Summary
The cost comparison between constructing a renewable energy plant verses a coal or nuclear plant is like comparing apples with steak. The only similarity between the two is that they are both eatable food.
Analysis
The cost of constructing a renewable energy plant should be based on the local economy in the location it is going to be built in. The amount and type of fuel (sunshine, wind, grass, sea weed, sawdust, cow manure, tires, biofuel, garbage...etc.) it will have available on a renewable or consistent supply basis is a major consideration. Than, the value it will provide to the local community and amount of energy it will take of the grind not add to it, especially at the ends or where the grid exceeds its efficiency limits. Also on what affect it will have or benefit it will provide to the areas environment. Last thing that should be considered is its economics of scale.
Why consider the economics of scale last, because the philosophy of bigger is better has become a mind set in all economical evaluations. And most if not all of the electricity energy generation is controlled by large corporations. With a simple business model of build them bigger for more profit along its good for the stock holders.
During my career as a consultant and Industrial engineer, I wish I had a $100.00 dollars for every time someone loaded their report or study to prove the bigger is better mentality. In 90% of the cases a little extra work proved an abundant amount of data to indicate that a smaller more efficient project generated a greater ROI over a same period than the large plant. Why, because the input cost was lower, efficiency was higher and the overall quality was better resulting in a greater EBIT.
Also, the operation of the plant is the very important factor in the life of the investment. A summary of how two different operational procedures made a difference in a strong and weak economy through a short story about companies A and B.
Let’s call company one A and company two B for the sake of protecting their identities. Company A’s business model was focused on yield not gross output per day and company B’s business model was if we can make X let’s see if we can increase its output to Y. The results were evident in both the short and long term, that is, company A was able to produce more product for sale with a better quality which also resulted in longer life of the production machinery. Company B did increase their production with no additional CapEx but suffered more downtime due to equipment failures, less saleable product resulting in a major rebuild 5 to 7 years earlier than company A. What company do you think had the best interest in mind for the investors and stock holders? And company A did not require a huge corporate office to show off their success and company B had to close a number of plants during and after the economic meltdown.
In summary there are more factors to consider than the size, transportation of the fuel and relationship to the grid in determining the economic and technical success of a renewable energy project. We need to return to sound engineering and scientific principles not just financial engineering in determining the future of our country’s economy.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
