Memorandum submitted by Amory Lovins
I have the honour to submit herewith some materials
that I hope may help the Committee's inquiry. Unfortunately, word
of your work reached me only very recently whilst I was in Sweden,
and a heavy travel and writing schedule have made it impossible
for me to prepare a special paper for the Committee before today's
deadline. However, I should do my best to respond to any further
questions from the Committee, and if desired, could testify either
by Internet videoconference or, during my mid-March 2006 visit
to the UK, in person if your inquiry were still underway at that
time.
A BRIEF SKETCH
OF MY
BACKGROUND
Physicist Amory Lovins is cofounder and Chief
Executive of Rocky Mountain Institute (www.rmi.org), a 23-year-old
independent entrepreneurial public charity, and Chairman of its
engineering spinoff Fiberforge, Inc. (www.fiberforge.com). Published
in 29 books and hundreds of papers, his work has been recognized
by the "Alternative Nobel", Onassis, Nissan, Shingo,
and Mitchell Prizes, a MacArthur Fellowship, the Happold Medal
of the UK construction industry, nine honourary doctorates, and
the Heinz, Lindbergh, World Technology, and Time "Hero for
the Planet" Awards. He lived in the UK 1967-1981 and was
a Junior Research Fellow of Merton College, Oxford (MA Oxon by
Spec Resoln). His most recent books are an Economist 2002 book
of the year—Small Is Profitable: The Hidden Economic Benefits
of Making Electrical Resources the Right Size (www.smallisprofitable.org)—and
the Pentagon-cosponsored Winning the Oil Endgame (www.oilendgame.com).
His three decades' global consultancy for industry and governments
(including USDOE and USDoD) spans all energy sectors and about
fifty countries, including extensive work in the nuclear and utility
industries and invited testimony before nuclear-related proceedings
and inquiries in many countries. Three of his books and dozens
of professional papers focus on nuclear issues, of which he has
been an independent student since the 1960s, when his physics
research won national awards from G.E., Westinghouse, American
Nuclear Society, and the Chairman of the US Atomic Energy Commission.
My organisation is also briefly described in
slide 30 of the CEC attachment [not printed].
My most apposite recent writing for this inquiry
is the invited testimony I gave five days ago to the California
Energy Commission's hearing on nuclear power policy, slightly
updated and with a few extra background slides added at the end
for those who wish to dig deeper [not printed]. A PowerPoint (for
Mac OS X) file is attached, and a hard copy will go out to you
by airmail post tomorrow, together with a hard copy of this note
and its attachments [not printed].
Please forgive the attached PPT file's occasional
use of US (originally British) units, such as MCF (thousand cubic
standard feet) for natural gas; one MCF has a heat content of
approximately one GJ. For general background on climate strategy—on
which my first professional paper was in 1968—please see
my attached September 2005 Scientific American article, "More
Profit from Less Carbon." Its bibliography shows a URL with
extensive further citations [not printed].
Perhaps a prefatory comment is in order. There
is a certain sense of deja vu in this inquiry. I recall many years
ago submitting testimony to a Select Committee of the House of
Commons—I think together with Walt Patterson—predicting
that any orders placed for PWRs would prove painfully costly and
that their overall economics would disappoint. Over the past several
decades I have repeatedly said the same about reprocessing, which
has indeed turned out, as expected, to raise the cost of once-through
LWR fuel cycles by roughly 4-5-fold and to complicate waste management.
The British taxpayer has already twice bailed out the national
nuclear enterprise at great expense. I should have thought that
by now the basic lessons of this industry's economics and credibility
would have been learnt—that everyone would understand that
the way forward for energy policy is to take market economics
seriously, stand back, let the winners win and the losers lose,
design an orderly terminal phase for the nuclear adventure, and
avoid further embarrassment. But it seems that the proponents
have no shame and have, like an earlier ancien re«gime, learnt
nothing and forgotten nothing. So evidently some further reminders
are needed about economic fundamentals, where the case today is
immensely stronger than ever in the past.
Here, then, are the key arguments in my 16 August
2005 CEC testimony:
1. Nuclear power worldwide has already been
eclipsed by its supposedly small and slow decentralised rivals
(renewables other than big hydro, and CHP). Slides 3-4, [not printed]
documented by a spreadsheet and a methodological memorandum posted
at www.rmi.org/sitepages/pid171.php_E05-04, compare nuclear power
with its no- or low-carbon decentralised competitors: renewables
including hydropower only up to 10 MWe, and fossil-fueled CHP,
respectively—the latter typically reducing CO2
emissions by approx. 30-80% depending on before-and-after fuels and design
details. These data, not previously assembled, show that the decentralised
generators overtook nuclear power in worldwide installed capacity
in 2002 and in annual electricity output in 2005. (Dr Eric Martinot
at Tsinghua University in Beijing is to publish his own detailed
comparison next month, with very similar results.) The remarkably
faster absolute growth of the decentralised options, in MWe added,
is shown in slide 4 [not printed] by year and by technology. Five
years from now, the respective industries project that nuclear
power's net capacity addition will total only 1/177th as much
as the decentralised competitors'. Whilst this will doubtless
not prove to be exactly the right number, its direction is clear,
and its implications for nuclear advocates are devastating. Those
who contend that only nuclear power is big and fast enough to
cope with climate change, or that the non-nuclear ways to reduce
carbon emissions have excessive "dry hole" risks of
nondeployment, have apparently overlooked this actual market behaviour
showing exactly the opposite. (Of course, as Schneider and Froggatt
show—please see slides 5 and 31-33—nuclear power is
about to begin a long but inexorable global decline due simply
to the aging of existing plants.)
2. Demand-side installations may well be
even bigger and faster than these winning decentralised supply-side
competitors, but are not being properly measured globally nor,
in most cases, nationally. For lack of data, slides 3-4 omit demand-side
competitors (end-use efficiency and electric load management or
demand [Not printed] response). These are probably saving more
GWp and TWh/y than the decentralised supply-side resources are
adding, but as they are not well tracked statistically (they formerly
were in the US but not for the past decade or so), I couldn't
properly graph their progress. Nonetheless, as a rough indication,
the US Energy Information Administration's Annual Energy Review
2004 shows that in 2003 alone, utilities' demand-side programmes—which
are far from the only and may not even be the main cause of saving
electricity and shifting peak loads—saved 23 GWp and 50
TWh/y in the US, which is one-fourth of the world electricity
market. This approaches the 28 GW added by the decentralised supply-side
resources in 2003 worldwide, vs 0.6 GW of nuclear net additions.
Remarkably, nobody is keeping track, worldwide
or in almost any country, of how much electricity is being saved
at what cost. Thus both policymakers and investors are "flying
blind", to their peril. Exactly such invisibility of demand-side
achievements created the mid-1980s US fiasco of overinvestment
in supply, glutted demand, crashed prices, and bankrupt suppliers.
The current US administration seems determined to see this very
bad film all over again: since 1996, US electric intensity and
primary energy intensity of GDP have respectively declined at
rates averaging 1.5 and 2.3% per annum—2-3x faster than
in the previous decade—recently causing investors to lose
nearly all their money in nearly 200 GW of combined-cycle plants
built to meet nonexistent demand. Yet during 1996-2004 inclusive,
some 78% of the increase in US energy services has been "fueled"
by reduced energy intensity rather than by increases in physical
energy supply. Since official statistics focus only on the other
22%—the recognised supply side—this means policymakers
and investors are seeing less than one-fourth of reality. I hope
your Committee will strongly encourage Government to correct this
informational imbalance.
3. Both electric end-use efficiency and
decentralised generation cost much less than new nuclear plants
per delivered (retail) kWh. This comparison, using nominal but
conservative values based on wide US market experience, is presented
in slide 7 [not printed] and in the animation of slides 8-21.
Supplementary slide 34 [not printed] amplifies some illustrative
US demand-side costs. Note the decline in programme costs in both
California and the Pacific Northwest in recent years when efficiency
efforts (interrupted by restructuring) have been revived—much
as on previous occasions—and the very low costs of most
savings in the commercial and industrial sectors, vs all-sector
programmes whose average costs are raised by heavy investments
in lagging and draughtproofing houses and flats.
4. The cost of all these non-nuclear competitors
is relentlessly declining. Please see slides 21-22 [not printed].
Clark Gellings of the Electric Power Research Institute told me
last month that he agrees the electric "efficiency resource"
is getting cheaper and bigger because better technologies, their
lower costs in volume production (often in Asia), and more streamlined
delivery are together more than offsetting the depletion of efficiency
opportunities. Moreover, my consulting team's practise has demonstrated
in very diverse industrial sectors and building types that integrative
design—optimising whole systems for multiple benefits rather
than isolated components for single benefits—typically makes
very large energy savings cost less than small or no savings.
(Natural Capitalism, www.natcap.org, gives many earlier examples.)
That is, rediscovering good Victorian whole-system design can
generally make investments to energy efficiency yield expanding
rather than diminishing returns. This is why slide 20 [not printed]
shows that the $0.01/kWh typical cost of saving electricity in
the business sector can decrease to negative values in properly
designed new installations across all sectors.
5. Conventional comparison between new central
stations—nuclear, coal, or gas—thus miss the point.
All three of these centralised options are grossly uncompetitive
with demand-side and decentralised supply-side investments. Hence
the bleak economic prospects for nuclear power summarised in slide
6. Counting the 207 "distributed benefits" (slide 37)
documented in Small Is Profitable would typically give decentralised
investments a further order-of-magnitude cost advantage not counted
here.
Please note also slide 42's empirical data suggesting
that currently popular declining-cost assumptions [not printed]
merit caution: US coal and nuclear plants through -1980 experienced
not a learning curve but a "forgetting curve"—a
neoclassical supply curve of increasing real cost with increasing
installations. The main underlying reason for this appears to
be that the more plants are built, the more likely it is something
will go wrong amongst them and that one will be close enough for
you to notice, so you are more likely to exert pressure on the
political and regulatory system to make each new plant cleaner
or safer. Cleanliness can be both directly perceived and much
improved at modest cost that is reasonably bounded. However, risks
from nuclear plants are not so directly testable by the senses,
often depend on differing personal judgments of probabilities,
and can drive investment in greater safety or security without
any obvious upper bound. One implication is that inherently benign
technologies are more likely to win wide acceptance. Another is
that decentralised technologies, by allocating their costs and
benefits to the same people (not to different people at opposite
ends of the wires or at different times), automatically internalise
their perceived impacts and thus are unlikely to elicit open-ended
regulatory intervention.
6. The decentralised competitors, both demand-
and supply-side, offer a considerably larger resource base, especially
in diversified portfolios, than nuclear power can. Please see
slide 23 [not printed]. The -2-4x range of potential efficiency
gain for the US comes respectively from Clark Gellings' analysis
at EPRI (in 1990 for the 2000 base, including 9-15% of spontaneous
savings then expected) and from a far more detailed RMI long-term
analysis documented in more than 2,500 dense technical pages documented
to more than 5,500 sourcenotes (the Competitek/E Source library,
www.esource.com). Both sets of results were summarized in Dr Gellings's
and my joint article in the September 1990 Scientific American
(enclosed with the postal version); our differences were mainly
methodological not substantive, as noted in my 1991 Ann. Rev.
En. Envt. survey article. Please see also my 2004 Encyclopaedia
of Energy article "Energy efficiency: taxonomic overview",
a copy of which is attached as 383—402.PDF [not printed]
My background paper currently in editing, "Energy
Policy for National Insecurity", will more fully document
the well-established arguments that neither the intermittence
nor the land-use of certain renewables need be of serious concern
at large scale, given thoughtful siting and proper system engineering.
This paper will soon be posted at www.rmi.org/sitepages/pid171.phpE05-04.
Meanwhile you will find many helpful references up to spring 2002
in Small Is Profitable, op. cit. supra. Indeed, it has been known
since IIASA's - 1977 analyses that land-use for nuclear, coal,
and [relatively inefficient] solar fuel cycles is broadly similar
per TWe-y of output.
Please see also slide 38 [not printed], which
shows that whilst conventional projections show very large increases
in renewable energy supply are possible (and would be necessary
if one did not make least-cost investments on the demand side,
which none of the projections shown takes seriously), these plausible
renewable expansions far surpass both the current scale and the
declining officially forecast future scale of the nuclear enterprise
[not printed]
7. Neither of the main arguments for nuclear
power—displacing oil and mitigating climate change—can
withstand serious scrutiny. Please see slide 24. [not printed]
As to oil: for a very detailed Pentagon-cosponsored
synthesis of how to eliminate US oil dependence over the next
few decades, led by business for profit, please see Winning the
Oil Endgame, free (with its supporting analyses) at www.oilendgame.com.
Its Executive Summary is attached hereto. As a free byproduct
of the profitable oil savings, US CO2 emissions projected
for 2025 would drop by 26%. I have not performed a comparably
detailed analysis for the UK, but am confident that despite many
differences of detail, a broadly similar potential would be found
there.
As to climate: of special importance to your
inquiry is the opportunity-cost argument in slide 24's second
main bullet [not printed]. If, for example, saving electricity
cost one-third as much per delivered kWh as a new nuclear plant
(the actual ratio would generally be much larger than threefold),
then every £ spent on a new nuclear plant could have bought
three times as much carbon displacement if invested in efficiency
instead. The net result of choosing the costly nuclear investment
will thus be to keep on burning two unnecessary units of coal
for each unit displaced by nuclear power—thus making climate
change worse than had the least-cost option been bought instead.
The more concerned we are about climate change, the greater rigour
we need in applying such a marginal cost-benefit calculus to our
investments, so that we are confident of winning the most carbon
displacement, soonest, per £ invested. On grounds of both
cost-effectiveness and speed, nuclear power falls near the bottom
of the list of investment priorities. Thus as soon as one realises
that the available, practical, and empirically more successful
portfolio includes efficiency, CHP, and renewables as well as
central coal or gas stations, the supposed case for substituting
nuclear for coal power falls to the ground. (Obviously a low-
rather than no-carbon resource—CHP rather than renewables
or efficiency—requires the reduced but nonzero carbon emissions
to be taken into account, but the decision outcome will be the
same: nuclear loses on carbon displaced per £ or per year.)
8. All options have their difficulties with
implementation at scale, and hence a nonzero "dry-hole"
risk that they will not actually get built or will not operate
timely and durably. But these risks are empirically greater for
nuclear power than for a proper portfolio of its no- and low-carbon
competitors on the demand and supply sides. Please see slides
25 and slides 35-36, and review slides 3-4, for compelling illustrations
from actual market behaviour [not printed].
9. In view of these findings, further private
investments in nuclear power are unlikely, and further public
investments in it are counterproductive: they would actually reduce
and retard CO2 reductions by diverting money, time,
and talent away from the biggest and fastest solutions. Slide
39 summarises why the just-approved major increase in US nuclear
subsidies, though an extraordinary distortion of markets, is unlikely
to overcome the fundamental economic disadvantages shown in slides
8-20. That is a good thing because of the unpleasant implications
and discouragingly small benefits of large-scale nuclear expansion
(slides 40) [notprinted] and the leverage of market-driven nuclear
phaseout for discouraging further proliferation of nuclear bombs
(slide 41). (The proliferation analysis is set out in detail in
my 1979 out-of-print book Energy/War: Breaking the Nuclear Link,
summarised in the Summer 1980 issue of Foreign Affairs, "Nuclear
Power and Nuclear Bombs", and technically supported by my
Nature review article of 28 February 1980.)
Having worked in the UK for more than three
decades, I am well acquainted with the many differences of detail
between my largely US-based analysis for the California Energy
Commission and UK conditions. However, I believe that for the
purposes of your inquiry, these differences are far less important
than the similarities, and that all the same conclusions, mutatis
mutandis, would remain valid for the UK.
My team at RMI is currently completing a far
more detailed examination of the US gas and electricity sectors
than the already very suggestive one in Winning the Oil Endgame,
which showed, for example, how to save half of U.S. natural-gas
use—half of it directly, the rest by electrical demand-side
management displacing gas-fired power generation—at an average
cost below $1/GJ. I would not be surprised if the UK had a comparable
or even a larger potential for saving natural gas, and would urge
this as a focus for concerted and modern analysis across all sectors.
The potential for saving UK electricity is among
the largest in the industrialised world, yet will remain largely
uncaptured so long as Parliament continues to give energy suppliers
and customers contrary incentives. Ever since Parliament set and
the Regulator, at the start of the restructing era, first implemented
the formula for forming the retail prices of electricity and gas
(the Government of the day having rejected an amendment in the
Lords seeking to prevent the problem), distributors have effectively
been rewarded for selling more energy and penalised for cutting
customers' bills. This and other factors nearly destroyed the
fledgling efficiency industry. Dr Stephen Littlechild was unable
to mend this perverse incentive within the constraints of the
legislation. May I suggest that doing so is probably the biggest
single leverage point in UK energy policy and merits Parliament's
prompt attention? The basic goal should be first to decouple revenues
from sales volumes—so that distributors are no longer rewarded
for selling more energy nor penalised for selling less—and
then to let distributors keep, as extra profit, part of whatever
they save the customers, so that both parties have fully aligned
incentives. This has already been done in some other jurisdictions,
with a very salutary effect on both parties' behaviour. The independent
and not-for-profit Regulatory Assistance Project, www.raponline.org,
stands ready to help the UK authorities to design and implement
this vital reform. This alone would go a long way to profitably
meeting UK climate-protection goals.
22 September 2005
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