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IEA on energy costs

by Dave Elliott

Renewable energy may supply more electricity than natural gas and twice as much as  nuclear globally by 2016, due to declining costs and growing demand in emerging markets, according to the International Energy Agency.

Wind, solar, bioenergy and geothermal use may grow 40% in the next five years, twice the 20% rate in 2011. The share of non-hydro sources like wind, solar, bioenergy and geothermal in total energy generation will double, reaching 8% by 2018, up from 4% in 2011 and just 2% in 2006, and could supply 25% of global electrical power by 2018. And if all goes well, coal could be overtaken by ~2035.

The IEA’s Medium-Term Renewable Energy Market Report 2013 says ‘in addition to the well-established competitiveness of hydropower, geothermal and bioenergy, wind competes well with new fossil-fuel power plants in several markets, including Brazil, Turkey and New Zealand. Solar is attractive in markets with high peak prices for electricity, for instance, those resulting from oil-fired generation. Decentralised solar photovoltaic generation costs can be lower than retail electricity prices in a number of countries’.(Launch abstract)

At the launch, IEA Executive Director Maria van der Hoeven said “Renewable power sources are increasingly standing on their on their own merits versus new fossil-fuel generation. Many renewables no longer require high economic incentives.” She reiterated the IEA’s calls for an end fossil fuel subsidies, which in 2011 “globally were six times higher than renewables”. www.iea.org/w/bookshop/add.aspx?id=453

Backing up this report, a Prysma report, ‘RE-COST’, produced for the IEA, says that in many OECD countries, renewables are becoming competitive with fossil fuels. It compares different electricity generation technologies – both renewables (RET) and non renewables – using fresh data from new and projected generation plants in Canada, France, Germany, Japan, Norway, Sweden and Spain. It looks at on-shore and off-shore wind, large solar PV, hydro, gas and coal, with data from more than 120 new plants, 90 interviews and 1200 simulation runs using a customized model. There certainly is a lot of data: in all 193 figures/tables. Prysma report for IEA-RETD: http://iea-retd.org/archives/publications/re-cost

Looking at Levelised Costs of Energy (i.e. with capital costs spread over plant lifetimes) , including any new grid costs, it says, in summary that ‘Intermittency issues aside, the costs of RET generation are declining, and approaching the costs of thermal generation (gas- and coal-fired plants), especially if the hidden subsidies that thermal generation plants may receive are not factored in’.  It adds that ‘The rate of cost reduction is higher in large solar PV’ but notes that ‘On-shore wind generation is already competitive in the regions evaluated by RE-COST’.  By contrast it says ‘The cost of generation of new non-RET plants (including gas- and coal-fired plants) are increasing, and might exceed the costs of generation of new RET plants in the near future in the regions in the scope of this report’.  It goes on ‘The costs of both new RET and new non-RET generation are in general higher than the market prices of electricity in the regions in the scope of this study. As a consequence, new generation plants require some kind of support to interest investors. In the case of new RET plants, the main form of support consist of visible and direct policy driven incentives. In the case of non-RET plants, support is also awarded, albeit in more indirect ways (providing CO2 credits, supporting the coal industry, stimulating investment in gas infrastructure and exploration, etc.).’ Consequently ‘ It is necessary to maintain the incentives that have proven to be effective to develop RET, in so far there is not a level playing field between RET and non-RET generation’.

It summarises the cost ranges as follows.

On-shore wind. The LCOEs of plants operating at or above relatively high capacity factors (25%) are approaching the market prices of electricity. For instance, some plants in France with costs ranging at ~75-80 $/MWh, or in Germany with costs at ~70-80 $/MWh are approaching the reference prices of electricity in these countries (64-75 $/MWh France, 66-92 $/MWh Germany).

Off-shore wind plants display significantly higher costs than those of on-shore wind plants, largely due to the challenges associated to building and operating off-shore and to the deployment of new technologies. Ranges of costs of off-shore wind generation are: 155-325 $/MWh in Japan, 145-210 $/MWh in France, 155-375 $/MWh in Germany, and 135-255 $/MWh in Norway/Sweden.

Large solar PV plants. Even the most technologically advanced farms still display generation costs significantly higher than the electricity market. Examples include Ontario, 310-600 $/MWh and France,180-300 $/MWh. However, the situation is quickly changing. Some large PV plants included in the database -defined as breakthrough plants – display LCOEs in the range of 120 $/ MWh. These lower costs of generation are likely to become commonplace in the short and mid-terms

At the present, most new gas-fired and coal-fired plants are also likely to display costs of generation higher than the market prices of electricity. Simulations result in LCOE ranges of 45-120 $/MWh for gas-fired plants and 50-120 $/MWh for coal-fired plants, higher than the reference compensation for generation (30-90 $/MWh) in the countries in scope of RECOST.

The report doesn’t cover nuclear specifically, but notes that cost overshoots are common and says that New RET could be competitive in the short-medium term in thermal countries (France, Germany, Sweden, Spain), where prices are defined by coal, CCGT, nuclear generation’.

Overall then renewables come out very well, with the IEA/Prysma prices, perhaps surprisingly (given the IEA’s usually rather conservative approach), sometimes being even lower than those suggested by the International Renewable Energy Agency. However, LCOE estimates do not cover the cost of balancing variable outputs.  The Prysma report says that intermittency/ integration costs are very difficult to calculate accurately, with there being a range of estimates and assertions. It will depend what the supply and demand system looks like in future. But most backup can, for the forseable future, be based on already existing plants, which already run up and down to full power to meet varying demand and supply. They would just run more often occasionally at full power, reducing the emissions saved from using renewables very slightly and adding a small additional fuel costs. In a new study of wind and solar grid impacts in the Western USA, NREL says ‘operating costs increase by 2–5% on average for fossil fueled plants when high penetrations of variable renewables are added to the electric grid’ www.nrel.gov/electricity/transmission/western_wind.html

In the UK, some of the back up would be provided by cycling conventional plants, but also by the ‘short term operating reserve’ (STOR) capacity. National Grid’s 2011 projections for 2020 suggested that, with 26GW of wind producing just over 68TWh p.a, STOR capacity used for balancing would vary between 5.8-11.5GW GW, supplying 5.86TWh http://www.nationalgrid.com/NR/rdonlyres/DF928C19-9210-4629-AB78-BBAA7AD8B89D/47178/Operatingin2020_finalversion0806_final.pdf

Longer term balancing would also be needed for any long wind lulls, but that too could use mostly already existing conventional plants. Of course, as more renewables came on line, the extra operational cost of balancing them, and the resultant emissions, would grow. However the extra emissions could be avoided, in time, by using green fuels for backup, and the overall balancing picture might be very different if we also had interactive smart grids and supergrids /energy trading markets – a whole new system, with multiple renewable inputs offering balancing synergies.  And big fossil fuel cost savings.

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One comment to IEA on energy costs

  1. Doorn

    It’s always just over the horizon:

    In 1983, Booz, Allen & Hamilton did a study for the Solar Energy Industries Association, American Wind Energy Association, and Renewable Energy Institute. It stated: “The private sector can be expected to develop improved solar and wind technologies which will begin to become competitive and self-supporting on a national level by the end of the decade [i.e. by 1990] if assisted by tax credits and augmented by federally sponsored R&D.”[4]

    In 1986, Amory Lovins of the Rocky Mountain Institute lamented the untimely scale-back of tax breaks for renewable energy, since the competitive viability of wind and solar technologies was “one to three years away.”[5]

    In 1990, two energy analysts at the Worldwatch Institute predicted an almost complete displacement of fossil fuels in the electric generation market within a couple decades [i.e. 2010]:

    Within a few decades, a geographically diverse country such as the United States might get 30 percent of its electricity from sunshine, 20 percent from hydropower, 20 percent from wind power, 10 percent from biomass, 10 percent from geothermal energy, and 10 percent from natural-gas-fired cogeneration.[6]

    Overly Optimistic Wind Power Claims

    In 1986, a representative of the American Wind Energy Association testified:

    The U.S. wind industry has … demonstrated reliability and performance levels that make them very competitive. It has come to the point that the California Energy Commission has predicted windpower will be that State’s lowest cost source of energy in the 1990s, beating out even large-scale hydro.

    We are not quite there. We have hopes.[7]

    Christopher Flavin of the Worldwatch Institute has been predicting competitive viability since the 1980s. In 1984 he wrote:

    Tax credits have been essential to the economic viability of wind farms so far, but will not be needed within a few years.[8]

    In 1985, he wrote:

    Although wind farms still depend on tax credits, they are likely to be economical without this support within a few years.[9]

    In 1986, he wrote:

    Early evidence indicates that wind power will soon take its place as a decentralized power source that is economical in many areas…. Utility-sponsored studies show that the better windfarms can produce power at a cost of about 7¢ per kilowatt-hour, which is competitive with conventional power sources in the United States.[10]

    Overly Optimistic Solar Power Claims

    In 1976, solar advocate Barry Commoner stated:

    Mixed solar/conventional installations could become the most economical alternative in most parts of the United States within the next few years.[11]

    In 1987 the head of the Solar Energy Industries Association stated:

    I think frankly, the—the consensus as far as I can see is after the year 2000, somewhere between 10 and 20 percent of our energy could come from solar technologies, quite easily.[12]

    In 1988, Cynthia Shea of the Worldwatch Institute wrote:

    In future decades, [photovoltaic technologies] may become standard equipment on new buildings, using the sunlight streaming through windows to generate electricity.[13]

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