The Saudi Arabia of....

I’ve heard about things being the Saudi Arabia of various kinds of energy too many times.  Let's analyse that statement:

Saudi produces around 10 million barrels of oil a day - and a barrel of oil contains around 6 GJ.

Let's put that in scientific notation, as the zeroes will get away from us:

10^7 barrels at 6*10^9 J = 6*10^16 J/day.

Over one year, that equals 365 * 6*10^16 = 2.2 * 10^19 J/yr

Now let's look at wind farms:  a 1GW Wind farm, operating at a capacity factor of (let’s be generous) 50%, over a year produces 8760 * 60 * 60 * 50% * 10^9 = 16 * 10^15 J/yr = 1.6 * 10^16 J/yr

Roughly speaking, dividing 2.2 * 10^19 by 1.6 * 10^16 = about 1400.

So we need 1400  x 1 GW wind farms to be energy equivalent to Saudi Arabia.  With 12 GW already installed in Europe, and plans to get to around 230 GW by 2030, we're a long way off.  And as for the tidal energy claim, I think it only stands up if we consider it a commentary on concentration of resources, not absolute levels.

LCOE - why it's unfair on renewables technologies and how wind is cheaper than you think

I've been playing around with Levelised Cost of Energy and have seen that some arbitrary choices in its application can unfairly discriminate against renewables projects.  Renewables projects are long term and have low operating costs, and high capex, whereas conventional thermal projects have lower capital cost as a proportion of total costs, and higher operating costs (because of their fuel costs).

LCOE is conventionally calculated as NPV(costs)/NPV(energy) - the discounted sum of costs divided by the discounted total energy production.  Hidden within this are two critical factors - discount rate, and inflation rate.  There's a third one, too, which is a bit more difficult to handle - uncertainty in fuel gas prices.

LCOE is usually calculated without any inflation and BEIS' most recent Electricity Generation Costs report applies a discount rate of 7.8% to gas, but 8.9% to offshore wind.  On this basis, BEIS has CCGT's LCOE (exceeding carbon taxes) at £47/MWH, and offshore wind at over £100.

It gets interesting when you scale back the offshore wind costs, to get an LCOE equal to the recent strike prices under CfD2 of £57.50.

Inflation
Current HMG inflation forecasts are about 2-3% - and it seems that adding inflation at 2% to the BEIS figures increases the CCGT LCOE to £60/MWh and the offshore wind one to £64/MWh - a much closer gap.

Discount rate
Given that the revenue risk in offshore wind CfD projects is much mitigated by the CfD (and its Government backing), and there is real variability in future gas prices, it seems reasonable to use the same discount rate for CCGT and offshore wind.  Especially if the offshore wind develop can mitigate capex risk through its contract structure.  At the same discount rate, the offshore wind LCOE (in an inflation free work) falls from £57.50/MWh to £54/MWh.

Combination
If you accept my points on both inflation and discount rates, the LCOE's for the technologies align at £60/MWh!

And that's before you consider the fuel price risk faced by CCGT projects (or the intermittency of offshore wind, to be fair).

But this does suggest that offshore wind isn't just miles cheaper than nuclear, it's also competitive with the backbone technology of CCGT!

ITES 2017

Busy this week attending the International Tidal Energy Summit. Ambitious title, but legitimate, because there are developers here from Scotland , Spain, United States and Wales.

There’s lots of discussion about how to reduce levelised cost of energy and whether it’s best to start small and innovate quickly or go large soon. 

What do you think?