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A dose of reality for Australian energy cost estimates

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The Australian government’s main economic advisor has significantly revised its cost estimates for leading energy technologies in an update that should introduce a dose of reality to the energy debate in this country.

The Bureau of Resource and Energy Economics quietly released an update of its Australian Energy Technology Assessment in December. The first report came out in July, 2012.

In the latest report – concluded after “consultation” with various industry sectors – the cost of solar technologies has been revised downwards (in some cases by up to 30 per cent), in particular solar thermal with storage, while the costs of clean energy rival technologies such as carbon capture and storage and nuclear have been revised upwards.

It leaves no doubt which is the cheapest avenue forward for Australia in a low carbon world – renewables, and solar in particular. Importantly, even if carbon emissions and their costs were not taken into account, it will still be the cheapest option.

This graph immediately below highlights the changes made by BREE for its energy cost estimates. It is for median LCOE (levelled cost of energy) estimates of various technologies in 2050 – the blue lines represent last year’s estimates, the red lines the latest revisions. Note how cheap solar PV will be. (The adjoining  bar should read Solar PV – single axis tracking technology).

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Indeed, the report recognizes that onshore wind energy is already cheaper than new build fossil fuels.  BREE likes to frame the future by suggesting wind and solar will be cheaper on average than fossil fuels by the mid-2030s – but its graphs (the key ones are reproduced at bottom of this article) are clear – by 2020, the lowest cost wind and solar installations (which are already being achieved overseas) will be cheaper than the lowest cost coal and gas (even without pricing carbon).

Significantly, the revised report also flags that the best solar thermal with storage will be below $100/MWh.  This is significant – it is way cheaper than other “dispatchable” sources such as peaking gas generation.  And cleaner too.

The new solar power towers  with storage that are about to be commissioned in the US, and are being considered in Australia, could redefine the energy debate in those countries with the appropriate solar resource – and answer the question about dispatchability and storage.

AETA’s original estimates on the cost of nuclear were laughable, given real world experiences international. We said so at the time and this was confirmed by the recent deal struck by the UK government for its first nuclear plant in more than two decades. (That price was £92.50/MWh, or $A170/MWh at current exchange rates. AETA originally suggested the cost of nuclear would be below $100/MWh).

Getting the LCOE right – or at least improving on the previous effort – is critical because the energy debate is high-jacked in this country by those who either don’t or should know better, and will be critical as the country makes important decisions for the future in its review of the renewable energy target and the preparation of a new energy white paper.

The conservative state and federal governments consistently brand renewables as expensive, when clearly they are not (although some state-based support schemes were way costlier than they needed to be because of mismanagement).

Nuclear boosters – who have some sympathy within the current government – have also taken the opportunity to assert that “nuclear is cheap” – a slogan the AETA accepted in its first report with little critical analysis. Some of its most prominent hoorayers have used the CSIRO e-future modeling – which featured the absurdly low nuclear estimates – to boost their case.

AETA has at least partially rectified its errors by lifting its estimates of the capital costs of nuclear by around 50 per cent – it will be interesting to see how quickly CSIRO amends its own modeling.

However, the nuclear picture is still not complete because AETA has refused to include the insurance and decommissioning costs of nuclear on the basis that it does not do so for the 40 other technologies.  Well, that’s because other technologies do not have the same issues on either front.

The cost estimates for carbon capture and storage were also significantly increased after AETA admitted it had “overlooked” the well-accepted fact that adding CCS greatly reduces the thermal efficiency of the coal-fired generators.  i.e. it needs to burn more coal to produce the same amount of electricity. All this does is confirm that fossil fuels with CCS are simply not in the money.

But the AETA assessment stills fall short on many fronts because the LCOE calculations do not include interest costs – which in the case of nuclear are significant because of the sheer scale of the capital investment, and the time it takes to construct them.  (It’s a bit like buying a house and not worrying about the mortgage).

It also does not include variations for fuel costs (such as what happens when gas prices soar, as they are already starting to do in Queensland).

Part of the reason for the reduced cost of solar PV and solar thermal was a more informed appraisal of the operations and maintenance costs (they were reduced up to 27 per cent in the former and up to 30 per cent in the latter), and the recognition that solar has a much faster capital learning rate.

Still, there is also a suspicion that BREE has a level of bias against renewable technologies in favour of the traditional baseload installations.

For instance, it notes:

“To cater for sudden, unpredictable, changes in the output of variable power plants, it is necessary to operate responsive, dispatchable power plants (e.g. hydro, open-cycle gas turbines) in a back-up role to maintain the overall reliability of the electricity system. As a result, LCOE by technology is not the only factor considered when deciding what type of electricity generation plant to construct.”

There is no mention of the fact that most of these dispatchable power plants already exist because they are needed to back-up “baseload” generation, to cater for sudden changes in demand and to support unexpected outages. The fact that South Australia now has more than 31 per cent “variable generation” from wind and solar without the need for any new “back-up”, should put those comments into context.

Here are some of the forecast graphs. You can click on these to expand them. These and others (for 2030 and 2050) can be found at the BREE website.

bree 2020 update

BREE 2040 uddate

 

 

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  • bruce mountain

    Figures 9 and 14 for PV (non-tracking) seem quite different?

  • wideEyedPupil

    In the first graph (Fig 14 Comparing AETA 2013 & 2014) non-tracking solar-PV has lowest LCOE of all technologies. My understanding is that in Australia onshore Wind has the lowest LCOE, just undercutting coal without pricing carbon, thereby having so-called grid parity. SolarPV is often said to have socket parity (not-grid parity yet). So why is solarPV so low? Are they factoring in deployment price movement over the next 25 years or are all these calculations based on todays costs?

    Good to see the nuclear power furphies this countries needs to get straightened out getting challenged at last inside BREE.

  • Lars Lohmann

    I agree with Giles that BREE’s analysis is faulty in that one should consider each option from a lifecycle perspective incorporating ALL costs including insurance, decommissioning, future input price variables and interest as well as the use of other (scarce) resources such as water. Even solar PV tracking systems need to be cleaned using fresh water as does CST to run turbines. One would also need to consider what sorts of grid upgrades are required for each option. Do the figures for Solar PV or other intermittent renewables include any required grid upgrades once we move beyond say the 30% that SA is currently generating? We may need to install significantly greater amounts of generating capacity as well as storage to tackle intermittency and dispatchability which is not taken into account in these LCOE figures. Nothing that is insurmountable but these are additional costs. I am no fan of nuclear but I would argue it should not necessarily be removed from discussion, especially some emerging technologies that perhaps may be able to co-exist with renewables and provide a much quicker transition to a clean energy future. Nuclear could provide for a quicker transition even if it costs more in the longer term and most of us would agree that this would be a better outcome from a societal cost perspective. What is required is complete and unbiased assessment (the opposite of which makes us all suspicious of specific technologies such as nuclear) and it would appear this can be difficult to obtain!

  • Bob_Wallace

    I recently read of a cost analysis for decommissioning a wind farm. Obvious there are a lot of recyclable metals and the concrete foundations can be crushed for road fill.

    The value of salvaged metals more than pay for the cost of returning the land back to its original conditioning.

    Decommissioning wind farms is a negative cost.

    • adam

      Do share Bob?

      • Bob_Wallace

        Sorry, I failed to save the link. I’ll continue to look for it but in the meantime there’s this…

        “Decommissioning a wind plant, in its simplest form, requires removal of the turbines. The U.S. Bureau of Land Management estimated that removal of a turbine and tower would cost $1,500-$2,500. Removal of the foundation and wiring could add another $1,500-$2,500; revegetation of disturbed soil, another $500-$700. The BLM estimated that total removal would cost from $3,000 to about $5,500 per turbine for the 100 kW turbines typical of the mid 1980s.[2]

        The BLM’s estimate, about $50 per kilowatt, represents the high end of expected removal costs. To date, dismantling has cost much less. Several early 40 kW turbines were dismantled in Tehachapi for $1,500 each. In the Altamont Pass, U.S. Windpower dismantled 200 of its 50 kW turbines, removing the towers, transformers, and the top two feet of the foundation for $925 per site or about $20 per kilowatt.

        A turbine’s salvage value often offsets much of the removal cost. In 1989 a contractor to Riverside County began removing 98 turbines from a site near Palm Springs for $23,000; only $230 per turbine. U.S. Windpower received salvage bids of $1,025 per turbine for their 200 machines, resulting in a net credit of $100 per unit removed.[3]”
        http://www.wind-works.org/cms/index.php?id=61&tx_ttnews%5Btt_news%5D=2570&cHash=3ff49e81d8a8361ab28637207eb5671d

      • Bob_Wallace

        Seems like wind farms work up decommissioning plans as part of their proposals. Here’s a sample. (Haven’t found the article I read.)

        “The estimated decommissioning costs per turbine were prepared using available information from a variety of credible industry sources. The current cost of decommissioning turbines is estimated to be approximately $50,000 per turbine, although this cost will be offset by the salvage value of the towers and the turbine components.

        The estimated $45,000 salvage value of the each wind turbine was based upon the worst case scenario assuming the only salvage value of the wind turbine is from scrapping the steel.

        The estimate was based on the total weight of one wind turbine, which is 230 tons consisting primarily of steel. However, because it did not separate the scrap value of all the constituent materials, this was a very conservative estimate considering approximately 31 tons of the total weight is copper (generator windings), which would yield a higher value than steel. Also, there would be opportunities for re-sale for reuse of all or some wind turbines or their components.”

        (Falmouth, MA Mitigation Plan, 2011; Knauth, Ridgeline Wind 2011; New Grange Wind Farm DEIS, 2008).

  • Philip Howell

    The link to the AETA 2013 Update is now broken. I can’t find the update anywhere on their site anymore.

  • Philip Howell

    Any chance of Reneweconomy, or anybody else, making a copy of the AETA 2013 Update available for download, as it has disappeared from the BREE site?

  • Philip Howell

    The AETA 2013 Update is available again at http://www.bree.gov.au/sites/default/files/files//publications/aeta/AETA-Update-Dec-13.pdf

    Comparing figure 14 above with the new version we can see that whilst the LCOE increases of nuclear remain, the cost reductions for renewables aren’t as great as in the previous version.

    No explanation is given for the changes between the original and current releases.

  • Tom

    It should also be pointed out that BREE use a lifetime of 60 years for nuclear. This is quite optimistic given the lifetimes of current reactors. That said cash flows that far out are probably discounted close to zero.
    The de-commissioning costs represent a significant risk to future society. If the company cannot afford $400m (indexed for inflation) in 40+ years time the clean up will be worn by taxpayers.