Hybrid Power Technologies, LLC

Economics

In a market-driven economy, the cost to produce power is only half of the picture. The investment must also be profitable. Today’s semiregulated electrical market is volatile, with large seasonal power price swings - for that matter, large fluctuations exist between early morning and afternoon. Include wildly unpredictable fuel prices, such as natural gas, and power plant economics become exceptionally challenging for consumers and investors alike. The hybrid-nuclear financial approach minimizes the large risks of the uncertain power market by combining stable low-cost coal and nuclear fuels with reasonably priced power plants.

As can be observed, conventional nuclear power plants are expensive to build (see fixed cost) but the fuel is economical. Combined-cycle plants are relatively inexpensive to construct, have low operating costs (O&M) but have the highest fuel cost by a significant margin. The price of natural gas is also exceptionally volatile. Coal plants yield the lowest cost of energy.

Investors expect a return on their investment in proportion to the perceived risk. A 10% return before taxes (a somewhat typical and very conservative target for power plants) yields the sell price of power to meet the investor’s expectations.

However, the desired sell price of power is not necessarily compatible with the actual price that can be obtained in the open (or regulated) marketplace. A financial analysis has been developed to predict the profit (return on investment) from constructing new hybrid-nuclear, combined- cycle, supercritical pulverized coal (SCPC), integrated gasification combined-cycle (IGCC) and nuclear plants in the eastern US. The analysis is based on 2006 monthly average electrical grid as well as fuel prices. Similar financing assumptions were used with all the plants. The results provide an indication of investment potential.

The coal and hybrid-nuclear plants achieve comparable positive financial returns while that of the coal gasification plant is somewhat negative.
The combined-cycle plant posts moderate losses and must be shut down at night and on weekends when market power prices are too low to cover fuel costs.
The nuclear plant profitability is problematic absent relief from the huge debts associated with the construction costs.

While a fully regulated market is different, the trends are similar.

Building new power plants invariably increases the cost of electricity for the consumer. The impact is dependent on a number of factors (e.g. size of utility, fuel mix, etc.) and is difficult to predict. However, a rough forecast has been developed.

The affects of the volatile price of gas can be quite pronounced. For the new combined-cycle plant, a 50% increase in the cost of gas (to $10.50/mmBTU) causes our Mid-West consumer's electric bill to be 45% higher than if a coal plant had been built instead (rises to $151/month). The new hybrid-nuclear gas plant is less affected; the consumer's bill is 30% higher relative to the new coal plant alternative (rises to $141/month). On this relative basis, the consumer's bill is 10% higher with the hybrid-nuclear/coal plant. the price of natural gas was well over $12/mmBTU in June 2008 but dropped to well under $7/mmBTU in early 2009.

The dwindling supply of domestic natural gas does not bode well for the consumer, industry or the nation. However, more abundant energy supplies can ease this problem, with simple economics favoring coal as a continued energy source.