Monday, July 28, 2014

Sun, wind and drain: the Economist looks at electricity generation values

An article in the Economist is bringing a lot of attention to the values of various energy generation sources when carbon emission reductions are valued.
Nuclear shines.
The article doesn't cover new ground, but it's a nice refresher that may bring facts to a broader audience.

Free exchange: Sun, wind and drain | The Economist:
To determine the overall cost or benefit, though, the cost of the fossil-fuel plants that have to be kept hanging around for the times when solar and wind plants stand idle must also be factored in. Mr Frank calls these “avoided capacity costs”—costs that would not have been incurred had the green-energy plants not been built. Thus a 1MW wind farm running at about 25% of capacity can replace only about 0.23MW of a coal plant running at 90% of capacity. Solar farms run at only about 15% of capacity, so they can replace even less. Seven solar plants or four wind farms would thus be needed to produce the same amount of electricity over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive. 
Image from Sun, wind and drain
A levelised playing field 
If all the costs and benefits are totted up using Mr Frank’s calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit. But the most cost-effective zero-emission technology is nuclear power. 
The entire article can be read at the Economist.

I frequently reference Lion Hirth's The Market Value of Variable Renewables (from 2012) - and the data I track for Ontario supports his positions. The Economist article is correct, on average, but there's an added aspect where as variable renewable energy sources (vRES) gain market share they lose value.

The Economist's article reports estimates based on the assumption of "a carbon price of $50 a tonne" whereas Hirth had modelled valuations at a range of carbon pricing.
5.2 The effect of CO2 pricingOne of the main drivers of change in the European electricity system during the last years has been CO2 pricing. Higher carbon prices imply higher variable costs for fossil plants and thus higher electricity prices. But they also trigger investments in low-carbon technologies such as nuclear power or CCS, which have low variable cost, making the merit-order curve steeper and thus result in low prices especially during windy hours. Thus a priori it is not obvious if a higher CO2 price is beneficial for wind generators. Here, the benchmark price of 20 €/t was changed to 0 €/t and 75 €/t. Interestingly, both higher and lower C02 prices reduce the value factor... With a low CO2 price, the merit order curve becomes steeper in the range of lignite-hard coal-CCGT due to CO2 intensities, which is further enforced by lignite investments. At a high price, in contrast, new investment in nuclear power is triggered which also makes the merit-order curve steeper. The lower value factor overcompensates the base price-increasing effect of C02 pricing at intermediate wind penetration rates: Wind revenues are actually lower at 75 €/t CO2 than at 20 €/t. In economic terms, an increase in the input price of a number of competitors of wind power has resulted in lower revenues, which seems counterintuitive at first glance. The reason for this is investment in nuclear power, which can be understood as a closer substitute to emitting generators than wind power.
Who knew?

Most everybody who has paid any attention.

Germany's post-Fukushima decision to exit power seems to have erased the memory that it was only in the fall of 2010 Germany had taxed nuclear fuel rods with the intent of using the proceeds to fund vRES (wind growth was already waning by 2010).

The desire to use energy/carbon taxes to fund vRES despite the knowledge that the taxes won't themselves help build vRES is not uniquely German - unless Americans are.  USA Today was but one source to report last week on a poll that most Americans are in favour of a carbon tax as long as the revenues collected by it are used stupidly:
Most Americans oppose a carbon tax, considered by many economists a cost-effective way to fight climate change, but they are willing to support it if the money is returned to them or used to fund renewable energy, a poll Monday finds.
Only a third, or 34%, say they support taxing fuels such as oil, coal and natural gas that emit heat-trapping carbon dioxide when burned, according to researchers at the University of Michigan's Center for Local, State and Urban Policy and Muhlenberg College's Institute of Public Opinion. This general lack of support, which is lowest among Republicans, is consistent with the authors' prior polling.
Yet a different picture emerges when survey participants are asked about three possible uses of the tax revenue. If used to fund programs for renewable power like solar and wind, 60% back the tax overall...
If you are a real glutton for punishment, Jesse Jenkins has long articles at the Energy Collective on why poor policy is more prudent than the theoretic proposals of too bookish economists.

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