It’s hard to estimate how much it will cost to start/change a company, especially because it’s reasonable to expect that $1 today is worth less than $1 in the future. Do you use today’s prices, or take inflation into account? On the other hand, if what you’re doing is comparing costs, it doesn’t really matter which method you use as long as you’re consistent.
A mistake with that last bit ended up possibly costing FutureGen its future.
Here’s some background. According to the US Department of Energy, “FutureGen is an initiative to equip multiple new clean coal power plants with advanced carbon capture and storage (CCS) technology.” This was announced in 2003, but a year ago the top folk in the Department of Energy decided that it was going to be too expensive to build.
Certainly it would have been expensive: over a billion dollars (about 8% of which would have been paid for by China and India as research into cleaner energy that they might be able to use). But not quite as expensive as they thought. According to Scientific American,
the Department of Energy (DOE) had essentially forgotten to account for inflation when estimating FutureGen’s projected costs. Specifically, the department had said in 2004 that it would cost $950 million to build, a sum that it last year said had ballooned to $1.8 billion when projected through 2017. In fact, the GAO says, the actual cost considering inflation would be closer to $1.3 billion….
These new figures were released in a 54-page report by the Government Accountability Office (GAO) on March 11, 2009, which you can read here. In particular, one of the problems was that the Department of Energy was making comparisons of FutureGen as originally planned versus replacing/restructuring, but in one case they were taking inflation into account (that $1 spent in 5 years is worth less than $1 today) and in another case they weren’t, so the numbers weren’t comparable. In The New York Times, Representative Bart Gordon (a Democrat from Illinois) said,
I am astonished to learn that the top leadership of the Department of Energy in the last administration made critical decisions about our nation’s energy future and capacity to combat global warming based on fundamental budget math errors…This is math illiteracy on a grand scale and with global consequences.
(In the interests of full disclosure, Illinois is the state where FutureGen would be located, so the consequences may have hit closer to home, so to speak.)
With this disclosure and a new administration, FutureGen might be back on the table. Or maybe not — presumably the price has increased even since those figures were taken into account, and so other comparisons would have to be made before a decison would be made. Hopefully this time using comparable data.