Wind-Economics: Gas prices up, nuclear down

WORLDWIDE: Movements in the price of gas and nuclear power affect the competitive position of wind and need to be monitored.

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Of the renewable energies, solar photovoltaics is now the principal competitor, although generation costs are generally more expensive, at present.

End of fracking boom

Three recent reports, from different sources, suggest that the shale oil and gas boom may be running out of steam, as the life of many of the wells is quite short. Last October, Bloomberg Businessweek reported on the slowdown from a typical well, which was producing 1,200 barrels a day in 2009, and by last year was producing only 100.

Lord Browne, chairman of drilling company Cuadrilla, pierced a hole in the fracking bubble, when he affirmed that fracking would not result in lower gas prices, although he said it would be a cheaper energy source than nuclear.

These messages are reinforced in a third report that the average price of gas in America in 2014 is likely to be 27% higher than in 2013. This comes from the Department of Energy's Energy Information Administration, which has also raised its gas price estimates for future years

Nuclear costs reconfigured

A potential fall in the generating cost of nuclear in some states in America is due to changes in accounting techniques, rather than any reduction in capital costs. The US-based Nuclear Energy Institute, in its White Paper Construction Work in Progress: an Effective Financial Tool to Lower the Cost of Electricity, argues that utilities could be allowed to charge the costs incurred during construction to consumers, rather than waiting until the plant is completed. These interest charges can add as much as 20-30% to the cost of a nuclear power plant but if utilities can charge consumers during construction, then these substantial costs could be avoided.

Major utility American Electric Power is supportive of the concept, noting on its website that "(state) commissions are becoming more amenable to the concept". The effect on generation costs is quite significant; in the example quoted by the Nuclear Energy Institute, generation costs come down from $104/MWh to $85.7/MWh. However, only a few US states allow the practice at present, including Georgia, South Carolina, Maine and Florida.

EU figures in the spotlight

The ongoing debate over the relative costs of renewables and nuclear came into focus in May, when Greenpeace suggested that the European Commission may have overestimated the cost of both solar and wind in an important paper that goes before European policymakers in the summer. They will be discussing 2030 climate and energy targets, with a decision due in October.

The commission's impact assessment is based on the EU Energy, Transport and GHG Emissions Trends to 2050: the EU Reference Scenario 2013 report.

The capital costs of solar, wind and nuclear that were used to derive the EU estimates of generation costs are shown in the chart (below). The 2015 cost for nuclear is about EUR 4,600/kW, which is about 10% cheaper than the quoted cost of the UK's proposed Hinkley Point C power station. It falls to EUR 4,350/kW by 2020, although this is presumably dependent on further power-station orders being placed by this time.

Greenpeace and the Swedish Wind Energy Association have both queried these figures, with the latter noting that the load factor assumed for nuclear (90%) is significantly higher than actual performance data quoted by the International Atomic Energy Agency.

Offshore wind costs are put at EUR 4,500/kW in 2015, falling to EUR 2,900/kW by 2050. Onshore wind costs fall slowly, from EUR 1,300/kW in 2015, to EUR 1,150/kW in 2050. Solar PV costs are at just under EUR 2,000/kW in 2015 and start to fall below onshore wind after about 2025. This does not mean the generation costs of PV will necessarily be lower than those of wind, as the load factor of PV installations is generally lower than that of wind.

Wind taking top spot

The EU analysis suggests that wind will overtake nuclear as the biggest single source of electricity generation between 2035 and 2040. By 2050, the scenario suggests wind will generate 1,073 TWh, compared with 924TWh for nuclear. The estimate for solar is 346TWh. The corresponding estimates of capacity are similar to the more cautious estimates of the Global Wind Energy Council. Both organisations suggest the growth rate for wind in the decade from 2010 to 2020 will be about 12%, but will fall to about 5% in the following decade. This slowdown may also mean that prices fall more slowly.

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