Energy 101

Energy Technology and Policy

Dr. Michael E. Webber The University of Texas at Austin

Module 21: Electricity IV--Energy Pricing & Valuation

Webber Energy Group

1

Power Plants are Dispatched by Price and Availability

Webber Energy Group

2

A Load Duration Curve Shows the Distribution of Load Throughout the Year
Courtesy: Sanders

Webber Energy Group

3

ERCOT Dispatches Power Plants in the Order of Least Marginal Cost

Power plants dispatched so

that supply = demand

Marginal Cost =

Example: If demand is 50,000 MW, all power plants to the left of the line are dispatched

VOM + HR x FC
[Sanders 2012]

! VOM = Variable Operations and Maintenance Costs ($/MWh) ! HR = Heat Rate (MMBTU/ MWh) ! FC = Fuel Cost ($/MMBTU)

Capacity (MW)

Webber Energy Group

4

Decreasing Natural Gas Prices Have Shifted The Merit Order For ERCOT Dispatching

[Sanders, Blackhurst, and Webber 2013]

Webber Energy Group

5

The Prices at Which Power Plants Bid are Determined by Power Plant Economics

Webber Energy Group

6

There are Two Types of Costs for Power Plants

Variable Costs: Spent

! Fuel ! Variable Operations & Maintenance (O&M)

when running the plant

Fixed Costs: Must be

spent, even if plant is off

! Fixed O&M, Taxes, and Insurance ! Capital costs (building the power plant)

Webber Energy Group

7

Variable Costs are a Function of Several Parameters

Variable Costs (VC) are a function of:

! Heat Rate (HR): expressed in [BTU/kWh] ! Capacity (CAP): expressed in [MW] ! Fuel Costs (FC): expressed in [$/BTU] ! O&M costs (OM): expressed in [$/kWh] ! Capacity Factor (CF): expressed in %

Variable costs are typically expressed as

! $/yr, $/kWh, $/MWh
Webber Energy Group
8

Nuclear has the Highest Average Capacity Factor

2009 U.S. Average Capacity Factors by Energy Source
Source: U.S. Energy Information Administration / Electric Power Annual 2009 Graphic: Michael E. Webber, The University of Texas at Austin

Nuclear Coal Natural Gas CC Hydroelectric Renewable Natural Gas Petroleum All Sources 0% 25% 50% Average Capacity Factor 75%
Michael E. Webber

Capacity factor is a function of:

1. Reliability 2. Use 3. Fuel availability

100%

Actual Output [MWh] = Capacity Factor ( 365 days ) ! ( 24 hours/day ) ! ( Rated Capacity [ MW])
Webber Energy Group
9

Calculating Variable Costs Requires Information About the Power Plant and Fuel
Variable costs [$/kWh] are a function of fuel
costs, heat rate and O&M expenses

$ ! # = [ FC % HR + OM ] VC " kWh $ $ $ $ ! # BTU ! # ! # ! # ! # + OM VC = FC % HR " kWh $ " kWh $ & " BTU $ " kWh $ ' " $

Webber Energy Group

10

Calculating Variable Costs Requires Information About the Power Plant and Fuel
Variable costs [$/yr] are a function of fuel costs, heat
rate, O&M expenses, capacity and capacity factor

( ! $ $ VC ' e = FC ' HR + OM [ ] yr # & " %

! $ $ VC ' CAP ' CF ' 8760 = FC ' HR + OM [ ] [ ] yr # & " %

Webber Energy Group
11

Calculating Variable Costs Requires Information About the Power Plant and Fuel
( ! $ $ VC ' e = FC ' HR + OM [ ] # " yr & %

( ! kWh ! $ $ $ $ $ ! $ BTU ! $ ! $ ! $ + OM VC = FC ' e ' HR " yr & kWh % # # " BTU % " kWh % & " % " yr & % # " %

! $ $ ' CAP ' CF ' 8760 = FC ' HR + OM VC [ ] [ ] # " yr & % ! $ ! $ ! $ $ $ $ ! $ BTU hrs ! $ ! $ ! $ + OM VC ' HR ' CAP [ kW ] ' CF ' 8760 = FC " kWh % yr & # # " BTU % " kWh % & " % # " yr & % # " %& " %
Webber Energy Group
12

There are also Capital Costs for Power Plants

Cost for Capacity: $/W or $/kW
Fuel Natural Gas (Turbine) Natural Gas (Combined Cycle) Wind Solar PV Coal (Pulverized) Coal (IGCC) Nuclear
! Overnight price ! aka Capital Cost (CC)

Capacity Cost per kW $650 $1,230 $1,980 $2,830 $2,890 $4,010 $6,100

Rule of thumb 19902007:

! ~$1/W ! ~$1000/kW ! ~$1,000,000/MW

! Capacity:

! A power plant capable of generating 1000 MW (1 GW) power would cost $1 billion
2010 CAPEX costs for new capacity from Black & Veatch (Feb 2012)

Webber Energy Group

13

Solar CAPEX Costs Have Been Falling

EPC = Engineering Procurement Construction BOP = Balance of Plant (other supporting infrastructure)

Webber Energy Group

14

Capital Costs Are Usually Amortized Over Decades, NOT overnight

n = term of the loan (yrs) = planned life of

the system

i = interest rate (%/yr) P = principal amount of loan ($) A = annual loan payment ($) M = monthly loan payment ($) T = total payment ($) = n x A = 12 x n x M
Webber Energy Group

i(1 + i ) A= P! n (1 + i ) " 1
n

( )(1 + ) M = P! (1 + ) " 1
i 12

i 12 n 12 i 12 n n

15

Annualized Capital Costs Depend on the Lifetime of the Power Plant

Question: What is the lifetime of a power plant? Answer: Its like my grandfathers axe. Its had 6 new heads and 5
new handles, but its still my grandfathers axe.
! Source: Hoff Stauffer

Power plants last as long as the owner continues to invest in them Typical periods are 20 to 40 years

Webber Energy Group

16

The Total Costs Include the Variable and Capital Costs

Total Cost (TC) = Variable Cost (VC) + Cap Cost (CC) Fixed & Variable [$/kWh], [$/yr] Someday there might also be additional costs
! Emissions: [$/tonNOx, $/tonSOx, $/tonCO2] ! Water: [$/gallon]

! $ ! $ ! $ $ $ $ TC = VC + CC yr yr yr # & # & # & " % " % " %

Webber Energy Group
17

Costs can be Normalized and Compared by the Levelized Cost of Electricity (LCOE)

! # Total Cost " $ $ LCOE [ kWh ] = kWh # Annual Electricity Generation ! " yr $
$ yr

LCOE [

$ kWh

] = [CAP % CF % 8760 ] !
"

[VC+CC] ! "

$ yr

# $

kWh yr

# $

Webber Energy Group

18

The Price for Electricity Generation Depends on the Costs Plus Other Factors

Cost of Electricity: /kWh

! Includes capital charge, fuel costs, O&M costs

Price of Electricity
! Regulated: Historically, prices are xed for consumers regardless of fuel costs, time of day, season, or location ! Market-Based: price depends on markets (supply & demand, prots, etc.) ! Moving towards smart meters and real-time pricing ! Typically ~$0.10-14/kWh for commercial/residential

Webber Energy Group

19

LCOE of Installed and Planned Fleet Varies From $0.06 to $0.275/kWh

Prices listed in $/MWh Values include installed capacity

Webber Energy Group
20

Dr. Michael E. Webber

Webber Energy Group

21