Environmental Engineering Reference
In-Depth Information
there is strong incentive to extend the life of the plant for as long as possible
in order to avoid undertaking new capital costs. Moreover, some govern-
ments prefer to amortize capital investments of this type by issuing bonds
which are then retired over time. he decision to decommission a power
plant before it has been fully amortized results in a continuing debt obli-
gation for an asset that is no longer of use. his places strain on a govern-
ment's iscal budget. Take for example Japan's current dilemma. It has been
suggested that phasing out Japan's nuclear power program will force four of
Japan's 10 utilities into insolvency.
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Research suggests that if a nation's energy mix is dominated by aging
assets (as is the case in the United States), there is greater propensity for
a rapid uptake of wind power because developmental opportunities stem
from both replacing aging assets and supply expansion initiatives. On the
other hand, in nations such as China, where new coal-ired power plants
have been constructed at a pace of one per week for the past decade,
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the
opportunities for wind power development stem more from supply expan-
sion initiatives than replacement of aging assets.
he sticky inluence of sunken investments can be ampliied when a
public or private monopoly plays a role in both grid operations and power
generation. Under such an industry structure, even if wind power holds
the greatest economic appeal, the transitional pace will be curtailed until
the monopoly decides to begin replacement of aging assets. he case stud-
ies provide evidence that this is the case in Japan and certain provinces in
Canada. In nations where the power generation market has been liberalized,
competition plays a more inluential role in determining which power gen-
eration assets sell power into the grid. Under liberalized market conditions,
the pace of wind power development may be less inluenced by the age of
existing infrastructure because the grid operator has no inancial stake in
extending the lives of older assets.
hese insights tell us that inancial conditions in support of a transition
away from carbon-intensive technologies difer based on industry struc-
ture and the age of generating assets. China and many of the other rap-
idly developing economies that have recently been adding huge blocks of
coal-ired electricity generation capacity will be hard-pressed to expedite
a transition away from carbon-intensive electricity generation over the
next 20 to 30 years. here is strong inancial incentive to allow the existing
assets to operate until the end of their useful lives. On the other hand, the
United States is currently facing enormous costs for upgrading its aging
electricity generation and transmission infrastructure. herefore, the exi-
gent nature of America's refurbishment challenge actually means that the
United States could transition away from carbon-intensive technologies at
a much faster pace.
