Clean Energy Business and Policy Beijing Institute of Technology School of Management and Economics Fall 2014 Lecture #3 (Supplement): Indicators for Economic Comparisons October 25, 2014 Professor Eric Martinot
Relative Costs of Energy Form Typical International Conversion Factor Cost (US$) Price (US$) Coal $60-100/ton 1 ton coal = 30 GJ $2-3/GJ Gas $200-400/tcm 1 tcm = 38 GJ $5-10/GJ Oil $40-150/barrel 1 barrel oil = 6 GJ $7-25/GJ Electricity $0.10/kWh 1 kWh = 3.6 MJ $77/GJ Gasoline $0.70-1.20/liter 1 liter = 33 MJ $21-36/GJ Chocolate $0.50/bar 1 bar = 240 kCal $520/GJ
Cost components for various current electricity technologies a TABLE 2 Overnight Variable Heat rate costs in 2003 Fixed O&M O&M ( $ 2002 in 2003 ( $ 2002/kW) b ( $ 2002/kW) c mills/kWh) c (MJ/kWh) d Technology Scrubbed coal new technology 1,168 24.81 3.1 9.5 Integrated coal-gasification 1,383 34.11 2.07 8.4 combined cycle (IGCC) IGCC with carbon sequestration 2,088 40.47 2.53 10.1 Conventional gas/oil 542 12.4 2.07 7.9 combined cycle Advanced gas/oil combined 615 10.34 2.07 7.3 cycle (ADVCC) ADVCC with carbon 1,088 14.93 2.58 9.1 sequestration Conventional combustion turbine 413 10.34 4.14 11.5 Advanced combustion turbine 466 8.27 3.1 9.8 Fuel cells 2,162 7.23 20.67 7.9 Advanced nuclear 1,928 59.17 0.43 11.0 Distributed generation, base 813 13.95 6.2 9.9 Distributed generation, peak 977 13.95 6.2 11.0 Biomass 1,731 46.47 2.96 9.4 Municipal solid waste 1,477 99.57 0.01 14.4 landfill gas Geothermal e,f 2,203 79.28 0 39.3 Wind 1,015 26.41 0 10.9 Solar thermal f 2,916 49.48 0 10.9 Solar photovoltaic f 4,401 10.08 0 10.9 a Values in this table are from Reference 5, table 38, p.71. They are not based on any specific technology, but rather are meant to represent the cost and performance of typical plants under normal operating conditions for each plant type. Key sources reviewed are listed on p. 86. b Costs reflect market status and penetration as of 2002. c O&M represents operation and maintenance. d Conversion factor applied: 1 Btu = 1,055.87 J (5). e Because geothermal cost and performance characteristics are specific for each site, the table entries represent the cost of the least expensive plant that could be built in the Northwest Power Pool region, where most of the proposed sites are located. f Capital costs for geothermal and solar technologies are net of (reduced by) the 10% investment tax credit.
Indicators for Economic Comparisons 1. Simple payback time (SPT) = Investment ($) / Annual Savings ($) 2. Cost of conserved energy (CCE) = Investment ($) * CRF / Annual Energy Savings 3. Cost of electricity (COE) – also called “levelized cost” 4. Internal rate of return (IRR) 5. Net present value (NPV) Investment ($) = capital investment; if for efficiency, then added investment above baseline CRF = capital recovery factor = annual share of investment amortized over lifetime “Annual Energy Savings” = how much energy is saved per year, i.e., kWh or liters of petrol
Time Value of Money $1 placed in a bank yields 3% return each year. Next year you have $1.03. “Discounting” means calculating the “present value” of $1 available at some point in the future. Example: $1000 available in 5 years from now is worth how much to you now? You discount $1000 to the present according to the formula: I $1000 ----------- = -------------- = $784 (1 + i) N (1 + 0.05) 5 i = interest rate N = time period of discounting
Comparing Technologies with Both Capital Costs and Annual Costs How do you compare energy costs including both capital costs and annual costs (or annual savings)? You borrow $800 million to build a coal power plant at 5% interest. The loan lasts 30 years. How much do you pay back to the bank each year for 30 years? This is called the “amortized capital cost.” Answer: $52 million per year. Note: total payments over 30 years come to (30)($52 million) = $1.56 billion, or twice the capital cost. Annual cost of the power plant = amortized capital cost + fuel cost + O&M cost Annual cost of the power plant ($) ----------------------------------------------------------------------- = cost per kWh ($/kWh) Annual electricity production of the power plant (kWh)
����������������������������������������������������������������� Cost of � lectricity (COE) = “levelized” or “lifecycle costs” = (I * CRF)/E + OM + fuel ������������������������������������������ I = capital investment ($) I * CRF = amortized capital cost ($) CRF = capital recovery factor ���������������������������������������� E = energy produce � ��������� (kWh) OM = operation and maintenance cost ($/kWh) fuel = fuel cost ($/kWh)
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Coal power Wind power Invest in more Invest in CFL, plant plant efficient refrigerator not incandescent light bulb Capacity / size 1000 MW 1500-kW --- 100W � 20 W Lifetime (N) 30 years 20 years 10 years 5 years operated 5 hours per day (8000hr life) Capacity factor 80% 30% --- --- Produced/conser (1000 (1500 kW)(8760 150 kWh month (50 (80W)(150 ved electricity MW)(1000kW/ hours/yr)(30%) vs. 200 for less eff hours/month(12 per year (E) MW)(8760 = 4 million kWh one) * 12 mo./yr) hours/yr)(80%) = 1800 kWh = 144 kWh = 7 billion kWh Capital cost (I) $800 million $1.8 million $300 $10 ($800 vs. $500 for ($15 minus $5 for less efficient model) regular bulbs) O&M cost 0.5 cents/kWh 0.8 cents/kWh 0 0 Fuel cost (coal 3.0 cents/kWh 0 0 0 @$80/ton) CRF (@i=5%) 0.065 0.080 0.130 0.231 Amortized $52 million $145,000 $39 $2.31 capital cost per = 0.8 cents/kWh = 3.6 cents/kWh = 2.2 cents/kWh = 1.6 cents/kWh year (CRF * I) produced produced saved saved 0.8 + 0.5 + 3.0 = 3.6 + 0.8 = COE/CCE 4.3 cents/kWh 4.4 cents/kWh 2.2 cents/kWh 1.6 cents/kWh Electricity price 5 cents/kWh 5 cents/kWh 8 cents/kWh retail 8 cents/kWh (p) wholesale wholesale retail SPT I=$300 I=$10 R=(1800kWh/year) R=(144 kWh/yr) ($.08/kWh) ($0.08/kWh) = $140/year =$12/year SPT=300/140 SPT=10/12 =2 years =1 year NPV $810 million $0.7 million $800 $42 IRR 13% 9% 46% 118% All prices and costs in USD. All values given in table are typical or assumed values, except for CRF which comes from a table based on N and i, and values for E, COE/CCE, SPT, NPV, and IRR, which are calculated. Points for lecture: (1) If CCE > retail price, then it “costs” you to save energy (NPV < 0); otherwise NPV > 0 (2) Interest rate > 5% has a profound effect. Debates over which interest rates to use (3) IRR of 9% for wind is too low; if electricity sales price is 6 cents, IRR goes to 12% (4) Add 2 cents to coal costs and revenue shrinks to (7 bil)(0.005)= $35 mil./yr, for IRR=2%
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TABLE 6.13 PAYBACK CALCULATIONS AS A RISK INDICATOR LEAD TO UNDER- INVESTMENT IN PROFITABLE, LONG-LASTING ENERGY EFFICIENCY INVESTMENTS Useful life of plant (years) barrier to investments in energy efficiency. Although such an investment may be 3 4 5 6 7 10 12 15 24% 35% 41% 45% 47% 49% 49.5% 50% 2 requirement (years) Payback time 0% 13% 20% 25% 27% 31% 32% 33% 3 0% 8% 13% 17% 22% 23% 24% 4 0% 6% 10% 16% 17% 18.5% 5 0% 4% 10.5% 12.5% 14.5% 6 4.5% 7% 9% 8 Unprofitable Note: Percentages are annual internal rates of return. Continuous energy saving is assumed over the entire useful life of the plant. Profitable invest- ment possibilities are eliminated by a four-year payback time requirement.
Figure 2 Cost of conserved energy for different end uses in the residential and commercial sectors (8).
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