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Present value cost of the U.S. electricity system


While Rocky Mountain Institute’s four scenarios for the future U.S. electricity system ( detailed here ) have profoundly different resource portfolios, grid structures, environmental impacts, and risk, all the scenarios have very similar overall system costs.

Maintain represents “business-as-usual,” with little smart grid deployment, bulk energy storage, or demand response capability. Most U.S. electricity is produced by burning natural gas and coal. In this scenario, the 2010 present value cost of the next 40 years’ electricity is about $6.2 trillion. Almost half of this will pay for fuel, with the second biggest cost being Operations and Maintenance (O&M). Several factors make these costs uncertain, such as tighter EPA emissions regulations, desubsidization of fossil-fueled plants, escalating fuel prices, and potential pricing of CO2 emissions.

The Migrate case transitions to a grid relying heavily on nuclear power and gasified coal equipped with carbon capture and sequestration (CCS). The present value cost of electricity through 2050 in this scenario is only 4.5% higher than in the Maintain case: capital cost is nearly twice as high but fuel cost is lower. In addition, there is significant cost risk in a scenario relying so heavily on IGCC/CCS plants—a largely unproven technology with uncertain costs at best—and new nuclear plants’ rapid capital-cost escalation, high cost uncertainty, and capital-market challenges underscore this scenarios’ financial risks.

The present value costs of the U.S. electricity system through 2050 have similar composition in the renewables-heavy Renew and Transform cases. These scenarios have higher capital costs than the “business-as-usual” scenario (more installed capacity, sometimes higher capital intensity, and more grid) but very low operating costs. The Transform case, with more installed renewable capacity and more development of smart-grid infrastructure, has much higher capital and distribution costs than the Renew scenario, but also slightly lower fuel costs. And while these cost projections depend on renewables’ future cost reductions, they’re also far less subject to uncertain fuel prices. The Renew and Transform scenarios also benefit from reduced construction, transmission, and financing risk, by enabling the incremental addition of small, shorter lead-time generation units, when compared to a case requiring lots of large, slow construction projects (as in Maintain and especially Migrate).

Altogether, the present value cost of electricity in the Transform scenario is $6.3 trillion, only 2% higher than in the Maintain case (well within the margin of error), and 8.6% higher than in the Renew case. All these cost comparisons, too, use standard “engineering economics” that does not properly compare different resources’ risk. Doing this via “financial economics” would probably shift the comparison in Transform’s favor.


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