Reiner Kuhr, an adjunct professor at University of Massachusetts Lowell, worked in the electric power sector for more than 40 years. In this episode, Kuhr, who calls himself an “energy technology economist,” explains why keeping nuclear plants like Indian Point operating is a far cheaper way to reduce carbon-dioxide emissions than by using wind, and solar, how deregulated electricity markets are undermining the nuclear sector, and why the U.S. is headed toward “a train wreck in power generation.”
Robert Bryce 0:04
Hi, and welcome to the power hungry podcast. I’m Robert Bryce. I’m the host of this podcast we talk about energy, power, innovation and politics. And this week is Indian Point blackout week. I’m having guests on to talk about the closure of Indian Point in Buchanan, New York, and why it should have not closed if you’re, if we’re serious about climate change, grid, reliability, pricing, etc. And I’m pleased to welcome Reiner cure on the podcast, Reiner, welcome to the power hungry podcast.
Reiner Kuhr 0:35
Oh, thanks for having me. Robert.
Robert Bryce 0:38
Did I pronounce your last name cure? Is that the correct printer?
Reiner Kuhr 0:41
Or is this a little better? Okay, thank
Robert Bryce 0:43
you. So Reiner, you’re, I’m going to ask you to introduce yourself in just a minute. But I’m going to give you the quick preface that you spent your entire career in the electric power sector. And yeah, now you’re an adjunct professor at the University of Massachusetts low. But my tradition on this podcast is to ever have every guest introduce themselves. So now given just a little bit of your background on who you are, but if you don’t mind, imagine you’ve arrived at a at a at a party, you don’t know anyone, and you’re introducing yourself, please, by all means, introduce yourself.
Reiner Kuhr 1:17
Sure, I guess I’m a. I’m an energy technology economist, now based on three years of teaching graduate students at University of Massachusetts, but my career has actually paralleled the evolution of the power industry. I started in the 1970s, as a chemical engineer, when there was a surge in nuclear projects, and coal projects with stone and Webster and I spent, probably that decade working on site selection for nuclear projects, looking at the environmental licensing and economics of alternatives and worked a lot with integrated resource planning with some of the regulated utilities that were evaluating nuclear project, then in the 1880s, we saw a lot more of a shift away from nuclear to advanced technology and clean coal. There was an oil embargo. A lot of projects were shaping up, that took me away from nuclear into clean coal solar, I did a lot of early work on on solar power with solar repowering of a gas plant, and regional studies looking at making lots of electricity from solar. And in the 1990s, we got into privatization. So we saw a surge in gas plants being built out of project development. And, and I got involved with the New England power pool when developing reference design and economics support integrated planning in New England. And
Robert Bryce 2:56
sorry, I interrupt a lot, I hope you don’t mind. So this has been your entire career looking at the economics and the deployment of electric electric power plants. So if you don’t mind if you don’t, is that fair? Is that a fair assessment? Sure. Okay, well, so I want to cut to the chase here, because I’m really focused on the Indian Point and the closure of Indian Point, because I think that this, in my view, should be seen as an inflection point, and one regarding the seriousness of climate politics in america. So let’s look at you. You emailed me last month, and I realized, Oh, well, I want to talk to you because you’ve done a study on economics and which forms of generation are the the the best bargain in terms of reducing co2 emissions? So I’ll tee this up, because you told me this on in our previous discussion and on email, why was the closure of Indian Point a bad move from a purely economic standpoint?
Reiner Kuhr 3:54
A lot of my work is focused on carbon abatement costs. So a carbon abatement cost is a calculation that says, Well, how much more Are you paying to eliminate a tonne of carbon. And, you know, if there was no value to reducing carbon, we wouldn’t have any solar or wind in New England and a lot of the country but because of policy putting value on carbon reduction. We know there’s a lot of subsidies in place. So what happens within the end point is by continuing to operate Indian Point, you would spend more money than buying that power from gas plants and other generation in New York. But if you value carbon emissions, and you look at other ways to reduce carbon emissions, you can model a number of technologies and if you model rooftop solar, you end up spending about $800 a ton to avoid a ton of carbon dioxide emissions. If you do large wind farms, photovoltaic installations, even offshore wind, you’re looking at two or $300 a ton to avoid carbon emissions. And if you then the life of an existing nuclear unit like Indian Point, it only cost you about 2020 to $25 a ton to avoid carbon emissions, and that’s because the size of the subsidy that would be required to cover the difference between operating and fuel costs. And Indian Point, you know, relative to buying that power from cheaper, gas fired units, you know, that difference is relatively small compared to the huge investments that are going into renewable.
Robert Bryce 5:48
So this is a particular interest to me, because I have rooftop solar panels on rooftop solar on my house, about eight and a half kilowatts. And so you’re saying that keeping Indian Point open would have cost a 40. If we’re serious about reducing co2 emissions, effectively, as a country we’re paying we I’m using the Royal we hear 40 times more, to take a ton of or to avoid a ton of carbon emissions from the electric power sector than we would if we had simply kept Indian Point open. Is that Is that a fair summary of what you’re saying here?
Reiner Kuhr 6:21
Yeah, that mean, that’s one of the reasons I’m promoting carbon abatement costs as a method to evaluate policy. If you if you think about how cost effective these investments are, you know, if you put a rooftop solar plant in New England, and you put that same plant in New Mexico, you get twice as much energy out of the same facility by putting it in New Mexico. So the carbon abatement cost of promoting rooftop solar in New England is, you know, could be twice as high as, or New York could be twice as high as building the same plant in the southwest. So so if you fragment eyes, the policy, yet states trying to subsidize carbon, decarbonisation. You get into situations where these investments are very inefficient. And it’s not
Robert Bryce 7:17
it’s Sorry to interrupt, but I mean, shouldn’t that be one of the key drivers here? I mean, and you pointed out when we spoke on the phone the other day that in fact, New York has a law requiring regulators in New York State to estimate the cost of various abatement technologies. And apparently, they did not do any of this and closed Indian Point anyway, is that your assessment of what happened?
Reiner Kuhr 7:41
Well, I think there’s a number of factors that, you know, what I heard from various interested parties, Indian Point is very close to New York City. So there were some concerns about, you know, lawlessness to large population centers and evacuation routes in terms of, you know, the kinds of possibilities but, you know, New York is supposed to be implementing social cost of carbon and its planning. So social cost of carbon becomes an important metric. So what is the social cost of carbon?
Robert Bryce 8:16
I’m sorry, that social cost of carbon is what economists have come up with, to say, we’re emitting this much co2, and it’s going to have a cost to society as a whole of this number. Is that is that fair? No, what the technical definition is that? Is that a fair summary of what that cost of carbon is? Yeah,
Reiner Kuhr 8:35
there’s several reports out, that try to calculate, you know, the present value of all of the economic losses that will occur as a result of, of the negative effects of climate change. And, you know, the, the, the range of estimates has been, I think, 1010 or $15, a ton, recently under the Trump administration using a lot of the same analysis. So when, you know, under Biden, they’ve revised that number up to 50. By changing the economic assumptions, you know, your present value the impacts at a lower discount rate, and you get a bigger number. So it’s kind of a silly argument. They’re arguing about like discount rate to use to come up with the social cost of carbon, but it’s an important metric, because if you’re going to set policy to spend more money to reduce carbon emissions, you should have some measure of what happens if you don’t do anything. But to me the social cost of carbon,
Robert Bryce 9:39
right and then from from a, from a pure dollars and cents standpoint, if you’re if you’re buying something, you’re not going to spend more than you have to into a bait or to achieve a certain outcome. So in theory, then anything over $50 a tonne would be mis mis. Mis allocated capital would be malinvestment is that is that is Am I making my jumping too far ahead here?
Reiner Kuhr 10:02
No, I think I think you’re right on. I mean, if the state of New York said its climate policy, based on the social cost of carbon $50, and it went back and looked at the total cost of carbon is two things. One thing is it’s the cost of not doing anything, right. So we don’t put in any solar or wind. What’s it gonna cost us? The other thing is that it It represents, you have to consider the effectiveness of an investment. Right? So if New York State spends $20 billion to reduce carbon emissions, but the rest of the country in the rest of the world doesn’t do anything, is that investment effective? So so you know, the social cost of carbon could be zero, if the rest of the world doesn’t cooperate with you, because it’s a global problem, right? So if one small part of the world spends a lot of money to reduce carbon, and, you know, it’s saying, Well, you know, I’m rationalizing it based on the dollars as the cost of doing nothing. The rest of the world has to be in a consistent policy track for your investment to be effective. The other way to look at social cost of carbon is the equivalent carbon tax that would be needed, right? So if we impose a carbon tax of $25 a tonne, then Indian Point, revenues would go up, and probably be enough to keep them operating. So so so my calculation of, you know, $20 $25 a tonne of abatement cost equates to an equivalent carbon tax.
Robert Bryce 11:53
And I think this is key here. And this is really why I wanted to have you talk on the podcast. And a reminder, my guest is Reiner Kerr from he’s an adjunct professor at the University of Massachusetts low, you can find him on LinkedIn. We were talking before we started recording Reiner that you don’t really have a call to action, you’re not selling a book, you’re retired, you’ve you’ve, I’m assuming you’ve made your money. You’re not after anything here. You’re not trying to sell anything, but you’re trying to bring some rationality to discussions about carbon abatement. And I think that that’s, this is one of the other reasons why I’m frankly, just so outraged by the closure of Indian Point in terms, yes, grid reliability, electricity prices. But you what you’re saying is that this is from a purely economic standpoint, this was a bad decision if the state of New York is as serious as they say they are on reducing co2 emissions. So But yeah, I want you to just you talk about how you, you calculate the and you did your calculations based on regional characteristics you did, you’ve looked at this, these different technologies, not just in a in a model that you are, well, you have a model that you want other people to look at and use, but you’ve looked at it regionally because the cost of these different technologies is going to vary by region. Is that Is that a fair assessment of your work? Right?
Reiner Kuhr 13:15
I mean, certain technologies are much more effective in other regions of the country. And gas, you know, gas is still the, the primary flexible fuel. And you’ve talked a lot in your other podcasts about reliability and resilience. And, you know, in running these models and understanding how the power grid works, you know, you have to look at how you squeeze carbon emissions out of the grid. And you do it by reducing how much you run gas combined cycle plants. And yes, compliant gas combined cycle plants are the primary source of flexibility in the power grid. nuclear plants don’t provide much flexibility. They, you know, they want to run when they when they can, and wind and solar don’t provide any flexibility. So the problem is that when you add up all of the inflexible generation, and your load start getting lower than the total of your inflexible generation, and this is this has happened a lot in California, you have to curtail a lot of the output, that you’d have more
Robert Bryce 14:23
in California, we’re talking about curtailing solar in particular. Right.
Reiner Kuhr 14:27
Right. Right. And, you know, they wanted to curtail nuclear, they wanted Diablo Canyon to go back and figure out how to ramp down to make room for the, for the solar stuff. So you know, having it so one thing I really learned a lot and when you start teaching, you find out how much you don’t know and you end up learning a lot more than the students. So developing these models, you know, to me, flexibility is more important than reliability. You know, nuclear is sold as a baseload technology. There’s not much room for baseload technology. When you’re loads during part of the day go negative, your loads go negative when you got too much wind, right? If you look 10 years ahead, and you’ve got lots of offshore wind, and lots of onshore wind and lots of photovoltaic, the more inflexible generation you add to the grid, the more wasteful it becomes, you end up having to having periods, where if you have a competitive power grid, people that are getting subsidies to run are gonna pay to run and, you know, working with ISO New England to understand how to model the grid, you know, we’re looking 1010 or 15 years ahead with with negative pricing and the grid, you know, you’ve got when wind farm operators that get tax credits, you’ve got renewable energy credits being paid to those plants that operate. This is very disruptive to the grid. And you know, nuclear will suffer because it’ll see a bigger and bigger drop in revenue to make room
Robert Bryce 16:03
for Rob Reiner, because I want you to repeat that because it you’ve said it in a way that I haven’t heard it before. But you said the more inflexible generation you add, the more more electricity you’re going to wasted? Or did I hear you? Yeah. How did you put that?
Reiner Kuhr 16:18
Well, you know, when you model it, you have to model the grid hour by hour, which is, which has been an elusive thing. And I’ve come up with a very simple way to do that, that that can be used to support research. But when you model hour by hour, you see the loads coming up in the morning, as people go to work, you see the sun come up, and then loads go back down. When there’s a lot of solar output, a lot of solar happens behind the grid, you know, rooftop solar, called behind the meter generation. So when we look at the hours between the morning and the evening, there are some rapid changes. And you can only address those changes to 1000s of megawatts in a few hours by raping gas plants up and down. And if you try to get rid of the gas plants to get rid of carbon, you know, you want to run them less than less. What are you replacing them with? you’re replacing them with more inflexible generation? Well, I think what we need is, in the future, if you look at developing new technologies, we need ways to add flexibility to the system. You know, adding new baseload nuclear isn’t going to help because there’s going to be so many hours a day when there’s a lot of wind and solar so so we need flexibility in the loads, we need to maybe thermal storage, you know, heat pumps with thermal storage, turn off the heat pump during peak periods, you’re the energy or advanced nuclear smrs, you know, develop SMR that run 24 seven, and make hot salt and then build a power plant with off the hot salt tank that follow the load. So you can do peaking, you can do intermediate load, steam plants run off of molten storage, molten salt storage system, just like the solar reserve projects in an Arizona, we have a solar receiver that runs during the day they heat up salt, and then they they try to run a base load plant off of that stored salt, which is a different thing that a solar plant is designed to run as a base load plant where they would do much better having that flexible plant design. Sure, did I miss the missing this
Robert Bryce 18:36
idea about inflexible generation? But let me I want to make sure that we keep Indian Point in focus here because I’m dedicating several episodes to this closure of Indian Point and why because I went there in 2018. It’s in my film and our new documentary The film I made with Tyson Culver juice, it’s in my book a question of power. I visited there in May of 2018 and was really amazed by the technology and how much output was coming from one square kilometer. So let me put this question to you because I know we your specialty is on economics and I want to come back to that but let me ask you about Indian points specifically, why did Indian Point close?
Reiner Kuhr 19:13
Alright, let me mean that’s that. That’s a good story. I visited Indian Point. When Entergy bought it I was the lead the independent review for the banks, the finance the purchase price of Indian Point, and
Robert Bryce 19:27
what year was that, sir? was back in plenty.
Reiner Kuhr 19:34
Early in the 2000s I think, you know, an entity and 3g got a great deal on Indian Point. And I think they had to throw in pilgrim as collateral for the financing. And it was it was several 100 million dollars when they bought it and that was when privatization broke up the you know the power industry in New England and the northeast and You know, private privatizing a power plant has a lot of impact on its economics. And, you know, if we want to talk a little bit about private ownership versus regulated utility ownership, regulated utilities, do their planning on a long term basis, they have a 30 year integrated resource plan, it’s all approved by regulators, they’re allowed to make a fair rate of return, as long as they do what they’ve agreed to with the regulators. And they, they were generous as owners, you know, you put a lot of people at the plant, you’ve had a lot of budget for safety and training and, and improvements and life extension was evaluated based on a low cost of capital mean, regulated utility can raise capital, at a lot lower rate than the private owner, if you, you know, regulated rate of return might be six to 8%. So, so if you invest in new equipment at a nuclear plant, it’s costing you six or 8%. raise that money, if you’re a private owner, and you got to make major replacement or improvement at a nuclear plant, it might cost you twice as much, you know, raise equity,
Robert Bryce 21:15
because the capital cost is higher,
Reiner Kuhr 21:17
right. So the cost of capital for a private owner might be 10, or 12%, it might be six to 8%, for a regulated owner, so. So some of the big utilities that have a regulated set of plants, and an unregulated set of plants have a very different financing philosophy for the two plants. You know, I’ve given some papers on that. It’s, you know,
Robert Bryce 21:43
I just want to steer you back. So your Indian Point, you’re, you’re making a broader point about what really is a state regulated entity versus an deregulated entity. But why did Indian Point close?
Reiner Kuhr 21:58
Right, so, so when this transition happened, and then they no longer were in the right base, they had to justify every dollar that they put into the plan, you know, as a new owner, they also saw declining revenue. Now, they had to compete in the wholesale power market, at a time when gas prices were going down. And, you know, gas development, you know, fracking was, was going nuts. Right around that time, because 1000 2010 that range, a lot of gas appeared on the market. And people were building combined cycle plants. And these combined cycle plants were producing power at the, you know, below three cents, a lot, $30 a night, one hour, right. And Indian Point, and a lot of other single unit plan. You know, if you look at their fixed operating costs might produce a snapshot effect, operating costs might be 25 $26 a megawatt the variable, operating costs may be $1, and fuel five, so you need 3430, you know, 30 or $35 a megawatt hour, you know, on the average each year to cover those costs. And,
Robert Bryce 23:21
and that’s a breakeven number that’s not a profitable that’s not counting, right. And you might need to put some more capital
Reiner Kuhr 23:27
in there from time to time if you’ve got major upgrades or replacements. So, so the market only produces 25 to $30 a megawatt hour, typically, right? So he gives you some numbers to visualize. So, so he had this small shortfall. And, you know, if I was if I was the owner of Indian Point, I’d start cutting budgets, you know, they maybe they had 1000 people working there, you know, now I got six, five or 600 people working there, but I’m sharing stuff with other plants, because now I’m a fleet owner, I’m not just an owner of a couple of plants. But there’s some economies that come out of privatization people that are more efficient, they optimize and justify every expenditure. But you start to
you start to cut corners, and a lot of discretionary
Unknown Speaker 24:19
Reiner Kuhr 24:21
not to fall by the wayside. And you know, I’m not speaking for for the owner, I’m just talking in general, right. So, so you can get into trouble with the regulator because now they come and inspect your plant. And you’ve had a year where you haven’t made much money and you’ve had to cut back a little bit on staff or training or, or you got a bunch of red tags popping up on the plant because you haven’t been aggressively maintaining it that year. It kind of creates a slippery slope. And that happened to pilgrim I mean, pilgrim got into a lot of trouble when it was inspected and the NRC inspectors sent email and somebody got their hands on the email and it said all you fallen behind in training you’ve got
Robert Bryce 25:05
this deficiency is the pilgrim nuclear plant in Massachusetts. Right?
Reiner Kuhr 25:09
Right with what kind of went through the same thing as Indian Point A few years ago. So
Robert Bryce 25:14
and it was also owned by energy as well.
Reiner Kuhr 25:17
Right You know, so energy struggling with with a plant that doesn’t quite make enough money to cover the traditional budgets, so as to either put money into it or sacrifice some of the expenditures and and you can only do that for so long. You know, and I think that’s kind of what
Robert Bryce 25:36
your your your point is that you think Indian Point clothes because of economics, where I mean, from what I’ve seen, that’s that the economics for the owner, right that they weren’t getting any they weren’t getting the subsidies that wind and solar were getting, right. I’m cutting a cutting ahead here. They weren’t getting the investment tax credit, the production tax credit that are given to solar and wind respectively. But what about the political part of this because this was, you know, Cuomo that Entergy was also fighting a lot of litigation over the the plant as well. Right. So understand your point about the economics. But there’s a big political part of this. No. Yeah, I
Reiner Kuhr 26:12
mean, I guess the relationship between Indian Point and the state government have always been poor. And because it’s so close to the city, that there was a large, you know, there’s a large shake safety issue raised by by the people who didn’t like nuclear and that filtered its way into state policy. So I think that the state government in New York has always given Indian Point a hard time and it hasn’t, hasn’t received the support where other plants like, you know, Fitzpatrick, that are further away from the city, I’ve been getting a lot of public support. So I think it’s location was part of the problem. But I think it’s fundamentally economics
Robert Bryce 26:58
and those upstate plants, Fitzpatrick and gunay. And I’ve forgotten the other one, they they, they were given zero emission credits, right. They were given tax, taxpayer money to continue operating in upstate New York, where demand for electricity is low, but they wouldn’t extend those same. We’ll call them out of market payments, subsidies to Indian Point, because of the alleged concerns about safety at Indian Point. Is that it? That’s my understanding, is that which is that what you see as well? Yeah, I
Reiner Kuhr 27:30
think I think that’s the case. You know, I think so there’s more policy issues at work than just economics from the state level, they didn’t like having Indian points so close to the city, in an area that the population has built up dramatically. And, you know, if people start complaining about evacuation routes and safety concerns, you know, it created more of a policy dilemma. But you know, from an economic standpoint, if New York put a lot of value on decarbonization and compared the economics, I don’t think Indian Point, they might have tried harder, based on the economics to to address whatever safety concern for their
Robert Bryce 28:17
so let me restate that. And if you don’t mind, restate it, then. So you’re saying if New York State of New York had really looked hard, put a sharp pencil on the issue of carbon abatement and Indian Point, they would have kept it open.
Reiner Kuhr 28:31
And they shouldn’t believe so. from an economic standpoint. Yeah.
Robert Bryce 28:34
So if you don’t mind so if Can you can you say that definitively from an economic standpoint?
Reiner Kuhr 28:40
Oh, absolutely. Absolutely. They’re spending a huge amount of money on solar and wind and, and for very much smaller plastic fibers. And again, it’s $20 a tonne of carbon versus two or $300 for large wind and solar facilities and $800 for rooftop solar. So they’re spending like you said 40 times as much for for a lot of the decarbonisation options that they could have avoided. So if you if you calculate out those numbers that’s that’s a lot of money every year for New York ratepayers.
Robert Bryce 29:18
So it’s just a bad if you’re looking at from a pure dollars and cents standpoint, we can talk about other issues, but from pure dollars and cents standpoint, it’s a bad decision.
Reiner Kuhr 29:27
Yeah, I agree. And same with program, you know, pilgrim would have saved saved New England maybe $100 million if they kept it running.
Robert Bryce 29:39
So what about the reliability? Reiner because you’re you’re an expert in this issue on grids and, and I’ve thought a lot since I’ve written my books since I started doing the podcast about grid reliability, resilience. I was blacked out here in Austin in February during winter storm Yuri and I didn’t like it and There’s a lot of talk about increasing resilience reliability in the grid. How important was Indian Point to grid reliability for the city of New York?
Reiner Kuhr 30:10
Well, I think that I think the New York Power Grid has a lot of gas fired capacity. And I think the reliability is, is defined by your ability to meet the highest load during the year. So you have to install enough capacity and consider contingency. So, you know, if if Indian Point was down, out of service, you rely on gas turbines. So gas turbines provide reliability, you need more gas, Urban’s and have higher contingencies without Indian Point being there. So obviously, taking Indian Point out of service will put more pressure on having gas fired capacity. And, you know, reliability is measured by capacity. But a lot of the carbon emissions are measured in energy. And so I think taking Indian Point out of service has a much bigger impact on the energy supply than it does on reliability. Because reliability, you’ve got older plants you’ve got, you’ve got the heating plants that can be built for, you know, five, five or $600 a kilowatt, you can build a gas peaker and never run it. So reliability is something that’s addressed all the time, you can also buy and sell power to other regions, New York changes a lot of power with New England. And there’s a lot of power coming in from Canada now. So, you know, reliability is a more complex, complex issue. To me, flexibility is the key. And you taking Indian Point out a service puts more pressure on combined cycle plants that now have to run all the time to make up the base load, and maybe reduces the flexibility of the grid. So indirectly. You know, reliability is an issue. But as you go forward into the future, and you build lots and lots of inflexible solar and wind, Indian Point, was also an inflexible sore. So ultimately, it would have suffered economically with the state’s policy to double or triple the amount of solar and wind going into the grid.
Robert Bryce 32:38
So it’s interesting point that you’re making, and one that I haven’t heard before this idea that these baseload plants like nuclear plants are inflexible in that they can’t You can’t switch them on switch them off easily. So you’re saying flexible generation is gas fired power plants that that’s the answer. But our others would argue, well, batteries would make the inflexible wind and solar flexible, but you made a good point in your, in your brief on this, you said, using batteries to extend the amount of usable, inflexible generation is very expensive, and would more than double the carbon abatement costs for wind and solar. So you’ve said my rooftop system here and I’m here in Austin, it’s amazing to see the number of vendors you’re talking about, oh, get a Tesla powers that remember the blackout, get some Tesla power walls and put rooftop solar on your on your house? Well, you’re talking 10s of 1000s of dollars. But anyway, if you don’t mind, explain to me, why would batteries then more than double the abatement costs of wind and solar? So instead of 800, I’d be at 16 $100 per tonne, is that I’m just jumping ahead here. But why are batteries so expensive in in that solar and wind scenario that you’re mentioning there?
Reiner Kuhr 33:47
Well, you know, battery costs have come down a lot. And they’re probably below half of the cost of a battery plant, you know, a lot of the battery plant isn’t going to get cheaper as batteries get cheaper. So if you start to project that battery plants will drop in price, I don’t think they’re gonna drop a lot more than that. And when they have and you have to pay for it, you have to borrow money, or finance the battery and you have to pay back that capital cost and there’s some operating costs. And it worked that out with current estimates of large battery systems that cost you about $30 a megawatt hour, the move energy from one time to another. And I and and that’s I’m sorry, $300 a megawatt. So so you know, the cost updates, it works out to $300 a tonne of carbon. So if you’re if you’re reducing carbon
Robert Bryce 34:54
you’re saying to move if I you know, a sunny day in Austin and I want to store a bunch of stuff. Electricity, you’re saying it’s and I want to deploy that electricity in a week or a month, you’re saying that just that storing of that, quite that quantity of energy is going to cost me roughly $300 per tonne of carbon avoided. And Right, right, that’s on the maybe $800 a tonne that I’m already spending on the rooftop solar to start with your so we were like, Well, you
Reiner Kuhr 35:23
know, if you, if you’re looking at wind farms and solar farms, they produce, they say carbon at about 300 to $300 a tonne. So to put in battery systems that move that energy from daytime to evenings. If you look at how many hours the batteries operate, and how much money they have to make during those hours, they’re gonna have to charge a lot of money that doubles the cost of that power. And
Robert Bryce 35:53
what you’re seeing here is that there’s a big project that’s going in and Oklahoma does that they’re using wind and solar and batteries. And they’re claiming this is going to be cheaper will so that I’m just not playing devil’s advocate. I’m not seeking an argument here. But what I keep hearing is Oh, wind solar batteries, this is going to be the cheapest option. So are the who’s wrong here? Are they getting it wrong? Or something you’ve missed here? What How does is explain what’s going on?
Reiner Kuhr 36:19
Well, you have to break down their numbers. And you know, a lot of the numbers get hidden in subsidies, right. So you have to look at the unsubsidized costs of the project, you know, what’s the unsubsidized capital costs with and without batteries? And how much does that extra investment in batteries extend how much of the energy can be used to avoid curtailments. And if you look at it that way, without subsidies, you’ll see that there’s a direct investment that has to be paid for through so many megawatt hours each year. And you can work it out pretty easily. And you know, by bundling storage with a solar or wind plant, you know, actually makes the economics worse for the battery. Because in any investment, you have to recover the cost of the investment for each unit of energy that you process. If you only use it half as much it doubled, how much do you have to charge right? So if you only running the battery, on sunny days, in an area where it’s sunny half the time, you end up spending a lot more just using the battery. During 30 days of California, it’s sunny most of the time, and you’re really looking at a daily cycle, you can charge the batteries once or twice a day. If you can make money through arbitrage, arbitrage means you buy power when it’s cheap and sell it when it’s expensive. And there’s not enough arbitrage in the range of wholesale prices, especially in New England that we’ve looked at this, there’s not enough variation there, the paper batteries, and the only time you can make it look better as if you start to have negative pricing, you know, you build too much wind and solar, they drive the price they paid a run. And then then you can if you own a battery, you can make more money by by by by getting paid to take the power and then making money during peak periods. And even that is pretty, pretty limited when you start modeling it by the hour. So you have to look at hourly modeling, you have to look at breakout the cost functionally of a battery. But it doesn’t it on a day in a day cycle. How much of the cost of run? How much does it have to charge the move energy so that for me batteries don’t even show up as as a decent option. Because if you apply the total cost of carbon, even if it’s $50, or higher, and batteries are adding $300 a ton to move energy around. It just doesn’t doesn’t make any sense from an economic standpoint. So that’s, that’s the Achilles heel of a lot of these state climate plans, you know, they, they think they can over build solar and wind a lot of offshore wind in the northeast. And then then when you have way too much inflexible power, you know, they’re going to invest in a lot of batteries to move some of that inflexible power back into the market. And the economics look terrible when you do that. And
Robert Bryce 39:32
I’m sorry to interrupt, but what you’re saying here is so counter to, frankly, and I’ve listened to a lot of this, so counter to the popular narrative runner. I mean, you’re, you’re you’re marching the tune of your own drummer here, which I applaud, but where are the other people getting this so wrong then because I mean, I hear this over and over from utilities. Is it because the subsidies are skewing the economics in their favor for the wind, the solar The batteries, how are they making it work?
Reiner Kuhr 40:03
Well, you know, there’s if you look at energy, it doesn’t make much sense that there’s a market for ancillary services and other sources of revenue that can make that can pay back the cost of batteries. But, you know, there was a big every report on sources of revenue for batteries. And it’s simple, it’s pretty simple to model if you use public costs for batteries, and you dispatch them. And, you know, I am I am finishing up a report that will have a section on on how those numbers work. It’s, you know, it’s pretty straightforward. There’s no, I don’t think I’m doing anything radical here, you know, I’m just putting the numbers into a format that makes them easier to understand. And, and, you know, I haven’t seen that kind of an economic You know, I think Rosario publishes economics on battery systems. And, and you have to look closely at their assumptions. And you know, how much utilization is there on the batteries? What’s the capital cost that has to be paid off, you know, when you’ve got levelized costs, there’s a lot of economic assumptions that flow into that the cost of capital, you know, you can always pick a set of economic assumptions that make something look better.
Robert Bryce 41:22
Sure. So let me let me let me shift gears here a little bit, because, you know, I want to keep the focus on this Indian Point, and also Indian Point versus renewables. But let me zoom out for just a second. We’ve heard the Biden administration, I’ve written about this in Forbes I’ve written about it elsewhere, Biden, ministration, is claiming that they can completely decarbonize the US electric grid by 2035. In your view, is that possible?
Reiner Kuhr 41:49
Well, I think it would be very difficult, I mean, you’d have to be building huge amounts of battery storage systems at a huge cost, you know, billions 10s of billions. And I’m not sure the market supports development of battery systems that quickly. So I’d like to see the details of their plan. And I went, when I’ve run models, looking at the Massachusetts and New England targets, how fast you can move how much capacity you can add to the grid, you’re doubling the amount of inflexible carbon emissions in half, you’re doubling the amount of inflexible capacity that operates in the grid, and you’re starting to spill the large amount of energy. So as you invest more and more in wind, and solar, each subsequent plant is worth less than less, because you can’t use all of that energy, there’s more and more hours of the year, that you’re wasting energy. So the carbon abatement cost goes up. You know, if you start curtailing 10, or 20% of the energy, or a lot more from from later projects, you know, your carbon abatement cost goes up from two or $300 a tonne of carbon to three or $400, then it gets more and more expensive. The more inflexible generation, you Ford center the grid and you’re trying to retire gas plants that provide the flexibility. So there’s a inherent conflict between getting rid of carbon in the grid that’s being provided by your only source of flexible generation. It’s, it’s intuitive, it’s intuitive, but but nobody seems to recognize that and, and that’s the reason I’m, I’m really promoting these models at the university so that they can go back and, and work with state agencies and check these numbers and do a sanity check on on on what’s going to happen to the grid. You know, if you talk to the grid operators. They’re agnostic to economics, you know, I sell New England isn’t allowed to comment on policy. They don’t run Economic Studies that they’re forced to operate a pair of wholesale market. And it’s a big controversy of whether somebody can bid negative into the market. And that destroys the revenue to a lot of the lexical generation, right? If you own a combined cycle gas plant, and now you have to, you know, a lot of your revenue goes down because the prices collapse. I did a study for equity before I retired,
Robert Bryce 44:34
if I can just proceed at one point because you make it in one of the points you you sent to me earlier, that negative prices reduces the value of inflexible generation assets. Some flexible generation will be needed to balance the grid during surpluses. So you made a point there just a moment ago, where you’re talking about the more inflexible generation, you add solar and wind, the less valuable it becomes.
Reiner Kuhr 45:00
Right and any any any inflexible, right any inflexible generation, including nuclear plants become less valuable when when you can’t use the as much of the energy that they produce. So nuclear plants may be
Robert Bryce 45:15
reducing capacity factor across the board, then you’re utilizing them less, therefore the capital cost goes up is that is that we’re what is that the essence of where you’re going with this?
Reiner Kuhr 45:26
Well, you have to the grid operator is going to tell a lot of wind farms that they can’t run during certain hours when you don’t, when your loans are low, they’re not going to tell nuclear plants to shut down the existing nukes are going to continue to run as much run units. That’s the current philosophy in the grid, but the revenue that a nuclear plant gets, will go down if the nuclear plant has to match market pricing, and there’s negative market pricing for 5% of the time. You know what, what’s going to happen to the annual revenue for Seabrook or millstone in New England, if they have to pay to run a lot of the time. So it’s going to put even more pressure on the economics of existing nuclear plants, which you know, which provide the cheapest carbon displacement. So so there’s these massive contradictions that start to appear. When you look forward 10 or 15 years, so if you say the Biden administration is going to, you know, try to get to net zero by 2035, or something, there’s a lot of stuff they haven’t looked at, including how he regulated markets work, you know, how out and the study I did forever, he looked at the, what’s the residual value of the solar wind plant after the back subsidies expire? Right, a lot of regulated utilities were interested in? Well, let’s let a private developer build a wind farm, they’ll collect the tax benefits, and then we’ll buy a cheap afterwards. So we were looking at, you know, what would happen 1010 years into the life of a wind farm or a large photovoltaic facility. And and you start looking at the value of these plants, when there’s a lot of overbilled, you know, people are building new wind farms with lots of subsidies, people are building new solar farms with lots of subsidies. And the subsidies are good for 10 years, and these things are going to pay to run if they’re competing with an old plant, and the old plants aren’t going to be able to run, they’re not going to make much money. Most of the revenue will be heard, because whenever they operate off, there’s too much capacity on the system, because of all the other solar and there’s not enough money to make repairs, replacements, he’s trying to sell it, the market value of a of an older solar plant will will be very low, right, nobody will pay a lot to buy a plant that isn’t going to make much money. So what’s going to happen in 20 years, you know, we’re building out huge amounts of solar and wind into the power grid, that’s going to be self destructive from a comp, competitive revenue standpoint. And these these, these facilities won’t be maintained well, there’ll be, you know, the, they’re lucky to be able to do any replacement or repairing, and all of a sudden, we’re going to lose a lot of that capacity out of our grid. And then what do we have to do put in a whole new set of subsidies to rebuild them in 20 years? So a lot of the solar and wind that was built in 2010? You know, be what, 25 years old by 2035, how much of that solar and wind capacity will will still be running? And how much of it will have to be replaced with with a new set of subsidies, right? So
Robert Bryce 49:02
if I can interrupt here, Reiner, because what you’re getting to here, and it’s something I’ve thought about is that this idea of electricity and the grid and the the centrality of it to our lives has somehow been obscured by a lot of these different rent seeking entities, right? That say, oh, if I just get a little subsidy, then I’m going to help decarbonize we’re going to save the world, save the climate, save the whales, every being a little, little facetious here, but the there’s a seemingly not seemingly there seems to there is a lack of understanding about the importance of the grid and its reliability, resilience, and instead, it this deregulated market has allowed it to be kind of balkanized in what you’re talking about here, what I hear you not say is that we’re headed for a train wreck in a lot of different on a lot of different fronts here, so does what I’m saying About the grid and its importance and kind of the ignorance by policymakers of what what’s happening, is it Does that ring true to you?
Reiner Kuhr 50:07
Yeah, you know, I was gonna use the term train wreck, you know, I hadn’t been on the car in a podcast before. But I’ve had these little podcasts in my mind, but between four and 6am, in the mornings, visualizing this train wreck in the power industry, where you’re trying to replace flexible generation with inflexible generation at a scale that will be totally destructive. And, and the analysis of the practicality of that, as well as the economics of that are poorly informed right now. So that’s what gives me my motivation to pursue this in retirement as an educator and to set up some tools that make it obvious make it more obvious that some clarity to this, and I think it’s a big problem, and, and the politics work against it right now. Right? The the politics, the lobbying, the fear, and urgency seems to be dominating a lot of the policy, right, if you start to question you know, I spent many years of my life doing due diligence, independent reviews, you know, you know how hard it is to raise money to build a plant, to get people to pay more, to build a certain kind of plant, you know, so we’re spending hundreds of billions of dollars based on policy, that is not subject to the same standards as private investment, right? If we were to do due diligence, if we were to do apply some governance, and go back and do an independent review of these climate plans, and and really go back and challenge as an investor would, you know, maybe on behalf of consumers who see investor here, the consumer, ultimately, you know, how much can we rely on this concept of a tipping point? You know, how good are the models that are being used, the set the basis for this policy, you know, that we need to get to zero. NET netzero by a certain date, we’re going to spend 10s of billions or hundreds of billions of dollars to try to get there. If there’s substantial uncertainty in that driving force behind that is the IPCC a lobbying organization. Now, should we be challenging state climate plans that rely on the best science available, which is based on IPCC reports, and if somebody were to try to do a real due diligence, and a formal independent review of the basis for these investments, I think that’s an important omission right? Now you need governance, you need coordination, you need independent reviews before you spend that kind of money. And right now, there’s no mechanism for that. And that’s been a big part of my life. So that, you know, it really bothers me to see, you know, billions, 10s of billions, hundreds of billions of dollars being invested without a care, without careful scrutiny of the effectiveness of those investments, you know, the rest of the world that nothing. We’re going to spend a trillion dollars to reduce carbon emissions from the US from China and Indonesia and India, continue to expand their economies and their emissions. So there’s a big picture. Due Diligence governance, a gap here. You know, we’ve been carried away by policies that that are driven by, by fear and urgently without careful scrutiny, in terms of practicality and economics.
Robert Bryce 53:57
That’s a I think that’s a great summary of what we’ve been talking about. So it but that’s the in getting it back to Indian Point. way I interpret what you just said is that what we’ve seen is a massive government failure, a government failure to understand the importance of that resource and the economic value of those two, those two gigawatts of generation of reliable capacity. Am I overstating it?
Reiner Kuhr 54:26
Yeah, I mean, from an economic standpoint, if I was a consumer in New York, I go back and, and challenge talents that, you know, maybe I don’t think the consumer advocacy is there, because there’s such an anti nuclear sentiment may be embedded in the policy itself. So you know, maybe the economics were trumped by the by by some nuclear safety issues weren’t properly communicated or resolved. I mean, you can spend you can spend a lot of money To address safety issues, to the extent that would be effective and maybe resolve that, I don’t think there was ever an effort to do that. I don’t think there was a will, by the state government to overcome those kinds of concerns in the public. I don’t think the public had access to that debate right.
Robert Bryce 55:23
So, let me just ask for. So, in your view, should indian indian point have closed or should have, from a from a economic reliability standpoint should have been kept open?
Reiner Kuhr 55:36
I think it’s gonna have been kept up. And I think if he still had a regulated red with lots of 30 year, integrated resource planning, that was looking at economics that’s constantly challenged by the consumer, you would have looked at Indian Point as a long term asset that could have found ways to continue to operate with the great benefit for the ratepayers, but that regulated system and process of integrated resource planning is no longer there to provide that mechanism.
Robert Bryce 56:17
Well, it’s deeply unfortunate. And I’m glad to get that summary from you. Because I’m going to be talking about Indian Point for a long time and the closure of Indian Point for a long time, because I provide I think it provides a real lesson in how government is failing the consumer here in terms of a lot of different ways.
Reiner Kuhr 56:39
So we’ve got a we’ve got a lot of other nuclear plants that are threatened for closure. And there should be a bigger focus on getting the policy people to understand better the economics of that and not not let more nuclear plants close prematurely.
Robert Bryce 56:57
Amen to that. Reiner, that’s a great addition to what we’ve been talking about. And if you don’t mind, I think we’re gonna draw to a close. Ladies and gentlemen, my guest, I’ve been pleased to talk with Reiner Kerr. He’s a adjunct professor at the University of Massachusetts, Lowell 40, more than 40 years in the power sector, you can find him on LinkedIn and read about his background and I runner when you issue your report on this, will you be posting it on LinkedIn so people can find it there?
Reiner Kuhr 57:26
Yes, yeah, I’ll use LinkedIn as a as a place to post it. I also submitted comments to the Massachusetts State climate plan, and I’ll post those as well, which get into the same issues.
Robert Bryce 57:38
Good, right. Yeah. Because what you sent me was a great summary of what you had submitted to the state. They’re on that so. Well, great writer, many thanks for your time. It’s been been a pleasure talking to you and getting your views on these things. We’re gonna have more on Indian Point blackout week. So tune in again, for the next episode of power hungry podcast. I’m Robert Bryce. We’ll see you next time. Thanks again.
Unknown Speaker 58:01