The Future of Power Generation: Costs of Renewable and Traditional Technologies

SUMMARY

Today the future direction of electricity supply has become a contentious issue, most powerplants have a lifetime of around 30 years, so every thirty years the whole stock must either bereplaced or undergo major renovation. Every time a power plant must be replaced or new capacityadded to a system, the cost of power generation comes into play.

The Future of Power Generation: Costs of renewable and traditional technologies is a newmanagement report that analyzes the determinants of the baseline cost of generating and deliveringelectricity. It objectively assesses the relative costs of traditional and renewable power byquantifying the key cost factors from manufacture, technology, financing and operating costs to theenergy balance and the affects of subsidies and legislation.

TABLE OF CONTENTS

Chapter 1 An introduction to the cost of electricity 16

• Introduction 16
• Report structure 17

Chapter 2 The traditional approach to costing electricity generation 20

• Introduction 20
• Capital costs of power generation technologies 21
• Australia 23
• US 24
• UK 25
• Analysis of capital cost figures 26
• Capacity factor 28
• Financing capital cost 31
• The cost of power 32
• Levelized cost of electricity 32
• Global levelized costs 34
• Fuel cost and fuel risk 38

Chapter 3 Historical costs 42

• Introduction 42
• Technology costs 43
• Financial costs 49
• Operational and maintenance costs 51
• The cost of fuel 53
• Oil 54
• Gas 55
• Coal 58
• Fossil fuel discount rates 59
• Hedged gas prices 61
• Risk and security 61

Chapter 4 Lifecycle costs 64

• Introduction 64
• Net Energy Analysis 65
• Greenhouse gas lifecycle analysis 70
• Other atmospheric emissions 74
• Policy making 75

Chapter 5 Structural costs 78

• Introduction 78
• Renewable characteristics 78
• Structural costs of renewable generation 79
• Grid extension 80
• Capacity credit and balancing 84
• Market structural effects 89
• Energy storage 91

Chapter 6 Factors distorting the price of electricity 96

• Introduction 96
• Types of subsidy 97
• Tariff subsidies 98
• Fuel subsidies 99
• Externalities 102
• Legislation, quotas and green certificates 104
• Quotas 105
• Feed-in tariffs 105
• Other measures 106
• Green certificates 106
• Government policy 107

Chapter 7 Conclusions 109

• Introduction 109
• The cost of renewable vs traditional power 110
• Industry executive survey 113
• Relative competitiveness of power generation technologies 113
• Factors affecting the market price of green energy 115
• Factors affecting the uptake of renewable energy 116
• Factors affecting the future of fossil-fuel fired generation 118
• Share of global electricity production that will be supplied by renewable energy by 2015 120
• Timeline for renewable energy supplying 50% of global electricity production 121
• The significance of the proposed hydrogen economy 122

List of Figures

• Figure 2.1: Global capital costs of power plants 22
• Figure 2.2: Country comparison of capital costs of selected power plants 26
• Figure 2.3: Typical capacity factors for power generating plants 29
• Figure 2.4: Present value of $1m as a function of discount rate 33
• Figure 2.5: Typical global levelized power generation costs 35
• Figure 3.6: US Wind turbine costs, 1996-2030 45
• Figure 3.7: Photovoltaic production costs in the US, 1996-2003 47
• Figure 3.8: Cost of natural gas for electricity generation (US$/107kcals) 56
• Figure 5.9: Grid extension costs as a function of renewable penetration 82
• Figure 5.10: Balancing costs for 20% wind penetration and energy storage 92
• Figure 7.11: Relative competitiveness of power generation technologies now and in ten years 114
• Figure 7.12: Factors affecting the market price of green energy 115
• Figure 7.13: Factors affecting the uptake of renewable energy 117
• Figure 7.14: Factors affecting the future of fossil-fuel fired generation 119
• Figure 7.15: Significance of the proposed hydrogen economy for future electricity generation 123

List of Tables

• Table 2.1: Global capital costs of power plants 21
• Table 2.2: Capital cost of power plants in New South Wales 23
• Table 2.3: New electricity generating technology costs in the US 24
• Table 2.4: Capital cost of new technologies in the UK 25
• Table 2.5: Typical capacity factors for power generating plants 29
• Table 2.6: Present value of $1m as a function of discount rate 33
• Table 2.7: Typical global levelized power generation costs 35
• Table 2.8: Levelized cost of electricity estimates for typical US utility 36
• Table 2.9: Levelized cost of electricity from new technologies in the UK* 37
• Table 2.10: Cost of electricity estimates for a gas-fired plant based on different models 40
• Table 3.11: Wind turbine costs, 1996-2030 46
• Table 3.12: Photovoltaic production costs in the US, 1996-2003 47
• Table 3.13: Renewable technology learning curve costs (US$/kW) 48
• Table 3.14: Annual cost of maintenance in the UK 51
• Table 3.15: Annual cost of maintenance for renewable technologies (US$/kWh) 52
• Table 3.16: Average world oil prices (US$/barrel) 54
• Table 3.17: Cost of natural gas for electricity generation (US$/107kcals) 56
• Table 3.18: Cost of steam coal for electricity generation (US$/tonne) 58
• Table 4.19: Power plant total energy balance 66
• Table 4.20: Lifecycle energy efficiencies of different technologies 67
• Table 4.21: Energy payback ratios 69
• Table 4.22: Relative greenhouse gas efficacies of different power plant gases 70
• Table 4.23: Greenhouse gas emission rates for different technologies, US 71
• Table 4.24: Greenhouse gas emission rate for different technologies, Japan 72
• Table 4.25: Greenhouse gas emission rate for different technologies, Sweden 73
• Table 4.26: Emissions from typical fossil fuel power plants (t/GWh) 74
• Table 5.27: Grid extension costs as a function of renewable penetration 81
• Table 5.28: Transmission and distribution costs in 2020 associated with increasing UK renewablecontribution above 10% after 2010 as a function of renewable penetration 83
• Table 5.29: Wind capacity credit as a function of penetration level* 86
• Table 5.30: Capacity cost of wind generation (Euro/MWh) 88
• Table 5.31: Capacity cost of wind generation (Euro/MWh) 88
• Table 5.32: Balancing costs for 20% wind penetration and energy storage 92
• Table 5.33: Balancing cost per MWh of annual demand for 20% wind generation with storage 93
• Table 6.34: Coal PSE estimates for some OECD countries, 2000 100
• Table 6.35: External costs for various power generation technologies within the EU 103
• Table 7.36: The cost of power (Euro/MWh) 110
• Table 7.37: Relative competitiveness of power generation technologies now and in ten years 113
• Table 7.38: Factors affecting the market price of green energy 115
• Table 7.39: Factors affecting the uptake of renewable energy 116
• Table 7.40: Factors affecting the future of fossil-fuel fired generation 118
• Table 7.41: Share of global electricity production to be supplied by renewable energy by 2015120
• Table 7.42: Timeline for renewable energy supplying 50% of global electricity production 121
• Table 7.43: Significance of the proposed hydrogen economy for future electricity generation 122