The Cost of Power Generation: The current and future competitiveness of renewable and traditional technologies

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Jul 07, 2010, 09:18 ET

NEW YORK, July 7 /PRNewswire/ -- Reportlinker.com announces that a new market research report is available in its catalogue:

The Cost of Power Generation: The current and future competitiveness of renewable and traditional technologies

http://www.reportlinker.com/p0203698/The-Cost-of-Power-Generation-The-current-and-future-competitiveness-of-renewable-and-traditional-technologies.html?d=CPDAIN56

Since the publication by Business Insights of the last report into the cost of electricity there has been a massive change in global economic conditions as a result of the ramifications of the 2008 banking crisis. This has caused fuel and commodity prices to fall, as well as leading to a severe tightening in lending. The power sector still remains an attractive area for investment but investors are now more cautious than previously. Global warming continues to be a dominant theme but alongside that there is a new pragmatism about fossil fuel combustion which will continue to dominate the power sector for another generation at least. Meanwhile renewable sources of generation continue to advance, led principally by wind power but with solar capacity growing rapidly too, though from a small base.

Electricity is the most important energy source in the modern age but also the most ephemeral, a source that must be consumed as fast as it is produced. This makes modeling the economics of electricity production more complex than carrying out the same exercise for other products. Accurate modeling is important because it forms the basis for future investment decisions. In the electricity sector two fundamental yardsticks are used for cost comparison, capital cost and the levelized cost of electricity. The latter is a lifecycle cost analysis of a power plant that uses assumptions about the future value of money to convert all future costs and revenues into current prices. This model is widely used in the power industry but has some significant failings, particularly in its ability to handle risk. Even so these two measures, together, are the first consulted when power sector investment and planning decisions are to be made.

Key features of this report

• Analysis of power generation costs concepts, drivers and components.

• Assessment of the electricity sectors two fundamental yardsticks used for cost comparison, capital cost and the levelized cost of electricity, in analysing power generation costs.

• Insight relating to the most innovative technologies and potential areas of opportunity for manufacturers.

• Examination of the key power generation technologies costs.

• Identification of the key trends shaping the market, as well as an evaluation of emerging trends that will drive innovation moving forward.

Scope of this report

• Realize up to date competitive intelligence through a comprehensive power cost analysis in electricity power generation markets.

• Assess power generation costs and analysis – including capital costs, overnight costs, levelized costs and risk analysis.

• Identify which key trends will offer the greatest growth potential and learn which technology trends are likely to allow greater market impact.

• Compare how carbon costs will effect the industry in direct comparisons or renewable and conventional technologies using financial and life cycle analysis .

• Quantify structural costs of grid extension, the effect of drivers, legislation and tariffs, installation costs, and the cost of electricity.

Key Market Issues

• Environmental requirements:- The volume of fossil fuels burnt for power and heat generation have continually grown in line with economic, infrastructure and population growth. The resulting growth of carbon dioxide emissions globally has been linked to global warming and thereon climate change. Political, environmentalist and consumer pressures to lower carbon emissions is creating a path for lower carbon emitting power generation technologies.

• The cost of power:- The levelized cost of power remains an imperfect tool for comparing generating technologies but it is probably the best available provided its limitations are taken into account. Current levelized costs and levelized cost trends show overall prices rises over the past decade but some changes in relative cost too. Meanwhile the liberalized energy markets of the world have shown increasing signs of the type of cyclical behavior notable in financial markets. This and other factors have led to questioning of the fitness of the open market model to the provision of low cost stable electricity supplies.

• Life cycle analysis:- Lifecycle energy analysis shows how efficient a power plant is at using resources in order to produce electricity. Meanwhile lifecycle emission analysis shows how much pollution a power plant produces for each unit of electricity it generates. Among these latter analyses, lifecycle CO2 emissions have become a subject of global interest.

• Carbon dioxide emission management costs:- Carbon emissions are becoming part of the economic equation, and the cost of emitting a tonne of CO2 will be an important factor in determining future power plant economics. The introduction of carbon capture and storage to conventional technologies such as coal effect the cost of power generated by these plants, where renewable technologies such as wind and solar have no fuel costs, but require additional structure and balancing costs.

Key findings from this report

• Wind power has continued to expand rapidly with installed global wind capacity reaching 159GW at the end of 2009.

• The overnight cost of a simple gas turbine power plant may be as low as $600/kW.

• The cheapest technology to install is an open cycle gas turbine. An advanced unit of this type has an installed cost of $617/kW while a conventional unit of the same type has an installed cost of $653/kW.

• The installed cost of the peak load distributed generation is $1,601/kW while base load distributed generation will cost $1,334/kW based on these predictions.

• A solar thermal plant is expected to cost $4,798/kW while a solar photovoltaic plant is the most expensive of all with a capital cost of $5,879/kW.

Key questions answered

• What are the drivers shaping and influencing power plant development in the electricity industry?

• What are the life cycle carbon emissions of the various power generation technologies?

• What is power generation going to cost?

• Which power generation technology types will be the winners and which the losers in terms power generated, cost and viability?

• Which power generation types are likely to find favor with manufacturers moving forward?

• Which emerging technologies are gaining in popularity and why?

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

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 Factors which distort the price of electricity 104

Introduction 104

Structural costs 105

Grid extension 107

Balancing costs 109

Capacity credit 112

Externalities 114

Subsidies 119

Fuel subsidies 120

Tariff subsidies 125

Other distorting mechanisms: quotas and taxes 126

Chapter 7 The cost of power 130

Introduction 130

The future of the liberalized electricity market 132

Market trends 134

Levelized cost trends 135

Index 144

List of Figures

Figure 2.1: EIA overnight capital cost of power generating technologies (2008$/kW), 2009 26

Figure 2.2: Lazard capital cost comparison for generating technologies ($/kW), 2009 28

Figure 2.3: Present value of one million dollars as a function of discount rate 37

Figure 2.4: Lazard levelized cost comparison for generating technologies ($/MWh), 2009 40

Figure 2.5: EIA levelized cost of electricity for new plants entering service in 2016 ($/MWh) 43

Figure 3.6: Annual average world oil prices ($/barrel), 2010 52

Figure 3.7: Annual coal prices ($/tonne), 2009 54

Figure 3.8: Steam coal for electricity generation ($/tonne), 2008 55

Figure 3.9: Annual gas prices ($/107kcalories), 2009 57

Figure 3.10: Natural gas prices for electricity generation ($/107kilocalories), 2008 58

Figure 3.11: US natural gas prices for electricity generation ($/thousand cubic meters), 2009 60

Figure 3.12: Spot prices for electricity in California ($/MWh), 2001 65

Figure 4.13: Domestic retail electricity prices ($/MWh), 2007 74

Figure 4.14: Industrial retail electricity prices ($/MWh), 2007 75

Figure 4.15: Predicted prices for gas and electricity in 2008 from earlier US Annual Energy Outlooks (%), 2009 79

Figure 4.16: Global solar photovoltaic module costs ($/W), 2008 82

Figure 4.17: Global solar cell production (MW), 2009 83

Figure 4.18: US wind turbine installation costs ($/kW), 2008 85

Figure 4.19: Annual wind turbine capacity additions (MW), 2009 86

Figure 5.20: Energy payback ratios based on lifecycle assessment 93

Figure 5.21: CO2 emissions from power generating technologies (t/GWh) 97

Figure 5.22: EU Emission Trading Scheme carbon prices (euro/tonne CO2), 2010 101

Figure 6.23: Grid extension costs as a function of wind penetration 108

Figure 6.24: Balancing costs for 20% grid wind penetration with energy storage 111

Figure 6.25: Typical renewable capacity credits in California (%) 113

Figure 6.26: External costs of power generation (euro/MWh) 116

Figure 6.27: Australian external cost estimates for power generation technologies (US$/kW), 2009 118

Figure 6.28: Economic value of fuel subsidies in non-OECD countries ($bn), 2006 123

Figure 6.29: US energy subsidies ($m), 2007 124

Figure 7.30: California Energy Commission levelized cost ($/MWh), 2009 136

Figure 7.31: UK levelized cost estimates (pounds Sterling/MWh), 2010 139

Figure 7.32: Levelized cost predictions for plants entering service in 2018 ($/MWh) 141

List of Tables

Table 2.1: EIA overnight capital cost of power generating technologies, 2009 25

Table 2.2: Lazard capital cost comparison for generating technologies ($/kW), 2009 28

Table 2.3: EIA overnight capital cost trends for power generating technologies ($/kW), 2010 30

Table 2.4: Lazard levelized cost comparison for generating technologies ($/MWh), 2009 39

Table 2.5: EIA levelized cost of electricity for new plants entering service in 2016 ($/MWh) 42

Table 2.6: Mean levelized costs from published global figures (pounds/MWh), 2007 45

Table 3.7: Annual average world oil prices ($/barrel), 2010 51

Table 3.8: Annual coal prices ($/tonne), 2009 53

Table 3.9: Steam coal for electricity generation ($/tonne), 2008 55

Table 3.10: Annual gas prices ($/107kcalories), 2009 57

Table 3.11: Natural gas prices for electricity generation ($/107kilocalories), 2008 58

Table 3.12: US natural gas prices for electricity generation ($/thousand cubic meters), 2009 59

Table 3.13: Spot prices for electricity in California ($/MWh), 2001 64

Table 4.14: Domestic retail electricity prices ($/MWh), 2007 74

Table 4.15: Industrial retail electricity prices ($/MWh), 2007 75

Table 4.16: Retail electricity prices in EU, first quarter 2009, excluding taxes (euro/MWh) 77

Table 4.17: Predicted prices for gas and electricity in 2008 from earlier US Annual Energy Outlooks (%), 2009 79

Table 4.18: Global solar photovoltaic module costs ($/W), 2008 81

Table 4.19: Global solar cell production (MW), 2009 83

Table 4.20: US wind turbine installation costs ($/kW), 2008 84

Table 4.21: Annual wind turbine capacity additions (MW), 2009 86

Table 5.22: Energy payback ratios based on lifecycle assessment* 93

Table 5.23: Lifecycle emissions from power generating technologies 96

Table 5.24: EU Emission Trading Scheme carbon prices (euro/tonne CO2), 2010 101

Table 6.25: Grid extension costs as a function of wind penetration 108

Table 6.26: Additional annual transmission and distribution costs in 2020 associated with increasing UK renewable contribution above 10 per cent after 2010 109

Table 6.27: Balancing costs for 20% grid wind penetration with energy storage 111

Table 6.28: Typical renewable capacity credits in California (%) 113

Table 6.29: External costs of power generation (euro/MWh) 115

Table 6.30: Australian external cost estimates for power generation technologies, 2009 118

Table 6.31: Economic value of fuel subsidies in non-OECD countries ($bn), 2006 122

Table 6.32: US energy subsidies ($m), 2007 124

Table 7.33: California Energy Commission levelized cost ($/MWh) 136

Table 7.34: UK levelized cost estimates (pounds/MWh), 2010 138

Table 7.35: Levelized cost predictions for plants entering service in 2018 ($/MWh) 140

Companies mentioned

To order this report:

Electric power energy Industry: The Cost of Power Generation: The current and future competitiveness of renewable and traditional technologies