Paradigm Shift in Energy Production


We are witnessing a paradigm shift in energy production.  We've seen dramatic shifts like this across numerous industries over the decades, most recently by computers, the Internet, and cellphones.  The industrial revolution changed markets dramatically as steam power, driven by coal, and later the internal combustion engine, primarily driven by gasoline and diesel derived from oil, changed the face of the planet through mechanization and automation.  Horses and oxen were no longer needed to plow the fields, or to pull wagons, as they were replaced by tractors and automobiles.  The electric light, electric motor, and a myriad of electrical appliances followed, driven primarily by coal and hydroelectric power sources.  Coal was inexpensive and plentiful, with decreased demand from steam locomotives and tractors, it was the perfect fuel for the power generation plants that were needed for electrification projects.  Coal has therefore been a mainstay of relatively inexpensive power production for over a century, but this era is coming to an end.  Nuclear power, utilizing fission of uranium rods, became popular in the 1960s and 1970s but waned due to safety concerns after incidents at Three Mile Island and later at Chernobyl.  Nuclear plants manufactured today are very safe, and in my opinion, should not present any significant concern for the public.  Additionally, natural gas has become more popular as gas prices have come down primarily as a result of fracking.  Oil also is used in some remote locations for power generation, such as a Hawaii.

The biggest upstarts in the past few decades which are dramatically changing the market are so called "renewable" energy sources such as solar panels and wind turbines, in addition to the already tried and true hydroelectric power and geothermal power.  Hydroelectric and geothermal make a lot of sense, but they require specialized locations with stored water or geothermal features.  Solar and wind power, by contrast, can be used wherever the sun shines or the wind blows.  Solar cells and wind turbines have become increasingly more efficient, with solar dropping in price by 90% over the past decade, and wind dropping by 65% in the same time period.  Now we are at the point where both are becoming less expensive than traditional energy sources such as coal and nuclear power.   This is calculated by the LCOE or levelized cost of electricity, which takes into consideration the cost of building a generation plant, transmission of the power, and fuel to run it for the life of the plant.  According to the US Energy Information Administration, for systems entering service in 2023, not including any subsidies, onshore wind generation will cost $56 per Megawatt-Hour (MWh), photovoltaic solar will cost $60/ MWh, hydroelectric will cost $39/MWh, and geothermal will cost $41/MWh.

By comparison, nuclear will cost $77/MWh, coal will cost $99/MWh, and Natural Gas will cost $41/MWh.  Therefore, coal is the most expensive of these methods of energy production, and simply cannot compete moving forward.  Let me state here for the record that I do not believe in government subsidies, and subsidies were not included in these numbers.  I am also not convinced that man has any substantial influence on the planets climate, nor am I convinced that CO2 is harmful to the atmosphere, so that has no bearing on this information.  That said, EPA filtration requirements on coal generation including carbon capture and storage are included in this number, but even if we take it out of the equation, it would reduce the cost to produce energy with coal by perhaps 20%, which would reduce it from $99/MWh to $79/MWh which is still dramatically higher than the cost of wind or solar generation.  Accoridng to Forbes, 74% of US coal plants are now more expensive than renewable plants, and that number will reach 86% by 2025.  Coal is simply no longer economically competitive with other sources of energy for power generation, and that is something everyone needs to consider for the future.  Personally I think coal is still a great energy source for such things as home heating and other uses, but there are cheaper sources of power, unless there are innovations that dramatically drive down the cost to mine and use coal for power generation, which is certainly possible.

Now obviously, the sun doesn't always shine, and the wind doesn't always blow.  These are referred to as non-dispatchable technologies.  So solar and wind simply cannot stand on their own without other sources of generation to carry the load when the sun is not shining and the wind is not blowing.  Naturally, if hydroelectric or geothermal options are present, those would be great relatively inexpensive options to fill that gap.  At current prices, natural gas seems to be the obvious choice to serve that role, especially given it's quick-start capabilities.  Nuclear is another option, but it's currently more expensive, though innovations in smaller and more efficient reactors could change this.  The other option is energy storage, which include using solar or wind energy to pump water such that it can power a hydroelectric turbine when solar and wind can't carry the load, or chemical storage such as batteries.  Lithium-Ion batteries are now nearly 100% efficient, and battery density is getting better and better, while prices continue to fall.  It is possible that battery capacities and efficiencies will soon reach the point where solar and wind will be able to provide for large-scale 24/7 energy demands, with adequate storage reserves.

The reason that solar and wind, in particular, are such game changers is not just the disruption in terms of decreased prices, but it also has to do with location.  Hydroelectric and geothermal plants must be strategically located near stores of water and geothermal sources.  Coal plants need to be located near rail lines or rivers so coal can be delivered economically.  Nuclear plants are expensive and large.  Therefore, a substantial part of the challenge is transporting that power from where it is generated to where it needs to go, and between 8 to 15 percent of power is lost, mostly in the form of heat in the conductors, trying to get energy from where it is generated to where it is consumed.  While there are large utility operated wind farms and solar plants, the most efficient solution are solar panels and/or wind turbines installed at the home level.  This is called distributed generation (DG) and is typically done in conjunction with net-metering where excess home generated power is sent back into the power grid to power other homes and spins the electric meter backwards.  Later, when power is needed from the grid, it spins forward again like normal.  This, in essence, creates a 100% efficient battery for the homeowner, and saves the utility company from having to transport the utility generated energy to that neighborhood.  It's a win/win.  Unfortunately, some utility companies can't stand the idea that individuals can generate their own power, and have fought net-metering agreements, or de-valued the power going back into the grid, counting it as only a fraction when the meter is spinning backwards.  Fortunately, battery technology, as we discussed, is becoming so efficient that many homes will not require any connection to the grid and they will be able to generate all the power they need from wind and solar and store it in efficient batteries for use when the sun isn't shining or the wind isn't blowing.

These are the reasons why we are witnessing a paradigm shift in energy production.  The future will likely see more self-sufficient homes that are completely independent of the power grid, and utility plants will be dramatically changed from what we know today.  Barring some technological innovation, coal, like oil, will rarely be used for power generation, and solar and wind will become increasingly prevalent.  Interestingly, states that are power houses for energy production today such as Wyoming and Texas, will continue to remain so, due to their excellent wind energy and solar insolation resources.

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