THE COSTS OF ENERGY TECHNOLOGY

Data collection and presentation by Carl Denef, Januari, 2014

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The calculated costs of energy technology

Costs of any power generation facility is expressed as a number known as the Levelized Energy Cost (LEC [5]), being the price/MWh at which the usable energy must be generated from a specific source to break even over the lifetime of the energy generator.

The costs include: • Capital costs (including waste disposal) - tend to be

– low for fossil fuel power stations – high for nuclear energy, solar thermal, solar PV, wave and tidal and waste biomass

• The annual effective discount rate: is the annual interest divided by the capital including that interest, which is the interest rate divided by 100% plus the interest rate.

• Fuel costs – high for fossil fuel and biomass, – low for nuclear, – zero for many renewables.

• Costs of continuous operation, maintenance and connecting the energy generating source to the energy transmission system (for example the electrical grid).

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Costs of electricity generation by conventional and renewable energy types

Coal

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U.S. Department of energy study 2012

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250 UK 2010 studyLow

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Germany study 2010Low

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hAs shown in this Figure, power development by several renewable energy systems is competitive with conventional energy systems but solar systems are more expensive.

Source

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• However, if Carbon Capture and Sequestration (CCS) facilities necessary to meet international CO2 emission aggreements are included in the cost, conventional power plants become more expensive than renewable energy facilities, i.e. 12-62 € per ton of captured CO2, resulting, according to the U.S. Department of Energy, in a near doubling of energy production costs.

• It is expected that large cost reductions of renewable energy systems can come from technical advances, manufacturing improvements and large-scale production. Evidence for this expectation comes from the so called learning factor. The learning factor (or progress ratio) gives a measure of the proportional decrease in cost in relation to the cumulative output of the installed technology. A learning factor of 0.9 means that costs are expected to fall by 10% every time the cumulative output from the technology doubles. Empirical data show that the learning factor is between 0.75 for less mature systems to 0.95 and higher for well-established technologies. For example, the learning factor for solar PV modules has been constant at 0.8 over 30 years whilst that for wind energy varies from 0.75 in the UK to 0.94 in the more advanced German market. Swanson's law states that solar cell prices fall 20% for every doubling of industry capacity.[56]

• Many countries now have ‘feed-in tariffs’ (FIT) for renewable energy installations to promote its deployment. FIT typically includes guaranteed grid access, long-term contracts for the electricity produced and purchase prices based on the cost of generation. Payment levels are performance-based, which puts the incentive on producers to maximize the overall output and efficiency of their project.

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The hidden costs of energy technology

In most studies various important costs of power generation are NOT included, resulting in underestimation of traditional energy costs:

• R&D (research & development)• Impacts of pollution on public health (particulate matter, nitrogen oxides, from coal or

chromium VI, river water alkalinity, mercury poisoning and arsenic) and environmental damage, particularly for coal power plants. An EU funded research study known as ExternE (Externalities of Energy), found that the cost of producing electricity from coal or oil would double over its present value, and the cost of electricity production from gas would increase by 30%, if costs of damage to the environment and health, produced by these sources, were taken into account.

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• Cost for the greenhouse gas emissions (such as under carbon tax or emissions trading

scenarios)

• With the ongoing process of sea level rise, due to fossil fuel use-induced climate change,[51] it is expected that evacuation of millions of homes in low lying areas, and an annual cost of hundreds of billions of dollars worth of property damage by 2100.[44][45][46][47][48][49][50]. Already now massive international climate litigation lawsuits against fossil fuel users are currently beginning in the International Court of Justice.[52][53]

• Sea level rises due to global warming

• Costs of decommissioning for nuclear energy (in US included, though)

• Nuclear power plants built recently, or in the process of being built, have incurred many cost overruns. Those being built now are expected to incur further cost overruns due to design changes after the Fukushima Daiichi nuclear disaster.

• Insurances do not fully cover damage costs in case of a nuclear disaster such as in Fukushima or in case of hydroelectric dam catastrophies such as the Banqiao Dam

• Read more

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Comparison of hidden costs by energy type

Coal Gas Nuclear Wind Solar Biomass

Planning and Cost Risks

Subsidies & Tax

Climate change impact

Air pollution impact

Water impact CSP

Land impacts

Noice and visual impacts

large moderate small

The following table shows appoximations of the hidden costs of traditional and renewable energy development. It is clear that hidden costs are much lower in wind and solar power generation than in traditional power generation systems. Among renewables biomass scores worse than wind and solar systems. Data are for the United States. Read more

CSP = Concentrating Solar Power

View other slide shows on energy costs