Make It All Count

The latest edition of a cost study from the IEA and the OECD NEA examines how the value to the overall supply system affects the costs of different electrical energy sources.

The result of IEA’s value adjusted LCOE metric show… that the system value of variable renewables such as wind and solar decreases as their share in the power supply increases.

This conclusion won’t be surprising to studious practitioners of energy economics, who will nevertheless realise the general value of displacing considerable amounts of fossil fuel consumption through adding affordable renewable capacity to emissions-intensive power grids.

The surprise, to some, is more likely to be the result of a wide survey of contemporary nuclear project costs. Remember, capital intensive energy technologies that feature low operating costs are particularly sensitive to the discount rate chosen for the analysis. As energy writer Rauli Partinen put it:

Why do we see nuclear costing near €100 per MWh in some reports? There is one overwhelming reason: discounting. It’s a complex topic, but to simplify: When economists and investors compare the net present value of an investment, they discount the future production value at some annual rate, often between 3% and 10%.

When discounted, electricity (or anything else, for that matter) produced 10 or 20 years from now has only a small fraction of today’s value… Using discounting might be prudent economic thinking, as we always prefer the present to the future, but with large issues like clean energy and climate change, it is also an ethical choice we make towards future generations.

…discounting should have a minimal role in society-level sustainability and climate discussion. Why? Because discounting the future generations does not fit within the idea of sustainability; it is, in fact, the very opposite of it. We are supposed to be leaving the earth a better place for our descendants. Discounting is one of the economic mechanisms that can make this practically impossible.

While the LCOE (levelised cost of electricity) of existing nuclear assets with lifetime extensions is obviously very competitive, it turns out so are new reactors, when the cost of finance is reflective of what’s often called a social discount rate.

At a historical average exchange rate, this median LCOE is equivalent to $60 per megawatt hour, Australian.

So how does this compare? Tread carefully — naïve comparisons of LCOE numbers cause innumerable misunderstandings. But the metric can be useful

…predominantly for assessing trends in generation costs for a given technology type over time — and only for comparison between technologies where their cost structures and technical characteristics happen to be very similar, meaning that they will play similar roles in a real world electricity system.


With that $60/MWh in mind, what if we imagined replacing ageing Australian coal stations?

Again, we must be careful — $60/MWh is for an Nth of a kind nuclear units, operating at 85% annual load factor. There’s no suggestion at all that Australia’s first power reactor could achieve this in only a couple of years. Then again, replacing a single coal power station with a combination of up to eight individual components hasn’t been done before either. But it’s interesting to note that even changing the discount rate from 3% to the IEA’s baseline value of 7%, the new nuclear median LCOE comes out to the equivalent of $92/MWh Australian — still lower than power from life-extended coal. Ideally, these results will help inform ongoing work on anticipated costs and value.

Another way of discerning the significance is to compare the LCOE to the potential revenue in the National Electricity Market.

Source. While wholesale prices have fallen for the past year, the principle reason — lower gas prices — is unsustainable, especially in the context of deep decarbonisation.

The transition in the market is undergoing a certain level of planning. Accounting for transmission expansion, and under certain energy source price assumptions, an indicative week in fifteen years time could look something like these.

Roughly, at least 6 and at most 14 gigawatts of fully dispatchable, firm coal. Could be modern nuclear instead.

Seems like we should be able to affordably displace considerable amounts of fossil fuels with nuclear, too.

Oscar Archer holds a PhD in chemistry and has been analysing energy issues for over 15 years, focusing on nuclear technology for six, with a background in manufacturing and QA. He helps out at Adelaide-based Bright New World as Senior Advisor (we want your support!) and writes for The Fourth Generation. Find him @OskaArcher on Twitter.

Eco-modernism, clean energy abundance and enhanced opportunity for future generations.

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