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The cost of energy

By Dave Elliott

In its report Deploying Renewables, the International Energy Agency says that “a portfolio of renewable energy technologies is becoming cost-competitive in an increasingly broad range of circumstances, in some cases providing investment opportunities without the need for specific economic support”. It includes established hydro, geothermal and bioenergy technologies in the list. It adds that “cost reductions in critical technologies, such as wind and solar, are set to continue”.

In its study of UK energy options, consultants Mott MacDonald came up with the following cost estimates.

Generation cost estimates per MWh delivered, in the UK, levelised costs in £/MWh

Electricity options – current cost (Cost in 2040)
On-shore wind 83-90 (52-55)
Off-shore wind 169 (69-82)
Tidal barrage 518 (271-312)
Tidal stream 293 (100-140)
Wave (fixed) 368 (115-140)
Wave (floating) 600 (200-300)
Hydro (small/run of river) 69 (52-58)
Photovoltaics (PV) 343-378 (60-90)
Biomass (wastes/SRC) 100-171 (100-150)
Biogas (AD/wastes) 51-73 (45-70)
Geothermal 159 (80)
Nuclear (PWR/BWR) 96-98 (51-66)
Gas-CCS 100-105 (100-105)
Coal-CCS 145-158 (130)

The above data is mostly taken from the executive summary (e.g. Fig 2, for current costs), but higher and lower estimates are also offered (in Chapters 3 and 7) based on differing assumptions e.g. about progress down learning curves. (Mott MacDonald 2011 Costs of Low-carbon Technologies report for the Committee of Climate Change)

As can be seen, on-shore wind comes out as the cheapest option now, but by 2020 and 2040, its cost range largely overlaps with those of solar PV and nuclear. But by then some of the other renewables also begin to overlap at the bottom of their cost ranges.

These long-term estimates are very speculative: most of the renewables are moving down their learning curves rapidly, PV especially, with many now predicting that it will soon reach grid price parity in some locations. For example, Consultancy firm McKinsley says that PV prices will reach grid-parity with coal and nuclear as soon as 2020.

The European Wind Energy Association has predicted that offshore wind will get down to €75/MWh (i.e. about £63/MWh) by 2020. The Carbon Trust says that, although on initial commercial deployment, tidal energy could cost £160/MWh and wave energy £400/MWh, by 2025 the cost of both wave and tidal stream power could be brought down to £150/MWh, and that with continued targeted innovation, ‘the UK’s best marine energy sites could generate electricity at costs comparable with nuclear and onshore wind’, by 2025. (Carbon Trust  2011 Accelerating Marine Energy report CTC797)

These estimates do not include any costs associated with the intermittency of the supply from variable renewables. However it can be argued that these should be relatively small, even for large contributions, around £2.5/MWh for contributions to supply of up to around 20%, and up to £7/MWh for a 40% contribution:

While some, like the CCC, put it higher, the actual cost will depends on what measures are taken to ensure balancing and some of these (e.g. building supergrid links) could have large net cost saving benefits for the system as a whole – e.g. as the Pugwash High Renewables scenario noted, the UK could earn up to around £15bn p.a. by exporting excess green power when UK demand was low and wind power high.

On balance then some renewables are already competitive with nuclear and most could be competitive with projected nuclear costs by 2040. Then again the nuclear estimates are speculative. The estimated cost of the Flamanville EPR is now put at €8.5bn, up from its initial €3.2bn, but that is the first (or rather second) of its kind (the first, in Finland, now looks likely to be 9 years late). The industry says they will do better later on e.g. with EDF proposed plant at Hinkley. Even, so Mott MacDonalds figure look very optimistic. Indeed, they admitted that they may have been ‘bullish’ about nuclear costs, using industry estimates. They also ignore the extra cost of proving more reserve back up capacity that would be needed to insure against down time if nuclear power use was expanded.

A simple minded conclusion on costs is that, firstly we don’t know for sure, but secondly that there may not be much in it by 2040. In which case other factors may be more important in deciding which options to back. Safety is one, carbon emissions are another. On safety it is hard to see how renewables, large hydro apart, could have anywhere near the potential health impacts of nuclear/kWh produced, with safety issues, driven by public concern, being one reason for the high cost of nuclear. Safety issues can be extended to include security issues, and again it is hard to see how renewables face anything like the direct security threats (e.g. the risk of potential for terrorist attacks) associated with nuclear, large hydro and possibly large CSP desert solar arrays apart, and certainly none of them would contribute to the proliferation of weapons making capacity.

On emissions, most renewables have zero or very low direct CO2 emissions, as does nuclear, but nuclear plants need fuel, the production of which involves the use of energy, this at present being mined and processed using energy from fossil fuel. The result is that, although the nuclear fuel cycle generates on average around 15 times less carbon dioxide than coal plants, it generates about 7 times more than modern wind turbines. Moreover, this imbalance is likely to get worse as reserves of high grade uranium dwindle (it will take more energy to process lower grade ores) and as renewables like wind become more energy efficient. (B Sovacool 2008 Valuing the greenhouse emissions from nuclear power Energy Policy 36 2940)

Nuclear fuel could be processed using non-fossil (nuclear or renewable) energy, but the costs would still rise as the ore grade used diminished to the point ultimately when it became futile, and it would in any case be an odd way to use renewable energy i,e. to create nuclear waste to store for centuries.

In the short term cost are strongly influenced by current financial arrangements, investment cost and so on. For example under the UK Renewables Obligation:
on-land wind projects get £92/MWh, offshore wind farms £135/ MWh , solar PV £160/ MWh. It has been claimed that the UK’s proposed new nuclear projects will need a subsidy of at least £95-105/MWh, but more likely £120/MWh and possibly up to £165/MWh, with long contracts. On this basis nuclear looks a very poor choice. However, the nuclear lobby claims its costs will fall as new technology emerges, but so does the renewables lobby. As argued above, it may be that both will be right, in which case costs should not be the main issue long term. But short term, well any day now we should hear what CfD strike price the government will offer EDF for the proposed Hinkley EPR. Around £100/MWh for 40 years seems likely- more than for on-land wind. Plus other concessions. All adding to our bills…

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