EC Harris has also published an expert article entitled 'An Holistic view of value drivers will improve the return on investment for offshore wind farms'.
'The cost of delivering offshore wind projects is rapidly reaching £3.8 million per megawatt; at a time when investors are looking for costs of £2 million per megawatt to allow a viable return on investment. It will be a huge task to reduce costs by almost 50% when there is significant cost pressure due to market immaturity and supply chain inefficiencies.'
In this article they note, from their cross sector experience, that reducing costs is not the only way to improve the return on investment although it is still a very important one.
'The three main levers that can be pulled are the optimisation of generation, the impact of the prevailing tariff system and timely and efficient connection. All of these factors need to be addressed if the industry is to be successful in providing a viable return on investment.'DECC UK Electricity Generation Costs update
On Tuesday this week I attending a seminar by Dr Guy Doyle (Chief Economist, Energy and Carbon at Mott McDonald) who was presenting the findings contained within the Department for Energy and Climate Change (DECC)'s June 2010 update on the UK's Electricity Generation Costs. This was an interesting presentation on levelised costs, the lifetime discounted cost of an asset expressed in cost per unit energy produced, for a range of main technologies. This report is one that has been regularly updated and records and forecasts the levelised costs for projects started in 2009, 2013, 2017, 2023.
The forecasts take into consideration a range of factors such as a DECC view of the accelerating higher forward costs of carbon (central projection assumed to rise to £200/tonne in 2050 vs £30/tonne by others - today it is circa £12/tonne) and a Mott McDonald view on the technology progress and First of a Kind (FOAK) premiums.
'For most mature technologies the main drivers of costs are market conditions and commodity prices, with some discounting for installations with multiple units. For these technologies, the main scope for technical progress is in the application of best practice construction management. Even though the UK has yet to build an advanced supercritical coal plant, there is likely to be comparatively little difference (less than 10%) between the first of a kind (FOAK) and the nth of a kind (NOAK) plant. CCGT (Combined Cycle Gas Turbine) technology is already at the NOAK level, as is onshore wind. Offshore wind still has some significant learning, especially in the area on cost effective foundations/anchoring and in reducing maintenance and servicing costs. Moving to deeper water and further offshore means wind faces a moving target as this tends to require new untried technical solutions.
Third generation nuclear plants and especially CCS are at an earlier stage, although for the former there are probably easier wins to be had in terms of improved project management than in technology changes.'The resultant projections are interesting when taken in the context of the two EC Harris articles, the anticipated investment in Crown Estate and Scottish wind programmes and the Energy Technology Institute's 2010 Marine Energy Technology Road Map. I have included 2009, 2013 and 2023 start dates in order to note the trends the report identifies.
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| DECC report: Levelised costs of main technologies for projects started in 2009 - mix of FOAK and NOAK (£/MWh) |
Round 3 Wind FOAK (c. £180/MWh) is not only over twice cost of Gas CCGT (c. £80/MWh) started in 2009 but is also significantly higher than the average cost of energy in generation today at £45/MWh! Even with 2 no ROC (Renewable Obligation Certificates) it must struggle to be viable as FOAK technology and will need a real focus on cost reduction, optimisation of generation, the impact of the prevailing tariff system and timely and efficient connection (see EC Harris notes above). .jpg) |
| DECC report: Levelised costs of main technologies for projects started in 2013 - mix of FOAK and NOAK (£/MWh). Round 3 wind is still over twice onshore wind (which at this stage looks to be one of the most competitive**). ** Note that grid capacity contingency measures for wind and costs for technology - surge in gas prices, nuclear incidents depressing or increasing nuclear etc - are not considered in levelised generation cost assessment. |
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| DECC report: Levelised costs of main technologies for projects started in 2023 - all NOAK (£/MWh) |
The report also notes that in minor technologies CHP is phenomenally attractive - if there is a market for the steam once the avoided fuel and carbon costs are taken into consideration.
There are plans for up to 10GW of biomass plants and although considered a 'minor technology' these would make a significant contribution.
Energy Service Companies (ESCOs) have not developed as fast as expected in UK but as they do access to best value solutions should become easier.
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| DECC report: Levelised costs of minor technologies for projects started in 2009 (£/MWh) |
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| DECC report: Levelised costs of minor technologies for projects started in 2023, 10% discount rate, all NOAK (£/MWh) |
ETI publishes Marine Energy Technology Roadmap 2010
05/10/2010 17:55:47
The ETI, in conjunction with the UK Energy Research Centre, has published a roadmap identifying the key issues faced by the marine energy sector.
DECC Energy trend articles (October 2010):
- Combined Heat and Power in Scotland, Wales, Northern Ireland and the regions of England in 2009[filetype:pdf filesize: 540.9Kb]
- Renewable electricity in Scotland, Wales, Northern Ireland and the regions of England in 2009[filetype:pdf filesize: 337.55Kb]
- Estimates of heat use in the United Kingdom[filetype:pdf filesize: 130.85Kb]
