EIA’s Analysis of Bingaman Clean Energy Standard Underestimates Role of Renewable Energy

May 17, 2012 | 9:19 am
Steve Clemmer
Director of Energy Research & Analysis

On May 2, the Energy Information Administration (EIA) released a new analysis of The Clean Energy Standard Act of 2012, proposed by Sen. Bingaman (D-NM), which greatly underestimates the potential contribution of renewable energy while making overly optimistic projections for nuclear power. The so-called “clean” energy standard (CES) would require electric utilities to gradually increase their power supply from low- and no-carbon sources from 24 percent in 2015 to 84 percent in 2035. More details on the bill, along with several improvements, are discussed in a separate UCS blog.

Nuclear power is the big winner in EIA’s analysis

Under the CES, EIA projects U.S. nuclear capacity to increase by a whopping 82 percent — from 101 gigawatts (GW) in 2010 to 184 GW in 2035 — compared to 112 GW in 2035 under the reference case. This is equivalent to adding more than 4 new 1,100 megawatt (MW) reactors each year on average over a 20-year period. Under the CES, EIA projects nuclear generation will be 62 percent higher than the reference case in 2035.

While natural gas and renewable energy generation also increase under the CES, the growth is modest compared to EIA’s projections for nuclear, and is much less than EIA’s November 2011 analysis of a slightly different version of the bill. By 2035, EIA projects natural gas generation will be 8 percent higher under the CES than the reference case, compared to a 53 percent increase in their 2011 analysis, while they project non-hydro renewable energy (primarily wind and biomass) to increase 34 percent by 2035, compared to a 75 percent increase in their 2011 analysis.

EIA’s cost assumptions for nuclear are overly optimistic

EIA’s rosy projections for nuclear power in both analyses are largely due to their use of overly optimistic cost assumptions that don’t match up with reality. Based on a 2010 R.W. Beck study, EIA increased the overnight capital costs (not including financing costs) for new nuclear plants to $5,340/kW in AEO 2011 — a 37 percent increase over the levels assumed in AEO 2010. While this was a move in the right direction, EIA’s cost estimates are still far lower than proposed projects and other independent sources. For example, on May 2, Progress Energy announced that the price tag of its proposed 2,200 MW Levy nuclear power plant in Florida could reach as high as $24 billion or $10,900/kW, and wouldn’t begin generating electricity until 2024. More details on this project are discussed in a separate UCS blog.

While the cost estimate for Levy includes financing and transmission costs, it still does not explain why EIA’s costs are half as much. Other independent sources, such as Black & Veatch, an engineering firm that has experience designing and building nuclear plants and other technologies, projects overnight capital costs for nuclear of between $6,000-$8,000/kW.

To make matters worse, EIA assumes capital costs for nuclear plants will decline significantly over time due to technology learning and commodity prices declining for all technologies. For example, in their AEO 2011 reference case, they assume overnight capital costs will decline 35 percent by 2035 — from $5,250/kW in 2016 to $4,310/kW in 2025 and to $3,420/kW in 2035.

These cost reductions are not consistent with historical experience or recent projects. In addition to the recent cost increase at the Levy project:

  • Last week, Georgia Power (a subsidiary of Southern Company) announced a $900 million cost increase for the 2,200 MW Vogtle plant in Georgia, projected to come online in 2016-2017.
  • Last month, TVA nearly doubled the cost of Watts Bar 2, a mothballed reactor, adding another $1.5-$2 billion and three years to a project that was supposed to come online this year.
  • French nuclear developer EDF has reportedly raised the cost of building a nuclear power plant by more than 50% to 7 billion pounds ($11.1 billion) from 4.5 billion pounds ($7.2 billion) last year.

Given these higher costs, pending NRC regulations that could add even more to the price tag of a new reactor, and the decline in public support for nuclear power following the March 2011 Fukushima crisis in Japan, it’s hard to imagine the U.S. ramping up nuclear to the levels projected by EIA, particularly when lower cost and less risky alternatives are readily available to meet our electricity needs.

EIA’s cost assumptions for wind and solar are pessimistic

EIA’s capital costs for wind ($2,438/kW) are more than 20 percent higher than the $2,000/kW average cost of 17 projects installed in 2011, as shown below from a 2011 report by Lawrence Berkeley National Lab. Dr. Ryan Wiser, the lead author of the report, recently projected capital costs to fall by another 8-18 percent in 2012 and 2013. His estimates are consistent with two projects currently under development in Oklahoma that are estimated to cost around $1,600/kW.

Installed Costs of Wind Power Projects in the U.S.

Installed Costs of Wind Power Projects in the U.S. Source: DOE, 2011.

Average Installed Costs of U.S. Solar PV Projects

Source: SEIA, 2012.

In addition, EIA’s cost estimates for solar photovoltaics (PV) don’t fully capture recent and projected cost reductions, which is why they show very little increase in solar power under the CES. The cost of solar PV panels has declined by more than 50 percent in 2011, while total installed costs in the U.S. have dropped by 35 percent over the past two years, as shown below. In 2011, a record 1,855 MW of PV was installed in the U.S., representing 109 percent growth over 2010 levels. While EIA lowered the capital costs of utility scale PV systems by 25 percent for AEO 2011, and it appears they lowered costs again for the AEO 2012 early release, DOE and other experts are projecting greater cost reductions than EIA in the next ten years.

Renewable energy should play a much bigger role in CES

By 2035, EIA projects that non-hydro renewable energy would provide 15 percent of total U.S. electricity use under the Bingaman CES, compared to nearly 11 percent under EIA’s reference case. Previous EIA and UCS analyses have shown that renewable energy can provide 25 percent of U.S. electricity use by 2025 at a small cost or even a net savings on consumer electricity and natural gas bills. UCS analysis also shows that combining renewables with strong energy efficiency policies can result in even greater energy bill savings and carbon reductions that would meet or exceed the Bingman CES targets.