TODAY’S STUDY: BRINGING MORE NEW ENERGY HOME

Program on Technology Innovation: Integrated Generation Technology Options
June 2011 (Electric Power Research institute)

INTRODUCTION

Overview

The Integrated Generation Technology Options report provides an executive-level overview of near-term (5 – 10 years) as well as longer term (2025) electricity generation technology costs and performance. The purpose of this document is to provide a public domain reference for industry executives, policy makers, and other stakeholders. This report is based on 2010 EPRI research results and updates the Integrated Generation Technology Options report published in November 2009…

Produced by EPRI’s Energy Technology Assessment Center (ETAC), this report draws on the 2010 Technical Assessment Guide (TAG®) [2] and the 2010 Renewable Energy Technology Guide (RETG) [3] to provide an overview of cost and performance estimates of power generation technologies in the following categories:

• Central stations, including advanced pulverized coal (PC), integrated coal gasification combined cycle (IGCC), natural gas combustion turbine/combined cycle (NGCC or (TCC) and nuclear generation. Fossil technologies are presented both without and with carbon capture technologies for 2025.

• Renewable resources, including wind, biomass, solar thermal, and solar photovoltaic technologies.

click to enlarge

For each technology area, the report presents an overview of each technology, including:

• A brief description of the technology

• Current and projected technology performance and costs

• Major technical issues and future development direction/trends

• Fuel resource considerations

• Relevant business issues

• Environmental concerns and considerations

click to enlarge

The scope of this report includes capital costs, operations and maintenance (O&M) costs, performance data, and technology trends. For comparison purposes, costs are reported in constant December 2010 dollars.

Cost and performance estimates are idealized for representative generating units based on detailed EPRI research results. Estimates are not intended to apply to specific energy companies, sites, or projects since site-specific and company-specific conditions can lead to substantially different costs and performance.

click to enlarge

Trends

Uncertainty in planning for new power generation technologies is currently affected by several key factors: 1) the recession and its impacts on electricity demand, 2) capital cost uncertainties surrounding the various technologies, 3) uncertainty regarding potential carbon legislation, 4) the profound impact of the shale gas boom on present and future natural gas prices, and 5) impacts on existing generating plants from pending or anticipated environmental rules on emissions, use of water resources, and coal ash handling and disposal.

Coal-based new power generation capacity additions have slowed due to uncertainty surrounding potential future carbon legislation, technical and economic feasibility of carbon dioxide (CO2) emissions capture and storage, new emissions controls regulations, and increasing capital costs.

click to enlarge

Planning for new nuclear generation continues, but faces challenges in financing stemming from high capital costs, long lead times in licensing and construction, and rising cost projections. Natural gas combined cycle generation appears to be poised for significant growth over the next decade as aging coal units are retired and confidence in shale gas resource estimates and lower gas price projections increases.

click to enlarge

New capacity addition in the renewable sector also faces challenges due to the economic downturn and the difficulty arranging for financing, as well as the uncertainty regarding passage of a federal renewable energy standard. Despite a slowdown in 2010, onshore wind generation growth continues at a significant pace and is beginning to play a more important role in the electricity supply in some regions. Solar thermal and photovoltaic (PV) technology have experienced increased activity, but the magnitude of total capacity additions are still quite limited, making up less than 1% of U.S. electric sector generation. Biomass technology deployment has slowed due to in part to concerns with pending regulation on industrial boiler environmental control technology. Although renewable technologies are a growing fraction of the generation technology mix largely due to government incentives and regulatory requirements, the issue of their integration on a much larger scale in the utility system is only beginning to be addressed.

In general, the data in this report reflect cost increases over the last five years due to heightened worldwide construction activity as well as a resumption of commodity price escalations following the worldwide recession. Pulverized coal plant estimates have declined slightly consistent with the broader slowdown in industrial construction. IGCC and nuclear generation construction cost estimates continue to increase as the first commercial-scale IGCC projects move forward and U.S. nuclear project licensing reviews continue. Onshore wind farm construction costs have stabilized, reflecting the maturity of this technology. Solar photovoltaic and solar thermal capital cost estimates continue to decline based on improvements in the technology and the growing solar technology marketplace and supply chain…

click to enlarge

Cost Estimation Uncertainty

As the power generation technologies are quite capital intensive, there are several technical, economic and financial factors that influence the variations in capital cost from one technology to another and from one project to another. Higher uncertainty with respect to performance of a key component in a new technology will result in more significant impact on the cost estimate. Many factors contribute to the overall uncertainty of an estimate. They can generally be divided into four generic types:

1. Technical —Uncertainty in physical processes, performance estimates based on limited data, or scaling uncertainty.

2. Estimation—Uncertainty resulting from estimates based on preliminary designs, and uncertainty in project execution. Power generation technologies require large amounts of concrete, structural steel, equipment operating under high pressure/temperature, and several thousands of hours of manpower to engineer and construct these facilities. The planning and execution of the activities takes several years, and the capital expenditure for these plants is spread over several years. The project schedule – including construction schedule – to bring the technologies on line depends on factors such as the lead time to obtain the necessary permits, lead time for equipment and material procurement and possible delays, and construction time. The total project schedule can be on the order of two to three years for combustion turbines and wind turbines, six to eight years for coal based technologies and up to ten years for a nuclear power plant. These ranges contribute to the significant differences in estimates based on constant dollar versus current dollar analysis (see discussion in section 1.5.3).

3. Economic—Uncertainty resulting from unanticipated changes in cost of available materials, labor, or capital. The cost of financing is linked to the project duration. The debt/equity ratio, the return on equity, cost of debt, the book life, and tax life are key factors that play an important part in the final cost estimate for the project.

click to enlarge

4. Regulatory—Uncertainties in permitting, licensing, forthcoming environmental regulation and other regulatory actions.

5. Other—For example, labor disruptions or weather conditions.

As a technology moves along the continuum of development from R&D through commercial installation, the type of risk—and the corresponding uncertainty—tends to change. Figure 1-1 illustrates the sequence of steps and the potential impact on cost…

The degree of uncertainty depends on the number of new and novel parts in a technology and the degree of scale-up required to reach commercial size.

click to enlarge

Successful R&D efforts resolve many technical uncertainties, but others persist until initial demonstration. Examples of technical uncertainties that can remain include:

• Unanticipated interactions between system elements that previously were independently tested.

• Incompatibilities between materials or incompatibilities between utility operation and the industries from which the new technology was adapted.

• Unanticipated operating problems.

Demonstration and commercialization reduce technical and estimation uncertainties, but economic and other uncertainties always remain. The level of these uncertainties depends largely on the magnitude of capital investment, length of time for field construction, and number of regulatory agencies involved in the project…

click to enlarge

Cost Calculation: Concepts and Terminology…Total Plant Cost versus Total Capital Requirement…Total Capital Required… Fixed and Variable Operating and Maintenance Costs…

Current versus Constant Dollars

Analysts can conduct an economic analysis in current dollars by including the effect of inflation on capital carrying charges and operating costs or in constant dollars by not including inflation in capital and operating projections. Care should always be taken when comparing cost estimates from different studies…

The choice of current or constant dollars depends on the purpose of the analysis. In general, studies involving the near term (the next 5 to 10 years) are best presented in current dollars. Longer term studies (20 to 40 years) may be best presented in constant dollars so that the effect of many years of inflation does not distort the costs…

In this report, the constant dollar method is used…

click to enlarge

Levelized Cost of Electricity (LCOE)

The levelized cost of electricity (LCOE) represents an annualized cost of generating electricity over the lifetime of the unit, including initial capital, return on investment, and costs of operation, fuel and maintenance. LCOE calculations are based on assumptions regarding future unit operations, operating costs, fuel prices, financing terms, and inflation. Figure 1-3 is an LCOE graph for a natural gas combustion turbine combined cycle. Note that busbar cost is synonymous with LCOE in these figures. In contrast, Figure 1-4 presents LCOE for solar parabolic trough. In the former, fuel is the chief cost component, whereas in the latter, the up-front capital costs comprise a majority of the LCOE.

click to enlarge

Treatment of Government Incentives

At the federal level, a number of policies provide financial incentives to development of power generation technologies. These include investment and production tax credits, loan guarantees, and accelerated depreciation under the U.S. Internal Revenue Service Modified Accelerated Capital Recovery System (MACRS). Except for MACRS, most U.S. federal incentives are authorized for a limited number of years and can change frequently. Consequently, with the exception of MACRS, tax credits and loan guarantees have not been included in the estimates of capital and levelized costs of electricity that are provided in this report.

The MACRS includes provisions for accelerated depreciation of all commercial-scale power generation technologies presented in this report.[5] Established to promote corporate capital investment, accelerated depreciation reduces total project costs by delaying the tax burden through deferred income taxes. MACRS depreciation schedules for power generation projects range from 5 years for commercial solar, wind and geothermal projects to 20 years for coal plants and other steam generation. Appendix A summarizes MACRS depreciation durations for technologies presented in this report.

click to enlarge

Representative Cost and Performance of Power Generation Technologies

Estimates of the representative cost and performance of power generation options are presented in Table 1-2 for 2015 and Table 1-3 for 2025. Financial and technology-specific assumptions included in the calculations of the levelized cost of electricity estimates are presented in Appendix A.