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Today the future direction of electricity supply has become a contentious issue, most power plants have a lifetime of around 30 years, so every thirty years the whole stock must either be replaced or undergo major renovation. Every time a power plant must be replaced or new capacity added to a system, the cost of power generation comes into play. 'The Future of Power Generation: Costs of renewable and traditional technologies' is a new management report that analyzes the determinants of the baseline cost of generating and delivering electricity. It objectively assesses the relative costs of traditional and renewable power by quantifying the key cost factors from manufacture, technology, financing and operating costs to the energy balance and the affects of subsidies and legislation.

Table of Contents
 
Executive summary 10
 
Introduction 10
 
The traditional approach to costing generation 11
 
Historical costs 11
 
Lifecycle costs 12
 
Structural costs 13
 
Factors which distort the price of electricity 13
 
Conclusions 14
 
Chapter 1 An introduction to the cost of
 
electricity 16
 
Introduction 16
 
Report structure 17
 
Chapter 2 The traditional approach to
 
costing electricity generation 20
 
Introduction 20
 
Capital costs of power generation technologies 21
 
Australia 23
 
US 24
 
UK 25
 
Analysis of capital cost figures 26
 
Capacity factor 28
 
Financing capital cost 31
 
The cost of power 32
 
Levelized cost of electricity 32
 
Global levelized costs 34
 
iv
 
Fuel cost and fuel risk 38
 
Chapter 3 Historical costs 42
 
Introduction 42
 
Technology costs 43
 
Financial costs 49
 
Operational and maintenance costs 51
 
The cost of fuel 53
 
Oil 54
 
Gas 55
 
Coal 58
 
Fossil fuel discount rates 59
 
Hedged gas prices 61
 
Risk and security 61
 
Chapter 4 Lifecycle costs 64
 
Introduction 64
 
Net Energy Analysis 65
 
Greenhouse gas lifecycle analysis 70
 
Other atmospheric emissions 74
 
Policy making 75
 
Chapter 5 Structural costs 78
 
Introduction 78
 
Renewable characteristics 78
 
Structural costs of renewable generation 79
 
Grid extension 80
 
Capacity credit and balancing 84
 
Market structural effects 89
 
Energy storage 91
 
v
 
Chapter 6 Factors distorting the price of
 
electricity 96
 
Introduction 96
 
Types of subsidy 97
 
Tariff subsidies 98
 
Fuel subsidies 99
 
Externalities 102
 
Legislation, quotas and green certificates 104
 
Quotas 105
 
Feed-in tariffs 105
 
Other measures 106
 
Green certificates 106
 
Government policy 107
 
Chapter 7 Conclusions 109
 
Introduction 109
 
The cost of renewable vs traditional power 110
 
Industry executive survey 113
 
Relative competitiveness of power generation technologies 113
 
Factors affecting the market price of green energy 115
 
Factors affecting the uptake of renewable energy 116
 
Factors affecting the future of fossil-fuel fired generation 118
 
Share of global electricity production that will be supplied by renewable
 
energy by 2015 120
 
Timeline for renewable energy supplying 50% of global electricity production 121
 
The significance of the proposed hydrogen economy 122
 
vi
 
List of Figures
 
Figure 2.1: Global capital costs of power plants 22
 
Figure 2.2: Country comparison of capital costs of selected power plants 26
 
Figure 2.3: Typical capacity factors for power generating plants 29
 
Figure 2.4: Present value of $1m as a function of discount rate 33
 
Figure 2.5: Typical global levelized power generation costs 35
 
Figure 3.6: US Wind turbine costs, 1996-2030 45
 
Figure 3.7: Photovoltaic production costs in the US, 1996-2003 47
 
Figure 3.8: Cost of natural gas for electricity generation (US$/107kcals) 56
 
Figure 5.9: Grid extension costs as a function of renewable penetration 82
 
Figure 5.10: Balancing costs for 20% wind penetration and energy storage 92
 
Figure 7.11: Relative competitiveness of power generation technologies now and in ten years 114
 
Figure 7.12: Factors affecting the market price of green energy 115
 
Figure 7.13: Factors affecting the uptake of renewable energy 117
 
Figure 7.14: Factors affecting the future of fossil-fuel fired generation 119
 
Figure 7.15: Significance of the proposed hydrogen economy for future electricity generation 123
 
List of Tables
 
Table 2.1: Global capital costs of power plants 21
 
Table 2.2: Capital cost of power plants in New South Wales 23
 
Table 2.3: New electricity generating technology costs in the US 24
 
Table 2.4: Capital cost of new technologies in the UK 25
 
Table 2.5: Typical capacity factors for power generating plants 29
 
Table 2.6: Present value of $1m as a function of discount rate 33
 
Table 2.7: Typical global levelized power generation costs 35
 
Table 2.8: Levelized cost of electricity estimates for typical US utility 36
 
Table 2.9: Levelized cost of electricity from new technologies in the UK* 37
 
Table 2.10: Cost of electricity estimates for a gas-fired plant based on different models 40
 
Table 3.11: Wind turbine costs, 1996-2030 46
 
Table 3.12: Photovoltaic production costs in the US, 1996-2003 47
 
Table 3.13: Renewable technology 'learning curve' costs (US$/kW) 48
 
Table 3.14: Annual cost of maintenance in the UK 51
 
Table 3.15: Annual cost of maintenance for renewable technologies (US$/kWh) 52
 
Table 3.16: Average world oil prices (US$/barrel) 54
 
Table 3.17: Cost of natural gas for electricity generation (US$/107kcals) 56
 
Table 3.18: Cost of steam coal for electricity generation (US$/tonne) 58
 
Table 4.19: Power plant total energy balance 66
 
Table 4.20: Lifecycle energy efficiencies of different technologies 67
 
Table 4.21: Energy payback ratios 69
 
Table 4.22: Relative greenhouse gas efficacies of different power plant gases 70
 
Table 4.23: Greenhouse gas emission rates for different technologies, US 71
 
vii
 
Table 4.24: Greenhouse gas emission rate for different technologies, Japan 72
 
Table 4.25: Greenhouse gas emission rate for different technologies, Sweden 73
 
Table 4.26: Emissions from typical fossil fuel power plants (t/GWh) 74
 
Table 5.27: Grid extension costs as a function of renewable penetration 81
 
Table 5.28: Transmission and distribution costs in 2020 associated with increasing UK renewable
 
contribution above 10% after 2010 as a function of renewable penetration 83
 
Table 5.29: Wind capacity credit as a function of penetration level* 86
 
Table 5.30: Capacity cost of wind generation (Euro/MWh) 88
 
Table 5.31: Capacity cost of wind generation (Euro/MWh) 88
 
Table 5.32: Balancing costs for 20% wind penetration and energy storage 92
 
Table 5.33: Balancing cost per MWh of annual demand for 20% wind generation with storage 93
 
Table 6.34: Coal PSE estimates for some OECD countries, 2000 100
 
Table 6.35: External costs for various power generation technologies within the EU 103
 
Table 7.36: The cost of power (Euro/MWh) 110
 
Table 7.37: Relative competitiveness of power generation technologies now and in ten years 113
 
Table 7.38: Factors affecting the market price of green energy 115
 
Table 7.39: Factors affecting the uptake of renewable energy 116
 
Table 7.40: Factors affecting the future of fossil-fuel fired generation 118
 
Table 7.41: Share of global electricity production to be supplied by renewable energy by 2015120
 
Table 7.42: Timeline for renewable energy supplying 50% of global electricity production 121
 
Table 7.43: Significance of the proposed hydrogen economy for future electricity generation 122