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Wind Costs More? Think Again

by afew Thu Nov 1st, 2012 at 07:05:51 AM EST

The Imperial College, London, report that demolished fantasy forecasts for the UK of massive balancing needs supplied by use of Open Cycle Gas Turbines (OCGT), led to some discussion concerning the importance to the system of Combined Cycle Gas Turbines (CCGT). (See UK Wind Power "Debate" : Latest). Ernst & Young (commissioned by Spanish and Portuguese energy companies Acciona and EdP), have brought out a report throwing new light on the comparison between wind turbines and CCGTs, for the EU27 and for specific European countries.

Wind technology was selected as the reference renewable energy source in this study and is compared here to Combined Cycle Gas Turbine (CCGT). This is based on the idea that natural gas is progressively becoming a significant source of electricity generation due to lower CO2 emissions compared to other fossil fuels and to its price competitiveness. The analysis  presented in this report could be extended to other renewable or conventional energy sources.

The present study provides insight on a number of costs and benefits of renewable energy policy measures, which are currently not systematically taken into account in the decision-making process:

► Job creation (direct and indirect) of policy measures in the renewable energy sector

► Contribution to the GDP and additional tax revenues

► Energy security

► Integration of wind capacities on the network

► Environmental externalities (CO2 emissions)

► Impact of wind power on electricity pool prices

(...)

Several existing studies have analysed the respective Levelized Cost of Energy (LCOE) of these two technologies but did not include a comprehensive analysis of their additional economic costs or benefits.

Value Creation of Renewable Energy Policies (pdf)

In other words, comparisons based on the levelized cost, expressed in € per MWh over the estimated lifetime of the capital investment, do not take into account positive and negative externalities that the report proposes to quantify.

(Added to the Wind Power series.)


Details and methodology can be found p.48 ff of the report. But this chart shows an overall synthesis of total costs and benefits for wind and CCGT across the EU27:

This reads from the outer edges - wind on the left, CCGT on the right - in to the middle, where the total costs are shown in euros/MWh. The two outer columns represent the LCOE: the standard metric used for comparison, according to which wind levelized costs are higher than CCGT levelized costs. Two LCOE items are common to both wind and CCGT, capital expenditure (CAPEX) and operating expenditure (OPEX). (It is the size of the capital investment that raises wind's LCOE, compared to the low capital outlay involved for CCGT). In addition, CCGT has fuel costs (zero for wind) and the cost of CO2 emissions (zero for wind).

In the next column moving in, are negative external costs that are added to the LCOEs. For wind, it is the cost of grid integration (not including connection to the grid, already included in CAPEX, see p.58 for details). For CCGT, security of fuel supply, or the "additional cost attributed to natural gas consumption due to the economic losses generated by price fluctuations" (see p.57).

The third columns moving in show the contribution of each technology to GDP (details from p.50 on):


  • directly, via the expenditures necessary to building and operating the plant


  • indirectly, via the additional activity of suppliers selling goods and services to the companies building and operating the plant


  • through induced effects, via increased consumption from the additional income generated throughout the supply chain (Keynesian, that's K-e-y-n-e-s-i-a-n, multiplier)

The contribution to GDP is subtracted from the subtotal costs of the two outer columns. And the result, in yellow, shows a considerably higher cost per MWh for CCGT than for wind - since capital and operating expenditure for wind make a higher contribution to domestic GDP creation (while fuel costs for CCGT mostly contribute to GDP in gas-producing countries outside the EU27).

Job creation

Along with estimating the contribution to domestic GDP, the report offers numbers for local job creation. These are presented under the same headings, Direct, Indirect, Induced, with the same logic as described above. For the EU27, this chart sums up the findings:

Tax contributions

Tax revenues for each technology are calculated, under the headings VAT, Corporate tax, Local taxes, Income tax, Social taxes. As there is no common EU tax system, these estimations were made for specific countries only (details p.54 ff.)


The tax revenues mostly come from VAT and corporate taxes. Depending on domestic tax policy, social taxes can also be a significant
source from employees and employers.

More country studies

Ernst & Young carried out the same cost and benefit analysis as for the EU27, for the above six EU countries seen separately: Germany, France, Spain, Portugal, Poland, the UK. This chart sums up the net costs calculated for each of these countries, compared to the total EU27:

Merit Order Effect

The merit order effect by which renewables reduce wholesale electricity prices is briefly considered (p.44 ff), citing evidence we have previously seen from Germany, but presenting new estimations for Spain based on data from the Comisión Nacional de Energía.

From which it appears that wind power lowers prices, each year, by more than the cost of the subsidies allocated to wind (even though these rise in the aggregate as more wind capacity is built), resulting in net savings.

Overall conclusion

For five of the six countries studied, as for the EU27 taken as a whole, the net costs of wind are lower than the net costs of CCGT. Wind also creates more local jobs and contributes more tax revenue to national and local authorities. Through the merit order effect, it reduces electricity spot prices to an extent that "buys back" subsidies, if not more.

Case of the UK

The UK stands out among the six countries considered, as also against the overall EU27 numbers. The net costs of CCGT are lower than those of wind, (though in roughly the same bracket).

This results from the share of locally-produced fuel in total gas consumption: at 63% this is much higher than for the other countries considered, or for the overall EU27. Consequently, fuel purchases for CCGT contribute more to domestic GDP.

In terms of job creation, "the UK's gas plant value chain is more effective in creating new jobs": Ernst & Young estimate job.years per million euros invested as 9 for UK CCGT, 8 for UK wind.

Tax revenue generation is calculated as identical for the two technologies.

No evidence is offered concerning the merit order effect on spot prices in the UK.

Ernst & Young present (p.36 ff) further analysis on the influence of the load factor on net cost estimation. The load factor chosen for the wind estimation was 24%. However, UK wind net costs become cheaper than CCGT's with a wind load factor of  >28%, or with a CCGT load factor of <48%. (By comparison, for the EU27, wind net costs are lower than CCGT's whatever the load factor of either technology).

In addition, the report presents (p.39 ff) a stress test on the future evolution of the domestic gas share in the UK (the main variable influencing CCGT net costs).

CCGT net costs rise above those of wind from 0.8% annual decrease in domestic gas share. A projection of that rate of decrease gives:

with a decrease in the domestic share of UK by more than 0.8 point/ year, the Net cost of wind will become lower than the net cost of CCGT. This scenario, in which UK will have a domestic share of 37 % in 2040, can be considered as realistic.

In other words, UK policy-makers would be ill advised to bet on gas against wind.

Display:
(No pun intended in final sentence)

The link again to the pdf: Value Creation of Renewable Energy Policies (pdf)

That's in fact the summary of the report put out by Energias de Portugal. A shorter summary is available from Acciona here (pdf).

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 1st, 2012 at 07:02:58 AM EST
Thanks afew. I'll have to have a better read to understand the difference between the two consecutive graphs with the breakdown by country.

Two points though:

-They seem to have used a tiny multiplier. That's OK if we reckon that we'll soon be back to something approaching full employment. For te reality-based community however, I would expect a stronger one for a long, long while (this helps wind)

-For the UK, even today, yes there is a high domestic share, but gas is a world market. If UK gas is cheaper, then reducing consumption should simply increase the domestic share, not reduce UK gas production. If it's more expensive, why would the new plants use UK gas?
So I don't find this bit all that convincing, it feels like applying an average value to a marginal event. Plus, increasing UK gas consumption would speed up the depletion of the resource, which should carry a cost.

So my guess would be that the real situation is actually already favourable to wind even in the UK, and will be overwhelmingly so in the near future.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 1st, 2012 at 07:31:11 AM EST
I don't buy the idea that burning gas in combined-cycle stations is far more beneficial to the national economy in the UK than in France (to reformulate what you said)

The gas burned to produce power is effectively imported (it would otherwise be reallocated to higher-value uses, lowering imports)

But, reading the report, I can see where the Tories get their anti-wind fantasy. But they need to execute a dash for shale gas, to establish a "lasting" advantage for gas over wind, even on these numbers. Otherwise wind becomes cheaper as domestic gas production declines.

I would like to see the same calculations for nuclear! I guess structurally it's similar to wind, high capital costs etc.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Nov 1st, 2012 at 09:53:10 AM EST
[ Parent ]
I'd expect nuclear to be similar to wind, yes.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 1st, 2012 at 01:12:28 PM EST
[ Parent ]
I can't find a value for the multiplier in this summary.

Cyrille:

increasing UK gas consumption would speed up the depletion of the resource, which should carry a cost.

I take it that's what they're demonstrating in the last two charts. However, I agree with you and eurogreen that there's probably some deceptively simple reasoning there.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 1st, 2012 at 12:41:44 PM EST
[ Parent ]
The flaw in their reasoning is that, absent the construction of wind farms, all the economic activity that their model assigns to wind would not take place. Against this, they are counting the economic value of gas production in the UK, as if the gas would stay under the sea if it wasn't burned in new power stations.

Unless the construction of wind farms was actually going to crowd out other economic activity (which would require an overheated economy), it's not a fair comparison.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Nov 1st, 2012 at 12:51:40 PM EST
[ Parent ]
No, but I can take a look at the relative size of induced and direct + indirect. That indicates a really low multiplier.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 1st, 2012 at 01:08:59 PM EST
[ Parent ]
The UK appears to be the one fly in the ointment because it has a greater domestic supply of gas.

European Tribune - Wind Costs More? Think Again

Ernst & Young present (p.36 ff) further analysis on the influence of the load factor on net cost estimation. The load factor chosen for the wind estimation was 24%. However, UK wind net costs become cheaper than CCGT's with a wind load factor of  >28%, or with a CCGT load factor of <48%.

However even in the UK, wind becomes cheaper now with a load factor >28%. Don't UK wind farms average >28%?  24% seems a low figure to use for the cost analysis.

Secondly, the CCGT advantage only applies for a load factor >48%.  Can we not expect that load factor to decline as wind penetration increases?

Finally, the UK plans to import a lot of wind energy from Ireland.  Will this not further reduce CCGT load factors? Were any inter-electricity market transfers considered as part of the study? Does it attempt to estimate the benefits of greater EU electricity market integration?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 1st, 2012 at 08:14:07 AM EST
Frank Schnittger:
Don't UK wind farms average >28%?

RenewableUK gives these figures from the UKWED database:

RenewableUK | UKWED Figures explained

the long-term average capacity factor for onshore wind (26.35%) and offshore wind (29.65%)

So it would appear that 24% is in fact rather a low estimate.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 1st, 2012 at 01:10:06 PM EST
[ Parent ]
Of course,but you don't actually think little things like "facts" are gonna influence policy do you ?

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Thu Nov 1st, 2012 at 10:17:19 AM EST
I don't think hot air is gonna do it either. Do you?
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 1st, 2012 at 12:42:47 PM EST
[ Parent ]
It only takes one Frankenstorm to ruin your day. Since a Frankenstorm is just a regular big storm on steroids, and those proverbial steroids are the effect of the heat retained by the planet due to all the fossil fuel combustion producing CO2 pollution, proper accounting needs to add that onto the natural gas price. But there will be no such proper accounting, especially in Conservative or Rethuglican (US Conservatives) Hive Mindthink. CO2 pollution is a freebie, period, because by definition there is not such a thing as CO2 pollution.

The Stern Report attempted to do this, and it came up with a CO2 pollution cost of around $US 85/ton in present dollars (but then used tonnes, and 2007 currencies). That is Euro 59.56/tonne CO2 pollutant.

When burned, methane makes 122.5 lbs of CO2 pollutant per 1000 standard cubic feet. Translating this to Eurovalues, that is 55.68   kg CO2 pollutant per 28.34 standard cubic meters, or 0.001964 tonnes CO2/m^3 of Ngas, or 1.96 tonnes CO2/kcm Ngas. Taking this and multiplying by that handy-dandy conversion factor gives a "should be" CO2 pollutant cost (= one of the external costs of Ngas production/usage) of Euro 117/kcm of Ngas.

An Ngas powered CCGT operating at 50% thermal efficiency gets about 1 MWh from 194 m^3 (0.194 kcm/MWh) of Ngas burned, so that implies a CO2 pollutant cost of Euro 22.70/MWh. But in the graph cited by afew for the UK, the levelized CO2 pollutant cost is only about Euro 5/MW-hr (from measuring it off the graph). Add another E 17.70/MWh for a more realistic CO2 pollutant cost, that means that the net CCGT cost of making electricity is not E 31/MWh but E 48.7/MWh (approximately E 49/MWh). And if my math is correct, E 49/MWh for CCGT is more than E 35/MWh.

Funny how things become more of a moneymaker for pollution based generation (and in this case, barely) when society "allows" the profits to be privatized but keeps the costs socialized, and often unpaid. That is, until a Frankenstorm comes cruising into town, and presents a bit of the long-deferred bill with respect to CO2 pollution. So much for the Dire Straits refrain of "Money for nothin' and the chicks for free" as applied to making electricity...

But, that is not all that is bogus in this UK graph. The E 30/MWh implies a delivered price of E 156/kcm to the gas burner, which is the same as $5.69/MBtu for a delivered gas price in the US, or a wellhead price near $4.40/MBtu (sorry, that's the units I am used to...E/kcm will take a while to get used to). That may apply temporarily in the US until the fracking glut goes away this winter and the lack of Ngas well drilling sinks in (down by 75% for four years ago, and fracking wells deplete really significantly in a 4 year timeframe (often down by close to 90% or more for most wells...). In fact, the European import price today is $US 11.08/MBtu (http://ycharts.com/indicators/europe_natural_gas_price); add on pipeline transport costs and any UK CCGT plant would probably pay north of $US12/MBtu. Then add in that real CO2 pollution cost of $US 5.20/MBtu, and offshore wind would be kicking Ngas's butt. No wonder Conservatives (and Rethuglicans) hate wind energy so much...

So, even the price of Ngas is lowballed. Putting Ngas at the prices needed to keep the UK supplied completely (marginal price of Ngas), since domestic Ngas cannot totally do the job due to depletion, puts things into a different light. Wind (especially onshore wind) is totally kicking Ngas's butt with respect to a more realistic accounting...

Nb41

by nb41 on Thu Nov 1st, 2012 at 01:37:46 PM EST
Here are some assumptions and data sources behind Ernst & Young's calculations:

No Natgas price for the UK, just for Europe. CO2 evaluated using the EU Emissions Trading System, in which the price of carbon has tanked...

Finally, a relatively generous load factor for CCGT and a relatively weak one for wind.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 1st, 2012 at 02:01:06 PM EST
[ Parent ]
afew,

Thanks. However, that LCOE term does some funny things to the actual cost of Ngas sourced electricity, especially in present day terms.

A CCGT might get 60% thermal efficiency if the coolant is really cold all year round, and so is the air, and it is a brand new state of the art unit. In reality, an average of 50% is doing good (though co-gen obviously makes things better)..

A quickie estimation of the cost to make electricity from Ngas is:

Cost (cents/kw-hr) = Ngas Price ($/MBtu) * 0.3414/Efficiency + 1.5 (O&M, etc)

At $12/MBtu, the cost to make electricity would be 9.36 c/kw-hr, or E74.72/MWh at 50% efficiency; at 60% this drops to E64.22/MW-hr. But this is all in present dollars, and assumes close to zip for paying off the capital of the CCGT facility. It is nowhere near E30/MWh. But, that's where the LCOE term comes into play - it seems to punish wind and benefit Ngas using the LCOE approach.

Oh well, at least they did put some kind of price on CO2 pollution, but E15/tonne is certainly not E59.56/tonne. It sure beats what NY State uses which is $1.80/ton CO2 (RGGI), or E1.53/tonne CO2, which is almost in the "Why bother?" category

by nb41 on Thu Nov 1st, 2012 at 02:45:20 PM EST
[ Parent ]
nb41:
it seems to punish wind and benefit Ngas using the LCOE approach

So here we have another angle of attack on the Ernst & Young estimations (even though they are favourable to wind across the board) for the UK: the assumptions and calculations of levelised cost.

There are now a series of reasons why we could/should offer an alternative estimation of the comparison wind/CCGT.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 1st, 2012 at 03:15:34 PM EST
[ Parent ]
Actually, I get the distinct impression that the authors wanted the UK to appear with wind more expensive at the moment.

Whether that was because having wind better all the time would look like it was not a difficult report to write, or would appear biased, or because they had any reason to avoid stating the obvious, ie that it would be a good idea to exploit the biggest wind potential in Europe, it seems odd to have all those assumptions stretched in the same direction, and just enough to get wind to be just more expensive than gas, and only for a short while anyway.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Nov 1st, 2012 at 04:56:11 PM EST
[ Parent ]
Now, I know we argue with the economics we have got, not the ones we want, so no slight towards the writers of the report or afew's excellent summary.

That said: Gah! No no no!

Sure you can count how many digital claims the state needs to create, then subtract how much those are re-used and finally add the benefit of people working to receive the claims but it misses the real world. We do not have a lack of claims nor a real lack of things to be done, just a stupid economic system that manufactures a lack of claims and then demands people to be unemployed instead of working.

The real costs of production are in materials (renewables, reusables and finite), labor and environmental stress. That something takes a lot of man-hours to be done is not a good thing really. Neither is the economic activity in pumping up limited resources that pollute the planet. It is materials, labor and environmental degredation you want to minimize, not the money!

</rant>

Ok, with that said I guess the reason UK gets less GDP from wind is because they import much of the stuff needed, so it is done elsewhere (where then the money spins around instead). If so the Net Costs says something about trade and how local the production is. Which can be relevant, for example UK might want to build windmill factories of its own.

But don't let the Commission know! They hate that free trade stopping, tree-hugging hippie crap about local production.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Nov 1st, 2012 at 03:18:07 PM EST
That something takes a lot of man-hours to be done is not a good thing really.

All else being equal, yeah (i.e. if everyone already has a job...)

But when you are comparing local man-hours with imported gas (for a given number of mWH), then it's a no-brainer.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Nov 1st, 2012 at 05:21:26 PM EST
[ Parent ]
That something takes a lot of man-hours to be done is not a good thing really.

All else being equal, yeah (i.e. if everyone already has a job...)

Or if employment is approaching the NAIRU-limit where the central bank will kill off a job for each created.

But when you are comparing local man-hours with imported gas (for a given number of mWH), then it's a no-brainer.

I am all for as local production as possible.  And fossile fuels are horrible. So it is a no-brainer, just not for the arguments stated in the study.

I think that with the set-up provided in the study low-payed (or not payed as appears to be the custom nowadays) people pedling locally produced bikes to generate energy would make sense. After all you get to deduct the local costs as GDP benefit, plus the multiplier effect. So the "net cost" would be really low. And lots of local man-hours. But it still does not make sense to produce energy that way.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Nov 1st, 2012 at 06:50:46 PM EST
[ Parent ]
Before this thread passes on, some key thoughts.

The Study doesn't account for actual wind capacity factor, because it uses data for very old machines. Reality shows much higher capacity factors, as more modern machines enter the UK, as demonstrated throughout the EU.

O&M costs, currently quantifiable, are low, and change every equation.  A BNEF study privately available shows O&M costs dropping from 30,900€ to 19,200€ per megawatt capacity over the past four years.

Press Version Here

The discussion around windpower remains political, and ignores the facts on the ground.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Sat Nov 10th, 2012 at 04:38:17 PM EST


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