Value Received for CAPEX

Return on investment, or return on invested capital, are financial expressions for determining the value of an investment, or for comparing investments. Typically, it is shown as ROI.

Corporations use this measure to determine how best to utilize the capital they have available for investment. Invariably there are competing investment opportunities, and a decision must be made as to which investment is best.

Some companies have very limited capital, so it’s critical to choose the investment that provides the greatest return.

The same analogy applies to countries. Some countries, especially developing countries, have very limited capital, and should choose investments that provide the greatest return.

NASA Satellite Image of Nighttime Africa
NASA Satellite Image of Nighttime Africa showing paucity of electricity

The United States is not immune to having to invest wisely. With a national debt of $19 trillion, the United States can’t ignore the importance of making good investment decisions.

Therefore, it’s important to determine which type of power plant provides the greatest amount of electricity for each dollar invested.

Or, which power plant provides the greatest bang for the buck.

To determine bang for the buck, it’s necessary to determine the amount of electricity each type of power plant can produce, and capacity factors are used to make this determination.

For example, natural gas combine cycle power plants have a capacity factor of around 85%. In other words, they produce 85% of the electricity that could possibly be produced based on the nameplate rating.

Wind, on-shore, has a capacity factor of around 30%. In other words, it only produces 30% of the electricity that could possibly be produced based on the nameplate rating. In the case of wind, this is a reflection of the fact that the wind blows intermittently. If it blew steadily 24/7 at 35 mph, it might approach 90%.

Using the resulting information, it’s possible to determine which type of power plant provides the best return on investment.

And for developing countries that have a shortage of capital, how to get the most electricity from their available capital.

Cost to Build Based on Nameplate

Capacity Factor

Cost Based on Electricity Produced

Natural Gas CC

$1,100/KW

0.85

$1,300/KW

Ultra-Supercritical Coal

$2,800/KW

0.85

$3,300/KW

Wind

$2,000/KW

0.30

$10,000/KW

PV Solar

$3,000/KW

0.25

$12,000/KW

Clearly, natural gas combined cycle power plants produce the most electricity for each dollar invested.

Levelized cost of electricity (LCOE) could also reflect relative costs, but the choice of variable inputs, such as interest rates, cost of fuel and life of the investment, confounds the resulting answer. Even so, the LCOEs provide some indication of the relative cost of electricity. Once again Natural Gas Combined Cycle power plants provide the least expensive electrify, reflecting the best ROI.

LCOE, Cents/kWh

Natural Gas Combined Cycle

5

Ultra-Supercritical Coal

6

Wind

10

PV Solar

15

Unfortunately the Energy Information Administration (EIA) distorts LCOEs by estimating the LCOEs for plants entering service 4 years from now, in 2020. These are estimates of future costs, and do not reflect actual costs.

The EIA also distorts the LCOE in at least two ways:

  1. It adds the cost of carbon, i.e., CO2, to the LCOE calculation for coal-fired power plants, thereby distorting the actual LCOE.
  2. It uses a capacity factor of 36% for wind, which is far above the capacity factor of nearly all wind installations until now.

Obviously, actual LCOEs for wind and solar are higher today than the LCOEs forecast by the EIA for 2020, since the EIA claims that each of these technologies will continue to improve.

The EIA is adhering to the administration’s political war on fossil fuels, rather than being an objective third-party analyst representing all Americans.

The United States is having to borrow to pay for the subsidies used to support so-called clean energy investments. The 30% tax credit for PV Rooftop solar installations, and the 2.3 cents per kWh production tax credit paid to wind farm investors, add to the national debt for which all Americans are responsible.

It’s inescapable that Natural Gas Combined Cycle and Ultra-supercritical coal-fired power plants provide the most electricity for each dollar invested.

Investments in wind and solar are bad investments, and are being made because of the administrations war on fossil fuels.

* * * * * *

Nothing to Fear explains why politicians are harming Americans and poor people in developing countries by pushing its CO2 agenda.

Nothing to Fear is available from Amazon and some independent book sellers.

Link to Amazon: http://amzn.to/1miBhXy

Book Cover, Nothing to Fear
Book Cover, Nothing to Fear

* * * * * *

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0 Replies to “Value Received for CAPEX”

    • You are right. Most are between 16 and 20%. I should have explained that 25% was essentially an upper limit claimed by some. With PV solar it’s really a matter of efficiency based on physics. For the purposes of this article, and talks that I have given on this subject, 25% results in a sufficiently high cost to make my point. At my talks, I make it clear that the real efficiency is between 16% and 20%.
      Thanks for your comment.

    • I left out nuclear, even though I like it.
      Nuclear cost to build is $6,000 /KW, and $6,700 when adjusted for CF.
      The richer countries, like the UAE and South Africa, are going ahead with nuclear. Other countries where Russia is building the units may have arranged special financing terms with Russia.

  1. Dear Donn,

    Your 25% capacity factor for solar power represents the best ever achievable. 15 to 20% more likely. In Germany, it is 9%.

    We certainly live in a seriously mad world.

    Just back from a hydropower conference in Laos where I talked about the dangers of spillway gates in large stands and then we went on to China to see the three gorges and the power station. Very interesting indeed.

    Kind regards,

    Bryan Leyland

    >

    • I agree, the 25% was very generous, and, my understanding is 16% to 20% is more typical. The 9% in Germany is interesting, but presumably because of the Latitude.
      I had the good fortune a few years ago of cruising the Yangtze River, transiting the locks and getting a good view of the Three Gorges Dam. Also learned a great deal about its flood control use as well as power generation capability.
      Good to hear from you.

    • As mentioned in my reply to Zoyhofski, I left out nuclear, even though I like it.
      Nuclear cost to build is $6,000 /KW, and $6,700 when adjusted for CF.
      The richer countries, like the UAE and South Africa, are going ahead with nuclear. Other countries where Russia is building the units may have arranged special financing terms with Russia.
      We won’t build new nuclear power plants, primarily because of the unreasoning fear of radiation that has been created by those who oppose nuclear.

  2. Pingback: Weekly Climate and Energy News Roundup #220 | Watts Up With That?

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