What's the best energy source? At the end of 2021, I set out to
answer that question in a video on how to calculate the cost of
energy from different sources. And I used a car race metaphor
to illustrate the different components that make up that
cost :construction, financing, fuel and operations and
maintenance. I got a ton of comments asking me to include
more information. And so, this is that update. By popular
request, I've added nuclear and geothermal power in addition to
coal, gas, solar and wind that were in the original video. And
we'll rerun the car race using data from Lazard's latest
levelized cost of energy report to see which of the six
generation types comes out cheapest. Then in the second
half of the video, we'll look at another topic that came up a lot
in the comments of the previous video. What are the assumptions
behind the cost calculations? Do they include subsidies? The cost
of firming renewables with energy storage or transmission
that would need to be added? The short answer to that is no.
Those generally aren't included in standard LCOE calculations
and they weren't in the first video, but in this video, we'll
look at the effect of subsidies and how much it would cost to
add storage and transmission to enable a stable and reliable
electricity grid with a lot of wind and solar in it. I need to
thank my friend John Poljak, who runs the website Keynumbers for
doing the calculations for this video for me using the data from
and similar assumptions to Lazard's Levelized Cost of
Energy Version 15.
I'm Rosie Barnes, welcome to Engineering with Rosie.
Alright, so to start, let's go back to the racetrack to see how
the start grid is looking. We've now got six cars on the grid,
nuclear and geothermal in addition to coal, combined cycle
gas, onshore wind and utility scale solar. The grid position
is decided by the cost to build 500 MW of capacity. In the
previous four way race, solar at $400 million per 500 MW took
pole position followed by gas then wind then coal way back at
$3.1 billion. Where does geothermal and nuclear fit in?
500 MW of geothermal power generator costs about $2.8
billion, a little cheaper than coal. And nuclear, well, 500 MW
of nuclear comes in at $6.4 billion it is just incredibly
expensive to build a brand new nuclear power plant though they
do last a long time, which we'll factor in later. So nuclear
takes last place on the grid, which remember is just how much
it cost to install 500 MW of capacity. So nuclear, coal and
geothermal have the most expensive equipment, they've got
a bit of a handicap to start with, but maybe they can make it
up later as we add in the effects of lifetime production,
finance costs, fuel and maintenance. So that's the
starting grid sorted. Now Ladies and Gentlemen, start your
engines!
To get the race started, we're going to move from the capacity
of each power plant to the actual energy it produces in its
life. That's a function of how long the plant is expected to
last and how much it produces on average, its capacity factor.
Nuclear power plants have the highest capacity factor of the
techs in our race at 89%. That means a 1 GW nuclear power plant
on average generates 890 MW and nuclear power plants lasts a
long time too, 40 years. Geothermal also has a high
capacity factor at 80% but a shorter expected life of 25
years. Compare that to the more mainstream energy techs with 66%
capacity factor for coal and only 23% for solar and a 40 year
life for coal down to just 20 years for gas and wind turbines.
So combining lifetime and capacity factor we get a cost
per MWh based purely on how much the equipment cost and how much
electricity it will produce in its lifetime. Is that high
capacity factor and one lifetime enough to see nuclear catch up
to the other technologies.? No, it is not. Nuclear has caught up
a bit but it still sits in last place by a while. At the front
of the race, solar is still in first place but gas has caught
up nearly leveled to the lead and coal with its relatively
long lifetime has snuck ahead of geothermal, for now.
The next corner sees financing costs added. How much it costs
the developer to get the money it needs for the project, we use
the same cost of capital for all technology types, 7.7%. And then
what differentiates a projects is the lifetime of the project.
At the front of the race gas is pulled in front of solar to lead
the race and at the back we see geothermal re-overtake coal and
nuclear, nuclear is falling further behind.
Let's see what happens when we get to the next corner, fuel
costs. Only gas, coal and nuclear need to pull in for
refueling pitstop, renewable energies wind, solar and
geothermal just keep going. Gas prices have been crazy recently,
but we're not going to worry about that for now. We'll use
long term averages here. Coal is normally about $17/MWh produced
and gas $24 and uranium while super expensive per kilo
compared to coal and gas. It's actually a lot cheaper per MWh
at $9 because it's extremely energy dense compared to fossil
fuels. Refueling has really shaken up the race order, wind
and solar have pulled ahead of gas but geothermal didn't quite
catch up and nuclear gets closer to coal but didn't manage to
overtake and it still sits in last place.
The final corner is operations and maintenance. All the thermal
generators: coal, gas, nuclear and geothermal have a variable
component to their maintenance costs, which depends on how much
they generate and all technologies have fixed costs
for operations and maintenance. Geothermal has the highest O&M
costs mostly due to its much higher variable maintenance cost
and solar has the lowest O&M.
So where do we end up after all that? crossing the finish line
in first place is... still solar, followed by wind and gas
to round out the podium exactly the same as in the first version
of this video. But geothermal has cheaper energy than coal.
And nuclear? Well, nuclear is way off the back, everyone else
has pretty much gone home already by the time that nuclear
crosses the line. So that is the cost of electricity from those
six sources.
The input data that we've used here is from Lazard, they are US
figures intended to create a power plant model representing
an illustrative project for each relevant technology. And I'll
put the link in the description so you can read all their
assumptions. There are LCOE calculations for a wider range
of countries put out by IRENA every two years and by IEA every
five years. And of course, the values will be different for
different countries. Obviously, a solar panel in Australia will
be more productive than a solar panel in Denmark and the
opposite for wind turbines in those two places, then there
aren't suitable geothermal resources everywhere you might
like to use it. And even coal power plants can get lower fuel
costs if there's a coal mine like right next door. And as so
many people commented in the previous video, LCOE can be
useful, but it definitely doesn't tell the whole story. It
excludes so many factors that are needed if you're trying to
make a decision about a specific energy project. In the previous
video, I talked about the value of electricity using VALCOE
(Value Adjusted LCOE) and showed that solar power tends to be
less valuable than other sources, as all solar in a
region will generate at the same time, and that peak doesn't
usually match when peak demand is. And that's the reason why
anyone bothers to build a gas peaker plant, which is much less
efficient than combined cycle gas turbines, but their
flexibility means they generate electricity when it's more
valuable.
Let's talk about some of the other important information that
the LCOE values in our car race leave out. There are so many,
I'm just going to focus on the ones that were commented on in
that first video that I made. The most common comment was
probably the topic of subsidies, we use the Lazard data in our
car race, and it's supposed to give unsubsidized cost but
subsidies aren't always that easy to identify. Governments
give out subsidies for all kinds of different energy sources.
Sometimes they are direct subsidies like tax credits,
grants and loan programs or indirect support, such as feed
in tariffs or renewable energy certificates. But sometimes
they're harder to spot like governments building roads, or
rail or port infrastructure or the way that the external
environmental and health costs of burning fossil fuels are not
included in their LCOE.
An`d then there is the topic of energy storage. Renewable
energies, like wind and solar are intermittent. So they need
some kind of backup or long term storage to be able to reliably
provide electricity when it's needed. And traditional nuclear
power plants are baseload power sources that provide constant
energy independent of the weather, but they can't turn on
and off quickly. And so they need to be combined with
flexible generation like gas peakers or batteries.
The other issue people mentioned was the cost of grid connection
and transmission, which can add a lot to project costs for
generators in remote locations like wind tends to be. If those
costs aren't included in the LCOEs, then they're not really
representative of the total cost. Furthermore, if
governments pay for new transmission, or pay backup
generators or storage to be available, when wind and solar
aren't, then that could be seen as a kind of subsidy to
renewables.
So this was another topic that was much commented on in the
past video, it's not a fair race if we ignore the extra cost of
adding storage and transmission, but it is not so easy to come up
with a value adding a bit of rooftop solar when it's only a
few percent of total generation doesn't really add any cost. But
when variable renewable proportions get really high, and
when a lot of new generation is added far from where it can be
used, then significant costs are added. And it's obviously going
to be highly dependent on local conditions too depending on how
diverse wind and solar resources are and where they are located
in relation to load centers. And furthermore, it matters what
other generation types are in the grid. A solar-only grid is
going to take a lot more storage than one that also contains wind
and a wind-only grid would need a lot more transmission. For
Australian conditions, the Australian energy market
operator, AEMO, together with science research organisation,
CSIRO, has been putting out GenCost reports for the past few
years, which calculate LCOE for gas, coal, solar and wind. The
interesting part of that report is that for solar and wind, they
include integration costs - enough storage and transmission
to ensure a reliable grid. And they calculate it for 60% to 90%
variable renewable energy share, which in the latest report
resulted in an extra AU$16-28/MWh. Based on the
Australian values for LCOE calculated this report finds
that a reliable grid made up of 90% wind and solar combined with
enough storage and transmission still provides cheaper
electricity than gas and coal. So this will look different in
every country. And I really expect Australia to have one of
the easiest, fastest and cheapest energy transitions so
you can't really extrapolate this info on to any other
country. Places with high winter energy needs in particular will
need to add much more storage whether that's electricity or
heat or hydrogen or whatever. So it will surely cost more there.
But still, I think the GenCost report results are very
encouraging, especially if you consider that most countries
won't get to high proportions of variable renewables for a while.
Australia plans to get to 82% renewable electricity by 2030,
which includes hydro providing around 6%, probably, and the US
has a goal of 100% clean electricity by 2035, including
nuclear and hydro, which make up a little over 10% of the mix
today. The cost trajectory of renewables and battery storage
tends to be a lot faster than fossil fuels or nuclear. So by
the time we need storage and transmission for 90% variable
renewables, it will be cheaper than our current assumptions.
And one other factor to consider, it's been a wild
couple of years for fuel prices and the fuel cost us in our
calculations are starting to look very low. Depending on how
these trends play out. By the time we get to 90% variable
renewables. I don't think there'll be any penalty at all
for fully integrated wind and solar versus alternative
electricity generation in most parts of the world.
Of course, we could do this all day, play around with the
assumptions and get different answers. No doubt you have
opinions about the assumptions that I've made in this video and
ideas about what you think would be more realistic ones. And I
think that is super fun. And so I'm going to get John Poljak
from key numbers on for a livestream in about a week to
run through the key numbers for a bunch of these different
scenarios. As well as changing fuel prices to reflect the
increases over the last year or two. We might change assumptions
on capacity factor to reflect the trends towards coal plants
operating less at the time or nuclear's current lows in France
where it's currently sitting at I think something like 60%
capacity factor for 2022. Or they could change asset
lifetimes or financing assumptions, anything at all. So
if there's something specific that you'd like to see then
write it in the comments or tune in live for the livestream, I'll
put a link in the description.
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