- Our generating-cost data are drawn from a number of sources, and incorporate a significant amount of judgment as the information is rarely consistent. We differentiate between the costs of existing capacity and costs of new capacity to allow the modeller to test learning-curve assumptions. In the case of technologies dominated by old installations (nuclear, biomass, hydro and coal), the existing capital costs reflect an estimated book value, as their main use will be to estimate the cost of decommissioning them. For gas, “existing” is assumed to be CCGTs, but “new” is assumed to be OCGTs or similar, for market reasons, and to allow to differentiate within the model.
- The defaults can be adjusted by the modeller. The variable cost incorporates the fuel cost (after conversion losses), and is therefore likely to be an important factor for sensitivity testing.
Technology
Capital (£/kW)
Fixed (£/kW/yr)
Variable (£/MWh)
Existing
New
Existing
New
Existing
New
Solar
1300
1000
10
10
0.05
0.05
Biogas
4000
3500
300
300
-10
-10
Nuclear
1300
6000
150
140
11
10
Onshore wind
1500
1250
30
25
0.05
0.05
Offshore wind
3600
3200
100
65
0.05
0.05
Biomass
200
3500
40
60
90
110
Hydro
100
3200
5
5
0.05
0.05
Gas
500
350
17
10
45
65
Coal
300
1000
10
10
25
25
Oil
300
300
10
10
135
135
- Defaults for transmission/distribution costs provide the basis for estimates of network costs in choices that increase maximum or change total flows. These currently cannot be modified, simply because we have not provided the interface. They are easy to adjust within the model, and we will provide an interface in due course. For now, they are:
Capacity (MW)
Capital (£/kW)
Fixed (£/kW/yr)
Variable (£/MWh)
Existing
New
Existing
New
Existing
New
Existing
New
60000
0
450
1000
100
150
5
6
We do not yet incorporate equivalent costs for the gas network. This is a significant omission that needs correcting.
- Storage costs are based on published claims from a variety of sources. With so little deployment, these figures must be regarded as highly speculative, particularly for compressed-air storage for which there are almost no cost data from the sustained operation of substantial installations. We have naively accepted the developers’ claims for wont of a reasonable alternative approach, but these figures should be treated with great caution until proven in sustained operation. Pumped storage and batteries have more of a track record, but are limited in the UK and (in the latter case) limited at scale across the world. We do not yet know how learning curves would balance against resource pressures if they are widely deployed beyond the already-massive scale expected for transport. Treat with caution, but FWIW, these are our defaults:
Technology
Capital (£/kW)
Capital (£/kWh)
Fixed (£/kW/yr)
Variable (£/MWh)
Existing
New
Existing
New
Existing
New
Existing
New
Pumped storage
15
160
160
1000
10
10
0.1
0.5
Batteries
300
240
300
240
10
5
0.5
0.05
Compressed air
1500
1000
40
30
2
1
0.1
0.05
- Two components of capital cost are given for storage because, unlike other aspects of our energy systems, storage capacity is defined in terms of both power (kW, momentary flow) and energy (kWh, sustained flow). These components are additive in the model; e.g. if the capital cost is £1500/kW and £40/kWh, a storage unit rated at 1 MW and 6 MWh costs £1,740,000.
- As for nuclear, hydro etc above, the capital-cost values for pumped storage are an estimate of the book value/decommissioning cost, as the main use of the figure is to estimate the cost if the units were closed down.
- The variable operating costs do not include round-trip losses, which are calculated separately based on the import and export prices generated by the model and the assumed round-trip efficiency for the technology. These are one of the most significant factors in the economics of storage systems.
- The model assumes each technology is half-full at the start of the year, to allow for some charging or discharging, depending on the initial conditions.
- The supplier’s margin is a significant component of the total energy cost. For electricity, we incorporate the following defaults that cannot currently be modified, based on the Big Six’s Consolidated Segmental Statements. The same comments apply as in the previous section, vis-à-vis the interface and the need for equivalent figures for other fuels. These are total costs to be spread over the whole system. This implies no change in the suppliers’ combined costs if volumes change significantly (e.g. with electrification), which is obviously an unsafe assumption. But there are insufficient data to judge how they might vary, and the magnitudes within a probable range are not so large that this imprecision is likely to weigh heavily on the outcomes. One would expect significant economies of scale from electrification. It is not obvious why there are substantial capital costs in the supply business, but that’s what their accounts say. It’s a large number, but small when amortized.
- Capital cost: £4bn
- Fixed cost: £1.5bn p.a.
- Variable cost: £10/MWh
- We provide defaults for two cost factors that have wide ramifications:
- The Weighted Average Cost of Capital: 8%
- The Cost of Carbon: £50/tCO2e
- The construction and operating costs above do not include a cost of carbon, which is applied separately so it can be seen as a separate component, to compare the costs of the chosen options with their carbon value. That comparison can be viewed two ways if it is not favourable:
- The investment may not be justified by the carbon benefit, or
- The assumed price for carbon is incorrect if necessary investments are not justified by their notional carbon saving.
- If the latter, the modeller can adjust the carbon price accordingly. This will propagate through all aspects that engender a carbon cost/saving.
- The modeller should not adjust the carbon price to suit their favoured technologies and ignore the impact on other technologies whose economics may be improved even more by the change. This should avoid perhaps the most common way that energy-system models produce skewed outcomes: by treating different components as though they have different carbon values. We can argue about the true cost of carbon, but whatever it is, it must apply equally to all emissions or sequestrations of carbon. The climate does not care where the greenhouse gases come from, and how they are engendered makes no difference to the harm that they do.
- To convert cost elements into hourly costs/prices, the model assumes that (a) over a year, each technology must cover its costs including the amortized capital cost and cost of money, but (b) the price for output from each technology in each hourly period is a function of (i) its operating costs and (ii) whether the market is long or short (given the technology’s position in the merit order list). The price in long (i.e. over-supplied) conditions is the marginal operating cost. The price in short conditions is the operating cost plus an apportionment of the fixed/capital costs sufficient (when combined over all long-market periods) to achieve (a) over the year. The overall price of electricity in each period is the cost of the marginal technology in that period, given the merit order. For example:
- If the market is short and some gas-fired generation is required, the price of electricity in that period is the price of gas-fired electricity, and as the market is short, the price of gas-fired electricity is its operating cost plus an apportionment of its fixed/capital costs. If gas’s annual load factor is depressed because of high inflexible capacity producing many periods when gas is not required, the cost of gas-fired electricity in the periods when it is required will increase as the fixed/capital costs are spread over fewer periods.
- If the output from inflexible generators exceeds demand, the market is long, and the price is determined by the marginal operating cost of the last technology in the merit order required to meet that demand (typically offshore wind). The marginal operating costs of wind and solar are considered to be very low, so the marginal price of electricity in a long market is typically in this model very low. These are favourable assumptions for the deployment of storage, but hopefully realistic (i.e. the world towards which we are being driven is one in which storage should be able to buy electricity cheaply and sell at a high price).
- We do not take account of any government incentives in the cost calculations. The model is intended to explore the true underlying economics. Government incentives (other than a carbon tax) skew the economics of different technologies significantly. If the pricing generated by this model differs significantly from the real world, this is the biggest reason, and gives a measure of the skew.
