Energy in Ontario: Lovins Q&A

TYLER HAMILTON
ENERGY REPORTER
The Star
Oct. 22, 2006

For environmentalists and power industry executives, Amory Lovins needs no introduction. Since the early 1970s, the Oxford-educated physicist has been an outspoken advocate of energy efficiency and alternative energy technologies -- what Lovins first coined as "soft energy paths."

At the same time, Lovins has been a vocal critic of nuclear technology and the idea that big, central power stations represent a silver bullet to our future energy needs. He has worked with the former Science Council of Canada and has consulted for governments and corporations around the world, including provinces and utilities across Canada. In fact, the chairman of his not-for-profit research organization, the Rocky Mountain Institute, is John C. Fox, former chief operating officer of Ontario Power Generation.

The Star recently had the opportunity to speak with Lovins at his office in Snowmass, Colorado. What follows is an edited version of a rather lengthy phone interview, during which Lovins questioned the wisdom of building new nuclear reactors in Ontario. Alternatively, he said that reducing power consumption through efficiency, and embracing what he calls "micropower — solar, wind, geothermal, biomass and combined heat and power projects — offers a quicker, less risky and more environmentally responsible way of achieving the province's energy objectives.

THE STAR: You're quite familiar with the Ontario electricity market. What's your view of the Ontario government wanting to build new nuclear reactors as part of its 20-year power supply plan?

LOVINS: I get the impression the government would like to launch a nuclear revival. Ontario has not had a happy experience with nuclear. Given the relative cost and financial risk of Canadian or U.S. nuclear, you have to have a very restrictive set of options or strange idea of economics to conclude a nuclear plant makes any sense. So I don't know how they could have reached that conclusion, unless it's ideological or designed just to support the nuclear industry.

THE STAR: Why isn't the private sector behind nuclear technology?

LOVINS: Nuclear costs too much and it has excessive financial risk. In no new nuclear project around the world is there a penny of private capital at risk. Contrast that with how the competitors are doing. The first and the cheapest one is efficient use of electricity. There, Ontario, like most places, has barely scratched the surface of how much efficiency is available and worth buying. Contrary to the common supposition of diminishing returns and an exhaustible efficiency resource, the actual potential savings keep getting bigger and cheaper, because the technology is continuing to improve faster than we use it. The low-hanging fruit is still mushing up around our ankles but the tree keep growing more fruit and dropping it on our heads. What part of this don't we understand?

About three-quarters of all electricity we use in North America can be saved cheaper than just running a coal or nuclear plant and delivering its power, even if the capital costs of the plant were zero. It's interesting that California, the single biggest market in North America, has held it's per capita use of electricity flat for 30 years. And some places closer to Ontario, like Vermont, are actually sending that number downwards, because they're saving electricity faster than their economy and population are growing. But we don't have comprehensive, accurate measurements of how much electricity is being saved. We just know it's a big number, and we know it's still a tiny fraction of how much efficiency is available and worth buying.

THE STAR: And the other less risky competitors to nuclear?

LOVINS: The two competing sources that are easy to measure are collectively called micropower — not central plants, but more distributed capacity that's at or near the customers, or at least comes in more decentralized, diversified form. Micropower is providing now between one-sixth and over half of all electricity in 13 industrial countries. Denmark is the leader with about 53 per cent last year. You'll notice this does not count big hydro. If we don't count any hydro above 10 megawatts, then the added micropower capacity last year in the world was 41 gigawatts, compared to 3.7 gigawatts for all kinds of nuclear — none of which was a CANDU (technology)."

There are two kinds of micropower. One is co-gen and combined heat and power. That was about two-thirds of the new capacity and three-quarters of the new electricity last year. The rest was distributed or decentralized renewables, which was a $38 billion U.S. global market last year for selling equipment. That's wind, solar, geothermal, small hydro and biomass. So the overall numbers are quite impressive. Micropower surpassed nuclear power in worldwide installed capacity in 2002, and surpassed nuclear in electricity generated per year just in the last few months. But more interesting is market share — micropower provided a sixth of the world's total electricity last year. Micropower last year provided 32 per cent of the world's new electricity and 16 per cent of the world's total electricity; nuclear last year provided respectively 8 per cent of the new and 16 per cent of the total. In terms of electricity generated, micropower last year had four times nuclear's market share, and it added 11-times as much capacity as nuclear, or 8 times as much if you don't count standby and peaking units, but you should.

THE STAR: Aren't many of the renewables, such as wind and solar, intermittent and therefore unable to replace the baseload power that comes from nuclear plants?

LOVINS: The variability of sun, wind and so on, turns out to be a non-problem if you do several sensible things. One is to diversify your renewables by technology, so that weather conditions bad for one kind are good for another. Second, you diversify by site so they're not all subject to the same weather pattern at the same time because they're in the same place. Third, you use standard weather forecasting techniques to forecast wind, sun and rain, and of course hydro operators do this right now. Fourth, you integrate all your resources — supply side and demand side — so for example, in the Pacific Northwest, where we're rich in hydropower, for 0.6 cents (U.S.) per kilowatt-hour the Bonneville Power Administration will firm your wind power. That is, they combine your wind with their hydro and open and close the valves on the dams so that whenever the wind is not blowing and you need the power you can dispatch hydro instead on a firm contractual basis.

In places that don't have surplus or adequate hydropower, it's becoming equally straightforward and much cheaper to back up your wind from a virtual peaker drawn from load management. Like, for example, turning off your water heater for 15 minutes — you won't even know it's happening. That's done automatically, and the power that was going to go into your water heat instead backs up the wind. You can do other kinds of storage as well. For less than 1 cent (U.S.) per kilowatt-hour, you can store bulk electricity as compressed air in a salt cavern. Typically it's much cheaper to manage loads on the demand side than to store electricity on the supply side. But in a grid that is hydro rich, and with an end-use structure that is as inefficient and has as much space in water heating with electricity as you have in Ontario, it's really very straightforward to have large amounts of variable renewables without in any way comprising reliability. It's also worth bearing in mind that although wind and photovoltaics are quite variable, geothermal, biomass and small hydro are not. So you can't even apply this issue to a lot of renewables that are big in the marketplace.

THE STAR: Part of the Ontario government's plan is to phase out all its coal plants, which represents today a large portion of power supply. Could the province realistically phase out all coal and nuclear over the next 20 years?

LOVINS: Sure. I think it would require a much more aggressive commitment to doing the cheapest things first, especially for modern, end-use efficiency. For example, I'm talking to you from a building at 2,200 metres in the Rockies where it can go to minus 44 C -- you can get frost on any day of the year and you can get 39 days of continuous mid-winter cloud. In the middle of my house I've harvested so far 28 banana crops with no heating system, and it's cheaper to build that way because super insulation and super windows and air-to-air heat exchangers add less to the construction cost than what you take off the construction cost by not needing a heating system. So the house was about $1,100 (U.S.) cheaper to build with good comfort but no heating system.

THE STAR: And how are the bananas?

LOVINS: They're delicious, especially at Christmas as you walk in out of a blizzard. Actually our last crop came out on the winter solstice.

THE STAR: You seem to know a lot about the Ontario electricity market.

LOVINS: I've worked in Ontario, and for (the former) Ontario Hydro, and a bit for the Ontario government, the federal government. Actually, I've worked in every province of Canada — although not in the Yukon or Northwest Territories. The chairman of my board of directors, John C. Fox, formally ran both the upstream and downstream halves of Ontario Hydro. (ed. note: Fox was last chief operating officer of Ontario Power Generation before stepping down in 2000.)

THE STAR: On the issue of greenhouse gas emissions, GreenPeace co-founder Patrick Moore has long parted ways with the organization and is now a consultant for the nuclear industry. He believes large-scale adoption of new nuclear technology is the only way to avert climate catastrophe. What's your view on this?

LOVINS: I know Patrick and respect him, but I think he's not well informed about energy alternatives and I hope he will become so. I've spoken with Patrick at some length, for example, about variability of wind. He thinks it's a serious problem, and he didn't realize there's a lot of empirical and analytic evidence that shows it's not a problem.

There's a more fundamental issue here, though, and that's about economics. Nuclear plants directly emit no carbon dioxide, although they have some inherent in their construction and operations from other parts of the fuel cycle. I'm prepared to ignore that indirect CO2 emission. However, because I agree with Patrick that climate is a very serious problem, I think we need the most solution per dollar and the most solution per year. If you go to the December 2005 issue of Nuclear Engineering International, you'll find a paper called `Mighty Mice' that summarizes an economic analysis. What that analysis shows from the best empirical data available last year, is if you spent 10 cents (U.S.) to make and deliver a new nuclear kilowatt-hour — notice I said deliver, so that's at your meter — you can displace 1 kilowatt-hour of coal power. That's what Patrick is talking about. And it might seem like a good idea until you look at the competitors.

If you spend the same 10 cents (U.S.) instead on micropower or efficient use, you get two to 10 times as much coal displacement for the same money, because those options are cheaper — you get more per dollar. They're also faster, so you get more carbon displacement, coal displacement, per year.

THE STAR: But a lot of micropower, such as co-generation, relies on natural gas. Doesn't use of this fossil fuel increase CO2 emissions?

LOVINS: Two-thirds of the co-gen in the world is gas-fired, but both because gas is less carbon-intensive than coal and because you're displacing a separate power plant and boiler or furnace with one unit that's much more efficient overall, you save carbon. Altogether counting the gas-fired and all the other co-gen around the world, you're saving at least half the carbon compared to what it replaces. So yes, I'm making proper allowance for the carbon that does come out of the co-gen and counting the measured cost of the renewables. In fact, I'm counting a wind cost that is over twice as big as the cheapest wind farms built lately. And I'm counting all the cost of making the renewables, like wind, fully dispatchable. So it's an entirely apples-to-apples comparison, and I've done it on a consistent accounting basis but made sure I used assumptions that were favourable to nuclear and other central stations.

The balance is tilted somewhat against nuclear lately because the promised low costs already have failed to materialize for next-generation light water reactors. The Finnish plant is a good example. About a year into construction they're already a year behind schedule and getting more so. They're in serious trouble with the safety regulator, and it's already destroyed AREVA's and Siemen's nuclear profits for the year. They've made already a 1.5 to 2 billion (Euro) allowance on their books for cost overruns, and I don't think that's anywhere near the end of the story. It's driven them right into the ditch. Just look at the recent press release on their quarterly earnings. I suspect that if Canada tries to build another reactor it will have a similar experience.

THE STAR: Could micropower get us off coal, wean us off nuclear and allow us to enter a future where plug-in hybrid or all-electric cars are charged off the electricity grid?

LOVINS: We are about to publish the first independent assessment of plug-in hybrids, and in the right circumstances it can be an attractive option. The amount of electricity required is quite modest, and it would be at night so wouldn't add to peak capacity requirements. And the electricity needed is a very small fraction of what can be saved running existing thermal stations. So for relatively short trips, shaving into medium trips as batteries get cheaper, this could be an attractive option. It will, of course, have to compete with efficient fuelled hybrid, including biofueled hybrids, and ultra-lights that further double efficiency.

THE STAR: So overall, are you generally positive with the direction our society is heading? Our governments are heading?

LOVINS: I'm very positive with where jurisdictions that pay attention to modern technologies, business strategies, and policies, are headed. I wouldn't currently place Ontario among those, and I fear for the economic competitiveness of the province under this sort of energy policy.

THE STAR: What advice would you give the province?

LOVINS: Let electricity and energy compete fairly at honest prices regardless of which kind they are — savings or production — or what technology they use, or how big they are, or where they are, or who owns them. If we did that, we certainly wouldn't order more nuclear plants and we'd be phasing out the existing coal and nuclear plants because it's cheaper not to run them than to run them.

Secondly, I would make sure that the distributors of electricity and gas in the province are rewarded for cutting your bill, not for selling you more energy. This could be done by well-understood techniques that decouple profits from sales volumes so the distributors are not rewarded for selling more, nor penalized for selling less. Then I would let them keep as extra profit part of what they save the customer, so that the providers' and customers' interests are fully aligned. The lack of this well-understood reform is the biggest obstacle to using electricity in a way that saves money.

I guess I would add a third bit of advice. If you believe as I do that climate change is a serious problem, then make sure you buy the resources that will save the most carbon per dollar per year, because otherwise you're making things worse. If you buy a nuclear plant instead of cheaper efficiency and micropower, you're getting less solution per dollar, less solution per year, and therefore reducing and retarding climate protection.

THE STAR: And the role of the private sector?

LOVINS: I happen to be a fan of liberalized markets, and market competition. So I find it very instructive that essentially all of the efficiency in micropower being bought in the world is financed by private risk capital, but I can't find a single new nuclear project on earth that has a penny of private capital at risk. So what does this tell us? I think it tells us that investors perceive higher cost and higher financial risk in nuclear. They find that unacceptable, and they're buying the other stuff instead. The clean energy space, worldwide, is getting $63 billion (U.S.) of investment this year. Why is that? Why is nuclear struggling to find single orders, scouring the earth for them, and they're all ordered by central planners and largely supported by the public purse; whereas vendors of the competing technologies, which already have four times the energy market share and 11 times the capacity, they are finding it hard to keep up with the explosive growth in their businesses.

In August 2005 the U.S. passed a new law offering on top of the existing nuclear subsidies, further subsidies of around 4 or 5 cents a kilowatt-hour, which equals the entire capital cost of the next six units to be ordered, if any. What was the market's response to this? Well, Standard & Poor's promptly put out two reports saying that even this massive intervention would not materially improve the credit ratings of the builders. In other words, even paying for the whole construction of the plant has the same effect of defibrillating a corpse — it will jump but it won't revive. This technology has died with an incurable attack of market forces. I'm sorry — it was done with good intentions, a lot of talented people devoted their careers to it, but like Betamax it lost out in a competitive market. Other better, cheaper stuff got to the customers first. By now, probably less than half of the world market in new electrical services is being met by any kind of central thermal power station. So let's wake up, look at the data, and make sure we count both halves of the market; not just competition between traditional central thermal plants, but also how they are being rapidly displaced by faster, cheaper and more benign alternatives.

THE STAR: Amir Shalaby, vice-president of system planning for the Ontario Power Authority, says the private sector will always shy away from big, long-term, risky projects that bring a public benefit. He says construction of the railroads, electrical transmission and other key infrastructure would never have happened without public support. The same argument holds for building nuclear, he says.

LOVINS: If the public authority is doing the opposite of what the private market is doing, should that ring your alarm bells? It sure does for me. Second, does he think that philosophy is consistent with liberalized markets and greater reliance on the private sector? And third, does he feel that electricity is such an immature sector that central planners' choices should be preferred to those of private capitalists. I happen to trust capitalists in Toronto or New York to make wise investments, better than I trust central planners in Toronto, Beijing or Washington. I think there's a lot of historical evidence to back up that preference. The word `risky' is a tip-off that the people who would benefit from the choice proposed want to put their hand in your pocket again, and don't want you to notice that the private market is choosing better buys than what your local central planners are proposing.

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