Iron Law of Megaprojects

Investment Analysis Clubs Macro Economic Trends and Risks
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Developers looking to build thousands of wind turbines off the Mid-Atlantic and New England coast are coming up against a force even more relentless than the Atlantic winds: the Iron Law of Megaprojects, offering a warning of the trouble ahead for green-energy projects. The Iron Law, coined by Oxford Professor Bent Flyvbjerg, says that “megaprojects” — which cost billions of dollars, take years to complete, and are socially transformative — reliably come in over budget, over time, over and over…

The New York state government, looking to replace oil- and gas-fired powerplants with hundreds of wind towers off Long Island, set out in 2019 to create an offshore wind supply chain from scratch, beginning with a massive state-funded turbine fabrication facility about 100 miles north of New York City on the Hudson River. Ground still hasn’t even been broken, but the budget certainly has: The price of that Port of Albany facility has already doubled from $350 million to $700 million. An additional $100 million may be needed for equipment costs, raising the final price tag to $800 million.

A similar situation is playing out in New London, Connecticut, where a state-funded pier facility being built to support that state’s offshore wind buildout has more than doubled in price from an original estimate of $95 million to $250 million…

In New York, the state’s huge Climate Leadership and Community Protection Act — of which the Port of Albany project is the first substantial investment — is projected to cost between $270 and $290 billion. At that price it is a gigaproject composed of numerous individual megaprojects.

The benefits, mostly in the form of greenhouse gas reductions, are supposed to be up to $415 billion. But if the overall cost of the policy climbs by merely 55 percent, which is in the normal range for megaprojects (and much less than the Port of Albany cost overrun), the costs will exceed the benefits, creating a net loss for New Yorkers. If costs balloon to twice the initial estimates, which is not uncommon, the state stands to spend more than more than a hundred billion dollars more than gained in benefits That would be a loss of over $30,000 per New York household by 2050.

And that’s assuming the benefits are as good as promised.

DB2

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yeah the contract the company now wants renegotiated.

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Generally speaking, when you are building in areas where innovation or scale iteration is still moving the cost curve down at an appreciable pace, it is better to start small and fast instead of massive and slow.
Hence my belief that the era of large nuclear is past. It just takes too long and costs too much. Imagine a ten year timeline to build big nuclear. Where will solar plus storage be by then?
That doesn’t necessarily mean the end of nuclear, as there are promising options in smaller, modular nuclear that may still pan out. My bet is on solar.

Jk

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Must be related to the GI Joes…

Overpaid, overfed, oversexed and over here - Oxford Reference…

The Captain

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The problem with that are the dozens of large nuclear power reactors that have gone into service in the last 10 years. Just because they aren’t being built in the US doesn’t mean they aren’t being built elsewhere.

Most of the new nuclear plants in the last decade are in China, but not all of them. A South Korean construction consortium recently built 4 large power reactors in the United Arab Emirates. The cost of this project was not in just building the power plants, but also in developing the regulatory, training, and supply chain infrastructure needed to support a brand new nuclear power industry.

China continues to build large nuclear power plants, with around 20 reactor plants currently under construction. The key is have a large, experienced construction industry that can move from one project to another, applying the experience and lessons learned to each subsequent project. In this way, cost comes down and plants are built faster than if only one or two projects are attempted.

Summary of China’s nuclear power industry:

  • Pete
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You’re right Pete. My thoughts were specifically U.S. centric. Other countries with different regulatory frameworks will have different results. I still believe that solar plus storage will win out over the long haul, that the combination will be one third the cost of big nuclear in ten years.

Time will tell.

Jk

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What kind of storage? Batteries?
Sure they will work to shift power from the sunny days to evening/night. But how are you going to shift summer solar to dark winter? My solar panels generate ~5x more in July than in December, even though on average I generate a bit more than I consume on an annual basis.
So what am I going to do? Install 5x as many panels as I have now and have a huge excess in the summer?

Mike

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Mike, you are pointing out an important issue, that one does not fit all. The best solution is to use a variety of energy sources and resources. On my boat I had solar panels, a wind turbine, an alternator on the auxiliary diesel engine and shore power while docked and two kinds of batteries, one for the ‘house,’ continuous low power, and another for high loads like the anchor winch.

One might combine nuclear base load with solar/storage peak loads and smart grid management such as Tesla’s virtual power plants (VPP), AutoBidder.

The Captain

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Mike,
I think that the future holds a mix of many types of energy generation. Solar,wind,nuclear,nat gas, geo thermal,etc. Not all of your power needs to be generated on your property.
My prediction that solar plus storage will cost one third of big nuclear in ten years says nothing about other forms of energy production being needed. If in fact you want solar plus storage to be most effective, there must be some amount of overbuilding both in storage and panels.
But electrons can and are shifted through the grid all the time. If you think of all solar collected as an insurance pool, it is easier to envision the amount of overbuilding needed. Not all insured customers have claims at any given time, and not all those who produce solar need the full output of those panels. It can and will be shared through net metering or collective cooperatives or some other future form.

Jk

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I was just using my home generation as an example of how solar (alone) plus storage doesn’t work unless you spend huge amounts on storage and/or over build the solar.

You didn’t mention other types of generation in your first post

Mike

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I get it. I thought we would end up with everyone on their own, with solar plus storage originally. As the technology improves, it appears that large installations have significant cost advantages to them. It is my thinking that 2x capacity solar with 12 hours local storage may well be enough for all but the most extreme cases, and we already have three geographically large grids to load balance between. Much is left to be done to make these more resilient and more modern, but if the economics work, much will be done over time. I was thinking on a larger, more national scale.
Jk

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This article indicates that during “polar vortex” conditions (very cold, almost no wind and little sunshine) would require 25x more storage than presently available. That is double what Wood Mackenzie forecasts nationwide for 2040.

DB2

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There are other options too. The problem with solar + storage alone is you need a huge amount of excess capacity in the event of a long dark period in the winter. But a relatively small amount of dispatchable energy makes the size of the solar + storage system a lot smaller. That could be in the form of say, natural gas with carbon capture. That’s expensive, but you don’t need a lot of it. Or maybe hydrogen created by excess electricity in the summer and burned in the winter.