Harrison, Gareth

Thomson, R. Camilla

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     Edinburgh Research Explorer                                      Costs of Offshore Wind PresentationCitation for published version:Thomson, RC & Harrison, G 2016, 'Costs of Offshore Wind Presentation' 2016 International Offshore WindPartnering Forum, Newport, Rhode Island, United States, 2/10/16 - 5/10/16, .Link:Link to publication record in Edinburgh Research ExplorerDocument Version:Other versionGeneral rightsCopyright for the publications made accessible via the Edinburgh Research Explorer is retained by the author(s)and / or other copyright owners and it is a condition of accessing these publications that users recognise andabide by the legal requirements associated with these rights.Take down policyThe University of Edinburgh has made every reasonable effort to ensure that Edinburgh Research Explorercontent complies with UK legislation. If you believe that the public display of this file breaches copyright pleasecontact openaccess@ed.ac.uk providing details, and we will remove access to the work immediately andinvestigate your claim.Download date: 23. Oct. 2019R Camilla Thomson and G P HarrisonInstitute for Energy Systems, School of Engineering, University of Edinburgh5th October 2016Photograph by Andy Dingley via Wikimedia CommonsCosts of Offshore WindIntroduction• Understanding the economics of offshore wind is essential, but there is a diversity of views.• Types of cost:• CAPEX – typically high for renewables;• OPEX – typically high for fossil/nuclear;• Decommissioning – typically high for nuclear.• Levelised cost of energy (LCOE) avoids limitations of looking at only one of the above.• System costs are usually excluded from LCOE, but include:• Costs of balancing the system to cope with variable output• Costs of providing ‘backup’;• Cost of additional transmission and associated losses.LCOE – IEA methodWhere:• C is the capital cost (£); • O is operations and maintenance (O&M) cost (£); • F is fuel cost (£); • D is the decommissioning cost (£); • E is the electricity produced (MWh); • r is the discount rate (%); • t is the year in which a cost occurs during the project lifetime T. ∑∑+++++= TtttTttttttrErDFOC)1()1(LCOESources of variation∑∑==+−++×−++×−+×= TttetTttetttttrTaxErDepIntTaxDFOTaxCe11)1()1()1()()()1(LCOELCOE – Full cash flow methodWhere:• e is the proportion of the project funded by equity; • re is the return on equity; • Tax is the tax rate; • Int is the interest paid on the loan;• Dep is depreciation.Capital Cost• 60 to 80% of total life cycle costs• Largest proportion due to labour costs– Particularly manufacture of carbon and glass-fibre rotors• Significant fluctuations due to commodity prices, year, site conditions, etc.45%24%19%3%2%7%Typical breakdown of costs (Source: MottMacdonald, 2011)Turbine FoundationElectrical DevelopmentInsurance Contingencies010002000300040005000600070008000Capital cost ($2011/kW) Summary of CAPEX estimatesOPEX & Decommissioning• Operating cost is less significant than capital cost• Typically expressed as fixed and/or variable components:– Fixed annual cost as proportion of capital cost (%)– Fixed annual cost per unit of capacity (£/kW/yr)– Variable/levelised cost per unit production (£/MWh)• 16 to 35% of LCOE• Higher more recently– Greater experience and recognition of challenge– Further offshore and deeper• Decommissioning costs are largely neglected:– Discounted value low– Costs assumed equivalent to salvage value050100150200250300350400450500550LCOE ($2011/MWh)Summary of LCOE estimatesSensitivity to Capacity Factor05010015020025030035040045050030% 32% 34% 36% 38% 40% 42% 44%LCOE ($2011/MWh)Capacity FactorSensitivity to Discount Rate0501001502002503003504004505004% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14%LCOE ($2011/MWh)Discount Rate Comparison with other technologies050100150200Offshore wind Onshore wind Solar PV Biomass Gas CCGT Coal NuclearLCOE ($2015/MWh)Source: Bloomberg New Energy Finance, 2015. Wind and solar boost cost-competitiveness versus fossil fuels, Press Release, October. Comparison with other technologies050100150200250300350400450500550OffshorewindOffshorewind reviewOnshorewindSolar PV Biomass Gas CCGT Coal NuclearLCOE ($2015/MWh)Source: Bloomberg New Energy Finance, 2015. Wind and solar boost cost-competitiveness versus fossil fuels, Press Release, October. Outlook• Bloomberg’s findings support the established expectation that costs will come down and performance will increase with time.• Two approaches for forecasting costs:– Technical engineering assessment– Extrapolation using experience curves• Available literature suggests a generally downward cost trend for most technologies, despite move to more challenging sites, due to:– Erosion of ‘market congestion’ premiums– Larger turbines allowing new low-mass generator designs, fewer foundations for a given capacity and higher capacity factor– Larger farms allow sharing of infrastructure– Move to HVDC reducing number of subsea cables– Improvement in foundation design and manufacture– Improvements in installation and maintenance requirements and supplier capabilitiesSystem CostsCost component Range ($2011/MWh)Balancing costs 3 – 11Backup costs 0.3 – 0.8Transmission costs 8 – 16Total ‘system’ costs 11 - 28• The impact of wind on other generators and the system is generally excluded from LCOE calculations• There are suggestions that system costs of offshore wind increases the apparent cost by 30 to 45%• System costs include:– Costs of balancing the system to cope with variable output– Costs of providing ‘backup’; ensuring generation can meet demand– Cost of additional transmission and associated lossesSystem CostsCost component Range ($2011/MWh)Balancing costs 3 – 11Backup costs 0.3 – 0.8Transmission costs 8 – 16Total ‘system’ costs 11 - 28• There is no disagreement that such costs exist, but little agreement as to their value (IEA, 2010)• Literature suggests that balancing costs are likely to be lower in larger markets• Backup costs are overstated due to a partial understanding of the system• Transmission costs are more challenging to estimate.Conclusions• There is scope for large variations in LCOE estimates for offshore wind power, most significantly from:– Capital cost of turbines– Capacity factor– Discount rate• System costs are normally not considered, but where they’re included they’re often overestimated.• System costs arising from accommodating wind do exist, but at relatively modest levels. • Levelised costs for offshore wind are currently higher than other forms of low carbon generation; however, there are very substantial potential cost reduction opportunities. www.climatexchange.org.uk@climatexchange_THOMSON, R. C. & HARRISON, G. P., 2014. “Life cycle costs and carbon emissions of offshore wind power”. ClimateXchange.References• ARUP 2011. Review of the generation costs and deployment potential of renewable electricity technologies in the UK. Department of Energy and Climate Change.• BLANCO, M. I. 2009. The economics of wind energy. Renewable and Sustainable Energy Reviews, 13, 1372-1382.• BLOOMBERG NEW ENERGY FINANCE, 2015. Wind and solar boost cost-competitiveness versus fossil fuels, Press Release, October.• CCC 2011. The Renewable Energy Review. Committee on Climate Change.• CROWN ESTATE 2012. Offshore Wind Cost Reduction Pathways Study. Crown Estate.• DECC 2012. Electricity Generation Costs 2012. Department of Energy and Climate Change.References• DECC 2013. Valuation of energy use and greenhouse gas emissions for appraisal - Tables 1-20: supporting the toolkit and the guidance. Department of Energy and Climate Change.• FRAUNHOFER ISE 2013. Levelized cost of electricity renewable energy technologies. Germany: Fraunhofer.• GIBSON, C. 2011. A Probabilistic Approach to Levelised Cost Calculations for Various Types of Electricity Generation. Institution of Engineers and Shipbuilders in Scotland (IESIS).• GROSS, R., HEPTONSTALL, P., GREENACRE, P., CANDELISE, C., JONES, F. & CASTILLO, A. C. 2013. Presenting the Future: An assessment of future costs estimation methodologies in the electricity generation sector. UK Energy Research Centre.• HEPTONSTALL, P., GROSS, R., GREENACRE, P. & COCKERILL, T. 2012. The cost of offshore wind: Understanding the past and projecting the future. Energy Policy, 41, 815-821.References• IEA 2010. Projected Costs of Generating Electricity - 2010 Edition. International Energy Agency.• IRENA 2012. Renewable Energy Cost Analysis - Wind Power. International Renewable Energy Association.• JRC, 2015. 2014 JRC wind status report – Technology, market and economic aspects of wind energy in Europe. European Commission.• LEA, R. 2012. Electricity Costs: The folly of wind-power. London: Civitas.• MILBORROW, D. 2013. Wind energy costs bring more projects into profitability. Windpower Monthly, 41306.• MOTT MACDONALD 2010. UK Electricity Generation Costs Update. Department of Energy and Climate Change.• MOTT MACDONALD 2011. Costs of low-carbon generation technologies. Committee on Climate Change.References• POYRY 2013. Technology Supply Curves for Low-Carbon Generation. Committee on Climate Change.• ROYAL ACADEMY OF ENGINEERING 2014. Wind Energy: Implications of large scale deployment on the GB electricity system. Royal Academy of Engineering.• SCHWABE, P. 2011. IEA Wind Task 26: Multi-national Case Study of the Financial Cost of Wind Energy. NREL/IEA.• STRBAC, G., SHAKOOR, A., BLACK, M., PUDJIANTO, D. & BOPP, T. 2007. Impact of wind generation on the operation and development of the UK electricity systems. Electric Power Systems Research, 77,1214-1227.• TAYLOR, G. & TANTON, T. 2012. The Hidden Costs of Wind Electricity: Why the full cost of wind generation is unlikely to match the cost of natural gas, coal or nuclear generation. Washington, DC: American Tradition Institute: Center for Energy Studies.• TEGEN, S. 2013. 2011 Cost of Wind Energy Review. NREL.

Costs of Offshore Wind Presentation

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Costs of Offshore Wind Presentation

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