Vision Shopsters: The Cost of Power Generation: The current and future competitiveness of renewable and traditional technologies

Since the publication by Business Insights of the last report into the cost of electricity there has been a massive change in global economic conditions as a result of the ramifications of the 2008 banking crisis. This has caused fuel and commodity prices to fall, as well as leading to a severe tightening in lending. The power sector still remains an attractive area for investment but investors are now more cautious than previously. Global warming continues to be a dominant theme but alongside that there is a new pragmatism about fossil fuel combustion which will continue to dominate the power sector for another generation at least. Meanwhile renewable sources of generation continue to advance, led principally by wind power but with solar capacity growing rapidly too, though from a small base.
Electricity is the most important energy source in the modern age but also the most ephemeral, a source that must be consumed as fast as it is produced. This makes modeling the economics of electricity production more complex than carrying out the same exercise for other products. Accurate modeling is important because it forms the basis for future investment decisions. In the electricity sector two fundamental yardsticks are used for cost comparison, capital cost and the levelized cost of electricity. The latter is a lifecycle cost analysis of a power plant that uses assumptions about the future value of money to convert all future costs and revenues into current prices. This model is widely used in the power industry but has some significant failings, particularly in its ability to handle risk. Even so these two measures, together, are the first consulted when power sector investment and planning decisions are to be made.

Key features of this report

• Analysis of power generation costs concepts, drivers and components.
• Assessment of the electricity sectors two fundamental yardsticks used for cost comparison, capital cost and the levelized cost of electricity, in analysing power generation costs.
• Insight relating to the most innovative technologies and potential areas of opportunity for manufacturers.
• Examination of the key power generation technologies costs.
• Identification of the key trends shaping the market, as well as an evaluation of emerging trends that will drive innovation moving forward.

Scope of this report

• Realize up to date competitive intelligence through a comprehensive power cost analysis in electricity power generation markets.

• Assess power generation costs and analysis – including capital costs, overnight costs, levelized costs and risk analysis.
• Identify which key trends will offer the greatest growth potential and learn which technology trends are likely to allow greater market impact.
• Compare how carbon costs will effect the industry in direct comparisons or renewable and conventional technologies using financial and life cycle analysis .
• Quantify structural costs of grid extension, the effect of drivers, legislation and tariffs, installation costs, and the cost of electricity.

Key Market Issues

• Environmental requirements:- The volume of fossil fuels burnt for power and heat generation have continually grown in line with economic, infrastructure and population growth. The resulting growth of carbon dioxide emissions globally has been linked to global warming and thereon climate change. Political, environmentalist and consumer pressures to lower carbon emissions is creating a path for lower carbon emitting power generation technologies.
• The cost of power:- The levelized cost of power remains an imperfect tool for comparing generating technologies but it is probably the best available provided its limitations are taken into account. Current levelized costs and levelized cost trends show overall prices rises over the past decade but some changes in relative cost too. Meanwhile the liberalized energy markets of the world have shown increasing signs of the type of cyclical behavior notable in financial markets. This and other factors have led to questioning of the fitness of the open market model to the provision of low cost stable electricity supplies.
• Life cycle analysis:- Lifecycle energy analysis shows how efficient a power plant is at using resources in order to produce electricity. Meanwhile lifecycle emission analysis shows how much pollution a power plant produces for each unit of electricity it generates. Among these latter analyses, lifecycle CO2 emissions have become a subject of global interest.
• Carbon dioxide emission management costs:- Carbon emissions are becoming part of the economic equation, and the cost of emitting a tonne of CO2 will be an important factor in determining future power plant economics. The introduction of carbon capture and storage to conventional technologies such as coal effect the cost of power generated by these plants, where renewable technologies such as wind and solar have no fuel costs, but require additional structure and balancing costs.

Key findings from this report

• Wind power has continued to expand rapidly with installed global wind capacity reaching 159GW at the end of 2009.
• The overnight cost of a simple gas turbine power plant may be as low as $600/kW.
• The cheapest technology to install is an open cycle gas turbine. An advanced unit of this type has an installed cost of $617/kW while a conventional unit of the same type has an installed cost of $653/kW.
• The installed cost of the peak load distributed generation is $1,601/kW while base load distributed generation will cost $1,334/kW based on these predictions.
• A solar thermal plant is expected to cost $4,798/kW while a solar photovoltaic plant is the most expensive of all with a capital cost of $5,879/kW.

Key questions answered

• What are the drivers shaping and influencing power plant development in the electricity industry?
• What are the life cycle carbon emissions of the various power generation technologies?
• What is power generation going to cost?
• Which power generation technology types will be the winners and which the losers in terms power generated, cost and viability?
• Which power generation types are likely to find favor with manufacturers moving forward?
• Which emerging technologies are gaining in popularity and why?

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