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Category Archives: Economics
Introduction to Renewable Generation
Renewable generation includes sources of energy that renew themselves constantly through natural processes and will never run out during normal human time-scales. Renewable energies come from three primary sources: the Sun, heat from the inner Earth, and tidal power. The Sun, in turn fuels the wind and, indirectly, most biomass resources.
This next several pages present knowledge on power generation efficiency. The pages provide:
- Basic engineering definitions of electrical production efficiency,
- Fuel energy content for a wide variety of fuels, and
- Power production efficiencies by technology
The most current power production efficiencies are provided based on state-of-the-art equipment that is most recently available on the market or expected to be available within 18 months. Efficiency tables can be found using the links below:
Thermal Generation Efficiencies
Thermal generation relies on fossil fuels and renewable fuel sources like biomass, biogass, waste=to-energy and geothermal. The following section indicates thermal efficiency ranges for converting primary energy into electricity based on standard market and state-of-the-art equipment. The efficiency values reported do not include losses attributed to plant availability such as planned maintenance, unforced outages, and grid curtailments.
A fuel cell converts the chemical energy from a fuel into electricity, heat and water through a chemical reaction with oxygen. Hydrogen is the most common fuel and is produced from the steam methane reforming of natural gas, but for greater efficiency hydrocarbons can be used directly, be it natural gas, gasoline, or alcohols like methanol.
Since fuel cells rely on an electrochemical process and not combustion, emissions from fuel cells are significantly lower than emissions from even the cleanest fuel combustion processes.
Energy Content Explained
The energy content of any organic fuel is defined as the fuel’s primary energy. Primary energy is measured given the fuels calorific value or the heat generation from the complete combustion of one unit of fuel under well-defined conditions. The calorific value can be a gross or net number, depending on whether the combustible heat released takes into account the vapor condensation of water. Power production efficiency is typically calculated using Net Calorific Value (NCV) after water vaporization.
CAISO time-of-day power prices are changing. The daily price profile now reflects a growing premium in the morning and evening hours, The profile also includes a steeper price discount in the midday hours. The new time-of-day prices represent a market incentive: ramp power supply up or down more quickly on command.
Solar innovation is widespread. Examples include solar cell efficiency, module manufacturing, and learning innovations with solar system installation and operation. Solar pricing and growth are also supported by innovations in enabling technology, such as battery storage, smart grids and electric vehicles.
Modules, inverters and balance of system costs define the total installed cost of a solar PV system.
The three cost components are very simple in nature. In practice, total cost is defined using a detailed cost breakdown structure. The structure must also be applied consistently across projects and over time. The result can be improved cost modeling and management.
The economics for solar energy in Qatar are challenged by some of the lowest natural gas prices on Earth, combined with a local and subsidized electricity tariff with retail power prices of $0 to $27.40/MWh, commercial prices of $24.66 to $41.10/MWh, and industrial power prices of $19.18/MWh.
Notwisthstanding, there is still a solid business case for solar energy in Qatar given the rapid decline in capital costs since 2009, and the ability to generate revenues from displaced domestic gas demand that results following the introduction of renewable energy capacity.
Typically, the leveled cost of energy for solar PV is between $0.085 – $0.11 / kWh for GCC countries given solar irradiance, use of high efficiency panels, and cost competitive engineering. The low end of this range is best suited for vertically integrated OEMs with EPC services, or IPPs with scale in equipment purchasing who buy modules close to the cost of goods sold. But IPPs with low construction costs are making their mark.
Bloomberg has released May 2014 PV Spot Prices with current module costs (COGS), margins and sales prices. This data is extended to profile the levelized cost of energy (LCOE) for solar PV technology, and is combined with new solar efficiency data to define the LCOE roadmap for solar energy in Qatar going forward.
A critical component of the economics of solar PV in Qatar is the ability to translate solar power production into local gas market efficiencies and displacement of natural gas demand. More important: the ability to extend gas displacement into higher LNG exports AND to link the export cash flows to the income statement of the solar power systems. The result can be solar PV projects that are economically feasibility in the absence of government grants, production subsidies or tax incentives. Meanwhile, project cash flows tied to natural gas exports can be 20% to 400% greater than cash flows from power sales, depending on the domestic power tariff in force and the gas marketing strategy used.
The levelized cost of energy (LCOE) is presented by region and for different power generation technologies. The simple model ignores the impact of subsidies, financing and tax impacts to focus on relative performance by technology.
The LCOE data is compared to annual average power prices. In practice, price levels can vary over wide ranges, especially given winter weather. Several noteworthy conclusions are evident when average prices are used:
Renewable energy in Kuwait is well supported. The Kuwait Petroleum Company and the Ministry of Water and Electricity sponsored a joint study by the Kuwait Institute of Scientific Research to determine the potential for renewable energy given an optimal generation mix. Study details have been presented publicly, revealing the following model inputs: wind and solar resource assessment data, RE technology costs short- and long-term, short-term hourly demand profiles, long-term power demand forecasts, power sector plant performance, and energy price forecasts.