Energy Generation Infrastructure

Energy and Climate Change written question – answered on 8th March 2011.

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Photo of Madeleine Moon Madeleine Moon Labour, Bridgend

To ask the Secretary of State for Energy and Climate Change what assessment he has made of the relative costs of energy generation infrastructure and energy efficiency measures designed to reduce demand; and if he will make a statement.

Photo of Charles Hendry Charles Hendry The Minister of State, Department of Energy and Climate Change

An economic appraisal of the costs and benefits of an intervention, such as a policy to improve energy efficiency, is a mandatory part of impact assessments, and allows consideration of the relative merits of different policy options. This must be carried out in line with HM Treasury's Green Book and the supplementary guidance on the valuation of energy use and greenhouse gas emissions for appraisal and evaluation where policies have a significant impact on greenhouse gas emissions.

Initial illustrative costs and potential energy demand reductions of the Green Deal energy efficiency policy are outlined in the Green Deal impact assessment accompanying the Energy Bill in December 2010

http://www.decc.gov.uk/assets/decc/legislation/energybill/1002-energy-bill-2011-ia-green-deal.pdf

This estimated the average annual finance costs of energy efficiency measures to be £1.4 billion to £2.1 billion. The annual energy saved as a result of these policies in 2020 is estimated to be:

GWh
Low High
Electricity -1596.572058 -2416.833186
Gas -16756.07948 -25286.44071
Fuel oil -751.383933 -1134.51274

Levelised cost estimates from Mott Macdonald (2010) that give average generation cost per megawatt-hour for new build plants, in the main large-scale electricity generation technologies, in the UK at current engineering, procurement and construction (EPC) contract prices are set out in the following tables (it should be noted that for the purposes of presentation, the table only gives either 'FOAK' (first-of-a-kind) prices or 'NOAK' (nth-of-a-kind) prices for each technology).

Case 1: 10% discount rate, 2009 project start at today ' s EPC prices, with mixed FOAK/NOAK
£/MWh
Levelised cost Gas CCGT Gas CCGT with CCS (FOAK) ASC Coal ASC Coal with CCS (FOAK) Coal I GCC (FOAK) Coal IGCC with CCS (FOAK) Onshore wind Offshore wind (FOAK) Offshore wind R3 (FOAK) Nuclear PWR (FOAK)
Capital Costs 12.4 29.8 33.4 74.1 61.7 82.0 79.2 124.1 144.6 77.3
Fixed operating costs 3.7 7.7 8.6 18.6 9.7 17.7 14.6 36.7 45.8 12.2
Variable operating costs 2.3 3.6 2.2 4.7 3.4 4.6 - - - 2.1
Fuel Costs 46.9 65.0 19.9 28.7 20.3 28.3 - - - 5.3
Carbon Costs 15.1 2.1 40.3 6.5 39.6 5.5 - - - --
Decomm and waste fund - - - - - - - - - 2.1
CO2 transport and storage - 4.3 - 9.6 - 9.5 - - - -
Steam Revenue - - - - - - - - - -
Total levelised cost 80.3 112.5 104.5 142.1 134.6 147.6 93.9 160.9 190.5 99.0
Source:

Mott Macdonald (2010), UK Electricity Generation Costs Update, available at:

http://www.decc.gov.uk/assets/decc/Statistics/Projections/71-uk-electricity-generation-costs-update-.pdf

As new technologies are deployed it is likely that costs will fall due to learning. The second table, as follows, sets out the estimated levelised costs for projects started in 2017 with the assumption that all technologies have reached 'nth-of-a-kind' status.

Case 5: 10% discount rate, 2017 start at projected EPC prices, all NOAK
£/MWh
Levelised cost Gas CCGT Gas CCGT with CCS ASC Coal ASC Coal with CCS Coal IGCC Coal IGCC with CCS Onshore wind Offshore wind Offshore wind R3 Nuclear PWR
Capital Costs 11.2 20.7 28.7 47.8 33.7 46.5 71.7 89.4 97,0 49.6
Fixed operating costs 3.7 6.0 8.6 13.8 8.0 12.3 - 23.0 30.9 9.1
Variable operating costs 2.3 3.6 2.2 3.7 2.7 3.6 - - - 1.8
Fuel Costs 49.8 64.7 19.9 27.6 19.6 27.2 - - - 5.2
Carbon Costs 29.6 4.1 73.8 11.4 72.0 10.0 - - - -
Decomm and waste fund - - - - - - - - - 2.1
CO2 transport and storage - 3.5 - 7.6 - 7.5 - - - -
Steam Revenue - - - - - - - - - -
Total levelised cost 96.5 102.6 133.2 111.9 136.0 107.1 86.3 112.4 127.9 67.8
Source:

Mott Macdonald (2010, UK Electricity Generation Costs Update, available at:

http://www.decc.gov.uk/assets/decc/Statistics/Projections/71-uk-electricity-generation-costs-update-.pdf

It should be noted that the estimates of levelised costs for different types of electricity generation are highly sensitive to the assumptions used for capital costs, fuel and EU ETS allowance prices, operating costs, load factor, and other drivers. Meaning that there is significant uncertainty around these estimates.

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