Wind Power in the UK (PDF). - Sustainable Development Commission

sd.commission.org.uk

Wind Power in the UK (PDF). - Sustainable Development Commission

4 Costs and benefits of wind• Fuel costs – zero for wind, wave and solar,positive for coal, gas, nuclear and energycrops, negative for ‘energy from waste’• The efficiency of the plant, in the case ofthermal sources of generation and the energyproductivity, in the case of wind, wave andsolar. The latter is normally expressed interms of kWh/kW of capacity, or a ‘capacityfactor’, which is simply the ratio of theaverage power to the rated power.Financial• Cost of capital, or test discount rate• Capital repayment periodThese financial parameters determine the‘capital cost’ element of generation costs. Asmost renewable technologies are capitalintensive they are more sensitive to changes inthese parameters, as illustrated in Table 4 ix . Witha 5% discount rate, wind appears to be only0.3p/kWh more expensive than gas, but with a10% discount rate, the gap widens to 0.9p/kWh.Usually, private sector investments will use ahigher discount rate than those commissionedby the public sector and this makes financingparameters heavily dependent on nationalinstitutional frameworks. In Denmark, forexample, the utilities generally use public sectorparameters – typically interest rates of 5%, withcapital repaid over the life of the plant. In theUnited States, however, there are no fixedcriteria; discount rates are mostly in the range8-10%, with capital repaid over periods ofbetween 15 and 20 years. As the UK’s energyindustry is fully liberalised, higher rates maywell apply.Table 4: The effect of the discount rate ongeneration costs 26PlantCCGT (gas)WindTest discountrate, %510510Gencostp/kWh2.12.32.43.2The technology specific parameters are, broadlyspeaking, independent of the location of theplant, although, in the case of wind, there aresignificant differences between wind speeds –and wind energy productivity – in differentgeographical locations. Figure 10 shows theeffect of different wind speeds on thegeneration cost of wind power using twoindicative installation costs (high and lowestimates) for both onshore and offshoredevelopments. As can be seen, a 1 m/s increasein wind speed can reduce generation costs byaround 25%.There is an additional factor, however, that canmask the underlying costs of renewable energytechnologies. As most are not yet competitivewith the conventional sources of generation,various types of support mechanism haveevolved. These mechanisms may or may notpromote ‘cost reflectivity’ – ie. they may notaccurately reflect the true cost of therenewables they are supporting. TheRenewables Obligation is the Government’scurrent support mechanism, and the public costof this is likely to be higher than the renewablegeneration it is supporting, making it a poorguide to the real cost of those renewables. Thispoint is discussed in more detail later.ixThe absolute values for CCGT may now be out of date, due to changes in the price of gas since the report was prepared.28 Wind Power in the UK sustainable development commission

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