Electricity from Renewable Resources Status, Prospects, and Impediments (2010) / Chapter Skim
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4 Economics of Renewable Electricity
4 Economics of Renewable Electricity
Pages 133-194
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From page 133... ...
The chapter concludes by summarizing and analyzing cost estimates for the renewable technologies with the greatest likelihood of con tributing significantly to electricity generation in the next decade. The goal is not only to compare the costs of various technology options and how they will evolve over time, but also to clarify how markets and government actions can affect the near-term deployment of renewables.
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From page 134... ...
The competitive value would be the wholesale price of electricity for grid scale resources and something close to the retail price of electricity for dis tributed renewable resources.1 These prices define the value of adding renewables to the mix. The ability to predict electricity price is key to making predictions about future market penetration of renewable sources of electricity.
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From page 135... ...
, concentrating solar power (CSP) , geothermal, and biomass -- predicted future costs and future penetrations finds that these past studies performed reasonably well at predicting future cost declines but did not accurately predict market penetrations (McVeigh et al., 2000)
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From page 136... ...
These benefits would depend on the type of fossil generation displaced, the emission controls on the fossil generation, the resulting emissions rate of that fossil generation, and the form of environmental regulation governing pollutants.5 For pollutants subject to an emissions cap, as is the case for SO2 nationally or CO2 in states participating in the Regional Greenhouse Gas Initiative, there will not be reduced emissions or environmental benefits. Emissions caps are both a ceiling and a floor on the level of emissions, as emissions reduc tions at one facility will be made up by increases at another facility, unless the cap is reduced or is no longer binding, which could occur with a dramatic increase in renewable generation.
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From page 137... ...
More transmission infra structure in key locations would also be required for a dramatic increase in power supplied by renewables. Recent increases in renewables market penetration, par ticularly new wind power, have largely been in response to policies like the federal renewable energy production tax credit and state renewables portfolio standards.
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From page 138... ...
, the cost of the fuel would be a part of the variable operating and mainte nance cost. Capital costs do not vary with the amount of electricity generated by the facility and are typically stated in dollars per kilowatt ($/kW)
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From page 139... ...
For intermittent technologies such as CSP, solar PV, and wind power, the capacity factor can vary considerably, depending on the location and the quality of the resource (e.g., wind speed and constancy for wind turbines, and hours of sunlight with no cloud cover for CSP and PV) ; likewise, the LCOE will vary depending on the capacity factor at a particular installation and location.
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From page 140... ...
Wind and some solar resources often are located at some distance from the existing transmission grid, and would require new transmission lines to transport the power to the centers of electricity demand or load. As with any new genera tion, the cost of constructing additional transmission lines should be included in the cost of supplying electricity from renewable resources.
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From page 141... ...
Typically, fossil-fuel generators that are easily dispatch able, such as natural gas combustion turbines, supply these ancillary services. As renewables generation increases and fossil generators are curtailed, renewable generation technologies themselves or additional system assets, such as storage, will be needed to meet the increased need for ancillary services, at some additional cost.
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From page 142... ...
. However, technologies might be called on in the future to store electricity generated from intermittent renewable resources if their combined market penetration would rise to 20 percent and beyond.
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From page 143... ...
The Texas State Energy Conservation Office estimated total overnight capital costs of a new CAES system at $605/kW. Development and fixed O&M costs were listed at $28.00/kW and $14.07/kW, respectively, and variable O&M costs were estimated to be $1.50/MWh (Ridge Energy Storage, 2005)
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From page 144... ...
R 4.2 Financing Costs Another element of cost that should be included when evaluating the overall competitiveness of any generation project is the cost of money. Because electricity generation projects are capital-intensive and have long lifetimes, access to capital and the rates at which it is paid back are key components of project cost.
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From page 145... ...
. The American Recovery and Reinvestment Act of 2009 attempted to address this issue by allowing non-solar renewable electricity facilities to elect a 30 percent investment tax credit in lieu of the PTC.
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From page 146... ...
This approach might suffice for fore casting future costs for more mature renewable technologies such as wind, but might be less appropriate for nascent technologies. Another problem with this approach is that factors contributing to short-term cost increases, such as the recent increases in the cost of wind turbines and solar cells due to material short ages, might not be sustained into the future, as entry into the industry, greater availability of materials, and innovations might bring costs down.
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From page 147... ...
policy allows firms that generate electricity with eligible renewable technologies to offset their income tax liability 9In addition to the policies identified below, some states offer low-interest loans for renew ables. However, generators that avail themselves of this type of state support may make a par ticular project ineligible for the renewable energy production tax credit discussed in the next section.
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From page 148... ...
by the amount of the tax credit times the number of kilowatt-hours generated. The federal PTC applies to a range of renewable technologies, with some tech nologies, including wind, solar, closed-loop biomass, and geothermal, eligible for a larger tax credit than others, such as open-loop biomass, small hydroelectric, landfill gas, and municipal solid waste.10 Generators are eligible for the tax credit for every kWh of electricity generated during their first 10 years of operation.
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From page 149... ...
also offer PTCs that provide a tax credit for every kilowatt-hour of electricity generated. Another seven states offer direct payments for each kilowatt-hour of electricity generated by certain renewable technologies.
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From page 150... ...
An RPS policy creates an increase in demand for electricity supplied by renewables and, in most cases, a demand for a complementary product that renewable generators can sell, a renewable energy credit (REC)
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From page 151... ...
. The effects of a state RPS policy on the economics of renewable generation in particular and electricity supply more generally depend on features of the policy, including its stringency, what renewable technologies are included, site restrictions on renewables eligibility (e.g., limitations on out-of-state renewables)
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From page 152... ...
There have been unsuccessful attempts in Congress to pass a national RPS. EIA's analysis of a federal policy mandating a 25 percent RPS and a 25 percent renewable fuel standard by 2025 suggested that a federal RPS of 25 percent would result in REC prices between $35 and $50/MWh in 2025, depending on assumptions about fuel costs and technology improvement (EIA,
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From page 153... ...
As more and more states adopt RPS policies, the question arises as to whether these mandatory policies will replace voluntary markets for green power. A study of the relationships between mandatory RPS programs and voluntary green power markets found potential for overlap in the form of double-counting, which is selling renewable kilowatt-hours to voluntary markets and using the 13This analysis looks at a 15 percent RPS that is phased in by 2020, but because the proposal includes multiple credits for a subset of technologies such as wind and a price cap on RECs of 1.9¢/kWh, the actual percentage of renewables that is achieved is closer to 9 percent of total generation by 2020.
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From page 154... ...
In others, there are no rules, and it is difficult to know if voluntary markets are pro ducing more renewable generation. One benefit of voluntary green power markets is that excess renewable generation beyond that required for RPS compliance may be sold into the green power market, providing a way to manage timing inconsis tencies and lumpiness in renewable resource development.14 Voluntary and compliance REC markets differ in that most compliance REC markets are limited in scope, while voluntary green power markets can be national in scope.
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From page 155... ...
Environmental Policies Policies such as the Title IV cap and trade program for SO2 emissions raise the cost of fossil-fuel electricity generation and could potentially promote genera tion from renewables. This effect has been small for policies focused on criteria
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From page 156... ...
The success of that signal will depend on the stringency of the policy, the expected evolution of the policy over time, and the relative economics of demand-side alternatives. Policies to Control Conventional Pollutants and Mercury Policies to restrict emissions of SO2, NOx, and mercury from electricity gener ated from fossil fuels have had only a small effect on renewable generation.
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From page 157... ...
Technology No Tax $10 Tax $20 Tax $50 Tax $100 Tax Coal Pulverized coal 0.083 0.095 0.107 0.145 0.206 IGCC 0.088 0.099 0.109 0.141 0.194 IGCC with sequestration 0.103 0.104 0.105 0.109 0.115 Natural Gas Combined cycle 0.083 0.088 0.092 0.105 0.127 Advanced combined cycle 0.079 0.083 0.087 0.099 0.120 Advanced combined cycle with 0.110 0.110 0.111 0.112 0.115 sequestration Combustion turbine 0.138 0.145 0.152 0.172 0.205 Advanced combustion turbine 0.121 0.127 0.132 0.149 0.176 Note: Taxes are denominated in dollars per short ton of CO2; assumes that sequestration technology captures 90 percent of CO2 emissions. Source: EIA, 2008d.
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From page 158... ...
Because a cap on emissions of CO2 is both a ceiling and a floor, increased generation from renewables would free up a CO2 allowance for use elsewhere. To support voluntary renewables markets, several states participating in the Regional Greenhouse Gas Initiative plan to retire CO2 allowances in connection with vol untary sales of green power to maintain the opportunity for credible green power claims.
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From page 159... ...
On the other hand, by-products from liquid biofuels production could provide a source of renewable fuel for electricity generation to supply at least some of the electricity needs of ethanol production facilities. Electricity generated using this biofuel production by-product may qualify for credit as a renewable source of generation under existing state RPS policies.
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From page 160... ...
Conventional combustion 30 36.0 4.6 80.1 11.0 131.7 turbine (121.5) Concentrating solar power 31 218.9 21.3 0.0 10.6 250.8 (166.1)
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From page 161... ...
However, the costs of other technologies, particularly solar PV, concentrating solar power, and offshore wind, would remain higher than the costs of other renewables, and additional subsidies or set-asides in RPS policies would be necessary for these technologies to penetrate the markets given existing costs. Annex Table 4.A.1 shows the levelized costs of renewable sources of generation from EIA compared to those from the EERE Office at DOE (EPRI, 2007b)
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From page 162... ...
Wind Power Table 4.A.1 estimates of levelized cost of energy for onshore wind in 2010 range from $0.029 to $0.10/kWh, with EIA estimates falling in the middle at $0.069/kWh. Most estimates of the capital cost of new wind facilities are in the $1750/kW range, close to 10 percent lower than the EIA estimates of nearly $1900/kW.18 In addition, EIA estimates that average capacity factors are some what lower than recent forecasts from EPRI.
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From page 163... ...
R 4.7 Source: DOE, 2008. 45 Pre-1998 2002–2003 40 Percent Capacity Factor 1998–1999 2004–2005 35 2000–2001 30 25 20 15 10 5 0 Heartland Texas California Mountain Northwest East Great New Lakes England FIGURE 4.8 Wind capacity factor in 2006 by region and vintage of wind facility. Source: Wiser and Bolinger, 2008.
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From page 164... ...
divided by the maximum amount of electric power delivered per unit of area (module efficiency multiplied by 1000 W/m2, the standard insolation rate at 25°C)
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From page 165... ...
The one exception was a 2004 SEIA study of levelized costs that predicted the cost of energy from PV would fall to about $0.14/kWh by 2010, in the absence of aggressive policies to promote the technology, and to $0.08/kWh with such policies in place. The costs of supplying electricity from rooftop PV installations will vary across different locations and depend on factors such as the cost of land, options for orienting the installation (particularly on rooftops)
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From page 166... ...
Largely as a result of state-level policies to promote the use of solar PV, the number of installations is growing. As shown in Figure 4.11, in California about 130 MW of the cumulative PV capacity installed by 2007 was under incentive programs administered by the California Energy Commission (CEC)
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From page 167... ...
AEO 2009 model runs, the levelized cost of generating electricity using concentrating solar power (CSP) is higher than the cost with wind, but lower than the cost of solar PV as shown in Table 4.2.
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From page 168... ...
200 190 (Dollars per Megawatt-hour) 180 Nominal LCOE 170 160 6.75 – 6.99 7.50 – 7.74 7.00 – 7.24 >7.75 7.25 – 7.49 All Resources 150 140 0 50 100 150 200 Installed Capacity (Gigawatts)
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From page 169... ...
The DOE's Office of EERE (NREL, 2007) anticipates that both capital costs and capacity factors for CSP could improve dramatically through its R&D program for concentrating solar power, including storage capacity and location of new systems in the most productive sites.
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From page 170... ...
FIGURE 4.14 Geothermal supply curve. Source: Developed from data supplied by Smith, 2006. R 4.14 to EIA, this supply curve, added to the NEMS model with the development of AEO 2007, would not capture all potentially economic geothermal resources, but it is an important start and likely does capture the most economic resources avail able (Smith, 2006)
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From page 171... ...
. Capital costs, including interest during construction and project specific costs, would be on the order of $3400/kW for each technology with capacity factors of 85 percent.
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From page 172... ...
The exceptions are the EERE forecasts that envision substantial improvements in costs for concentrating solar power and wind, and the SEIA forecast for solar PV. The differences between the program scenarios and the baseline scenarios for the EERE forecasts show how full funding of renewable energy research at DOE is expected to affect the future costs of renewable generation.
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From page 173... ...
R 4.15 increases inherent in tapping increasingly difficult sites, which are not reflected in the estimates reported by the other studies. Differences in cost projections for wind turbines appear to be at least partly due to differences in assumptions about capacity factors.
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From page 174... ...
This study also assumed that capital costs of new onshore wind generators would fall by 5 percent between 2005 and 2020, and that new offshore wind generators would see capital cost decreases of just over 10 percent during the same period. This study also anticipated a marked decline in variable and fixed O&M costs between 2005 and 2020, particularly for offshore installations.
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From page 175... ...
Such volatilities should humble any group attempting to predict the future. The panel considers these alternate cost estimates to come from reputable sources and to be representative of the range of cost estimates for renewables in the future.
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From page 176... ...
The 20 percent wind study also assumes larger improvements in capacity factors of wind turbines over time than the maximum potential improvements in perfor mance allowed in the NEMS model. These differences in assumptions contribute to differences in the projections of future levelized costs.
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From page 177... ...
technology that has a very low heat rate and relatively low capital costs, whereas EPRI, in its 2007 summer study, assumes that new biopower is generated using a stoker boiler technology that has somewhat higher capital costs and a much higher heat rate. The comparability of these two cost assumptions is unclear, given the complexity of the IGCC technology relative to the proven stoker boiler technology.
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From page 178... ...
Unlike some conventional energy resources, renewable electricity is consid ered manufactured energy, meaning that the largest proportion of costs, external energy, and materials inputs, as well as environmental impacts, occur during man ufacturing and deployment rather than during operation. In general, the use of renewable resources for electricity generation involves trading the risks of future cost increases for fossil fuels and uncertainties over future costs of carbon con trols for present fixed capital costs that typically are higher for use of renewable resources than for use of fossil fuels.
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From page 179... ...
Comparisons between past forecasts of renewable electricity penetration and actual data show that, while renewable technologies generally have met forecasts of cost reductions, they have fallen short of deployment projections. Further, the profitability and penetration of electricity generated from renewable resources may be sensitive to investments in energy efficiency, especially if efficiency improvements are sufficient to meet growth in the demand for electricity or to lower the market-clearing price of electricity.
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From page 180... ...
• Investment in energy efficiency, which can lower the market-clearing price of electricity, could diminish the future profitability of renewable electricity generation. • A key determinant of the future success of renewables in penetrating the market is the value that renewables suppliers will obtain for their gen eration in the electricity marketplace, which is largely determined by the wholesale market price of electricity for grid-scale renewables and the retail price of electricity for distributed renewables.
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From page 181... ...
2007. Tackling Climate Change in the U.S.: Potential Carbon Emission Reductions from Energy Efficiency and Renewable Energy by 2030.
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From page 182... ...
2005. Production Tax Credit for Renewable Energy Generation, Issues in Focus, AEO2005.
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From page 183... ...
Berkeley, Calif.: Lawrence Berkeley National Laboratory. NREL (National Renewable Energy Laboratory)
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From page 184... ...
NREL/TP-670-42266. Golden, Colo.: National Renewable Energy Laboratory.
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From page 185... ...
Wind Power Installation, Cost and Performance Trends: 2007.
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From page 186... ...
2596 (2007) Concentrating Solar Power Concentrating solar NREL (2007)
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b,c Capacity Factor (%)
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From page 188... ...
study Onshore wind Midwest ISO MTEP 2008 reference 1983 Offshore wind EIA (2008d) Input table 3851 Offshore wind Black & Veatch 20% wind energy 2388 (2007)
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From page 189... ...
b,c Capacity Factor (%)
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From page 190... ...
Reference 892 87 Advanced combined cycle with EIA (2008d) Reference 1729 87 sequestration Combustion turbine EIA (2008d)
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From page 191... ...
Economics of Renewable Electricity Total Variable O&M/ Levelized Cost Levelized Cost Capital Cost Fuel Costs Fixed O&M Transmission of Energy ($/kWh)
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From page 192... ...
Full portfolio 42 Onshore wind EPRI (2007b) Limited portfolio 33 Onshore wind Black & Veatch DOE 20% wind 1630 38–52 (2007)
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From page 193... ...
Economics of Renewable Electricity Total Variable O&M/ Levelized Cost Levelized Cost Capital Cost Fuel Costs Fixed O&M Transmission of Energy ($/kWh)
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