Technology Supply Curves for Low-Carbon Power Generation
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TECHNOLOGY SUPPLY CURVES FOR LOW- CARBON POWER GENERATION A report to the Committee on Climate Change ION June 2013 CARBON POWER GENERAT - RVES FOR LOW TECHNOLOGY SUPPLY CU TECHNOLOGY SUPPLY CURVES FOR LOW-CARBON POWER GENERATION Contact details Name Email Telephone Gareth Davies [email protected] +44 1865 812204 Ali Lloyd [email protected] +44 1865 812227 Pöyry is an international consulting and engineering company. We serve clients globally across the energy and industrial sectors and locally in our core markets. We deliver strategic advisory and engineering services, underpinned by strong project implementation capability and expertise. Our focus sectors are power generation, transmission & distribution, forest industry, chemicals & biorefining, mining & metals, transportation, water and real estate sectors. Pöyry has an extensive local office network employing about 7,000 experts. Pöyry's net sales in 2012 were EUR 775 million and the company's shares are quoted on NASDAQ OMX Helsinki (Pöyry PLC: POY1V). Pöyry Management Consulting provides leading-edge consulting and advisory services covering the whole value chain in energy, forest and other process industries. Our energy practice is the leading provider of strategic, commercial, regulatory and policy advice to Europe's energy markets. Our energy team of 200 specialists, located across 14 European offices in 12 countries, offers unparalleled expertise in the rapidly changing energy sector. Copyright © 2013 Pöyry Management Consulting (UK) Ltd All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Pöyry Management Consulting (UK) Ltd (“Pöyry”). This report is provided to the legal entity identified on the front cover for its internal use only. This report may not be provided, in whole or in part, to any other party without the prior written permission of an authorised representative of Pöyry. In such circumstances additional fees may be applicable and the other party may be required to enter into either aҟ Release and Non-Reliance Agreement or aҟ Reliance Agreement with Pöyry. Important This document contains confidential and commercially sensitive information. Should any requests for disclosure of information contained in this document be received (whether pursuant to; the Freedom of Information Act 2000, the Freedom of Information Act 2003 (Ireland), the Freedom of Information Act 2000 (Northern Ireland), or otherwise), we request that we be notified in writing of the details of such request and that we be consulted and our comments taken into account before any action is taken. Disclaimer While Pöyry considers that the information and opinions given in this work are sound, all parties must rely upon their own skill and judgement when making use of it. Pöyry does not make any representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained in this report and assumes no responsibility for the accuracy or completeness of such information. Pöyry will not assume any liability to anyone for any loss or damage arising out of the provision of this report. The report contains projections that are based on assumptions that are subject to uncertainties and contingencies. Because of the subjective judgements and inherent uncertainties of projections, and because events frequently do not occur as expected, there can be no assurance that the projections contained herein will be realised and actual results may be different from projected results. Hence the projections supplied are not to be regarded as firm predictions of the future, but rather as illustrations of what might happen. Parties are advised to base their actions on an awareness of the range of such projections, and to note that the range necessarily broadens in the latter years of the projections. PÖYRY MANAGEMENT CONSULTING June 2013 325_Technology supply curves v5_1.docx TECHNOLOGY SUPPLY CURVES FOR LOW-CARBON POWER GENERATION TABLE OF CONTENTS EXECUTIVE SUMMARY 1 Introduction 1 Considering feasible deployment timelines 2 Technology cost distributions 4 Implications for strike prices 7 Looking beyond 2030 11 1. INTRODUCTION 13 1.1 Background 13 1.2 Objectives 14 1.3 Overview of methodology 14 1.4 Limitations to the study 17 1.5 Structure of this report 18 1.6 Conventions and glossary 18 1.7 Acknowledgements 19 2. CONSIDERING FEASIBLE DEPLOYMENT TIMELINES 21 2.1 Methodology 21 2.2 Offshore wind 21 2.3 Onshore wind 29 2.4 Nuclear 35 2.5 CCS 42 2.6 Biomass conversion 46 2.7 Key messages 49 3. TECHNOLOGY COST DISTRIBUTIONS 53 3.1 Methodology 53 3.2 Offshore wind 56 3.3 Onshore wind 61 3.4 Nuclear 66 3.5 CCS 71 3.6 Biomass conversion 76 3.7 Key messages 79 4. IMPLICATIONS FOR STRIKE PRICES 81 4.1 Methodology 81 4.2 Offshore wind 83 4.3 Onshore wind 87 4.4 Nuclear 89 4.5 CCS 93 PÖYRY MANAGEMENT CONSULTING June 2013 325_Technology supply curves v5_1.docx TECHNOLOGY SUPPLY CURVES FOR LOW-CARBON POWER GENERATION 4.6 Biomass conversions 95 4.7 Summary 97 4.8 Assessment of CfD support and resource costs 98 4.9 Key messages 102 5. LOOKING BEYOND 2030 103 5.1 Individual technology considerations 103 5.2 Impact on system decarbonisation 107 ANNEX A – SUMMARY OF COST INPUT ASSUMPTIONS 109 A.1 Offshore wind 109 A.2 Onshore wind 111 A.3 Nuclear 114 A.4 CCS 120 ANNEX B – SENSITIVITY RANGE ASSUMPTIONS 125 Offshore wind 125 Onshore wind 125 Nuclear 125 CCS 126 Biomass conversion 126 ANNEX C – BIBLIOGRAPHY 127 ANNEX D – LIST OF ACRONYMS 131 PÖYRY MANAGEMENT CONSULTING June 2013 325_Technology supply curves v5_1.docx TECHNOLOGY SUPPLY CURVES FOR LOW-CARBON POWER GENERATION EXECUTIVE SUMMARY Introduction Background The Committee on Climate Change (the “Committee”) provides advice to government on climate change issues, and particularly the setting of carbon budgets for the UK. In relation to the electricity sector, this advice is based on developing feasible scenarios of future decarbonisation, derived from an understanding of technology costs and the potential for, and speed of, future deployment. The Committee wishes to review its scenarios for power sector decarbonisation in the light of recent industry developments, and, in particular, the Government’s Electricity Market Reform proposals. Objectives The aim of this study is to update the Committee’s view of the potential deployment of five key low-carbon electricity technologies expected to make significant contributions to decarbonising the electricity sector by 2030, to update its view of the costs of these technologies, and to understand what levels of support might be required to achieve this deployment. The technologies considered are: onshore wind; offshore wind; nuclear; CCS (based on gas or coal); and biomass conversion – i.e. conversion of existing coal fired generating units to run on biomass. Approach First, we investigate how deployment could proceed taking account of the different stages of project development (such as consenting, construction, and operation) and examining capability at each stage. The aim is to understand the existing project pipeline, what deployment might be achieved by 2030, what are the key factors limiting deployment, and what policy ‘enablers’ might be available or required to mitigate these limitations. In general these feasible deployment ‘timelines’ are ‘high effort’ deployment scenarios – meaning that we assume a continued commitment from the Government to achieve its carbon goals and hence a willingness to implement policies to support the significant growth of low-carbon generation required. Second, we compare recent reported evidence on technology costs with the Committee’s previous assumptions and update where necessary. We then use these cost assumptions to derive a detailed cost distribution for each technology showing the range of costs across the full range of potential projects. For onshore and offshore wind we adopt a more ‘bottom-up’ costing approach owing to the need to derive cost across a large number of projects. Costs are expressed as the levelised cost of electricity (LCOE) (in £/MWh), taking account of capital and operating costs and assuming the generator will require a specified rate of return on its investment. In assessing costs we take account of the potential for costs to change over time as a result of technology learning and PÖYRY MANAGEMENT CONSULTING June 2013 325_Technology supply curves v5_1.docx 1 TECHNOLOGY SUPPLY CURVES FOR LOW-CARBON POWER GENERATION reductions in the required rate of return as a technology matures and is perceived as less risky. We then use the cost distributions to assess the level of support (expressed as Contract for Difference (CfD) strike prices) likely to be required for each technology consistent with achieving deployment in line with the projected deployment timeline. Knowledge of the strike prices required to achieve the deployment timeline for each technology then allows us to evaluate the total support costs required, as well as the ‘resource cost’ (i.e. the net cost) associated with this support. Study limitations It is important to understand the limitations of a study of this nature, especially given the ambitious objective of examining the future evolutions of costs and deployment for five different low-carbon technologies out to 2030. Levelised cost estimates are inherently uncertain, and are driven by underlying assumptions on capital and operating costs, fuel prices, load factor, discounts rates, and how costs might change over time as a technology matures – all of which are themselves uncertain. As a result of these limitations and uncertainties, the results presented here should not be regarded as firm predictions of the future. They should be viewed as illustration of what might happen to deployment given certain conditions, or of what strike prices might be required based on the costs we derive. To put this uncertainty into context we have performed sensitivity analysis to understand the impact of uncertainty in key cost drivers on required strike prices.