The last Director’s Blog made the case that energy costs are going to be a critical, perhaps the critical ingredient in determining the pace and extent of global de-carbonization. It then went on to lay out four key principles to consider when crafting climate strategy:
- The cost of transition must work for developing countries.
- The pathway predominately leads through de-carbonizing electricity.
- There will be tradeoffs.
- De-carbonizing the traditional energy industry must be pursued alongside substitution.
With these principles in mind, how can the energy transition be pursued in ways that have a chance to reach the targets climate scientists specify within the timeframe they see as critical? A Duke Energy climate report, “Achieving a Net Zero Carbon Future,” illustrates the nature of these challenges. We can use this report to better understand what’s involved in de-carbonizing electricity both here and in the developing world. Doing so will shed light on the tradeoffs involved and why de-carbonizing the traditional energy industry will be a necessary component of a successful climate strategy. Reflecting on these issues should also cause a reconsideration of options that better reconcile energy costs with the need to de-carbonize on a global basis.
The first thing to note about the Duke climate report is that the plan takes thirty years to reach Net Zero emissions. Said differently, assuming all of the conditions and assumptions posited for the pathway prove feasible, it still takes three decades to reach the target. That one utility, a well-funded and competent entity committed to a serious climate goal, has a three decade best case for de-carbonization speaks volumes about the difficulties which lie ahead in the energy transition. How long will it take for utilities in the developing world to take the same journey?
What are some of Duke’s conditions and assumptions? Three immediately jump out: 1) Duke can extend the licenses for its current nuclear fleet by 20 years; 2) it can continue to operate significant natural gas generation with access to adequate, affordable supplies; and 3) over 12 GW of TBD’ zero emissions generation comes on line. Duke calls this last part of the fleet ZELFRs for “Zero Emissions, Load-Following Resources.” These provide 30% of the zero emissions output envisioned for 2050. Small Modular Nuclear Reactors (SMRs) are an example of the candidates to fill this white-space. The uncertainty of this capacity materializing is illustrated by the fact that to date none of these SMR designs have been licensed by the Nuclear Regulatory Commission, let alone built at scale.
As challenging as hitting these targets may seem, they pale in comparison with some of the other issues embedded in Duke’s pathway to Net Zero. Duke envisions having to expand its generation fleet to 105 Gigawatts (GW) by 2050. Presently, Duke’s summer peak capacity is 58 GW. This means Duke is going to have to expand its existing capacity by 84%. This however, significantly understates the capacity Duke is going to have to add. For starters, Duke envisions retiring its remaining 16 GW of coal-fired generation. Add that replacement capacity to the growth component and the new build quantity exceeds 100% of current generation. Moreover, at least some of Duke’s current nuclear fleet will probably retire by 2050. Possibly most of the current nuclear plants may go away. In sum, Net Zero by 2050 will require Duke to add new capacity equal to more than double its existing generation fleet.
Interestingly, Duke’s report does not address the capital cost associated with this gigantic rebuild of its plants/infrastructure. Given inflation and new build costs, surely the dollar amounts will exceed the value of all plant &equipment presently on Duke’s books. Such investments will create opportunities for economic development and technical innovation. However, Duke says nothing about the wholesale power prices that will be needed to attract the capital for this huge financing requirement. Yet, the facts are there to see. Duke is telling us its pathway to net zero will require a huge amount of new capital incentivized by an adequate return on equity. As the magnitude of this funding requirement becomes clear, concerns over customer costs could become a limiting factor on the pace of transition.
Finally, the Duke report provides an important insight into why so much new capacity and capital will be required. The answer is the relative low output capacity and intermittency which a massive renewables buildout will bring to their fleet. The report puts it this way:
In the net-zero carbon scenario, renewables (solar and wind) contribute over 40,000 MW of those additions, representing 40 percent of the summer nameplate capacity of Duke Energy’s system by 2050 and generating the largest portion of energy…The requirement for such large needed additions arises because replacing traditional electric generating capacity with renewables plus storage is not a one-for-one proposition. Due to the intermittency of renewables, significantly more capacity must be built, even with storage available, to provide the same level of reliable electricity generation as a fossil plant. Therefore, achieving net zero will also depend on our ability to site, construct and interconnect new generation, transmission and distribution resources at an unprecedented scale in a timely manner.
To put this in perspective, Duke’s newest utility-scale solar farms deliver 23-29% of their nameplate capacity over the course of a year. Wind farms in Duke’s territories may provide 23-45%. These figures clearly vary by location. The sun and wind are not the same in terms of strength and duration in Arizona and Oklahoma versus Minnesota or Maine. Combined cycle natural gas plants can easily deliver 85% or more of nameplate capacity and are not subject to the vagaries of weather or location. For nuclear plants, the output usually exceeds 90%. Battery storage can help renewables store power and deliver it when nature is not cooperating. However, today’s battery storage tends to be effective within 2-4 hour windows. This is helpful during an average day, but of little practical assistance during a bad weather week or for storing August power for January. Duke’s report puts the storage challenge thusly:
We find that while energy storage can help address the capacity and energy gap created by retirement of coal units, installation and operational challenges arise as we attempt to rely on current commercially available storage technologies to provide intermediate and baseload capabilities. For example, to enable coal retirements and accommodate load growth without adding natural gas, Duke Energy would need to install over 15,000 MW of additional four-, six- and eight-hour energy storage by 2030. That equates to a little over 17 times all the battery storage capacity installed nationwide today (899 MW). 2
The point of all this is that achieving deep de-carbonization will be much more challenging than many imagine. Consider these summation points – this is one utility, a technically capable, financially sound firm, and it’s going to have to more than rebuild its generation fleet while counting on unproven technologies to get to Net Zero over the next 30 years. Moreover, it’s going to have to manage the operating and cost challenges of bringing on 40 GW of intermittent power. Finally, it’s going to have to accomplish this buildout and manage the operating risks while also satisfying investors and keeping costs acceptable to rate payers. Does this not suggest that achieving deep de-carbonization on a broad scale, not just across the U.S. or Europe but across the developing world too, is going to be much more difficult and costly than many envision?
With this reality in mind, let’s now return to the four points listed at the beginning. What can be done to accomplish deep de-carbonization of electric power on a global scale – for that is the vital first step of any effective climate strategy. The answers lie not only in renewables and storage, but in accepting certain tradeoffs including those associated with de-carbonizing existing energy and industrial assets.
This starts with a laser focus on the activity which has done the most to de-carbonize the U.S. – employing natural gas and retiring coal-fed power plants. This needs to be aggressively promoted on a global scale. Here it would be good for the environmental community to consider the challenges associated with shutting down coal in the developing world. For countries from China to India and South Africa, coal is both cheap and locally available. It provides reliable generation to grids that are, in many places, unstable and it provides local employment. To convince developing world governments to give up these advantages, the ‘something else’ substitution will need to be not just cleaner but also cheap and secure. LNG, liquefied natural gas, has already proven to be effective as that substitution fuel. Environmentalists should support LNG’s growth going into the developing world. By all means, campaign for tight methane emission standards, but encourage and enable the gas to flow and the coal plants to shut or not get built.
The U.S. LNG business plays a vital role here as the globe’s marginal supplier. Said differently, the addition of U.S. LNG to global supplies had both brought down prices and enhanced supply security. Such developments are fundamental to convincing developing countries to reduce reliance on local coal. For these reasons, supporting an expanding U.S. LNG export capacity will be good for climate strategy. Every additional U.S. LNG export facility will reduce emissions at the import destination along with the pricing power and supply risk associated with gas exports from places like Russia and Qatar.
One objection to this gas-for-coal substitution is that it sustains reliance on fossil fuels. As noted, this objection assumes that an alternative solution of equal or better efficacy is available. Typically, this takes the form of either more renewables or of a breakthrough technology that is probably a decade or more in the future. Neither of these solutions addresses the problem of growing coal utilization in the developing world and the cancelling effect this has on emissions progress elsewhere. Neither is consistent with the timing urgency which climate scientists repeatedly emphasize. A more realistic approach would accept the tradeoffs associated with embracing natural gas as that ‘bridge fuel’ which allows progress on emissions while we develop the technologies that enable other paths forward.
The need to re-embrace natural gas illustrates the fourth principle, the need to de-carbonize the traditional energy industry. This will be a technical challenge as oil and gas is intrinsically carbon intensive. Carbon capture is one way to accomplish this goal. Here we are talking about technology that retrofits power and industrial plants with the ability to capture CO2 from its flue gas streams. Such technologies already exist. Their deployment would enable existing plants to avoid replacement while addressing the ‘permanently hooked on GHG emitting hydrocarbons’ concern. Carbon capture could be especially beneficial in the developing world where the task of rebuilding power generation from the ground up is even more daunting than in the U.S. The real challenges here lie not so much on the capture front but on what to do with the CO2. Duke’s report puts it like this:
Carbon capture, utilization and storage (CCUS) – CCUS technologies for the power sector are in the early stages of deployment, with a few small-scale projects on coal having achieved commercial operation and several natural gas projects currently in development, spurred by the 45Q tax credit, which provides an incentive for utilizing or storing captured CO2. Demonstration of CCUS at scale for natural gas power plants is an important milestone for commercial deployment in the power sector, as is building public, environmental and regulatory confidence around the transportation of captured CO2 and its utilization and geologic storage.
In short, we increasingly know how to capture the carbon. The challenges of deploying these technologies at scale lie in how best to use CO2 and where to store it. Note here – utilization and storage require moving the CO2 once it is captured. There will be few instances where it will be easy to use or store CO2 at the same site as the power or industrial plant emitting the gas. Today CO2 is used in beverages, for making chemicals and cement, and in enhanced oil/gas recovery. Most of the U.S. storage capabilities are down along the Gulf Coast. How then do power plants in North Carolina or ethanol plants in Illinois dispose of their CO2 once captured?
This brings us to another tradeoff discussion, one associated with pipelines. A more differentiated approach to new pipeline projects is needed. A portion of the environmental community has opposed most if not all new pipeline construction. They have done so out of concern that construction and leaks would impact sensitive areas and endangered species. However, for some new pipeline projects the tradeoffs are emerging in clearer focus. Being able to move natural gas and CO2 around is becoming an integral part of getting to Net Zero emissions sometime soon. If we can’t do this in the power sector, what hope is there of de-carbonizing the broader economy? It would thus be useful for those expressing environmental concerns on pipelines to distinguish lines carrying gas or CO2 from those bringing oil from the tar sands oils of Alberta. Doing so would enable the environmental community to push for de-carbonization of existing facilities via retrofitting them with CCUS equipment. A success here could resemble that which they achieved on NOX and SOX emissions in decades past.
A third tradeoff discussion is emerging around nuclear power. Nuclear is a very complicated subject with issues ranging from operational safety and economics to storage of waste fuel and exposure to terrorism or natural disasters. On the flip side, the U.S. nuclear fleet delivers about 20% of total electricity on a highly reliable basis and despite some scary episodes like Three Mile Island, has an impressive overall safety record. A comprehensive discussion of this set of tradeoffs is beyond the scope of this article. What is worthy of discussion here is the role which new nuclear technologies could play within effective climate strategy. Consider this perspective from the Duke ZELFRs discussion:
Advanced nuclear – Advanced nuclear includes a wide range of small modular light-water reactors (SMRs) and advanced non-light-water reactor designs. Small modular light-water reactors are closest to commercial deployment, with early designs targeting commercial operations in the mid-to-late 2020s. Advanced non-light-water reactor concepts are also under development and are expected to be commercially available in the 2030s.
Duke is interested in nuclear for its ability to provide base load power with zero carbon emissions. Without new nuclear plants, it is doubtful Duke can reach its net zero target as many existing nuclear plants will retire before 2050. Clearly Duke has a lot riding on nuclear technology progressing to where it can provide the zero emissions baseload power in partnership with a large renewables portfolio.
This same combination of reliability and climate-friendly also makes nuclear well-suited to de-carbonization efforts in the developing world; it is no coincidence that most of the nuclear plants under construction today are in China, India and the Middle East. The tradeoff discussions here concern proliferation, economics and safety issues. For the benefit of climate strategies, especially in the developing world, it is essential to see if advanced nuclear technologies will bring answers to the high capital costs, security threats, construction risks and safety concerns that have stalled nuclear construction in the U.S. and Europe.
With this in mind, effective climate strategy should be highly interested in identifying which advanced nuclear technologies can deliver better economics, grid flexibility and operating safety. That interest should involve public support for reasonable licensing procedures for SMR demonstration plants and for enabling successful SMR technologies to progress to at-scale deployment. These plants will likely offer smaller capacities versus the nuclear plants of past decades, e.g. 300-600 MWs vs. 1-2 GWs. However, such smaller projects might be well suited for deployment in developing countries, many of whom have smaller demand loads and limited financial capacities.
Hydro power is one more example of an energy source which should be revisited. After providing decades of low cost power in states as varied as Nevada, Washington and Tennessee, hydro has largely disappeared as a new power option. Environmentalists successfully mobilized to oppose dams on grounds ranging from impact on local communities to the destruction of wetlands and endangered species. As with nuclear, this opposition was accommodated because utilities and regulators felt they had alternatives. Today however, alternatives like coal and natural gas are opposed for their climate impacts, and renewables come with their intermittency challenges. In this context, hydro’s virtues loom larger. It produces electricity with no emissions of any kind. In many locations the power is very low cost, especially over time as hydro projects have long economic lives. Most interestingly, hydro turns out to provide very cost-effective electricity storage. Hydro reservoirs are large holdings of reserve power which can be released on demand by opening the sluice gates. Pump-storage hydro has long been the most cost effective source of long duration storage. Paired for decades with nuclear power, pump-storage project can effectively combine with renewables. Zero marginal cost wind/solar power can refill hydro reservoirs, with the water then released when electricity demand exceeds supply. As with nuclear, new forms of smaller hydro have emerged which may provide power and storage capacity with less environmental impacts than the giant dams of years past.
One theme running through all of this discussion is the need for new thinking about tradeoffs in any successful approach to climate. A belief that wind/solar plus storage can achieve deep de-carbonization has allowed many activists to avoid a discussion about harder tradeoffs. The argument here is that renewable resources are useful but insufficient to get the job done even in a developed economy like the U.S. Put the climate issue in a global context and the “renewables solution” looks even less practicable. Are wind/solar and batteries really going to de-carbonize the Indian and Chinese power sectors within any near-term timeframe? Will they do the job in Africa, the Middle East and Latin America? Those seriously concerned with climate strategy have to face this issue and if they conclude something else, maybe a lot of something else, will be needed, should move onto a discussion of things that can be done now to move global de-carbonization forward. Without question this discussion is needed. As it proceeds, many of the tradeoffs touched on here will be on the table, and climate activism will become as much about what now to enable as about what to oppose.