Cost of Power 2010 vFinal
[Pages:147]ENERGY
The Cost of Power Generation
The current and future competitiveness of renewable and traditional technologies By Paul Breeze
Paul Breeze
Dr Paul Breeze has specialized in the electricity sector for the past 25 years. He is contributing editor for the monthly international magazine for the power industry, Modern Power Systems, and as freelance writer he has contributed to The Financial Times, The Guardian, The Daily Telegraph, The Observer and The Economist. In addition to the power sector, Paul Breeze's interests include science and the computer industry.
Copyright ? 2010 Business Insights Ltd This Management Report is published by Business Insights Ltd. All rights reserved. Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd. The views expressed in this Management Report are those of the publisher, not of Business Insights. Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon. While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy
ii
Table of Contents
The Cost of Power Generation
Executive summary
10
Introduction
10
Capital cost and levelized cost
10
Risk, volatility and liberalized electricity markets
11
Historical costs
11
Lifecycle analysis, CO2 emissions and the cost of carbon
12
Factors which distort the price of electricity
12
The cost of power
13
Chapter 1
Introduction
16
Chapter 2
Capital cost and levelized cost:
the traditional approach to
estimating the cost of power
20
Introduction
20
Capital costs
23
Regional capital cost fluctuations
31
Capacity factor
32
Financing capital cost
34
The levelized cost of electricity model
35
Interest, discount rate and present value
36
Levelized cost estimates
38
Chapter 3
Risk, volatility and liberalized
electricity markets
48
Introduction
48
Fuel prices and fuel price volatility
50
iii
Fuel price risk and risk modeling
60
Electricity price spikes
63
Risk hedging
66
Portfolio planning theory
66
Chapter 4
Historical costs of electricity,
capital cost and the technology
learning effect
72
Introduction
72
Historical costs of electricity
72
Retail cost and levelized cost
78
Technology costs, the learning effect and economies of scale
80
Chapter 5
The environment: lifecycle
analysis, CO2 emissions and the
cost of carbon
90
Introduction
90
Lifecycle energy analysis
91
Lifecycle CO2 emissions
94
Placing a price on carbon
98
Actual carbon costs: the European Trading Scheme
100
Chapter 6
Introduction Structural costs Grid extension Balancing costs Capacity credit Externalities Subsidies Fuel subsidies Tariff subsidies
Factors which distort the price of
electricity
104
104 105 107 109 112 114 119 120 125
iv
Other distorting mechanisms: quotas and taxes
Chapter 7
The cost of power
Introduction The future of the liberalized electricity market Market trends Levelized cost trends Index
126
130
130 132 134 135 144
v
List of Figures
Figure 2.1: Figure 2.2: Figure 2.3: Figure 2.4: Figure 2.5: Figure 3.6: Figure 3.7: Figure 3.8: Figure 3.9: Figure 3.10: Figure 3.11: Figure 3.12: Figure 4.13: Figure 4.14: Figure 4.15:
Figure 4.16: Figure 4.17: Figure 4.18: Figure 4.19: Figure 5.20: Figure 5.21: Figure 5.22: Figure 6.23: Figure 6.24: Figure 6.25: Figure 6.26: Figure 6.27:
Figure 6.28: Figure 6.29: Figure 7.30: Figure 7.31: Figure 7.32:
EIA overnight capital cost of power generating technologies (2008$/kW), 2009 26
Lazard capital cost comparison for generating technologies ($/kW), 2009
28
Present value of one million dollars as a function of discount rate
37
Lazard levelized cost comparison for generating technologies ($/MWh), 2009
40
EIA levelized cost of electricity for new plants entering service in 2016 ($/MWh) 43
Annual average world oil prices ($/barrel), 2010
52
Annual coal prices ($/tonne), 2009
54
Steam coal for electricity generation ($/tonne), 2008
55
Annual gas prices ($/107kcalories), 2009
57
Natural gas prices for electricity generation ($/107kilocalories), 2008
58
US natural gas prices for electricity generation ($/thousand cubic meters), 2009 60
Spot prices for electricity in California ($/MWh), 2001
65
Domestic retail electricity prices ($/MWh), 2007
74
Industrial retail electricity prices ($/MWh), 2007
75
Predicted prices for gas and electricity in 2008 from earlier US Annual Energy
Outlooks (%), 2009
79
Global solar photovoltaic module costs ($/W), 2008
82
Global solar cell production (MW), 2009
83
US wind turbine installation costs ($/kW), 2008
85
Annual wind turbine capacity additions (MW), 2009
86
Energy payback ratios based on lifecycle assessment
93
CO2 emissions from power generating technologies (t/GWh)
97
EU Emission Trading Scheme carbon prices (/tonne CO2), 2010
101
Grid extension costs as a function of wind penetration
108
Balancing costs for 20% grid wind penetration with energy storage
111
Typical renewable capacity credits in California (%)
113
External costs of power generation (/MWh)
116
Australian external cost estimates for power generation technologies (US$/kW), 2009
118
Economic value of fuel subsidies in non-OECD countries ($bn), 2006
123
US energy subsidies ($m), 2007
124
California Energy Commission levelized cost ($/MWh), 2009
136
UK levelized cost estimates (?/MWh), 2010
139
Levelized cost predictions for plants entering service in 2018 ($/MWh)
141
vi
List of Tables
Table 2.1: Table 2.2: Table 2.3: Table 2.4: Table 2.5: Table 2.6: Table 3.7: Table 3.8: Table 3.9: Table 3.10: Table 3.11: Table 3.12: Table 3.13: Table 4.14: Table 4.15: Table 4.16: Table 4.17:
Table 4.18: Table 4.19: Table 4.20: Table 4.21: Table 5.22: Table 5.23: Table 5.24: Table 6.25: Table 6.26:
Table 6.27: Table 6.28: Table 6.29: Table 6.30: Table 6.31: Table 6.32: Table 7.33: Table 7.34: Table 7.35:
EIA overnight capital cost of power generating technologies, 2009
25
Lazard capital cost comparison for generating technologies ($/kW), 2009
28
EIA overnight capital cost trends for power generating technologies ($/kW), 2010 30
Lazard levelized cost comparison for generating technologies ($/MWh), 2009
39
EIA levelized cost of electricity for new plants entering service in 2016 ($/MWh) 42
Mean levelized costs from published global figures (?/MWh), 2007
45
Annual average world oil prices ($/barrel), 2010
51
Annual coal prices ($/tonne), 2009
53
Steam coal for electricity generation ($/tonne), 2008
55
Annual gas prices ($/107kcalories), 2009
57
Natural gas prices for electricity generation ($/107kilocalories), 2008
58
US natural gas prices for electricity generation ($/thousand cubic meters), 2009 59
Spot prices for electricity in California ($/MWh), 2001
64
Domestic retail electricity prices ($/MWh), 2007
74
Industrial retail electricity prices ($/MWh), 2007
75
Retail electricity prices in EU, first quarter 2009, excluding taxes (/MWh)
77
Predicted prices for gas and electricity in 2008 from earlier US Annual Energy
Outlooks (%), 2009
79
Global solar photovoltaic module costs ($/W), 2008
81
Global solar cell production (MW), 2009
83
US wind turbine installation costs ($/kW), 2008
84
Annual wind turbine capacity additions (MW), 2009
86
Energy payback ratios based on lifecycle assessment*
93
Lifecycle emissions from power generating technologies
96
EU Emission Trading Scheme carbon prices (/tonne CO2), 2010
101
Grid extension costs as a function of wind penetration
108
Additional annual transmission and distribution costs in 2020 associated with
increasing UK renewable contribution above 10 per cent after 2010
109
Balancing costs for 20% grid wind penetration with energy storage
111
Typical renewable capacity credits in California (%)
113
External costs of power generation (/MWh)
115
Australian external cost estimates for power generation technologies, 2009
118
Economic value of fuel subsidies in non-OECD countries ($bn), 2006
122
US energy subsidies ($m), 2007
124
California Energy Commission levelized cost ($/MWh)
136
UK levelized cost estimates (?/MWh), 2010
138
Levelized cost predictions for plants entering service in 2018 ($/MWh)
140
vii
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