Monday, 5 September 2011
Treasury modelling favours geothermal energy as the future baseload alternative
A syndicated article by Malcolm Maiden (click to see it on Sydney
Morning Herald or The
Age web sites) prompted this blog entry. The article refers to a Treasury
report that predicts that the Gillard government's proposed carbon pricing regime
will be most beneficial to the geothermal sector. According to those predictions,
the now-fledgling Australian geothermal industry will have the chance to become
"a crucial source of baseload electricity" in a future carbon pricing
regime. This is about the
Treasury report released a month ago. Providing a commentary on it has been
on my "to-do" list since then. Better late than never. My purpose
in the following is to evaluate the assumptions behind the cost assumptions
that caused the Treasury modellers to be so optimistic about the prospects of
geothermal energy. I will summarise my views at the end.
Introduction of a carbon price obviously causes significant changes in the
mix of power generation technologies. Gas and renewable technologies become
more competitive relative to coal, leading to a progressive transition away
from conventional coal-fired generation. The extent of this change and the relative
positioning of the gas and the individual renewable generation alternatives
depend on the price of carbon. The Treasury Report considers two scenarios:
- Core policy scenario — Assumes a world with a 550 ppm stabilisation
target and an Australian emission target of a 5 per cent cut on 2000 levels
by 2020 and an 80 per cent cut by 2050. Assumes a nominal domestic starting
price of A$20/t CO2-e in 2012-13, rising 5 per cent per year, plus inflation,
before moving to a flexible world price in 2015-16, projected to be around
A$29/t CO2-e.
- High price scenario — Assumes a world with a more ambitious 450 ppm
stabilisation target and an Australian emission target of a 25 per cent cut
on 2000 levels by 2020 and an 80 per cent cut by 2050. Assumes a nominal domestic
starting price of A$30/t CO2-e in 2012-13, rising 5 per cent per year, plus
inflation, before moving to a flexible world price in 2015-16, projected to
be around A$61/t CO2-e.
As expected, the high price scenario drives a far quicker transformation of
the electricity generation sector, with gas and renewables together contributing
over 75 per cent of the generation mix by 2050. This is shown in the following
figure. The two columns correspond to two sets of results produced by Sinclair
Knight Merz MMA and ROAM Consulting. The Treasury asked these two groups to
prepare to independent detailed bottom-up models as a hedge against modelling
uncertainties.
As seen in the following charts, the trend is the same in both SKM MMA and
ROAM models. Both predict that by 2050, the fraction of the zero-emission generation
in the total mix will rise to about 70% in the core policy scenario and about
80% in the high price scenario. The mix of the 2050 zero-emission portfolio
is slightly different between the two models. The SKM MMA is more optimistic
about the take-up of renewables and ROAM Consulting on the prospects of Clean
Coal.
 |
 |
| Figure 1. The electricity generation
sources in 2050 for two carbon pricing scenarios; independently modelled
by SKM MMA and ROAM Consulting. |
Figure 2. The make-up of the
renewable power sector in the 2050 electricity generation portfolio for
two carbon pricing scenarios; independently modelled by SKM MMA and ROAM
Consulting. |
The early increase in renewables is largely driven by increased wind generation.
However, over time, other renewables become increasingly competitive. By 2050,
geothermal is a major source of renewable generation, accounting for between
13 per cent (ROAM) and 23 per cent (SKM MMA) of total generation in 2050, as
seen in Figure 2 above.
The uptake of a particular renewable energy technology is very sensitive to
the price of the technology of course. The capital costs in the ROAM models
are based on Electric Power Research Institute (EPRI) estimates as reviewed
by ACIL Tasman (2010). I had a copy of the ACIL Tasman Report and therefore
can provide a copy of the capital cost estimates below:
An EGS geothermal capital cost of about $7000/kW installed looks realistic
to me. In my cost estimations using the US DoE GETEM spreadsheets, I concluded
in an earlier blog that this can be achieved provided we have the following:
- Doubling the production flow rates to about 60 kg/s
- Drilling costs according to the DOE's WellCostLite-Medium cost curves (about
$12.5m for one well excluding the cost of reservoir stimulation)
The following gives the estimated costs for a doublet producing 5.4 MWe with
these assumptions:
When combined with improvements in the power conversion efficiencies by 20-50%
to be delivered by some of technologies we at the QGECE are pursuing, the above
costs should come down even further.
In summary, the projections for geothermal energy in the Treasury models seem
appropriate to me and even conservative, if (and only if) we learn how to
double production flow rates from an EGS reservoir. I am optimistic that
we will achieve this because there are significant projects overseas and projects
in the QGECE aiming just at this target and we should expect to see significant
progress in the next couple of years.
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