An important piece of research, partially funded by the EU, finally puts some numbers on what economists call external costs.
These are essentially the health and environmental costs associated with using various kinds of energy source (eg burning fossil fuels) borne by society at large and not currently fully reflected in electricity bills. The study, called the ExternE project, concludes that "the cost of producing electricity from coal or oil would double and the cost of electricity production from gas would increase by 30 per cent if external costs such as damage to the environment and to health were taken into account." The ExternE programme cannot be accused of coming to hasty conclusions: the project has been underway for no less than ten years. It is in fact the culmination of some twenty individual projects involving researchers from all the EU member states plus the United States. They have been busy quantifying "the socio-environmental costs of electricity production" and the result is said to be "the first research project ever to put plausible financial figures against damages resulting from different forms of electricity production (fossil, nuclear and renewable) for the entire EU." So it is a study we in the power business should be familiar with, and which may well prove to be extremely influential in underpinning future policy-making on renewables.
In the countries considered, wind and hydro boast the lowest external costs. For hydro some representative figures (in Euro cents) would be around 1 c/kWh for Germany and France, 0.3 c/kWh in Italy, and 0-0.7 c/kWh in Sweden. Estimates for wind include 0.25 c/kWh for Germany, 0.15 c/kWh for the UK and 0.1 c/kWh for Denmark. The estimates for the external costs associated with nuclear power are also relatively low, for example 0.5 c/kWh in Belgium, 0.3 c/kWh in France, 0.2 c/kWh in Germany and 0.25 c/kWh in the UK. In contrast typical estimates for coal and lignite are 4-15 c/kWh in Belgium, 7-10 c/kWh in France, 3-6 c/kWh in Germany and 4-7 c/kWh in the UK. Representative figures for the external costs of gas generation are estimated to be around 1-2 c/kWh. These figures should be set against the approximate average generation cost for electricity in the EU, which is about 4 c/kWh.
So now we know. But what should we do with this information? The ExternE report proposes two ways of taking account of externalities. One is to tax the offending fuels, resulting in a substantial increase in energy prices. For example, says the report, if the external cost of producing electricity from coal were to be factored into electricity bills, between 2 and 8 c/kWh would have to be added to the current price. Another approach is to promote and/or subsidise cleaner technologies, ie those with the lower external costs. The Commission is taking this second route. Indeed, earlier this year the Commission published guidelines on state aid for environmental protection which explicitly stipulate that "Member states may grant operating aid to new plants producing renewable energy that will be calculated on the basis off the external costs avoided." Building on ExternE, the Commission has now launched a follow-up project aiming at further refining the assessment of external costs, which is known by the not particularly elegant acronym Newext (New elements for the assessment of external costs from energy technologies).
The relatively low level of externalities associated with hydro may come as some small comfort to Brazil, where hydro accounts for no less than 90 per cent of the country’s 65 GW of installed capacity. However there is a downside, as Brazilians well know. They are now in the throes of an energy crisis chiefly attributable to an overdependence on hydro coupled with unusually low rainfall over an extended period. Being dependent on the whims of the weather is not a good idea when you are a rapidly expanding economy with ambitions to become one of world’s industrial heavy hitters.
Work is now well underway to try to adjust the Brazilian energy mix, with a massive programme of power plant construction that includes around 6.5 GW of gas-fired capacity to be operational by 2003. As part of this effort, GE announced in early August that the first two heavy duty GE gas turbines had arrived in Brazil and that it was "supplying 54 gas turbines for projects across Brazil that will contribute 4.6 gigawatts of new power capacity." Hydro has some very good points, including very low external costs, as demonstrated by the EU study. But recent events have once again demonstrated the importance of a diversified energy supply system and a balanced fuel mix.
Off the agenda
The current energy crisis in Brazil has prompted calls for completion of the country’s third nuclear unit, Angra 3. But it now appears that the long-awaited decision on the future of this partially built 1300 MWe PWR has been postponed until after the next presidential election, due in the autumn of 2002.
Completion or not of Angra 3 would of course have no impact on the current crisis. Angra 3 must be seen, if it is to be seen at all, as part of a long term plan to diversify Brazil’s energy mix (and when I say long term, it should be borne in mind that its sister plant Angra 2 took about a quarter of a century to complete).
Political forces also excluded nuclear power from the agenda of the recent Bonn climate change talks. Delegates agreed to two clauses that specifically rule out nuclear projects from two of the flexible mechanisms under the Kyoto protocol, the Clean Development Mechanism and the Joint Implementation.
For what appear to be purely ideological reasons the EU delegation would not back down, declaring the exclusion non-negotiable. Yet this position seems to irrationally ignore the potential environmental benefits of a well executed nuclear power programme, to say nothing of the European Commission’s recent research on external costs (as reported above).
