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« So long, and Fanks for all the corrections | Main | The fall of Forest 2006? »
Monday
Jun252012

Levelised costs

Two quotes on levelised costs as a metric for energy generation types:

The standard measure used by many public agencies to compare the costs of generating electricity using different technologies is the levelised cost per MWh. As will be explained below, this can be a perfectly adequate measure for making comparisons in a centrally planned electricity system when the issue is whether to build nuclear, coal-fired or gas-fired plants to operate most of the time – i.e. on or close to base load. Unfortunately, this measure may be quite misleading as a basis for making cost comparisons when considering investment decisions for either (a) electricity systems that operate on the basis of market pools (such as the UK), and/or (b) technologies which are inherently intermittent, such as many forms of renewable generation (such as wind power).

Gordon Hughes - Why is wind power so expensive?

A key attraction of onshore wind over other low-carbon forms of electricity generation is cost. In terms of levelised cost onshore wind is currently the cheapest renewable technology in the UK. It could become fully competitive with older conventional sources of energy as early as 2016, according to analysts at Bloomberg.

Sam Fankhauser, LSE blog

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Reader Comments (37)

Why 2016? Is the wind gonna blow more then? Is there some forthcoming breakthrough in blade aerodynamics on the way? Rare earth magnets gonna get better? What? Oh, steel and concrete tech still in its infancy?

Jun 25, 2012 at 4:27 PM | Unregistered CommenterRhoda

No, Rhoda, the wind turbines will reach 250 m in diameter. (I wish I was joking)

Jun 25, 2012 at 4:36 PM | Unregistered CommenterLuis Dias

What they mean by levelised cost is that they add an artificial cost for each tonne of CO2 emitted by the plant.

Jun 25, 2012 at 4:48 PM | Unregistered CommenterTerryS

It [onshore wind] could become fully competitive with older conventional sources of energy as early as 2016 ...

I certainly hope not! If it does the Greens (assuming they are still fixated on global warming or climate change) will use the relative cheapness as an argument for covering even more of our attractive open spaces with noisy, monstrous turbines.

Jun 25, 2012 at 5:01 PM | Unregistered CommenterRoy

So, 'could', by 2016, according to reports by Bloomberg which are not referenced in the article. This is setting off my BS alarm. So let's wait until they can demonstrate it without fiddling the figures, hey?

Jun 25, 2012 at 5:08 PM | Unregistered CommenterRhoda

http://www.dailymail.co.uk/news/article-2034425/At--wind-turbine-isnt-total-eyesore.html

They are putting wind turbines out at sea with the extra hello sailor cost of transport with the extra Atlantic ocean Salt and Wave Erosion. So Tory voters WONT have to see or hear them and find dead bird bits on dry ground in the True Blue rural shires.
Or else these poor people will just vote for the Real Tory Bogeyman Mad Nigel next time.
Wasting money on Wind Turbines for political reasons then Mr Cameron.

And Mr Cameron seeing as you are now scrapping housing benefit for the under 25s.
And cutting Job Seekers Allowance for anyone claiming for more than 2 years.
And making some new noises about cutting immigration.
So Mr Cameron your taking the Conservative party back to Thatcher era "The Nasty Party".
So Mr Cameron No more Hug A hoody and hopefully no more Husky Dog Sled Arctic Photo Shoots.

Jun 25, 2012 at 5:20 PM | Unregistered CommenterJamspid

1. The only saving of CO2 emissions by windmills is displacement of coal by natural gas.

2. You can save far more CO2 by CHP fuel cells which, combined with solar power, will in time provide much of the daytime standby power for a reduced scale windmill system.

3. The methane saving for 10 GW of such power would be ~30% compared with generating it by conventional means [CCGTs], a bit more compared with CCGTs plus windmills.Use the fuel cells to power heat pumps and you would save up to half the methane.

Jun 25, 2012 at 5:27 PM | Unregistered Commenterspartacusisfree

"It (windmills) could become fully competitive with older conventional sources of energy as early as 2016, according to analysts at Bloomberg."
Dream on.
More seriously I expect these "analysts" have an eye on trousering Government subsidies.

Jun 25, 2012 at 5:36 PM | Unregistered CommenterDon Keiller

http://uk-solarpanels.blogspot.co.uk/2012/02/solar-panels-snow-no-electricity.html

Do modern solar panels have windscreen wipers or heaters
Plenty more pictures of solar panels covered by snow on Google
So you now need a heavier larger solar panels with built batteries providing at least a 3 month backup
Question if you install a solar panel on a conventional house do you have to completely reroof it and i think strenghen the wooden Perlins (roofstruts) with steel

Jun 25, 2012 at 6:11 PM | Unregistered CommenterJamspid

The link to "Gordon Hughes - Why is wind power so expensive?" is very informative. Any policy maker who does not fully understand this should not vote on any energy policy related issue.

Every voting member of society should read this to determine who they should vote for as energy policy in the western world has been misguided to say the least. Should be required reading in education.

Jun 25, 2012 at 6:52 PM | Unregistered Commentereyesonu

"Levelised costs"?

Is there no end, to these jokers and their creative accountancy?

Levelised costs = when all things considered and weighting [carbon floor price] for coal, nuclear and gas is factored in and by sometime [nebulous date] in the future................we think - that maybe, if and potentially.

It's all make-believe of; politicians, DECC administrators, Sam Fankhouser, LSE, Bloomberg - whoever.

What is worrying seeminglym, is that this fantastical and fallacious arithmetic will be somehow credible - which is just incredible imho.

Jun 25, 2012 at 7:02 PM | Unregistered CommenterAthelstan.

The DECC report below has a whole chapter on how they 'levelise' the cost to make wind and solar look competitive.

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

Some of the tricks used are alluded to in this excerpt:

"In our definition of levellised cost...we consider [only] the costs borne by the owner in relation to operation of the asset. It does not take account of impacts on the wider electricity system (such as reserve and balancing requirements, nor does it consider special revenue support measures (ROCs or capital grants etc). Lastly it also excludes any externalities related to the activity (from the plant itself or from the fuel supply chain impacts) except to the extent that these are internalised through the price of carbon."

Jun 25, 2012 at 7:16 PM | Unregistered Commenterchilli

CO2 is not the reason for climate variations.
CO2 is food for plants, and plants are our food.

Besides windpower gives 18% kWh of the installed power; for 1kW installed wind-power you get in reality 0.18*24 kWh per day! Not enough wind or too much.
And the 18% is at random times!
For a 24/7 economy you need 100% stand-by powerstations: coal, oil, gas, nuclear and in some "years col fusion" see: http://www.e-catworld.com/
Windpower is a not necessary and useless double investment.

Jun 25, 2012 at 7:16 PM | Unregistered CommenterJWR

Pylon line costs not factored into costs of wind farms
- From the Sunday Telegraph
‘ .. The cost of the land transmission infrastructure required [to connect 43 gigawatts of renewable power, mostly new wind farms, to the grid by 2020] will be at least £8.8 billion over the next eight years .. However, figures produced for the Government - known as “levelised costs” - that are used to compare the price of wind with other technologies do not include the costs of the extra infrastructure needed.
Colin Gibson, former power network director at National Grid, said: “I estimate the extra costs of having wind are coming out at £80 per megawatt-hour of electricity generated. Even if the capital cost of building a wind farm was zero, it would still be more expensive than a conventional power station because of the costs of integrating it into the grid.” ..’
http://www.telegraph.co.uk/earth/energy/windpower/9351382/Giant-pylons-for-wind-farms-planned-for-National-Parks.html

Jun 25, 2012 at 7:20 PM | Unregistered CommenterQuercus

As older coal and nuclear power plants are phased out and we invest increasingly in “renewables”, the UK will become increasingly dependent on wind energy (other “renewables” such as solar thermal, hydro, tidal, wave and geothermal power are either inappropriate for the UK or are not planned). And the problem with wind power is that there are times, often in periods of extreme heat or cold (link), when throughout the UK, onshore and offshore, it contributes nothing to our energy mix – a problem exacerbated by its unpredictability. Nor, as Sam Fankhauser seems to believe, is the bulk storage of electricity a feasible solution. Therefore, we will be increasingly at risk of power outages. And power outages are extremely dangerous. For example, few people appreciate the fragility of a modern city: in periods of extreme heat or cold, it’s electricity that prevents death and disaster.

Germany’s decision to abandon nuclear energy has exposed this hard reality. See this article (in German) from the news magazine FOCUS entitled “Energy End! Why it is unaffordable and threatens to ruin the country”. An extract:

Not only the costs have become major obstacles, but also the technical feasibility of renewable energies is missing, especially wind and solar, which lack the infrastructure elements for taking the power to the markets that need them. These elements include power transmission lines, back-up energy systems for when the sun isn’t shining and the wind isn’t blowing, and power storage systems.

Wind energy is a feel-good luxury that may be fine (if you don’t care, for example, about the environmental damage done by the extraction and processing of rare earth minerals) so long as reliable conventional power sources are there to do the grunt work of providing a steady base supply. Fankhauser's suggestion that wind may "become fully competitive with older conventional sources of energy as early as 2016", even if true is irrelevant in view of this reality.

Jun 25, 2012 at 8:02 PM | Registered CommenterRobin Guenier

jamspid

I'd love to know how many solar installations are known to the house insurers. Strikes me that they would be used to invalidate any claim instantly...

Jun 25, 2012 at 9:00 PM | Unregistered CommenterJames P

Who is Bloomberg? What do they know about wind energy? Have they ever heard of the need for backup? Do they believe in a "smart net" as the saviour of windmills? What a joke...

Jun 25, 2012 at 9:10 PM | Unregistered CommenterAlbert Stienstra

@ Jamspid


And Mr Cameron seeing as you are now scrapping housing benefit for the under 25s.
And cutting Job Seekers Allowance for anyone claiming for more than 2 years
And making some new noises about cutting immigration.
So Mr Cameron your taking the Conservative party back to Thatcher era "The Nasty Party".

Attempting to tackle the problems of welfare dependency is certainly not "nasty." Beveridge, who drew up the blueprint for the welfare state while the Second World War was still raging would be horrified if he could see how benefits have become a way of life for healthy young people. Restricting immigration would not be nasty either.

What was nasty was the sheer treachery of the Labour government which, without any form of consultation and without any mandate, opened the immigration floodgates seeking to change the character of the population for its own squalid electoral advantage. Another things that was nasty were the ways in which Labour tried to stigmatise as a bigot anyone who disagreed with its immigration policy or its "some are more equal than others" policies on "equality". A far nastier thing than anything the Tories ever did was the way in which senior police officers and prosecutors deliberately ignored the plight of sexually exploited girls because, under Labour's squalid "equalities" policy, their promotion prospects depended on demonstrating their commitment to "equality" and "diversity".

I could go on at length about just how nasty New Labour was, but this blog is supposed to be about energy and climate policy so I will just finish off by saying that many of the worst aspects of the last government was its reliance on "spin" - everything was done for show. Unfortunately the "Heir to Blair" has some of the same faults which is why his policies on everything from climate change to same-sex marriage are designed to "detoxify" the Tory Party, i.e. to appeal to the sort of people who approved of all the vices of the previous government.

Jun 25, 2012 at 9:27 PM | Unregistered CommenterRoy

In the LSE policy brief they state that when windmills contribute 20% of total demand, only 20% fossil (that has to be OCGT gas) backup capacity is required. Looking at the windmill contribution today: for more than 8 hours less than 5% of the installed capacity is being delivered. It happens a lot, just look at recent history.

How can only 20% backup of the installed capacity cope with this? The UK National Grid will just blow up, or segments have to be shut down. A "smart grid" cannot create energy from its presumed intelligence. Interconnection does not help; when the wind does not blow very hard all over the UK, it does not blow very hard in France or the Netherlands either, where presumably wind energy also would have to be installed to meet these famous EU targets.

The only way to make wind energy work is with 100% backup, as soon as contribution is more than 10% of the total demand. And when you have to have 100% gas backup, it is much cheaper to do away with the windmills.

The Grantham Institute is doing cherry picking. They are economists, have no insight in technology, just listen to what consultants tell them. Politicians may believe that when a law has been passed, reality changes. However....

Jun 25, 2012 at 9:39 PM | Unregistered CommenterAlbert Stienstra

I can't wait for the day when the ATM's shut down because the wind isn't blowing and the sun ain't shining.

Jun 25, 2012 at 11:35 PM | Unregistered CommenterBilly Liar

The crime of talking about back up for wind is that yes, the cheapest option is gas but you can not use the current highly efficient gas turbine plants because you can not just start them up and shut them down. You would have to build or utilise older single cycle plants that are much more costly to run.

Jun 25, 2012 at 11:41 PM | Unregistered CommenterDung

I also eagerly await the day when the UK government wishes* they'd bought 'power by the hour' and sold the maintenance costs of offshore windmills to the contractors who sold them the windmills with extravagant claims.

(* Not that they ever will, of course, but the tax payer will)

Jun 25, 2012 at 11:43 PM | Unregistered CommenterBilly Liar

@Roy,

Have you come across Thomas Sowell's thinking ? He describes a liberal elite who base their policies on self-regard instead of evidence or rational arguments.

The blurb of his book "The Vision of the Anointed"...

"Sowell presents a devastating critique of the mind-set behind the failed social policies of the past thirty years. Sowell sees what has happened during that time not as a series of isolated mistakes but as a logical consequence of a tainted vision whose defects have led to crises in education, crime, and family dynamics, and to other social pathologies. In this book, he describes how elites—the anointed—have replaced facts and rational thinking with rhetorical assertions, thereby altering the course of our social policy."

It's worth pointing out that most of the House of Commons would feel comfortable in the US Democratic Party - Cameron included.

Jun 25, 2012 at 11:55 PM | Unregistered CommenterJack Hughes

Levelise = fiddle.

It reminds me of talk of business decisions taken in reference to the appropriate business model. i.e. a scheme and assumptions congenial to whoever wanted to get their way, and generally, they selected the business model to suit rather than external realities.

Jun 25, 2012 at 11:56 PM | Unregistered Commentercosmic

From the Ecclesiastical Uncle, an old retired bureaucrat in a field only remotely related to climate with minimal qualifications and only half a mind.

I looked up levelized cost and found that it is jargon for the sort of calculation that is routinely required ahead of any infrastructure development. A quite unexceptionable procedure.

Of course, calculations can be done on the basis of complete or a cherry-picked set of criteria. None of the financal analysts I ever encountered would be fooled however, by the sort of cherrypicking demonstrated in the Bishop’s quote.

Looks to me like those writing these pieces have an agenda that differs from finding out what should be done to produce the cheapest power. In the world I am no longer part of, presentation of such work would have resulted in instructions to do it again without extra payment or the termination and replacement.

If the Government were really doing its stuff as it should, it would not approve Such calculations. In the superheated environment that surrounds energy policy, however,political considerations have come to outweigh the cost of energy to the public and the calculations get given consideration they do not deserve..

Oh1 for a non-political world!

Jun 26, 2012 at 6:04 AM | Unregistered CommenterEcclesiastical Uncle

Wind is currently contributing only 170 MW to a UK overall 30 GW demand: link. That's 0.6% - essentially nothing despite all the investment in and subsidy of wind energy. (Coal is contributing 44%.) Such failure is by no means uncommon and, especially in periods of high atmospheric pressure - such as the very cold period in February when electricity demand was particularly high - can last for several days. The Grid can cope when wind represents only 5% of theoretical supply. But that won't be true when, as is planned, wind energy represents a far greater share of our electricity supply. Then we will face power outages and, in a modern economy, power outages are very dangerous. People will die. The solution is the provision of backup. But, as Albert Stienstra and Dung have noted, that can in practice be provided only by old technology open-cycle gas plants; these are costly to run, especially when they have to be turned on and off. That's why calculations based on costs per kWh are misleading and make intermittent wind power look cheaper than it really is. The only sensible option is to forget wind power, invest in modern gas turbine plants (which incidentally, as well as being cheaper to run, emit less CO2 that OCG plants) and forget wind turbines.

Unfortunately, our politicians don't seem to be interested in sensible solutions.

Jun 26, 2012 at 7:00 AM | Registered CommenterRobin Guenier

I notice that even on this blog we sometimes fall into the trap of highlighting that certain energy solutions have lower CO2 emissions than others. I hardly dare say it, but for me the only sense in taking CO2 emissions into account used to be as a measure of dependence on fossil fuel coming from unstable areas like the Arabian peninsula. However, with gas that need not be an issue anymore, even in the UK. It is just a political decision to develop shale gas or not. In any case, the USA appears to have a lot of it.

CO2 emissions in themselves are not a problem. Since the end of the LIA the slowly warming oceans are releasing CO2, causing the concentration in the atmosphere to go up. However, even if the temperature shows sudden drops like in the 70-ies, there is no change in the CO2 rise. Of course not, brief temperature changes have no effect on the oceans, those enormous reservoirs of water with high heat capacity. The measly anthropogenic CO2 emissions are orders of magnitude smaller than the natural emissions and assimilations.

Jun 26, 2012 at 9:00 AM | Unregistered CommenterAlbert Stienstra

Jun 25, 2012 at 11:35 PM | Billy Liar
In Alex's nirvana that might be quite soon. :-)
Sandy

Jun 26, 2012 at 9:03 AM | Unregistered CommenterSandyS

[Snip O/T]

Jun 26, 2012 at 9:19 AM | Unregistered Commenterspartacusisfree

Albert:

The only reason (from my perspective) for "highlighting that certain energy solutions have lower CO2 emissions than others" is because our "leaders" think it's important. It's hard enough getting a simple message (such as the absurdity of wind power) through to them without having to persuade them of the weakness of the CAGW hypothesis at the same time.

Jun 26, 2012 at 11:09 AM | Registered CommenterRobin Guenier

The DECC definition of levelised cost (quoted above) is farcical. They are merely calculating the cost of renewable generation as seen by the owner of the renewable plant - not the costs that must be covered by consumers.

Let's look at the figures produced by the LSE's Grantham Institute, a pro wind institution if ever there was:
http://www.cccep.ac.uk/Publications/Policy/docs/PB-onshore-wind-energy-in-the-UK.pdf

They say that in 2011 the cost (capital, maintenance - the DECC definition of levelised costs) of wind is £66-93/MWh compared to gas costs of £52-74/MWh (figure 6). So the median generation costs are wind £79.5/MWh versus gas £63/MWh. Since both wind and gas stations have similar build times, and operational lives, then it seems to me that the maximum subsidy that onshore wind can justify should be about £16.5/MWh - NOT ~£45/MWh.

They go on to claim that by 2030 the median figures have changed to wind £53/MWh against gas £83/MWh indicating gas will then need a subsidy of £30/MWh. This suggests that the subsidy of onshore wind should disappear completely perhaps as early as 2018

But just to illustrate how stupid (or deliberately biased) the DECC analysis of levelised costs is, now note that on page 16 the report states:
the estimated combined costs of transmission upgrades and other flexibility measures [i.e. those need to cope with intermittancy and varaibility] related to a 30 to 64 per cent share of electricity from renewables by 2030 would be between £5 and £5.9 billion per year
If you assume a capacity factor of 25%, that adds approximately £80/MWh to the costs of onshore wind - i.e. more than doubling the cost to the consumer. Of course, the generator doesn't pay for the mitigation of intermittancy and variability - why not?

Jun 26, 2012 at 11:38 AM | Unregistered CommenterCapell

Im working on a reply to Roy and found this in todays news

http://www.mirror.co.uk/news/uk-news/david-camerons-spin-doctor-craig-940272

The Tories are generally reverting back to its traditional Conservative Blue Rinse Brigade Middle England Values.
Tories trying to shake of its original early David Cameron ,Steve Hilton Caring Tory compasionate " Hug A Hoody" and "Vote Blue To Go Green" original tag.
Aniversary of the Riots, Jimmy Carr Tax Scandal ,James Lovelock has defected to the Skeptic Side And with the Levison Enquiry Rupert Murdock is no longer the Chief King Maker
Mayor Boris Johnson and Chancilor George Osborne eventually challenging Cameron for the Tory Leadership.
The Coalition will have to cut Public Spending .The UK will have to have Greek style Austerity
That also means public spending cuts on Wind Turbines.

Jun 26, 2012 at 11:54 AM | Unregistered CommenterJamspid

Robin Guenier: "And power outages are extremely dangerous. For example, few people appreciate the fragility of a modern city: in periods of extreme heat or cold, it’s electricity that prevents death and disaster."

A case in point; a couple of years ago, there was a brief power cut in my area (only for about an hour) which caused wider problems for a longer period, chiefly due to the fact that it knocked out a water pumping station. Even after the power was back, there was no water coming through the taps until late in the evening.

Brings home the real meaning of Earth Hour..

http://teddingtontown.co.uk/2010/06/23/teddington-hit-by-west-london-power-cut/

Jun 26, 2012 at 12:30 PM | Unregistered CommenterAlex Cull

Solar, wind, tidal etc., the corporations that profit from "renewable" energy installations, they are just as capable of behaving badly as is "big oil" or, indeed, "big" anything else, or "little" anything else.

Jun 27, 2012 at 2:50 AM | Unregistered Commentermichael hart

Hmm, Could.

I could turn into a fire breathing dragon by 2016.

I also could become the richest person in the world by 2016.

Our good host COULD become the head of the EU.

Lots of things COULD happen. The very word means you leave the realm of what is likely to happen and wander off into the world of fantasy and speculation. But particularly the world of fantasy. COULD doesn't have to be anything anywhere in the realm of reality.

So going back to that second quote.wind COULD become competitive by 2016. Pardon me I'm going to go curl up in the corner over here and laugh myself silly now.

Jun 27, 2012 at 3:34 AM | Unregistered CommenterLamontT

If a private sector operator induced people to invest their money based on this definition of cost, they would be liable to both criminal and civil prosecution for misrepresentation and fraud.

Why are they so scared of using the accounting principles that are required to justify expenditure in the real world?

Jun 28, 2012 at 1:40 PM | Unregistered Commenterjohanna

Readers may be interested in <A href="http://www.templar.co.uk/downloads/Renewable%20Energy%20Limitations.pdf"> this

A deconstruction of the real issues and costs of 'renewable' energy.

Nov 11, 2012 at 4:52 PM | Unregistered CommenterLeo Smith

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