Siemens Wind Power / August 2014
SCOE – Society’s costs of electricity:
How society should find its
optimal energy mix
© Siemens Wind Power 2014. All rights reserved.
siemens.com
Can society afford
(offshore) wind power?
?
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Siemens Wind Power August 20, 2014
Levelized Cost of Electricity –
The standard yardstick for comparing technologies
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Siemens Wind Power August 20, 2014
Introduction
LCOE is too short-sighted for deciding on an
economy’s power mix
Judging electricity sources only by
levelised cost of energy (LCOE)
stems from ages where electricity
production was by definition bigscale and localised at load
centers.
Social
costs
Hidden
Subsidies
LCOE
LCOE
Transmission
needs
With new energy sources
entering the scene, this approach
falls short.
In this analysis, we try to shed
a fair light to total-economy
costs and benefits of energy
production, comparing Wind
Offshore vs its alternatives.
Geopolitical
risks
Variability
Employment
effects
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Siemens Wind Power August 20, 2014
Approach
Revealing the true cost and the macro-economic
costs of energy: SCOE – Society‘s costs of electricity
SCOE Components
Examples
•
Fuel + OPEX + CAPEX + CO2
•
•
UK: Reduced tax on fossil fuels
Waste disposal and desaster costs
•
Grid reinforcements needed for
renewable integration
•
Capacity payments to gas plants for
providing backup
LCOE
„Ex-works“
electricity price
Hidden subsidies
Transmission costs
Variability costs
System costs +
LCOE
•
Decline of house prices around power
plants & wind farms
Social costs
•
Job creation: Direct, indirect (suppliers)
and induced (by additional consumption)
Economy &
employment
•
Hedging against fuel price risk for
imported fuels
True cost of
electricity
Geopolitical impact
SCOE: Society’s
costs of electricity
Macro-economic
cost of electricity
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Siemens Wind Power August 20, 2014
SCOE Analysis United Kingdom
Projection for 2025
SCOE: Society's costs of electricity [EUR/MWh]
Legend LCOE Split: CAPEX OPEX
Fuel
CO2
Projection for United Kingdom in 2025 - Average Scenario
Nuclear
LCOE
Coal
Gas
Photovoltaics
Wind On
Wind Off
79,2
115,3
82,9
105,2
55,4
95,0
0,0
58,4
26,0
0,0
0,0
0,0
59,8
2,5
0,5
0,0
0,0
0,0
Transmission
0,0
0,0
0,0
6,6
2,0
2,0
Variability
0,9
0,5
0,0
15,2
14,3
13,4
140,0
118,3
83,5
127,0
71,6
110,4
0,1
0,1
0,1
0,0
4,8
0,0
-33,0
-10,5
0,0
-49,4
-16,1
-49,4
- thereof CO2
Cost subsidies
LCOE +
System costs
Social impact
Employment effects
Geopolitical impact
SCOE
0,0
1,7
5,4
0,0
0,0
0,0
107,2
109,6
89,0
77,6
60,4
60,9
E W ST SCC / CWN / 2014-08-26 / Projection for United Kingdom in 2025 - Average Scenario
With certain pre-requisites in place, Offshore can be among the most competitive
electricity sources in the UK by 2025, while Gas is the most competitive backup.
© Siemens Wind Power 2014. All rights reserved.
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Siemens Wind Power / CWN / E W ST SCC
SCOE Analysis Germany
Projection for 2025
Legend LCOE Split: CAPEX OPEX
SCOE: Society's costs of electricity [EUR/MWh]
Fuel
CO2
Projection for Germany in 2025 - custom Scenario
Nuclear
LCOE w/o CO2
Coal
Gas
Photovoltaics
Wind On
Wind Off
79,2
80,3
67,3
100,2
55,4
95,0
0,0
23,4
10,4
0,0
0,0
0,0
47,4
0,0
0,4
0,0
0,0
0,0
Transmission
0,0
0,0
0,0
3,2
2,8
Variability
1,0
0,5
0,0
15,4
14,5
13,6
127,6
80,8
67,8
126,4
73,1
111,4
0,1
0,1
0,1
0,0
4,0
0,0
-34,1
-6,2
0,0
-49,3
-19,4
-49,0
0,3
2,5
5,9
0,0
0,0
0,0
93,8
77,2
73,8
77,1
57,8
62,3
- thereof CO2
Cost subsidies
LCOE +
system costs
Social impact
Employment effects
Geopolitical impact
SCOE
10,8
E W ST SCC / CWN / 2014-08-26 / Projection for Germany in 2025 - custom Scenario
With certain pre-requisites in place, Offshore can be among the most competitive
electricity sources in Germany by 2025, while Gas is the most competitive backup.
© Siemens Wind Power 2014. All rights reserved.
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Siemens Wind Power / CWN / E W ST SCC
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
© Siemens Wind Power 2014. All rights reserved.
Page 8
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Siemens Wind Power August 20, 2014
0
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
© Siemens Wind Power 2014. All rights reserved.
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0
Reducing the gap to grid parity
Wind Offshore is only at the start of its learning curve
with a lot of cost reductions to come
Technology lifetime
Installed global capacity
Years
GW
Coal
113
Gas
75
Nuclear
63
Photovoltaics
38
Wind Onshore
Wind Offshore
33
23
Coal
1970
Gas
1600
Nuclear
401
Photovoltaics
113
Wind Onshore
Wind Offshore
318
7
Status:Data as of end 2013
Although being the youngest electricity source and having had only limited
chance yet to gain experience, Wind Offshore shows significant cost reductions.
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0
Offshore can achieve major cost reductions by using
the scale potential of offshore
Onshore
Feature
Offshore
Today
Future
Turbine rating [MW]
3
6
10
Rotor diameter [m]
101
154
195
Swept area [m²]
8.012
18.627
29.865
Load factors [%]
40
54
54
Annual energy production [GWh]
10,5
28,4
47,3
Powered homes
2.262
6.106
10.177
Note: Turbines for IEC Class I (High wind speed)
Airbus 380
Soccer field
Assumptions: Household consumption per year: 4648 kWh
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0
Reducing the gap to grid parity
Offshore cost reduction is effective in multiple areas
Image courtesy of Bladt Industries A/S
Turbines
Foundations
Grid access
Operations &
Maintenance
§ Reduce
component cost
§ Standardize offshore
foundation design
§ Reduce grid access
complexity
§ Increase turbine
component quality
§ Increase energy
production efficiency
§ Industrialise
manufacturing
§ Innovative grid
solutions
§ Reduce O&M hours
and visits frequency
§ Drive scale effects
and industrialisation
Wind Offshore will be able to realise scale effects in terms of size and utilisation
that will exceed onshore performance, resulting in better efficiency.
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Forecasting Wind Offshore with learning curve
methodology will lead to LCOE of 70-90 EUR/MWh in
2030 – fully in line with the range of Gas & Coal
Offshore Levelised Cost of Electricity (LCOE)
EUR/MWh
250
Assumed underlying onshore
wind offshore learning curve
i.e. same rate of cost improvement (11,5%)
for each doubling of capacity
200
LCOE range Gas/Coal
incl CO2
150
Prognos/Fichtner 2013:
120km, 50m
Prognos/Fichtner 2013:
120km, 50m
100
Conservative progression
(9,5% learning rate)
Prognos/Fichtner 2013:
120km, 50m
Datapoints pilot projects
near shore
Optimistic progression
(13,5% learning rate)
50
project data points typical conditions
0
1990
1995
2000
2005
2010
2015
Annual installations
GW
0,0
2020
15,0
0,0
0,1
1,3
2025
12,9
2030
11,1
4,0
Source: Own analysis based on learning curve approach, supported by datat from Prognos/Fichtner 2013: Cost reduction potentials of offshore wind power in Germany
http://www.offshore-stiftung.com/60005/Uploaded/SOW_Download|EN_ShortVersion_CostReductionPotentialsofOffshoreWindPower.pdf
© Siemens Wind Power 2014. All rights reserved.
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1
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
© Siemens Wind Power 2014. All rights reserved.
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Siemens Wind Power August 20, 2014
Transmission and backup requirements
Renewables requires changes in the architecture of
the onshore energy grid.
Total
Comments
Grid investments onshore
mEUR
3.838
OPEX costs p.a.
mEUR
38 1 % of CAPEX p.a.
Grid lifetime
Years
40
Discount rate
%
10
Annual electricity production offshore
TWh
Additional grid costs
EUR/MWh
219
1,97
Source: National Grid 2011, The Crown Estate: Offshore Transmission Network Feasibility Study
http://www.nationalgrid.com/NR/rdonlyres/4FBE15A0-B244-4BEF-87DC-8D0B7D792EAE/
49346/Part1MainBodysection191.pdf
Comments: Assumption offshore load factors: 50%
Existing electricity grids have been designed for high-capacity conventional
power plants close to load centers. A greater share of renewables will now
demand for an early one-time refurbishment of transmission grids, allowing for
more decentralised and production-optimised grid designs. This is a one-time
investment, like building the grids was a century ago.
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1
Transmission and backup requirements
Renewables requires changes in the architecture of
the energy grid.
Surplus on electricity from Grid reinforcement
Total
Additional grid costs p.a.
mEUR
Annual electricity production by renewablesTWh
Additional grid costs
EUR/MWh
946
269
3,5
Wind
Offshore
Share
Coal transport
North Sea Southern
Germany2
183
66
2,8
5,0
Transmission capacity needed
until 2022 in Germany
Sources
1 DENA Netzstudie II, Dez 2010
http://www.dena.de/fileadmin/user_upload/Publikationen/Erneuerbare/Dokumente/Endbericht_dena-Netzstudie_II.PDF
2 VBG PowerTech 9/2007: Steinkohlekraftwerke: Konzepte und Faktoren der Standortauswahl
http://www.steag-energyservices.com/fileadmin/user_upload/steagenergyservices.com/downloads/veroeffentlichungen/
Assumptions: Wind Offshore has a share of all grid costs proportional to its installed capacity
Installed capacities 2020: Offshore 14 GW, Wind Onshore 37 GW, Photovoltaics: 18 GW
Capacity factors: Wind Offshore 54%, Wind Onshore 42%, Photovoltaics 11%
Transporting electricity is cheaper than transporting the base fuel!
Planned transmission lines
In construction/consented
Existing electricity grids have been designed for high-capacity conventional
power plants close to load centers. A greater share of renewables will now
demand for an early one-time refurbishment of transmission grids, allowing for
more decentralised and production-optimised grid designs. This is a one-time
investment, like building the grids was a century ago.
© Siemens Wind Power 2014. All rights reserved.
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Source: DENA Netzenwicklungsplan 2013
http://www.netzentwicklungsplan.de/NEP_2013_Teil_I.pdf
Siemens Wind Power August 20, 2014
1
Transmission and backup requirements
In a state-of-the-art grid, the geographical distribution of
wind farms reduces intermittency
Wind farms spread over a distance
show less interdependency in output
than single turbines
A North Sea super grid can allow for further
compensation of intermittency
Power Output correlation of ~2000 UK wind sites
Distance between recording sites [km]
Source: http://www.eci.ox.ac.uk/publications/downloads/sinden06-windresource.pdf
Source: http://allenandyork.wordpress.com/2011/09/
Geographical distribution of wind farms allows an inter-grid compensation of
intermittency: “There is always wind blowing somewhere!”.
A European initiative for a super-grid will help to level out production and deman
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1
1
Transmission and backup requirements
In many countries, wind offshore is close to load
centers.
Source: SEDAC - Socioeconomic Data and Applications Center of NASA 2000
http://www.nasa.gov/images/content/712130main_8246931247_e60f3c09fb_o.jpg
40 % of the world population live within 100 km from the shore. For many big
cities like in the US, China and Latin America, offshore wind requires less
investment into transmission than onshore.
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1
Calculation of intermittency compensation
Offshore wind has far less fluctuation in power
output than other renewables
Offshore winds have less spread in wind speeds vs
the average, resulting in a more stable power
© output.
Siemens Wind Power 2014. All rights reserved.
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An offshore turbine operates at rated power for 2200
hrs per year, while low wind onshore only reaches
640 hrs.
Siemens Wind Power August 20, 2014
1
Calculation of intermittency compensation
Rationale for calculating intermittency compensation
costs: Gas is the most efficient backup mid-term
Wind output
MW
1 GW of wind installed
1000
Demand
750
500
250
Wind output
0
0
Backup capacity of ~ 880 MW Gas needed
2000
4000
6000
8000
Cumulated hours p.a.
Gas backup output
MW
1000
Compensation of Gas
plant for CAPEX/fixed
OPEX for the amount
of time where it is not
running at 60% load
factor
Demand
Gas output
750
500
250
0
0
2000
4000
6000
8000
Cumulated hours p.a.
To estimate intermittency costs, a gas backup capacity of 88% of installed wind
capacity is assumed. The gas power plant is compensated for the time being idle
by a payment for their CAPEX and fixed OPEX ~ 15 EUR/MWh.
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4
An 80% renewables scenario in Germany cannot be
realised without significant share of offshore wind;
offshore wind helps to reduce residual capacities.
Even with PV and wind onshore built to their
technical limits, they can only deliver 80 % of
the renewable electricity needed
Colours: Residual power standard deviation (GW)
Annual Electricity demand and potential supply for
Germany in an 80% renewable scheme
Primary energy
demand
supply
100
66
95
162 TWh
20%
Renewable
Mix with minimal
residual power
Standardabweichung
der Residuallast (GW )
demand
Share of wind in renewables portfolio
37 GW Offshore Wind
needed to close the gap
Gap
Other
To minimise the need for residual capacity to
compensate intermittency, an even higher
offshore wind share is advised
390 TWh
80%
= 800 TWh p.a.
Renewable
Electricity
248 TWh
Technical
maximum wind
onshore: 198
GW
Technical
maximum
photovoltaics:
275 GW
64
90
62
85
60
80
58
56
75
54
70
52
65
Primary
energy
demand
Gap to
80%
renewable
supply
Electricity
supply
Source: Fraunhofer IWES 2013: Energiewirtschaftliche Studie
zur Bedeutung der Offshore-Windenergie. Kurzfassung
http://www.fraunhofer.de/content/dam/zv/de/forschungsthemen/energie/
Energiewirtschaftliche-Bedeutung-von-Offshore-Windenergie.pdf
50
60
48
55
50
0
46
20
40
60
80
AnteilShare
Offshore
der W indstromerzeugung
ofanoffshore
in total wind(%)
100
Residual capacity needs can be minimised
with a mix of 20% PV, 30% wind onshore and
50% wind offshore
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2
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
© Siemens Wind Power 2014. All rights reserved.
Page 22
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1
Different nature of cost-base and price-base
subsidies: We don‘t count renewable price subsidies
as they don‘t distort the cost base
Structure of cost-base subsidies
e.g. government carrying costs caused by producer
Structure of price-base subsidies
e.g. feed-in-tariff or price premium
Line of visibility
Line of visibility
4,0
4,0
0,0
4,0
5,0
1,0
2,0
3,0
3,0
2,0
True costs Cost-base
subsidy
2,0
1,0
Apparent
costs
Profit
Price
• Cost-base subsidies create an apparent or visible cost
base that seems lower than the true cost (when
addressed by cause)
• Example: The disposal costs for nuclear waste are not
fully carried by the plant operator; hence he does not
show the full costs he causes
True
costs
Cost- Apparent
base
costs
subsidy
Profit
Real
price
Subsidy Subsidised
price
• Pure price-base subsidies have true costs at the same
level as apparent costs (no hidden costs).
• The subsidy is used to lower the real price to a
competitive price level
• There are no hidden costs behind the line of visibility
SCOE is focusing on comparing the true costs of electricity generation. That is
why cost-base subsidies are included, but price-based subsidies are not.
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2
Conventional technologies‘ costs have been
receiving subsidies up to today that lower their
apparent cost base.
Global direct subsidies estimates
Per-Country direct Subsidies to conventional fuels
2010
2010
Fossile Fuels
16,8
Renewables
7,0
Global
Germany
United Kingdom
EUR/MWh
EUR/MWh
EUR/MWh
Hard Coal
Natural Gas
Nuclear Power
43,7
2,5
0,4
0,5
33,4
45,1
Sources:
Sources:
BNEF Press Release July 29, 2010: Subsidies …
Energy consumption: Eurostat 2010
Subsidies: OECD (http://www.oecd.org/site/tadffss/),
Financial Times (http://www.ft.com/intl/cms/s/0/fda9ea9a-ac29-11e2-a06300144feabdc0.html#axzz2V9jJs2J9)
FÖS 2011 (http://www.foes.de/pdf/2012-08-Was_Strom_wirklich_kostet_lang.pdf)
Only subsidy components considered that lower cost base of technology
IEA 2012, Key world energy statistics
Assumptions: Net efficiency gas: 60%, coal: 45%
Conventional energy sources have received several kinds of governmental
support during their introduction phase to allow for quick and efficient scale-up.
Many of these subsidy mechanisms are still in place.
To create a level playing ground, all subsidies have to be made transparent.
© Siemens Wind Power 2014. All rights reserved.
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Siemens Wind Power August 20, 2014
Climate Change Prevention
A fair CO2 price of 40 EUR/t would give coal a cost
surplus of 22 EUR/MWh
Lifecycle CO2
emission
Cost for CO2
Cost
Increase
kg/MWh
EUR/MWh
EUR/MWh
Nuclear
12
Coal
781
Gas
429
0,1
0,5
+0,4
7,8
31,2
4,3
17,1
+23,4
+12,9
Photovoltaics
41
0,4
1,6
+1,2
Wind Onshore
11
0,1
0,4
+0,3
Wind Offshore
12
0,1
0,5
+0,4
Today: 10 EUR/t CO2
Future: 40 EUR/t CO2
Sources:
IPCC 2014, Working Group III: "Climate Change 2014:Mitigation of Climate Change", Annex III, page 10:
http://report.mitigation2014.org/drafts/final-draft-postplenary/ipcc_wg3_ar5_final-draft_postplenary_annex-iii.pdf
Assumption of 40 EUR/to as a lower end of fair CO2 price: McKinsey 2007:
http://www.epa.gov/oar/caaac/coaltech/2007_05_mckinsey.pdf
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3
2
Especially nuclear plant operators are not held
responsible for all costs in their value chain
“At Pennsylvania’s Three Mile Island in
1979, one reactor partially melted in the worst
U.S. accident, earning a 5 rating. Its $973
million repair and cleanup took almost 12
years to complete” (Bloomberg, 30.03.2011)
In addition to the currently known subsidies, there are hidden cost risk due to
environmental damage or catastrophies which tax payers have to come up for.
We assumed a virtual insurance fee against nuclear desasters of 14 EUR/MWh.1
Sources: 1 Versicherungsforum Leipzig 2011: Berechnung einer risikoadaquaten Versicherungspramie zur Deckung der Haftpflichtrisiken,
die aus dem Betrieb von Kernkraftwerken resultieren
http://www.bee-ev.de/_downloads/publikationen/studien/2011/110511_BEE-Studie_Versicherungsforen_KKW.pdf
© Siemens Wind Power 2014. All rights reserved.
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3
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
© Siemens Wind Power 2014. All rights reserved.
Page 27
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Siemens Wind Power August 20, 2014
The CO2 emissions assigned to burning fuel are not
capturing the whole story
Fuel
generation
During mining:
• Energy and auxiliary
materials for well
operations
Fuel
distribution
• fuel consumption
for transportation
• Pipeline leakage
Power plant
construction
Power plant
operations
• Auxiliary power,
• Energy and raw
people and material
materials for
transport and
construction
logistics
• Operations of
auxiliary equipment
and transport to site
Burning fuel
• Chemical
conversion of
carbon share of fuel
to CO2
Direct emissions
base for CO2
certificate trade
Lifecycle emissions
determining impact on CO2 concentration in the atmosphere
© Siemens Wind Power 2014. All rights reserved.
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Siemens Wind Power August 20, 2014
Environmental impact
We use two different approaches to measure the
impact of carbon dioxide
1•
Fair value of CO2 view:
2•
Powerplant operators view
•
Regardless of local legislation, we address a price to
CO2 emissions that is considered high enough to
compensate the adverse effects
•
•
Calculation: Lifecycle emissions per MWh x
fair CO price (=40 EUR/to)
Based on assumptions of CO2 prices given by local
authorities (e.g. national governments, EU), we
calculate what an operator needs to pay for his direct
emissions
•
Calculation: Direct emissions per MWh x certificate
price (depending on location)
UK Example
2025
Price tag
EUR/to CO2 80
2
724 kg/MWh @ 80,7 EUR/to
70
58
60
EUR/MWh el
50
1
40
781 kg/MWh @ 40 EUR/to
30
20
31
10
EUR/MWh el
0
0
200
400
600
800
CO2 Emissions kg/MWh
Even if self-imposed CO2 prices are not in place, the environmental damage comes at a cost.
Therefore we use a fair value as a second referencein case the self-imposed mechanisms fall
short.
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3
Climate Change prevention
Government aims to put a fair price to CO2 will make
especially coal-fired power plants less competitive.
Carbon price floor targets United Kingdom
EUR/t CO2
100
CO2 lifetime
average price for a
power plant going
online in this year*
90
80
70
Fair CO2 price
87
81
Marginal costs of
CO2 reduction
measures to keep
global warming
below 2°C:
87
67
60
62
50
40-50 EUR/t2
40
CO2 carbon
price floor
per year
37
30
20
2 Source: McKinsey,
http://www.epa.gov/oar/caaac/c
oaltech/2007_05_mckinsey.pdf
10
0
2010
2015
2020
2025
2030
Source: UK Department of Energy and Climate Change: Updated short-term traded carbon values used for UK public policy appraisal, Oct 2012
https://w w w .gov.uk/government/uploads/system/uploads/attachment_data/file/41794/6667-update-short-term-traded-carbon-values-f or-uk-publ.pdf
* A power plant going online in 2025 will pay CO2 taxes from 2025-2055 (30 years lifetime).
For LCOE, the lifetime discounted value of CO2 emission is considered, not only the one in the starting year.
Recently low CO2 certificate prices are not reflecting actual cost of CO2, but are a
result of too optimistic demand forecast. Corrective action required by EU
governments to reach fair pricing of CO2.
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4
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
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4
In onshore, the industry already demonstrated an
impressive track record of cost reduction, with grid
parity in reach
Learning curve: Onshore Levelised Cost of Electricity (LCOE)
EUR/MWh
350
300
Assumed underlying onshore
wind learning curve
i.e. same rate of cost improvement (13%)
for each doubling of capacity
250
200
LCOE range Gas/Coal
incl CO2
Conservative progression
(10 % learning rate)
150
Siemens forecast
(Low wind)
100
50
Real wind power data points
0
1980
1985
1990
1995
2000
Siemens forecast
(high wind)
2005
Annual installations actuals and forecast
GW
0,4
0,2
1,3
2010
32,8
4,0
2015
37,3
Variable cost range
Gas/Coal incl CO2
2020
38,9
2025
46,8
Optimistic progression
(16% learning rate)
2030
49,6
11,3
Source: own analysis by learning curve methodology of known LCOE datapoints and market installation actuals and forecasts
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4
But high wind sites are already utilised to a great
extent. Mid/low wind sites can still be extended, but
will have higher costs.
Distribution of installations in Germany
Status: End 2012
Wind resources Germany
Power
density
MW/km²
Installed fleet: ~ 31 GW (End 2012)
Source: Fraunhofer IWES 2013: Windenergie Report Deutschalnd 2012,
http://windmonitor.iwes.fraunhofer.de/bilder/upload/Windenergie_Report_Deutschland_2012.pdf
Mean wind speed
m/s
Total potential: ~ 198 GW (=2% of land usage)
Source: BWE 2012, Potenzial der Windenergienutzung an Land
http://www.wind-energie.de/sites/default/files/download/publication/studie-zum-potenzial-der-windenergienutzungland/bwe_potenzialstudie_kurzfassung_2012-03.pdf
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Siemens Wind Power August 20, 2014
Some studies assume that property values decline
around onshore wind farms; social acceptance is
also influenced by visual impact
Hypotheses
One of the major obstacles to wind
onshore is reluctance against the
visual impact
Findings
House prices decline around wind
farms by ~3% in a 5 km radius1
Result
Result
Per MWh, the house price
decline accounts for ~4-5 EUR
5 km
9d
7d
Wind farm,
12 turbines
d= rotor diameter
Visually impacted area
1 Source:
Note:
Heintzelman/Tuttle 2011: Values in the Wind.
http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1887196_code1021813.pdf?abstractid=1803601&mirid=3
Other recent sources say there are no relations between wind farms and house prices. To have a safe assumption, we used one of the more pessimistic cases.
© Siemens Wind Power 2014. All rights reserved.
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4
4
Social Impact
Visual impact by wind farms will rise significantly if
current offshore plans are replaced by onshore wind
UK Onshore Wind Farm Density Today
UK Onshore Wind Farm Density 2030
with all offshore plans moved onshore
Average distance between wind farms: 31,3 km
Average distance between wind farms: 12,4 km
Land area from where wind farms visible: 15%
Land area from where wind farms visible: 99%
50km
50km
10km
10km
Legend:
visually affected are of one single wind farm
Assumptions
Legend:
visually affected are of one single wind farm
Assumptions
Onshore additional installations
Of fshore plans move onshore
Average onshore w indfarm size
Average turbine rating
Visibility around w ind farm
0
0
12,0
2,3
5,0
(0% of 5,85 GW)
(0% of 35 GW)
turbines
MW
km
Onshore additional installations
Of fshore plans move onshore
Average onshore w indfarm size
Average turbine rating
Visibility around w ind farm
5,85
35
12,0
3,0
5,0
(100% of 5,85 GW)
(100% of 35 GW)
turbines
MW
km
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4
Social Impact
Visual impact by wind farms will rise significantly if
current offshore plans are replaced by onshore wind
DE Onshore Wind Farm Density Today
DE Onshore Wind Farm Density 2030
with all offshore plans moved onshore
Average distance between wind farms: 14,1 km
Average distance between wind farms: 11,7 km
Land area from where wind farms visible: 72%
Average wind farms visible: 1,1
Legend:
visually affected are of one single wind farm
Assumptions
50km
50km
10km
10km
Legend:
visually affected are of one single wind farm
Assumptions
Onshore additional installations
Of fshore plans move onshore
Average onshore w indf arm size
Average turbine rating
Visibility around w ind f arm
0
0
12,0
2,3
5,0
(0% of 10 GW)
(0% of 15 GW)
turbines
MW
km
Onshore additional installations
Of fshore plans move onshore
Average onshore w indfarm size
Average turbine rating
Visibility around w ind farm
10
15
12,0
3,0
5,0
(100% of 10 GW)
(100% of 15 GW)
turbines
MW
km
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Social Impact
Studies show that consumers are willing to accept
higher electricity prices for lower visual impact.
People’s willingness to pay to get offshore wind farms out of sight is expected to
reflect the onshore situation to the same extent.
Sources:
1 Ladenburg/Dubgaard 2007: Willingness to Pay for Reduced Visual Disamenities from Off-Shore Wind Farms in Denmark.
http://www.webmeets.com/files/papers/ERE/WC3/881/Willingness%20to%20Pay%20for%20Reduced%20Visual%20Disamenities%20from%20OffShore%20Wind%20Farms%20in%20Denmark.pdf
2 Navrud, S. (2004): MILJØKOSTNADER AV VINDKRAFT I NORGE Sammendragsrapport til SAMRAM-programmet.Norges Forskningsråd.Notat .Institutt for Økonomi og
Ressursforvaltning.Universitetet for Miljø- og Biovitenskap (UMB).
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4
5
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
© Siemens Wind Power 2014. All rights reserved.
Page 38
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Siemens Wind Power August 20, 2014
Localisation of supply chain
Due to component size and high lot sizes, Wind
Offshore is more suitable and in need for localisation
Units to be installed for annual production of 10 TWh
Drivers of localisation
# Units
Nuclear
1,0
Coal
2,0
Low unit # and relatively simple
component logistics
Very few items requiring
sophisticated logistics
2,3
Gas
Wind
Offshore
366 turbines
1098 Blades
1464 Tower segments
27‘500‘000
PV
modules
Logistical complexity and
component size
Simple component logistics
(container shipment) decreases
need for local supply chain
The critical mass for building a partially local supply chain is far lower for wind
offshore than it is for other energy sources (especially conventionals)
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5
5
Job creation by Wind Offshore
The level of GDP impact depends on the scope of
localisation (Scenario UK 2020)
Gross GDP Return
[% of LCOE]
73,0
Nuclear
36,0
Coal @ 0% local fuel
Coal @ 50% local fuel
Coal @ 100% local fuel
Gas @ 0% local fuel
Gas @ 50% local fuel
Gas @ 100% local fuel
Photovoltaics
Assumptions
63,0
90,0
18,0
61,0
103,0
CAPEX local content %
• Nuclear:
35
• Coal:
35
• Gas:
37
• PV:
40
• Wind Onshore:
25-39
• Wind Offshore:
27-40
53,0
Wind Onshore low localisation
Local tower manufacturing
Local rotor manufacturing & assembly
Local nacelle assembly
Wind Onshore with max localisation
67,5
2,6
11,7
4,8
86,6
Wind Offshore low localisation
Local foundation manufacturing
Local tower manufacturing
Local rotor manufacturing & assembly
Rotor Export (100% on top)
Local nacelle assembly
Wind Offshore max localisation
62,0
6,0
1,5
6,6
4,4
5,4
85,9
Share of domestic fuel %:
• Gas:
0-50-100
• Coal
0-50-100
• Nuclear
100
Sources:
Own analysis, mainly based on
Ernst&Young 2012: Analysis of the value creation potential
of wind energy policies (Link)
Assumptions:
CAPEX GDP impact is comparable for all conventional
technologies (nuclear, coal gas)
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5
While coal relies to a great extent on exploitation of fossil
resources with low value add impact, wind value chain is
consisting of multiple layers of value add activities
Main value add components
LCOE
Split by %
Coal
Fossil resources
Fuel
Mining &
Processing
47%
Mining Equipment
Wind
OPEX
10%
Spare parts
Monitoring
Servicing
CAPEX
43%
Parts
mfg
Component assy
Construction & erection
OPEX
Fleet operations
Servicing
Spare parts
Monitoring
26%
Copper mfg
Generator assy
Steel mfg
CAPEX
Nacelle assy
Tower mfg
Installation
74 %
Tool mfg
Raw mat mfg
Blade mfg
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5
Offshore wind has superior local effects on
employment – creating wealth for the economy
• It creates more local employment opportunities and has a more positive impact on GDP
than any other energy source.
• Especially in structurally weak areas in urgent need of jobs and investment.
21‘000
billion
job years
For every billion EUR invested in
wind power, 21‘000 people are
employed for one year in the EU.
Sources:
Already more than 35% of
contracts awarded for the
production & installation of
Offshore Wind farms go to UK
companies
86% of service contracts are
allocated locally.
Ernst&Young 2011: Analysis of the value creation potential of wind energy policies (Link)
BVG Associates 2011: UK content analysis of Robin Rigg offshore wind farm (Link)
BVG Associates 2012: UK content analysis of Robin Rigg Offshore Wind Farm O&M (Link)
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5
Job creation by Wind Offshore
Wind Offshore helps regions and sectors with
structural problems to raise employment
Germany Offshore Industry:
• 90% of value add created in small and medium-sized enterprises1
• Already 18‘000 dedicated jobs, especially in Northern Germany2
• Creating employment in structurally lagging region and sectors
Wind offshore is especially catching up for job losses in rural areas and in the
marine sector, reducing structural unemployment
1 PwC, http://www.pwc.de/de/energiewende/offshore-windenergie-kommt-gewaltig-in-fahrt.jhtml
2 Handelsblatt: http://www.handelsblatt.com/unternehmen/industrie/hochsee-windkraft-tausende-jobs-in-offshore-branche-in-gefahr/8274098.html
© Siemens Wind Power 2014. All rights reserved.
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Siemens Wind Power August 20, 2014
Myth: Offshore only gives employment to Northern countries in
Germany
Fact: Offshore Wind creates value-add and employment all across
Germany
Share of Offshore Turbine Value-add [%]
18%
13%
12%
Source: PwC/wab 2012: Volle Kraft aus Hochseewind
http://www.wab.net/images/stories/PDF/studien/Volle_Kraft_aus_Hochseewind_PwC_WAB.pdf
Confidential © Siemens AG 2013 All rights reserved.
Page 44
June 27, 2013
Christoph Neemann / E W ST MC
5
Wind power costs are man-power intensive; moreover, a high proportion is sourced locally
United Kingdom fuel import rates and sources
Cost elements of LCOE
in % of total LCOE (excluding CO2 costs)
74
Fuel imports
26
82
18
Fuel imports
43
10
19 6
CAPEX OPEX
Sources:
47
75
Fuel
LCOE: Siemens-internal analysis
Gas & Coal imports and sources: https://www.gov.uk/government/publications
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5
Job creation by Wind Offshore
Once built up, a local supply chain can also serve
export markets
Offshore Installation
Targets/Estimates
Northern European Countries
in GW by 2030 (*2020)
United Kingdom
Germany
France
Netherlands*
Sweden*
Denmark*
Belgium*
Total ex UK
38,0
15,0
15,0
6,0
3,0
2,8
2,0
41,8
Building expertise on crafting wind turbines can lead to a benefitial export
business case, fostering local growth and employment
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6
The analysis will try to bring some substantiation
into a set of hypotheses
0
1
2
3
4
5
6
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.
Wind power creates more local employment and positive GDP impacts than
other energy sources.
Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
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6
Geopolitical independency
Fossil fuel prices are volatile and subject to
geopolitical sensitivities.
Henry hub Natural gas spot price
USD/mmBTU
Hard coal prices
USD/to, Central Appalachian
14
350
12
300
10
250
8
200
6
150
4
100
2
50
0
01/'06 01/'07 01/'08 01/'09 01/'10 01/'11 01/'12 01/'13
0
Source: U.S. Energy Information Administration (http://www.eia.gov)
Fuel prices of conventional sources, especially natural gas are volatile; moreover
the limitations of their availability create a bottleneck risk.
Approach to valuation of geopolitical impact:
Import share of fuel x fuel costs x hedging premium (~17 % for gas) = geopolitical costs
Hedging premium derived from long-term (2 years) future hedges on fuel prices
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Can society afford
(offshore) wind power?
!
?
How can society afford
not to do (offshore) wind power?
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Page 49
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Siemens Wind Power August 20, 2014
Summary: Why SCOE changes the way you look
at the electricity mix
Onshore und Offshore Wind will be the most cost competitive
electricity sources on macro-economic level by 2025
The continued build-out of wind power will take place less out of
political reasons, but out of economical reasons
Flexible gas power plants are the most cost-efficient backup
technology
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Siemens Wind Power August 20, 2014
Annex
Restricted © Siemens Wind Power 20XX All rights reserved.
Page 51
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Author / Department
Summary of Key assumptions
Projection for United Kingdom in 2025 –
Average Scenario
Summary of Key assumptions
Projection for United Kingdom in 2025 - custom Scenario
Technology-specific assumptions
Topic
LCOE
Item
Units
General Nuclear
Fuel costs
EUR/MWh_therm
4
Capacity factors
%
92
Environment CO2 emission rate
g/MWh
0
CO2 price
EUR/t
81
CO2 costs per MWh
EUR/MWh
0
Baseload level
% of rated power
94
Intermittency
Fixed costs of gas backup
EUR/MWh
15,2
Transmission grid investment
kEUR/MW
Transmission
Distribution grid investment
kEUR/MW
Avg house price decline
%
5,0
Impact radius house prices
km
3,0
Average population density vs country average
%
20
Social
Average House price value total country
EUR/sqm
1.953
Average living space per person
sqm/person
44
House price level vs average
%
50
Local content CAPEX
%
35
Economy
Local content OPEX
%
80
Domestic fuel share
%
95
Geopolitical Hedging costs
% of fuel price
8,3
Coal
Gas
Photovoltaics
Wind
Onshore
Wind
Offshore
10
86
330
26
63
200
11
0
37
0
54
0
58
97
26
100
0
0
0
6
0
12
5,0
3,0
5,0
3,0
61
0,0
0,0
61
5,5
3,0
0,0
0,0
35
80
34
11,6
35
80
22
16,5
35
80
0
0,0
35
80
0
0,0
38
80
0
0,0
92
General assumptions
Topic
Economy
Item
GVA Multiplier CAPEX
GVA Multiplier OPEX
GVA Multiplier Fuel
Units
Value
1,67
1,33
1,14
E W ST MC / CWN / 2014-08-25 / Projection for United Kingdom in 2025 - custom Scenario
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Summary of Key assumptions
Projection for Germany in 2025 –
Average Scenario
Summary of Key assumptions
Projection for Germany in 2025 - custom Scenario
Technology-specific assumptions
Topic
LCOE
Item
Units
Fuel costs
EUR/MWh_therm
Capacity factors
%
Environment CO2 emission rate
g/MWh
CO2 price
EUR/t
CO2 costs per MWh
EUR/MWh
Baseload level
% of rated power
Intermittency
Fixed costs of gas backup
EUR/MWh
Transmission grid investment
kEUR/MW p.a
Transmission
Distribution grid investment
kEUR/MW
Avg house price decline
%
Impact radius house prices
km
Average population density vs country average
%
Social
Average House price value total country
EUR/sqm
Average living space per person
sqm/person
House price level vs average
%
Local content CAPEX
%
Economy
Local content OPEX
%
Domestic fuel share
%
Geopolitical Hedging costs
% of fuel price
General
Nuclear
Coal
Photovoltaics
Gas
Wind
Onshore
Wind
Offshore
4
92
0
10
86
330
26
63
200
11
0
37
0
54
0
0
94
23
97
10
100
0
0
0
6
0
12
100
5,5
3,0
0,0
0,0
35
80
0
0,0
35
80
0
0,0
32
15,2
13
5,0
3,0
5,0
3,0
5,0
3,0
100
0,0
0,0
35
80
0
8,3
35
80
0
11,6
35
80
14
16,5
35
80
0
0,0
20
1.800
45
50
General assumptions
Item
Topic
Economy
GVA Multiplier CAPEX
GVA Multiplier OPEX
GVA Multiplier Fuel
Units
Value
1,67
1,51
1,14
E W ST MC / CWN / 2014-08-25 / Projection for Germany in 2025 - custom Scenario
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5
Evaluation principle GDP Impact
Key drivers are local value-add and multipliers for
indirect and induced labour.
Rationale of gross economic impact
Fuel
OPEX
0-100%
75-85%
x 1,14
Domestic
Fuel
x 1,39
Domestic
OPEX
CAPEX
LCOE
Split
10-50%
x 1,67
Domestic
CAPEX
Local
content
Fuel
impact
OPEX
Impact
CAPEX
Impact
Domestic
GDP
Gross
Value-add Multipliers Economic
benefit
• All money spent on electricity, i.e. LCOE,
can be traced back to fuel, CAPEX and
OPEX.
• An economy only benefits from these
spendings if they take place locally
• The domestic value add is defined as the
sum of localised profits and local labour.
These two elements will go into the GDP.
• The local value add triggers further
employment up the value chain. This
effect is reflected by multipliers that differ
by the type of work conducted.
• Example: A blade manufacturing facility
will most likely trigger a higher local
production of glas fibers or moulds at
suppliers. Close to the new
manufacturing site, a bakery, a
supermarket and a hotel will open,
creating further employment.
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5
Economic impact
Compensation for high gross effect
Gross economic impact
„Economic
advantage“
Minimum
86,0
Nuclear
71,0
Coal
Gas
65,0
94,0
Photovoltaics
Minimum
Wind Onshore
Wind Offshore
56,0
100,0
“Economical advantage” is the delta to the energy source with the lowest gross
economic impact .
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