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Wednesday, 30 March

Reading the IEA Generation Cost Study

The IEA released the 2010 Edition of the Electricity Generation Cost study: "Projected Costs of Generating Electricity". There is interesting information in the Report. One thing of particular interest is the comparison between countries in terms if the generation mix and the prices. Thanks to the availability of low-price high-quality coal, Australia remains a low-cost-generating country.

In terms of projections for the future, the study has to make number of assumptions. In contrast to the earlier issues in this series, this time the IEA included the cost of carbon in the projected costs. To do that, they had to make assumptions about the penalties associated with carbon emissions and the cost of implementing carbon capture technologies. A carbon price of 30 USD per tonne of CO2 is assumed to be a likely impost for plants being commissioned in 2015. Carbon capture costs are baded on what is provided from the participating countries. Only carbon capture at plant level [CC(S)] is considered. The study uses unproven estimates on transport and storage to assume that they might add another USD 10-15 per MWh. Typically, carbon emissions are around 100 tCO2/TJ for hard coal and 50 tCO2/TJ for gas. With standard electric conversion factors of 40% and 55%, this amounts to emissions of 0.9 tCO2/MWh for electricity from hard coal and of 0.33 tCO2/MWh for electricity from gas-fired power generation. So the inclusion of the carbon cost makes a significant difference.

In this blog, I try to take down some notes while reading the Report. The following is not a comprehensive summary and those interested can purchase a copy of the report from the IEA web site.

Capital investment costs

The following table summarises the overnight construction costs for different generation technologies considered in the study. The overnight construction cost does not consider the discount rate during the time of construction. This has been included in the study while calculating the levelised costs.

The geothermal cost input to the study varied in submissions from different countries. Well-drilling makes up a large share of the overnight costs of geothermal electricity generation, sometimes accounting for as much as one-third to one-half of the total cost of a geothermal project. Capital costs are site-specific, varying significantly with the characteristics of the local resource system and reservoir. The overnight construction costs vary from 1 752 USD/kWe in the United States (for a 50 MWe project) to 12 887 USD/kWe in the Czech Republic (5 MWe). In the Australian submission (which was made by ESAA), the reported figure of 4 095 USD/kWe (500 MWe) is said to be on the lower end of construction costs that can exceed 6700 USD/kWe.

Levelised electricity costs

In calculating the levelised costs, one also needs to make an assumption on the cost of the fuel, the plant life, the capacity factor, and the decommissioning costs if any. The study assumed a capacity factor of 85% for nuclear, coal and gas plants. This assumption is believed to be the upper limit of what is technically feasible for these technologies.

Government policies and subsidies are not included in the costing.

The Fuel Cost

The study used the price assumptions provided by the IEA Office of the Chief Economist:

For three OECD countries (Australia, USA and Mexico) and the four non-OECD countries included in the study, instead of the above table, the specific national coal and gas prices were used as shown in the following table (the units are as above):

For nuclear power plants, the following costs were used: (a) USD1.94/GJ for the front-end nuclear fuel cycle; and (b) USD0.65/GJ for waste fuel processing and storage/disposal.

Carbon Price

A carbon price of USD30 per tonne of CO2 was used for the OECD countries; no carbon price was used for the non-OECD countries.

Plant Life

The expected life was different for different technologies as shown in the following table:

Decommissioning costs and Residual Value

Where no country data were submitted, the following was used for decommissioning costs: 15% of the construction costs for nuclear; and 5% of the construction costs for other technologies.

Construction period

The default assumptions were 1 year for non-hydro renewables; 2 years for gas; 4 years for coal; and 7 years for nuclear power plants. There was no specific mention for geothermal in this section but the country submissions may have included the data for geothermal plants so that default assumptions would not be used in the case of geothermal.

RESULTS

The levelised costs of electricity are calculated based on the above assumptions and they are presented in the Report for two discount rate scenarios: 5% and 10%. The technologies with a higher capital cost (e.g. nuclear)suffer as the discount rate is increased. The following two figures displays the regional levelised costs for nuclear, coal, gas and onshore wind plants.

Regional ranges of LCOE for nuclear, coal, gas and onshore wind power plants (at 5% discount rate)	Regional ranges of LCOE for nuclear, coal, gas and onshore wind power plants (at 10% discount rate)

The above graphs do not include renewables other than wind neither it does include the projected costs for geothermal. These are included in a very detailed submission by the ESAA on behalf of the Australien electricity generation industry.

In the ESAA submission the cheapest source of electricity when the carbon costs are included is geothermal energy.

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