environment of space, but for the comparison we will consider the first forty years.
The cost of operations and maintenance has become a major factor in some power plants, for it is in this category that the cost of pollution controls are felt. The cost of chemicals and exhaust scrubbers to control emissions from coal plants is now quite large and growing because the allowed emissions have been greatly reduced to limit atmospheric pollution.
In the United States today by far the largest source of electricity comes from coal, which accounts for 56% of the total. Nuclear now provides 22%, with hydroelectric accounting for 9%, natural gas 9%, and oil at only 4%. Others such as geothermal, ground solar, and wind turbines are so small they aren’t considered to be significant.
Of all the sources listed above, hydro provides the lowest cost power. Unfortunately we have already built dams on most of our rivers so there is little chance of adding significantly more hydro power. The only exception is the state of Alaska, and it is far from the centers of demand. The last new nuclear plant was ordered in 1978 and none are under active construction at this time. The remaining production is from fossil fuels being burned in thermal power plants.
I will use coal in the comparison because it is the largest source and the lowest cost next to hydro. Coal power plants have been in existence since the nineteenth century, and we would expect that their costs could be accurately predicted. However, there are several extenuating circumstances that cause the costs to vary widely from plant to plant. Four factors come into play that raise havoc with the estimators. First, environmental requirements are a new consideration and have a large impact. The second is site location and regulatory delays. The third factor that estimators have found difficult to project is the future rate of inflation and the cost of labor disputes. The fourth is mismanagement, which has been particularly rampant in public power systems. As a result, the cost of coal plants built during the last decade varied by a factor of three in their cost per unit output, depending on their location and the various impacts of the factors mentioned. If one were to choose a representative average cost figure, it would be about half of what a solar power satellite would cost per kilowatt of generating capacity. Cost per kilowatt of generating capacity is a common and useful way to express the capital cost of a plant because it ignores the unit capacity of individual plants and places all systems on a common comparison basis.
A typical investment comparison would stop here. The fact that the capital investment in a coal plant is half the cost of a solar power satellite would make it the clear winner in an investor’s mind—particularly since solar power satellites have never been built and therefore the cost estimates are very suspect to the investor.
As hard as it is to pin down the capital cost of the generating plant the real culprit in the energy cost comparison is the cost of fuel. Coal is particularly difficult to specify. Not only is there a variation in quality due to very large differences in the heating value of different coals, but impurities cause major impacts on environmental emissions. Transportation costs also vary with the distance between the mine and the power plant. For the comparison, I have used a median Northeast cost for coal delivered to the plant. The problems do not stop here, however, because the plant must use fuel over all the years of its existence, so the cost must reflect the effects of inflation, the effects of regulatory changes, and the ever-increasing difficulty of mining coal as it is gradually depleted. Recent history suggests that a real cost escalation of over two and a half percent a year can be expected from regulatory changes and increases in mining cost. I have also used 3% annual inflation as the lowest we could possibly expect over the long term.
There is no fuel cost for solar power satellites so it avoids all the uncertainties of the escalating cost of fuels, and its only costs are capital costs and the cost of operations and maintenance.
Now all we have to do is select a time frame. Since solar power satellites would be a solution for the twenty-first century, I will start the comparison in the year 2000. The electricity cost from a new coal-fired generating plant placed in operation in the year 2000 would be 18 cents per kilowatt hour for that year. Nine cents of that is capital-related cost, two cents of that is required for operations and maintenance, and the remainder (seven cents) is fuel cost. In the same year electricity from the satellite would cost 15 cents per kilowatt hour. Nearly the entire amount is capital-related as operations and maintenance are only a fraction of a penny per kilowatt hour and there is no fuel cost.
At the beginning electricity costs are similar; however, they start to diverge immediately. By the year 2010 cost of electricity from the coal plant has risen to 23 cents per kilowatt hour while the cost for the solar power satellite has diminished to 11 cents as the original investment is being paid off. Capital costs are also diminishing with the coal plant, but cost of fuel and cost of operations and maintenance escalate with inflation.
By the year 2020 the difference has significantly expanded. Coal-generated electricity cost is increased to 29 cents per kilowatt hour while solar power satellite costs have dropped to 8 cents. Escalating fuel cost is the main cause, but the cost of operations and maintenance is also escalating for the coal plant as emission standards are tightened.
In the year 2030 all the capital costs will be paid off, but this has little effect on the cost of electricity from the coal plant as the cost of fuel and operations and maintenance are the overwhelming cost elements, raising the cost to 43 cents per kilowatt hour. In the case of the solar power satellite the cost of electricity has dropped to 3½ cents, and with the final capital cost repayment the price of electricity drops to under two cents per kilowatt hour by the year 2040. And a large part of that cost is profit.
All capital costs will be paid off in 2030 and yet, due to rising costs of fuel and operations and maintenance, by the year 2040 the cost of electricity from coal has sky-rocketed to 70 cents a kilowatt hour and the plant is worn out. In the meantime a solar power satellite would be producing power at less than two cents per kilowatt hour and it should be able to do that for many years beyond the life of a coal plant. With proper maintenance its life can be indefinite, just like a hydroelectric dam.
Imagine the impact on the average household in the year 2040 if they used 3000 kilowatt hours of electricity a month? With coal used to generate electricity they would pay $2100 a month. With solar power satellites the bill would be less than $60 a month. And that is only for their home. When we consider the energy cost impact on all of the things we do and buy each day, the difference will be poverty versus wealth.
Energy Costs Can Be Immune to Inflation
When we look at the potential savings with solar power satellites compared to coal, the numbers become immense. The savings in energy cost from one solar power satellite over a 40-year period would be more than $300 billion, if we had only 3% inflation. If we expand that to represent one half of the current US electrical generating capacity, the potential savings becomes about $22 trillion in a 40-year span with a total investment of less than $2 trillion. After 40 years the savings would grow even larger each year.
One wonders what will happen to the economy in the future if we continue to spend an ever-increasing portion of our wealth for energy. The money we will save by developing solar power satellites can reverse this trend. It will provide a healthy economy that will enable us to pay off the national debt and create a source of unending wealth for all Americans. Even if the capital cost was underestimated by a factor of two or three times, the ultimate cost advantages would not be significantly affected because of the huge financial leverage of the satellite system. This is true because there is no fuel cost to continuously escalate energy costs.
With the satellites, energy would no longer be one of the causes of inflation; instead it would become one of our most effective tools for fighting inflation. This phenomenon is not just a flight of fancy. We have the excellent examples of the hydroelectric dams. Many were built in the first half of the century and are now paid for. The cost of power from these plants is only a fraction of a penny per kilowatt hour. The mortgage is paid off and the water keeps flowing. Our forefathers made capital investments in the future that are paying off handsomely today. Unfortunately there is no more room for big hydroelectric dams. We need instead to build solar dams where there is nearly limitless room and no limit to the energy flow. Solar satellites could be called solar dams with the characteristics of being essentially immune from inflation and without the capacity limitations of hydroelectric dams.
With their promise of abundant, low-cost, clean energy there is only one sensible choice when we are faced with the decision to make a capital investment in the future and build solar power satellites. There are those who will want to do the expedient thing, which is nothing. But can we afford to do nothing? We will be forced to pay trillions of dollars for fuel that will be burned and gone forever as it pollutes our atmosphere. Future generations will judge us harshly and with justification if we do not step up to our responsibility to create a foundation for their future. We had it soft and easy in the golden age of oil. Are we going to be too flabby to make hard decisions that can overcome the difficult times we are experiencing now, which will only become tougher in the future?
The evidence is there, the technical ability is there, and the funding capability is within reasonable and achievable levels. We can afford the down payment, we can afford to make the mortgage payments, and the total costs are lower than other sources. We cannot plead ignorance. We must make our decision to make the capital investment in our future based not only on projected costs, but also on value judgments.
Does your value judgment say that solar power satellites are the answer for the fourth energy era?