2 ms·

True, but the marginal cost of oil is cheaper still, and when building a new plant it's even easier to have massive cost overruns due to unforeseen complication

by entee 11y ago

True, but the marginal cost of oil is cheaper still, and when building a new plant it's even easier to have massive cost overruns due to unforeseen complications in building the plant. As an aside: someone in the oil industry once told me that to a first approximation the marginal cost of a product coming out of a refinery is inversely proportional to the mass in metal of that refinery. The bigger the refinery, the less it costs to produce once it's built. If this is true, then demonstration-scale plants face an even bigger hurdle, because they're in a sort of valley of death of efficiency, not big enough to be cost competitive down the line, but too big to be a (relatively) low-risk investment.

neltnerb 11y ago
Your friend in the oil industry is probably assuming that the products are fairly high value, which is pretty much guaranteed versus the value of electrical energy. Minimum approximate price for anything is the value of the energy you get by burning it, doing essentially anything else will result in a much higher value product. The costs would be (first order) feedstock + O&M + capital amortized. For a chemical plant, the feedstock is irrelevant not because it's cheap compared to the value of the energy you get from burning it but because the difference in price between the product and feedstock swamps the O&M + capital costs. What bigger plants do is decrease O&M and decrease capital (per unit capacity), but they can do nothing to decrease the feedstock price... If a barrel of oil is $50, a barrel of oil equivalent is 6.1 GJ, so if we translate to the weird US units we use it's just under 3 cents per kWh if conversion were 100%. In practice efficiency is closer to 45%, which I'll call half, so the 2x gets you to an absolute minimum cost of around 6 cents per kWh for oil electricity generation. That's including no wear and tear, no capital costs, and no staff to keep an eye on things. This is the absolute thermodynamic floor on the cost of oil based electricity, with the plant size getting bigger at best driving the price to 6 cents as O&M and capital costs are driven to a smaller percentage of the total costs (i.e. O&M + fuel). For comparison, look at figure 44 of this report: http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Technologies-Market-Report-8.7.pdf http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Tec... and you can see that the median marginal cost (i.e. operations and maintenance) of wind power is ~0.8 cents per kWh ($8/MWh). So I stand by my claim that the marginal cost of wind power is much lower than the marginal cost floor for oil base electricity. Chemicals just have a different first order approximation due to very different margins.

by entee 11y ago

neltnerb 11y ago

Your friend in the oil industry is probably assuming that the products are fairly high value, which is pretty much guaranteed versus the value of electrical energy. Minimum approximate price for anything is the value of the energy you get by burning it, doing essentially anything else will result in a much higher value product. The costs would be (first order) feedstock + O&M + capital amortized. For a chemical plant, the feedstock is irrelevant not because it's cheap compared to the value of the energy you get from burning it but because the difference in price between the product and feedstock swamps the O&M + capital costs. What bigger plants do is decrease O&M and decrease capital (per unit capacity), but they can do nothing to decrease the feedstock price... If a barrel of oil is $50, a barrel of oil equivalent is 6.1 GJ, so if we translate to the weird US units we use it's just under 3 cents per kWh if conversion were 100%. In practice efficiency is closer to 45%, which I'll call half, so the 2x gets you to an absolute minimum cost of around 6 cents per kWh for oil electricity generation. That's including no wear and tear, no capital costs, and no staff to keep an eye on things. This is the absolute thermodynamic floor on the cost of oil based electricity, with the plant size getting bigger at best driving the price to 6 cents as O&M and capital costs are driven to a smaller percentage of the total costs (i.e. O&M + fuel). For comparison, look at figure 44 of this report: http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Technologies-Market-Report-8.7.pdf http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Tec... and you can see that the median marginal cost (i.e. operations and maintenance) of wind power is ~0.8 cents per kWh ($8/MWh). So I stand by my claim that the marginal cost of wind power is much lower than the marginal cost floor for oil base electricity. Chemicals just have a different first order approximation due to very different margins.