GAO Report on DOE Restructuring of FutureGenA February 2009 GAO report on the Department of Energy, FutureGen project describes how the decision to restructure the project in 2008 was based on inaccurate cost estimates.

While the initial $950 million estimated price was based in constant 2004 dollars, the later $1.8 billion estimate was a life cycle cost out to 2017 with inflation accounted for

If the same estimate process were used, the increased cost of the project would be $1.3 billion (not $1.8 billion), an increase of 370 million (+39%). Given the rising costs of steel, cement, labor, and the faltering economic conditions, the 39% price increase appears far more reasonable.

From the "Results in Brief" section of the report,

DOE did not use sufficient information to support its decision to restructure FutureGen. According to our recent work and best practices, a decision to terminate or significantly restructure an ongoing program should be informed by timely and sufficient information on the costs, benefits, and risks of such a decision. DOE did not prepare a comprehensive analysis of the costs, benefits, and risks of its decision to replace the original FutureGen with the restructured program. DOE made its decision based, in large part, on its conclusion that construction and material costs for the original program would continue escalating substantially in the indefinite future and that life-cycle costs were likely to double. However, according to economic forecasting organizations, such as DOE’s Energy Information Administration, significant cost escalations for building power plants, in general, do not typically continue in the long run. Also, DOE reached this conclusion by comparing its cost estimate for the original FutureGen ($950 million in constant 2004 dollars) with the Alliance’s 2006 estimated life-cycle costs for the program through 2017 (about $1.8 billion, considering inflation). In explaining his decision to restructure FutureGen, the Secretary of Energy noted that the projected program cost had “nearly doubled,” from $950 million to $1.8 billion. However, that assertion did not take into account a major difference between the two estimates: one was based on constant dollars and the other on inflated dollars. Our analysis indicates that the Alliance’s estimate in constant 2005 dollars would be approximately $1.3 billion—an increase of about $370 million, or about 39 percent, over DOE’s estimate, not a near doubling of costs. As DOE’s restructuring decision was not based on a comprehensive analysis of the associated costs, benefits, and risks, DOE has no assurance that the restructured program is the best option to accomplish the goal of promoting the accelerated and widespread commercial advancement of CCS. In contrast to the restructuring decision, FE identified and analyzed 13 other options for incremental, cost-saving changes to the original program, such as reducing the CO2 capture requirement. While FE did not consider all of these options to be viable, it either recommended or noted several of them for consideration, each with potential savings from $30 million to $55 million.

Lessons from the Spanish Renewables Bubble

This study, sub-titled "Lessons from the Spanish Renewables Bubble" is a first critical look into the actual economic outcomes of broad government support of so-called green jobs.

While "green jobs," or "green collar jobs" are promoted as a means of lifting the country out of economic doldrums and the Spanish example has been promoted by the Obama administration as a "reference for the establishment of government aid to renewable energy," this research suggests that the Spanish -- and broader European -- support of this policy has proven "to be terribly economically counerproductive."

Study findings indicate,

• For every green job that the state finances, there are "at least 2.2 jobs ... lost." Overall, Spain lost nearly 113,000 jobs while creating their green jobs. Those jobs were lost mainly in "metallurgy, non-metallic mining, and food processing ..."
• Despite a vigorous support of the green jobs policy, Spain has actually created "a surprisingly low number of jobs." Additionally, the majority (two-thirds) of the jobs created came in short-term construction, fabrication, and installation positions. A further one quarter came in administrative and marketing. Only one in ten of the jobs created were permanent positions in operation and maintenance.
• Spain spent €571,138 for each green job created, including subsidies of more than €1 million per wind industry job.
• Each" 'green' megawatt installed destroys 5.28 jobs elsewhere in the economy. 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro."
• These costs are "inherent in schemes to promote renewable energy sources."
• Comprehensive energy rates would need to be increased by 31% to repay the debt generated by subsidies to renewable energy.
• The only way for the renewables sector to be "countercyclical" in the current economic crisis is through the provision of government subsidies. Once those subsidies are removed, the industry finds itself in a classic "bubble" condition and facing collapse.
• The renewable sector in Spain consumes "enormous taxpayer resources. The average annuity payable to renewables is equivalent to 4.35% of all VAT collected, 3.45% of the household income tax, or 5.6% of the corporate income tax for 2007."

Interestingly, this Universidad Rey Juan Carlos study mirrors the findings of the University of Illinois Law & Economics Research Paper (No. LE09-001), titled "Green Jobs Myths." The "Green Jobs Myths" study abstract indicates that,

• No standard definition of a green job exists.
• Green jobs estimates include huge numbers of clerical, bureaucratic, and administrative positions that do not produce goods and services for consumption.
• The green jobs studies made estimates using poor economic models based on dubious assumptions.
• By promoting more jobs instead of more productivity, the green jobs described in the literature encourage low-paying jobs in less desirable conditions.
• Companies react more swiftly and efficiently to the demands of their customers and markets, than to cumbersome government mandates.
• Some technologies preferred by the green jobs studies are not capable of efficiently reaching the scale necessary to meet today's demands and could be counterproductive to environmental quality.

Power Plants: Characteristics and CostsFrom the opening portion of the report summary, Kaplan points out that the future of new generation capacity construction in the U.S. will be predicated largely on government picking winners and losers across the industry.

This report analyzes the factors that determine the cost of electricity from new power plants. These factors — including construction costs, fuel expense, environmental regulations, and financing costs — can all be affected by government energy, environmental, and economic policies. Government decisions to influence, or not influence, these factors can largely determine the kind of power plants that are built in the future. For example, government policies aimed at reducing the cost of constructing power plants could especially benefit nuclear plants, which are costly to build. Policies that reduce the cost of fossil fuels could benefit natural gas plants, which are inexpensive to build but rely on an expensive fuel.

Download the full report from the Congressional Research Service