I recently wrote about how our risk tolerance/aversion powerfully affects our estimation of the social cost of carbon, but obviously that’s not the only place that risk shows up in our energy systems. Fossil fuel based electricity is also exposed to a much more prosaic kind of risk: the possibility that fuel prices will increase over time.
Building a new coal or gas plant is a wager that fuel will continue to be available at a reasonable price over the lifetime of the plant, a lifetime measured in decades. Unfortunately, nobody has a particularly good record with long term energy system predictions so this is a fairly risky bet, unless you can get somebody to sign a long term fuel contract with a known price. That doesn’t really get rid of the risk, it just shifts it onto your fuel supplier. They take on the risk that they won’t make as much money as they could have, if they’d been able to sell the fuel at (higher) market rates. If the consumer is worried about rising prices, and the producer is worried about falling prices, then sometimes this can be a mutually beneficial arrangement. This is called “hedging”.
Continue reading Facing the Risk in Fossil Fueled Electricity
Geothermal energy is the Earth’s own internal heat. It’s a huge potential resource, but so far it’s seen only very limited use. Traditional geothermal power can only work where there are naturally existing hydrothermal systems that bring the heat of the interior to the surface. A new technique called enhanced (or engineered) geothermal systems (EGS) may make geothermal power much more widely available. If it can be scaled up commercially, EGS will enable us to create hydrothermal systems anywhere there’s hot rock not too deeply buried — which includes a large swath of Colorado. This is potentially significant in the context of creating a zero-carbon electrical system because like hydroelectricity, and unlike wind and solar, geothermal power can be dispatchable: you can turn it on and off at will. This makes it a great complement to intermittent renewable power, as it can be used to fill in the gaps then the wind’s not blowing or the sun’s not shining. It remains to be seen whether it’s technically feasible, and if so at what price, and on what timeline, but it’s certainly worth investigating.
Continue reading Enhanced Geothermal Systems promise dispatchable zero carbon power