Alcohol

Ethyl alcohol (ethanol) may also be a substitute for crude oil-based gasoline, either as a blend (gasohol) or as a 100% substitute for gasoline. It may be produced from abundant U.S. supplies of wood fiber or cereal grains. However, both sources have alternative uses and therefore opportunity costs. Like coal conversion to other energy forms, ethanol is considered here because it is a substitute for oil and, if economically viable, would reduce the demand for oil and thereby exert a downward pressure on oil prices.

The most extensive experience in this process has been in Brazil, where ethanol has been used as a motor fuel blend since the 1930s. Responding to the crude oil and gasoline price increases of the 1970s and to severe declines in sugar prices, the government of Brazil in 1975 started a heavily subsidized hydrous alcohol industry based on its sugar and sugar cane production. Hydrous alcohol (distilled ethanol containing 4.4% water) was to be a full substitute for gasoline. The Brazilian Ministry of Industry and Commerce estimated that the cost of this gasoline substitute was $50.30 per barrel ($1.20 per gallon in U.S. dollars). Other researchers have estimated costs as high as $90.00 per barrel ($2.14 per gallon) in 1982 U.S. dollars (Melo and Perlin, 1984). This translates into $2.52/gallon in 1987 dollars. A Brazilian scholar reviewing this experience concluded that "it can be seen that hydrous alcohol production is not the most effective use of society's resources, at least at the present level of production" (Santiago, 1985, p. 15).

Solar Electric Power

Electric power may be generated from the unlimited energy of the sun. The technology is developing rapidly. The relevant issue is the economic cost. We will examine two conversion methods—indirect generation solar thermal, and direct generation using photovoltaic conversion.

Technology for both systems developed rapidly in the 1980s beginning with Solar One, which started operations in the Mojave Desert in April 1982. As a solar thermal pilot plant, it has a design capacity of only 10 MW. At 35% of capacity operations, this plant would generate about 30,700 MWh per year. However, output reached only 10,000 MWh in 1986. Its levelized capital cost alone, based on a 30 year life, would be $1.14/kWh. This plant is now being dismantled.

We may draw on a model for a larger but nonexistent 100-MW capacity plant under a system of specific assumptions. Sandia National Laboratories has used a spreadsheet approach to model a plant, using from one to six heliostat fields. The fully developed capital cost is estimated to be $769 million. The plant's capacity factor is assumed to be 38% at full development. Cost estimates are in 1983 dollars. Small plant size is

paired with a fossil fuel boiler to assist startup and transition periods. Larger-size plants use thermal storage to maintain electric power production after sunset.

Using a 30-year plant life and a 7% real interest rate, the analysis shows a surprisingly consistent 10-20~/kWh levelized cost, regardless of output level in the various models (Norris, 1986, p. 70). Adjusting the 1083 costs to 1087 prices yields a low estimate of 21.5~/kWh. This result indicates that although the addition of facilities increases output, cost increases in tandem with the added output.

These findings are confirmed in general by a study issued by the CEC. That study found that a combination of three special subsidies would be necessary to bring solar thermal power into commercialization, where it might be able to cover its costs (California Energy Commission, 1986e). These three subsidies would consist of (1) reinstatement of the 15% investment federal energy tax credit, (2) reinstatement of the California 25% investment tax credit, and (3) continuation of the "avoided cost" subsidy that is embedded in the price that utilities and their customers must pay for power produced from qualifying solar power facilities. In the case of the two energy tax credits, these subsidies are "high powered" in that the credits are deductions from income tax liabilities, in contrast to deductions from gross income, which is then subject to taxation. They would extend through the year 2014 when, according to the CEC study assumption, commercialization would exist and solar power revenue would equal or exceed its cost without special subsidies.

Learning from the Solar One experience, LUZ Solar is operating solar thermal plants in Daggett and Kramer Junction, California. Five LUZ Solar plants with a total capacity of 134 MW are selling electric power to Southern California Edison. Under the fixed energy and fixed capacity standard offer number 4 contracts,^[13] the plants are viable receiving approximately 6.4~/kWh for energy, plus 2.5~/kWh for capacity for a total income of approximately 9~/kWh. In addition to this standard offer price subsidy these plants receive federal and state tax subsidies under those now defunct programs.

Cost estimates are available from EPRI for a 150 MW capacity solar thermal power station located in the south central part of the United States. Using dry cooling, and assuming a 30 year plant life, a 7% interest rate, and no tax subsidies, the EPRI data indicate a levelized cost of 13.45~/kWh in 1987 dollars, as Figure 6.4, bar k. This is about twice the value of the benefits of electric power production, in spite of the declining cost record.

[13] See discussion, under wind, of various standard offer contracts and their subsidy characteristics.

Solar photovoltaic electric power conversion technology has also advanced rapidly in recent years. Central station power generation by direct photovoltaic conversion appears to be on the verge of economic feasibility. Cost estimates are available from EPRI for five plants of 20 MW each, using a concentrator technology. These estimates indicate a levelized total cost of 7.72¢/kWh in 1987 dollars (see Figure 6.4, bar l ). They assume a 30 year life and a 7% real interest rate. Thus photovoltaic central station technology appears to be moving rapidly toward economic feasibility.

Solar power will still suffer from its intermittent characteristic. When the sun is not shining, all solar power plants will have an output of zero. This reduces the value of solar power plants in terms of their ability to displace conventional capacity unless additional capital outlays are made to provide storage capability.

One significant merit of solar power arises out of the fact that the southern half of the United States has its peak power demand in the summer due to the need for air conditioning during hot midafternoon hours. This seasonal peak need corresponds with solar power production capability.

In sum, the evidence currently available indicates that solar power generation—as a substitute for oil, gas, coal or nuclear power generation—is not yet economically feasible without subsidies, but that technological change is moving rapidly toward unsubsidized viability.