How much does carbon cost?

Exploring Green Electricity in Tennessee


I recently moved to Tennessee. The state isn't exactly known for its environmentalism, so I was surprised when I received the header in my mail a week or so ago. Nothing similar had ever shown up in my mailbox when I lived in Illinois or Indiana. What really excited me were some concrete numbers to work with. Predicting carbon costs seems to be a favorite activity of energy economists (right below arguing how a carbon cost system will actually be implemented [not should be, that’s mostly been settled]), and since I seem to be one at least partially, I felt it would be a betrayal of my adopted profession to not explore the mailer’s implications.

Immediately, it was abundantly clear that my usage isn't typical. This makes sense. I live alone in an apartment, don’t use the HVAC, and the only appliances that remain plugged in (to an energy-saving “smart” power strip) are my PC, speakers, and monitors.

The typical household use is easy enough to derive:

(X)(0.12) = 150kWh => X = 150/0.12 => X = 1,250kWh/Month

Additionally, you can find the $/kWh of renewables:

($4)/(150kWh) = $0.0266

I've only had 3 billing months but this is what my electricity consumption looks like so far:

If I had signed up for a 3 block plan when I first moved in it would have covered nearly all of my electricity use:

(450kWh)(3) = 1,350kWh => (1,350)/(485+611+346) = 0.936, so ~94%

But what does this even mean? Most of the time when you’re purchasing renewable energy you’re purchasing the basically the same electricity mix as before, but somewhere a renewable energy project is getting paid to produce energy in their area. Last September, Google entered a purchasing agreement with a wind farm in Texas and provided a good explanation:

Due to the current structure of the market, we can’t consume the renewable energy produced by the wind farm directly, but the impact on our overall carbon footprint and the amount of renewable energy on the grid is the same as if we could consume it. After purchasing the renewable energy, we’ll retire the renewable energy credits (RECs) and sell the energy itself to the wholesale market. We’ll apply any additional RECs produced under this agreement to reduce our carbon footprint elsewhere.

In my case, with TVA, it’s slightly different. The program in place literally involves the addition of small renewable sources of power to the TVA mix. Specifically small-scale generation with capacities of 50kW and lower. This agreement includes a 10 year price premium per kWh depending on the generation source.

I still might not be getting those electrons, but they are getting added to my utility’s daily load. Some updates near the end of 2013 have the program providing 6MW allocated for non-residential customers and 4MW for residential. As of early 2014, the non-residential power pool was over-subscribed, leading to a random selection structure, while the residential pool was under subscribed by 1.36MW, triggering a request for additional purchasers.

One nice thing about these numbers is that you don’t have to worry about typical pitfalls when calculating power plant output, like efficiency and capacity factor. In this case, the provider is promising that 10MW of renewables will be constantly available. 4MW of residential doesn’t sound like much, but how many households could that cover?

4MW refers to the capacity of the generating equipment, and due to the agreement we expect that to be stable. MWh or MegaWatt-hour is the actual generation. How do you calaculate MWh from a given MW? Simple, multiply it by the runtime in hours. In this case, I’m going to work on an annual basis, and there are 8760 hours in a year (this is one of those numbers you never forget when working with generation, just don’t miss the extra 24 in leap years).

(4MW)(8760hours) = 35,040 MWh/year

In kWh this is: (35,040MWh)(1000) = 35,040,000 kWh/year

Very quickly, that little 4MW has gotten much larger. Now, using our typical household monthly energy consumption derived above we can calculate the number of typical households these renewables could power.

(1250kWh)(12) = 15000 kWh/year =>(35040000)/(15000) = 2336 Households

Similarly, we can calculate the number of “blocks”:

150kWh/Block => 35040000/150 = 233,600 blocks

It’s taken a little bit, but let’s pivot towards the title and talk about the cost of carbon. The EPA’s Power Profiler tool provides a rough breakdown of your utility’s emissions, and the national average. Here’s what my breakdown looks like:

The TVA has less renewables and more coal than the national average, which isn’t particularly surprising, but the real value of this tool is the emissions breakdown is also provides:

NOx and SOx are important local and regional pollutants, but the focal point for me here is CO2, and utilizing it to develop a price for carbon. Normally, I might switch to using just Carbon at this point, but the European Union Emissions Trading System (EU ETS) prices tonnes of CO2, which saves us a handful of conversions (for now).

So, if every kWh of renewables purchased above costs me $0.0266, that would theoretically remove the entire 1.389lbs of carbon per kWh of generation, i.e., a credit for 1.389lbsCO2 costs $0.0266 under the TVA’s program. How does this compare to the EU’s ETS?

Unfortunately, I might be an idiot because I couldn’t find a good, free source of ETS pricing data. The most recent mention I found was here quoting a price of around 5 Euros per tonne in the beginning of April. At the same time, the conversion rate of Dollar:Euro was 0.7263:1. Back to a bit of arithmetic:

(5 Euros)/($0.7263/Euro) = $6.884/tonne, but our emissions are in lbs

1 tonne = 2204.62 lbs => $6.884 will buy you 2204.62 lbs of CO2

But what is the TVA’s price on that ton of carbon?

$0.0266 = $/kWh of renewable energy, and each kWh removes 1.389lbs

(2204.62/(1.389) = 1587.199 => ($0.0266)(1587.199) = $42.2195/tonneCO2

$42 per tonne of CO2 is a little over 6x the price on the EU markets, and I think that’s a good thing. It’s displaying a much more realistic cost of alternatives within the confine of our existing infrastructure. The EU credits are so cheap because the design of their system has essentially failed. Perhaps programs like the TVA’s will produce a credible body of data for designing effective future carbon pricing schemes.

As a final aside, I did attempt to compare this cost to TVA projections. Utilities publish documents known as Integrated Resource Plans (IRPs) that typically detail their current generation mix, ongoing projects, and projections out a few decades. Unfortunately, the last IRP published by TVA was in 2010. Planning meetings for the latest IRP have been going on since the fall of 2013, but concrete publications have yet to emerge. Back then, the highest price they put on carbon (and I believe it is carbon this time around, not CO2) was $30/tonne in 2014 under their scenario which was most optimistic about the national economy (hint: that scenario was not accurate). If their accounting was in straight carbon, that $30 would be worth even less relative to the $42/tonne of CO2 due to the weight of those pesky oxygens.

I’m sending back my mailer with a 3 block monthly purchase (450 kWh or $12), although I may do some math on my daily commute and purchase more to offset some of that as well.

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