Friday, April 22, 2011

Real cost of coal-fired power

Please note:  see my blog post on 27 January 2015 for an update of this report.

If you’ve visited this blog previously, you’ll know that I report on the cost of electricity produced from solar power.  I do this on a level playing field, with all projects assessed under the same assumptions:
·         there is no inflation,
·         taxation implications are neglected,
·         projects are funded entirely by debt,
·         all projects have the same interest rate (8%) and payback period (25 years),
·         all projects have the same annual maintenance and operating costs (3% of the total project cost), and
·         government subsidies are neglected.

Typically, my estimates for the Levelised Electricity Cost (LEC) from solar power are disconcerting – the solar LEC is, in Australia at least, significantly more than the accepted cost of coal-fired power.  But what happens if the cost of coal-fired power is assessed according to my standard assumptions?  And what happens if a cost is applied to externalities due to coal production?

A recent authoritative report on externalities associated with coal-fired power is due to Epstein et al. “Full cost accounting of the life cycle of coal”, Annals of the NY Academy of Sciences 1219 (2011), 73-98.  Issues they take into consideration are
·         land disturbance
·         methane emissions from mines
·         carcinogens
·         public health burden of communities
·         fatalities due to coal transport
·         emissions of air pollutants from combustion
·         effects of mercury emissions (lost productivity, mental health, cardiovascular)
·         climate damage from combustion emissions (CO2, N2O, soot)
Epstein et al.’s best estimate for the additional monetised cost of coal production on the LEC was USD (2008) 178 per MWhr, with a range of USD 94-269 per MW hr.  This is in addition to other costs of production such as cost of fuel, capital costs, operations, maintenance etc.

Another way to account for the externalities is to apply a “Social Cost of Carbon” (SCC), expressed in monetary units per tonne of CO2 emitted.  This topic is the subject of vigorous economic research, as can be seen by a simple web search, and a range of SCC values is usually quoted.  It is widely agreed that the SCC will increase in time.  A recent commentary on the SCC from a US context is due to Frank Ackerman: “What is the social cost of carbon?” on Real-World Economics Review Blog, 27 April 2010.  He concludes:

“There are too many open questions in the SCC calculation to recommend a precise alternate value based on the information now available; there is a need for more extensive research, examining the full range of available studies of climate damages and costs, and analyzing assumptions about the risks and magnitudes of potential climate catastrophes.  In the United Kingdom, where carbon pricing and cost calculations have a longer, better-researched history, the latest estimate is a range of $41 to $124 per ton of CO2, with a central case of $83.”

With that preamble, now follows my contribution to this debate.

The following assumptions (additional to my standard assumptions) are made in order to calculate the LEC from a Rankine-cycle steam plant:
·         specific capital cost: AUD 1,500,000/MW
·         thermodynamic efficiency: 0.39
·         cost of coal: AUD 120/t
·         fraction of coal that is carbon: 0.8
·         energy content of coal: 27.9 GJ/t
The LEC is then calculated for
·         SCC in the range AUD 0 to AUD 100 per tonne
·         Capacity Factors in the range 0.7 to 1.0 (the Capacity Factor is the fraction of time that the generator is active)

The results are shown in the figure below.

For these parameters, 0.97 t CO2 is emitted per MWhr.  So, as a rule of thumb, every $ increase in the SCC translates to an extra $ on the LEC when expressed in $/MWhr.

The cost of solar power no longer looks so expensive, particularly if you care to prognosticate on likely price increases for coal.  In that context, Bloomberg for example gives a time series for the spot price of coal from Newcastle, Australia; see CLSPAUNE:IND. One could reasonably expect that the cost of coal will increase significantly in the next decade.


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