A look at the cost of different types of new power plants from the Institute for Energy Research, based on U.S. Energy Information Administration data, reveals two factors for public officials to keep in mind when making decisions about what kind of plants to build:
1) Fixed vs. variable costs. As you can see in the chart, plants using most natural gas technologies continue to be cheaper than conventional and clean coal for the foreseeable future. However, natural gas plants are subject to greater variable costs (such as the fluctuating natural gas prices). Prudent public policy decisions about what type of new power plants to build then depend on credible, publicly transparent, long-term fuel price projections.
2) Dispatchable vs. non-dispatchable technologies. Looking at the chart, at first glance wind and hydroelectric powered plants appear to be competitive with plants using conventional energy sources. But because they are non-dispatchable, meaning they “cannot be counted on to produce power when the consumer needs it,” they require conventional sources as backup, and the more they’re used, the more investment in conventional backup sources are required.
Again, this fact has to be taken into account by public officials in order to make prudent power plant choices: “Government policies that promote the use of non-dispatchable power are equivalent to requiring consumers to buy and care for two vehicles: one that works when you need it and another that works when it feels like it. The hidden costs of non-dispatchable power are substantial and should not be overlooked as part of the public policy discussion.”