Ferguson’s Frequency Energy Matters

By Published On: January 13, 2006

Editors’ note: With this issue, the former “Ferguson’s Forecast” is now “Ferguson’s Frequency.” The column is being expanded from contemplating the future of natural gas prices and availability – which has been impressively accurate over the last couple of years – to interrelated topics. After several decades as an energy analyst, I continue to be amazed by the electricity industry’s obsession with generating capacity while the energy needed to run the generators is virtually ignored. Living in Boonville, where PG&E’s power flickers off all too frequently, I understand the importance of keeping the lights (and more importantly, my computer) on at all times. Enough generators and transmission lines must be always ready to provide the desired juice, even if many of these generators sit idle most of the time. No argument there. But we ignore at our peril the prodigious amounts of energy required to generate electricity 24/7. Having enough generating capacity is relatively cheap and easy – it’s simply a matter of getting enough machinery and wire. Having sufficient energy to keep the machinery running is the hard (and expensive) part, especially if we insist on using energy from natural gas. Generation and transmission capacity is measured in megawatts (MW). The cost of a modern gas-fired combustion turbine/generator’s capacity is somewhere around $500,000 per MW. On a hot summer day, California needs about 60,000 MW of capacity available to keep the lights and air conditioners (and my computer) on. The amount of electric energy produced by a 1 MW generator running for one hour is known as a megawatt-hour (MWh). The cost of energy to operate this turbine around the clock for a single year and generate 8,760 MWh is about twice the cost of the turbine at today’s gas prices, about 35 times as much over the lifetime of the turbine. As my former Physics 101 students should be able to tell you, electric energy from the generator must be provided from some source – in the energy world, as in the real world, you don’t get something for nothing. To exacerbate the problem, machines that spin the generators are inefficient – even the best convert only about 50 percent of the input energy into electrical energy. In 2004, California used about 275,000,000 MWh of electric energy, which required perhaps one billion MWh of energy inputs. About one-third of this energy came from burning expensive natural gas. Today it is cheaper to use energy that Mother Nature gives us free, so-called “renewable” energy, to run the electricity system. The machinery to harness wind and geothermal energy costs more than fossil generation. Transmission lines are required to connect renewable resource areas with consumers. But these are long-term investments, and since the energy is free, the net cost is lower than the cost of gas-fired power. New wind and geothermal power plants will displace energy from natural gas and lower consumer bills unless the price of gas falls dramatically, which many analysts believe is unlikely. Renewable energy also displaces pollution caused by gas-fired generators and reduces the need for LNG terminals. The fixation of politicians and regulators on generating capacity – while understandable – is woefully out of date in an era of high and rising energy prices. The 800-pound gorilla facing us today is energy, not capacity. Today’s electricity costs are a direct result of the obsession with capacity and the lack of attention to energy. Current high energy bills that have politicians, regulators, utilities, and consumers wringing their hands are not an act of God. Sooner or later, surely they will begin to understand that energy matters. Won’t they?

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