Levelling the playing field of grid cost

29 November 2012

The widely differing costs of supplying electricity from different generating options to the grid must play a part in future energy decisions, and must be internalised for each low-carbon generation option, according to a new report by the OECD Nuclear Energy Agency (NEA).

The report, Nuclear Energy and Renewables: System Effects in Low-carbon Electricity Systems, addresses the way that variable renewables and so-called dispatchable energy technologies (specifically coal, gas and nuclear) interact in terms of their effects on electricity systems. All power generation technologies cause system effects, and by virtue of being connected to the same grid and delivering to the same market, they exert impacts on each other, for example with dispatchable technologies needing to be brought into or out of play to balance variable input from renewables.

Grid-level system costs are the costs above plant-level to supply electricity to the grid. Broadly these comprise costs for additional investments to extend and reinforce transport and distribution grids, as well as to connect new capacity; and the costs for short-term balancing and the maintenance of long-term secure electricity supplies.

The study considers six technologies in detail: nuclear, coal, gas, onshore wind, offshore wind and solar. It finds that the so-called dispatchable technologies - coal, gas and nuclear - have system costs of less than $3 per MWh, while the system costs for renewables can reach up to $40 per MWh for onshore wind, $45 per MWh for offshore wind and $80 per MWh for solar. The costs for renewables vary depending on the country, technology and penetration levels, with higher system costs for greater penetration of renewables.

Currently, the report notes, these costs tend to be unacknowledged and are absorbed by consumers through high network charges and by the producers of dispatchable energy through reduced margins and lower load factors. Failing to account for system costs is, NEA says, "adding implicit subsidies to already sizeable explicit subsidies for variable renewables." Moreover, as long as this situation continues, the agency says, dispatchable capacity will not tend to be replaced at the end of its operating life and security of supply will thereby be weakened further.

In the shorter term, nuclear can be expected to fare better than coal or gas because of its low variable costs. In the longer term, however, nuclear could find itself "disproportionately" penalised when investment decisions need to be made because of its high fixed costs. Paradoxically, the introduction of variable renewables in systems that currently use nuclear energy are likely to lead to a future increase in carbon emissions as higher-emitting fossil fuel choices are more likely to be used as back-up.

The report recommends that system costs need to be made as transparent as possible to ensure they are fully considered in future electricity planning, and that regulatory frameworks should work to minimise system costs and ensure they are internalised. The value of dispatchable low-carbon technologies - such as nuclear - in complementing the introduction of variable renewables needs to be more effectively recognised, with steps taken to ensure that nuclear and other dispatchable low-carbon technologies remain economically sustainable. This could be achieved through a market-based framework including a combination of capacity markets, long-term contracts and carbon taxes.

Finally, the report recommends that resources should be developed to enable flexibility in future low-carbon systems. This could include developing the load-following abilities of the dispatchable low-carbon technologies such as nuclear, expanding storage capabilities and increasing international interconnections.

Researched and written
by World Nuclear News

Filed under: Regulation, Energy policy