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Outline

1. APREA project initiation and Objectives

2. BREE’s Australian Energy Technology Assessment (AETA)

-- Leveled Cost of Electricity (LCOE) in APREA, data issues

3. Cost of Renewable Integration in APREA: nature of challenges and solutions, data issues (Available international evidence)

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Initiation of APREA

• APREA was prepared at the request of the Australian Government Department of Industry to provide a summary of publicly available information on renewable electricity generation - integration and generation technology costs - across six key economies in the Asia Pacific region:

- Australian, China, India, Indonesia, Japan and South Korea.

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APREA Objectives

Tasks

1. Cost estimates, or Levelised Costs of Electricity (LCOE), for electricity generation based on renewable energy technologies

2. Technical and policy issues related to integration of renewable sources to electricity networks, and

3. Integration costs of renewable energy, if available

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Basis of study

• The study was carried out on the basis of available regional literature and databases on the costs of renewable electricity (RE) generation from renewable sources including wind, solar, hydro, biomass, and geothermal resources.

• Several international organisations, government agencies of the APREA target countries, market analysts and local experts were contacted and various publication and web-references in the target countries were used in gathering technology and country-specific existing information.

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Task 1: LCOE and Component Costs

Based on AETA 2012 for Australian technologies

• Capital Costs (local & international components)

• Operation & Maintenance (fixed and variable)

• Fuel costs (provided by ACIL Tasman for AETA project)

• Carbon sequestration and storage

• Owner’s costs

Not included are decommissioning costs or network or transmission costs

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AETA – Brief Summary

• AETA provides the best available and most up-to-date

estimate of current and future costs (component cost and

levelised costs) of a 40 electricity generation technologies.

• Component costs have been developed through a bottom-

up engineering analysis of each of the technologies.

• Parameters provided for each electricity generation

technology (capital costs, O&M costs, fuel costs, thermal

efficiency, capacity factors, emission intensity, etc.)

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AETA – Report and Model

1. AETA Report: Details the technologies and methods and provides comparisons to other studies

available at www.bree.gov.au

2. AETA Model: Downloadable model that provides component costs and levelisedcost of electricity for 40 technologies is available upon request from info@bree.gov.au

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Levelised Cost of Electricity in APREA

Information availability

• China: reasonably good coverage, though more information was desirable during the project

• Korea, Indonesia, Japan – very limited coverage

• India – medium coverage

In many cases consistent information on: capacity, capacity factors, capital costs, O&M costs, discount rates – is missing

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Information needs on LCOE componentsCapital expenditure – covers plant and equipment costs, typical electrical and site acquisition and preparation costs, and commissioning costs, etc.

O&M expenditure – covers (i) FOM costs involve direct office, labour, fixed service provider, minor spares, fixed operating consumables, fixed inspection, diagonstic and repair maintenance services costs, and (ii) VOM costs involve chemicals and operating consumable, scheduled maintenance including balance of plant, and unplanned maintenance costs.

Fuel expenditure – covers costs of fuel to generate electricity.

Discount rate – the rate at which future values are discounted or converted to a present value.

Amortisation period - the period over which a plant must achieve its economic return.

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Data sources on LCOE for APREA countries

• BNEF (Bloomberg New Energy Finance)

• IRENA (International Renewable Energy Agency)

• IEA/NEA (International Energy Agency and Nuclear Energy Agency)

• AETA (Australian Energy Technology Assessment)

• Academic peer-review literature, APREA countries stakeholders

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Problems of data consistency

• Data on construction profile was not available for any technologies in most referenced studies

• Available data sources do not provide LCOE estimates for all renewable technologies under APREA study

• Most government sources did not provide information. Japanese (METI information is in Japanese language)

• Different sources present the units of O&M costs differently. For example, some sources present O&M costs in fixed O&M ($/MW) and variable O&M ($/MWh), some presents O&M as a percentage of capital costs, and so on

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Problems cont.

• Fuel costs vary significantly by sited sources for biomass technologies within a country

• Technology capacity utilisation factor varies between reference sources for biomass within a country, resulting in a wide range of LCOE estimates by sources

• Discount rate varies by reference sources for a given technology within a country, resulting in a wide range of LCOE estimates by sources

• Amortisation period is not mentioned in some referenced sources for some technologies.

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Problems cont.

• Capital and operating costs for solar, and wave change so quickly that it is not possible to ever be definitive.

• Some new technologies have never been built at a commercial, or are not mature enough for operating costs to be known e.g. what is the real economic life vs manufacturer claims and the actual capacity factor?

• LCOE projections are underpinned by economic projections for fuel costs, exchange rates, labour rates etc which may not be as well developed in various geographies.

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Table A1: LCOE Estimates for RE Generation Technologies in China by Source

Technology &

Assumption Units

BNEF

2012

BNEF

2013c

IRENA

2013a

IEA/NEA

2010

GlobalData

2013

AETA model

BREE 2012b

Onshore

Wind

Electricity

Generation

Capital costs/Capex Million USD/MW 1.19-1.31 na 1.28 1.22-1.58 1.13 1.265

O&M costs USD/MWh na na 10 15.5-27.1 11.72 14.34

Capacity factor % 19-25 na 24 20-27 22 23

Discount rate % na na 10 10 5-8 10

Capacity MW 50 na >5 30-200 20 100

LCOE USD/MWh 46-124 na 79 72.0-125.8 53.3-66.6 90

Offshore

Wind

Electricity

Generation

Capital costs/Capex Million USD/MW 2.54 4.40 na na 2.3 3.08

O&M costs USD/MWh na 48.33 na na 21.00 34.66

Capacity factor % 30 30 na na 25 29

Discount rate % na 8 na na 5-8 10

Capacity MW 300 na na na 100 100

LCOE USD/MWh 91 - 240 177.7 na na 95.5-119.4 187

Solar PV

(fixed)

Electricity

Generation

Capital costs/Capex Million USD/MW 1.75-1.79 na 2.48 2.88 - 3.74 1.2 2.19

O&M costs USD/MWh na na 16.53 15.65-23.73 8.35 14.86

Capacity factor % 12-18 na 17.27 18 - 21 16.4 17

Discount rate % na na 10 10 5-8 10

Capacity MW 25 na 1 10 - 20 5 100

LCOE USD/MWh 99-257 na 191 186.5-282.9 69.3-86.8 184

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LCOE for various technologies

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LCOE for various technologies

• The Figure on the previous slide shows the LCOE ranges across individual country-specific sources, as well as the LCOE estimated by BREE using the Australian Electricity Technology Assessment (AETA) model in the APREA countries.

• There are significant differences in the LCOE ranges for the same technology in the APREA countries.

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LCOE for various technologies

• Electricity generation from biomass and hydro resources is relatively cheaper than the electricity from wind, solar, and geothermal resources in China, India, Indonesia and South Korea. In Australia, electricity from onshore wind appears to be the cheapest among all renewables.

• Also, the wide range of LCOE for a certain technology within a country occurs due to many factors such as: the regional costs within a country; capacity utilisation factor; financing structure; project costs; and plant size.

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Cost of a technology

• Cost of generation = LCOE + Integration cost

-- Whereas, integration of an electricity generation technology means its integration into the national electricity power systems

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Nature of integration issues

• Technical or physical challenges:- ancillary services in terms of back-up capacity;- maintaining frequency and voltage on the grid;- operational challenges: scheduling dispatch,

storage, frequency issues, etc.- inter-connector limits.• Geographic constraints: need for the new

transmission lines, and large land areas. - Forecasting ability• Financial signals and efficient generation mix

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Overall integration costs involve:

1. Grid connection/Grid extension and strengthening

2. Balancing costs - costs associated with balancing of demand and supply of electricity at any point in time

3. Adequacy costs of the power generation system

4. Forecasting capacity costs

5. Demand side management

6. Market design and management (scheduling dispatch)

7. Storage, etc.

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Solutions to balancing integration

• Enlarging balancing area

• Faster markets (sub-hourly scheduling and dispatch)

• Improved forecasting

• Storage facilities

• Increasing the share of rapidly dispatchablecapacit

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Integration costs

Grid connection – Generally renewable resources are located far from the demand centers,

compared to the conventional fossil fuel based plants

Grid extension and strengthening costs

– Ideally those costs which are associated with the renewable energy, however in practice often difficult to isolate from costs needed for overall grid extension and strengthening, including for electricity transmission generated by the conventional fossil fuel based technologies

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Integration costs

Balancing costs are the short-term operational costs that the system incurs through output variability and uncertainty:

• Reserve capacity – spinning, supplementary and replacement reserves – are required

• Intermittency of renewable energy – wind and solar in particular – creates an extra pressure on spinning reserves and ramp costs

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Integration costs

Costs of spinning reserves:– Variable renewables, such as wind and solar, are affected by the weather

patterns

– Availability of short-term reserve capacity is costly: commitment of investment and operating costs to run reserve plants comes without corresponding revenue

– Increased fuel costs as back up plants run on lower efficiency levels,

– Increased fuel savings as less fuel is consumed

Ramp Costs – Ramping up and down adds to wear and tear and leads to higher

operating costs

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Integration csotsAdequacy costs: long term costs associated with system reliability• Variable renewables cannot guarantee the same

reliability as dispatchable technologies => a need to have a ‘back up’ capacity.

• If system currently has enough capacity to satisfy demand at all times => adequacy costs in the short-run are negligible

• If new generating capacities are built to satisfy new demand => additional dispatchable units need to be provided for system reliability

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Integration costs• Balancing and Adequacy costs increase with the level of

renewables penetration• Given that variable renewables have low or zero marginal

costs, greater penetration of renewables reduces operating hours and thus the profitability of conventional plants.

To understand and quantify integration costs:- A thorough understanding of existing electricity

generation and transmission system is necessary. - Most studies use production cost modelling and

simulations

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Integration

Factors affecting Balancing and Adequacy Costs

- system flexibility,

- need for addition of transmission infrastructure and potential interconnections (to increase balancing area),

- operational changes (dispatch frequency),

- availability of advanced forecasting

- storage capacities,

- demand side management response,

specifically assessed against the desired penetration levels

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Data gaps

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IntegrationThe costs of integration, and balancing costs in particular, are relatively well understood and quantified for the USA and Europe.

Source: IEA 2011, p82

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IntegrationSome findings from the US and European studies:1. Up to 25-35% of variable renewable generation is technically

feasible with the addition of transmission infrastructure and with operational changes

2. Many studies quantified costs and benefits associated with improved forecasts, sub-hourly dispatch, strengthening of transmission lines, etc.

3. Overall balancing costs estimates range between US$ 1 MW to US$ 7 MW at 20% renewable energy penetration (see next slide)

4. Wide range of balancing costs is due to different availability of flexible resources underlying power generation mix, grid regulation, market rules, etc., - i.e. country-specific factors, thus costs need to be calculated on a case-by-case basis

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APREA Task 2 and 3: IntegrationOverall balancing costs estimates range between US$ 1 MW to US$ 7 MW at 20% renewable energy penetration.

Source: reproduced from IEA 2011, p85

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