Cape Wind’s economics questioned
The cited study concludes that the Cape Wind Project will "receive a 25% return on equity, 2.5 times the historical average for all corporations" when the present value of federal production tax credits, Massachusetts green credits, and accelerated depreciation for tax purposes are included. Our elected officials passed these laws, and the market is responding as expected. I certainly don’t blame Cape Wind’s developers for seeking to pocket the tax credits being offered. Without those incentives, the U.S. would find itself even further behind Europe in developing alternative energy supplies (see box on p. 39, which describes Germany’s whopping 51 cents/kWh subsidy for photovoltaics). America’s competitiveness at the dawn of a new era in electricity production should be a concern to all of us.
I try to keep an open mind about the economics and the degree to which subsidized technologies will ultimately enter the mainstream. In the case of wind, some utilities are really gung-ho, while others are less than lukewarm. The subsidies are temporary and are only meant to kick-start the market until it begins to mature.
As for the study, I find the results misleading, because they’re based on averages, rather than market leaders. Developers that enter an uncertain market early can ask for premium prices in exchange for the risks they take. Although Cape Wind’s developers have sunk $23 million into the project so far, all they have to show for it is a mountain of paper and the prospect of facing at least another year of environmental studies. Remember, during the 1990s, Dell Computer had a five-year run of return on equity (ROE) of 46% and Intel’s ROE was above 30% when those companies ruled their markets. Today, Dell and Intel’s ROEs have fallen back into in the single digits as a result of intense competition.
We have several articles in the works that will take an in-depth look at the growing pains that the wind power industry is experiencing. Remarkably, they’re not unlike the problems encountered by original equipment manufacturers at the birth of the gas turbine industry 35 years ago.
—Jamie Markos, consultant
When good subsidies go bad
I also oppose the Cape Wind project, but not for the reasons cited in your June 2006 editorial. My opposition is based on poor economics and the project’s reliance on tax subsidies.
I’m not alone with regard to the first issue. I recall an op ed article in The Wall Street Journal a month or two ago by a top officer of a major U.S. energy company who said that he passed on investing in Cape Wind due to poor economics.
As for the second issue, government subsidies may be OK to nurture promising new technologies. However, they invariably take on a life of their own long after the need for them has passed. Wind power has been subsidized for years.
A good example of the adverse impact of government subsidies is ethanol. If ethanol is so good and important, why won’t Congress repeal the ethanol import tax? Could it be because legislators don’t want to increase competition for agribusiness giants, which are among America’s biggest campaign contributors?
Wind power’s hidden backup costs
Thank you for your excellent June commentary on U.S. wind power, particularly your take on the impact that state renewable portfolio standards have on the cost of new projects. The Global Monitor item in the previous issue (POWER, May 2006, "Who’s winning in U.S. wind power," p. 8) also is quite informative.
What is often overlooked in any article about wind power plants is the need to back them up with conventional generation. If the wind blew all the time at optimum speeds, it would cleanly solve all the world’s energy problems. But it doesn’t. Utilities like mine are obliged to provide reliable service to our customers. Our area’s reliability organization requires maintaining a 15% spinning reserve. Because wind farms typically produce power less than half the time, utilities have no choice but to back them up with fossil-fueled capacity—typically natural gas–fired combustion turbines or oil-fired diesel-generators.
Bottom line: wind power’s unavailability leads to added costs (to run backup generation) that are reflected in higher utility rates. Wind power developers and the new class of "institutional" owners of wind projects don’t see this side of the equation.
Editor responds: Most industry observers—including me—believe that electricity production in the U.S. will continue to be dominated by coal for the foreseeable future. The number of new coal plant announcements over the past year and longer-term industry trends confirm that. IIR (www.industrailinfo.com), which is tracking 185 new coal plants in various stages of development, puts their total capacity at 102 GW. Even if the 12 to 14 next-generation reactors that have been proposed are eventually built (not until 2015, at the earliest), nuclear’s share of electricity production in the U.S. will remain at around 20%. If integrated combined-cycle gasification (IGCC) technology pans out, coal could even increase its market share, currently at 50%.
By comparison, wind power accounts for just 0.36% of U.S. installed generating capacity, according to the Energy Information Administration. A big reason for that, of course, is the intermittent nature of wind, as Mr. Shurts points out. Another reason for wind power’s lack of acceptance: I believe that state resource planners and electricity rate regulators are well aware of how much it costs utilities to maintain generation reserves just to cover days when the wind doesn’t blow.
However, to the extent that wind can economically displace intermediate or peaking capacity powered by natural gas or (less efficiently) by coal, I’m all for it—as long as the tax credits used to prime the pump expire the day that wind power can be considered "competitive."
We also might consider taking a few pointers from Germany, where wind now supplies 6% of national electricity demand. The plan is to have renewable energy resources supply 25% of generating capacity by 2020. Germany’s approach is draconian by U.S. standards, and extremely expensive. Check out the web site of the German Wind Energy Association (www.wind-energie.de/en/) for more details.
A final note about tax credits and subsidies. We tend to forget that Washington has pumped hundreds of millions of dollars into co-development of advanced gas turbine technologies over the past 20 years. IGCC technology and FutureGen, touted as the future of coal-fired generation, wouldn’t have a chance of reaching market without many different kinds of subsidies. As far as the "goodness" of subsidies and tax credits are concerned, I think we shouldn’t be asking "if," but rather "how much, for how long, and for what technology?"
Fixing tube leaks
I read with interest your two recent articles on benchmarking boiler tube failures (POWER, October and November 2005). While I do not disagree with any of the statements or data in the article, I would like to clarify a couple of points.
The article states, "the three worst-performing large units (with 123, 188, and 221 total tube leaks over the study period) are powered by cyclone-type boilers." That’s true. But one of the best-performing large units—with only two tube leaks over the study period—also was powered by a cyclone-type boiler.
Finally, if you look at hours of generation lost to boiler tube leaks, the three worst-performing large units are all wall-fired units (with 2,158, 2,546, and 2,570 hours of generation lost to boiler tube leaks over the study period). A statistical analysis does show some correlation between "burner type" and "number of hours of generation lost due to boiler tube leaks. However, the correlation isn’t very strong (P value = 0.061).
I think it’s important for anyone involved with boiler tube leaks to not just to look at the study’s raw data, but also to analyze it statistically for the performance measurements of interest to them. That, of course, assumes you have access to all of the data. Accordingly, I would encourage all utilities to participate in the upcoming 2006 EUCG survey.
Keeping cooling towers cool
I read with interest the article on plastic cooling towers in your November/December 2005 issue ("Graduating to plastics," on p. 18). At FM Global, we have seen the same recent move to plastic cooling towers by many of our Fortune 500 property insurance clients. The advantages they cite are many of the same ones mentioned in your article, including reduced maintenance and increased cooling capacity.
However, one important factor that your article did not address is the higher combustibility of plastic cooling towers. The use of plastic as the tower’s material and/or tower fill necessitates an additional level of fire protection. The protection could be provided by automatic sprinklers or a deluge system. On our web site (www.fmglobal.com), data sheets provide detailed guidance on how to prevent plastic cooling towers from going up in flames.
Perhaps the easiest way to reap the benefits of a plastic cooling tower without having to worry that it will catch fire is to select one that is "FM Approved." We have had several on the market evaluated and tested, and our web site identified the ones that do not support the spread of fire throughout the cooling tower structure.
An article in our April 2006 issue ("Steam turbine upgrading: Low-hanging fruit") has a section on p. 36 describing the Unit 3 steam turbine overhaul completed by KeySpan Corp. at its Northport Power Station on Long Island. KeySpan has asked us to provide some amplifying comments.
KeySpan engineers note that the rationale for the overhaul was degraded performance (peak capacity and heat rate) due to internal seal leakage. Before the overhaul, the unit was load-limited by 15 MW, with the main boiler feed pump at maximum speed. We incorrectly stated that the pump is rated at 15 MW.
The article also stated that "main steam temperature also was limited—by increasing hot reheat temperatures and by the steady falloff in first-stage pressures since the unit’s last overhaul." Clearly, the falloff in first-stage pressure is directly related to seal leakage, but only indirectly to limiting steam temperatures.
Finally, the post-upgrade performance improvement was noted as "465 Btu/kWh (net)—almost twice the predicted 257 Btu/kWh gain." The performance improvement was indeed 465 Btu/kWh (net), but some 317 Btu/kWh of it was attributed to the turbine, even greater than the predicted 257 Btu/kWh gain from that unit.