€20/ton carbon prices in combination with high coal and gas prices have created a new tipping point in Europe, writes Dave Jones of UK-based think tank Sandbag. For the first time, new onshore wind and solar can compete with existing coal and gas plants.
On 22 August, the European carbon price hit 20 Euros. Our analysis shows rising carbon, coal and gas prices mean that for the first time new onshore wind and solar can compete with the short-term costs of generating electricity from existing coal and gas plants.
The cost of generating electricity from both coal and gas has surged since 2017. Since the start of 2017, year-ahead coal generation costs have increased by 72% to €46/MWh, and gas generation costs have increased by 43% to €49/MWh.
This is based on Thursday (23 August) market close prices when CO2 was priced at €20.42. The generation costs will be underestimates – they are calculated using only the raw input fuel and carbon costs. The true cost of generating electricity from coal and gas plants includes many real-world costs that are difficult to assess: they are commercially sensitive and differ substantially by plant.
Using gas as a “bridge” fuel away from coal doesn’t seem logical given that gas generation costs are similar to coal generation costs
They include coal transport/handling, gas entry/exit/transit, operations & maintenance, investment, water/ash disposal and air pollution abatement. In the case that new investment needs to be made – for example, installing new pollution equipment to a coal plant – the additional costs will be substantial.
Opposite direction
Wind and solar prices, meanwhile, have been trending in the opposite direction. They fell massively through 2017, and remain low in 2018. In Germany’s renewable auctions, both wind and solar have had two auctions each where the lowest bids were around €38/MWh.
The chart above shows both coal and gas generation costs breached through the €38/MWh earlier this summer, and now – at €46/MWh and €49/MWh respectively – they now sit comfortably above the cheapest wind and solar bids.
This makes it the first time that wind and solar auction prices have been demonstrably lower than short-run costs for existing coal and gas plants.
The rise in coal and gas generation costs is due not only to the rising carbon price, which has quadrupled in the last year, but also due to higher coal and gas prices. The year-ahead European coal price has risen by 30% since Jan-2017, and the year-ahead European gas price has risen by 28%.
Analysis by Carbon Tracker suggests the carbon rally may continue, reaching €25/tonne by year-end, and €35/tonne next year, as reforms to the EU Emissions Trading System finally take effect. This will further increase the costs of fossil generation, as externalities of climate damage are priced in.
Important time
Using gas as a “bridge” fuel away from coal doesn’t seem logical given that gas generation costs are similar to coal generation costs – instead moving from coal to clean looks more prudent, as we demonstrated in detail in our May 2018 report on the UK power market, Coal To Clean.
With the rise in commodity and carbon costs, and cheaper wind and solar, it has never been easier to rapidly phase-out coal
The increasing competitiveness of renewables, against even existing coal and gas plants comes at an important time for the electricity transition in Europe.
The German Coal Commission is set to decide on a phase-out date for the German coal fleet before the end of this year. Our analysis shows that with the rise in commodity and carbon costs, and cheaper wind and solar, it has never been easier to rapidly phase-out coal with wind and solar.
Editor’s Note
Source: Sandbag
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Rok Pernus says
Competitiveness of solar&wind vs. coal&gas can be measured only on the systemic level under the same conditions with full baseload and dispatchability capabilities providing the same quality of electricity. Which means in case of intermittent sources doing a complete Life Cycle Analysis with all the necessary storage and grid upgrades.
Everything else is misleading!
Helmut Frik says
No it is not misleading. It is cheaper to have a full fleet of coal and gas plants sitting idle now and let the wind and solar plants produce the power, than producing it with the coal and gas plants. Coal and gas are too expensive to burn them now, in comparison.
This also means that it is cheaper to send electricity from wind or solar half around the globe than to build a new gas or coal power plant and burn coal and gas in it to produce the power.
Bas Gresnigt says
@rok,
Sorry but your assumption is based on the idea that the old paradigms, such as baseload, will continue. However renewable wind & solar are changing the whole structure of electricity generation & supply (grid).
Somewhat similar as when e.g. trains came up. Those also change the structure of transport.
So your points are off the matter.
Rok Pernus says
Really…no need baseload (capabilities) huh?
Because Bas, if you read my comment or understood, I was strictly referring to “full baseload and dispatchability capabilities providing the same quality of electricity”, regardless, where they’re coming from…Because, you are aware that modern society and economy is build around available power on demand..perhaps we can optimize a few percent with demand responseif that’s old paradigm, than you must referring to ancient, pre-industrial one, where the whole society was dependent on nature. Or is there any other option. That’s how modern society begun, and you’l have to provide for that also in the future or the whole economy will collapse. And if we want to provide that with intermittent renewables, we better have some very cheap very compact storage with very low embodied energy. Because those we have today just wan’t do. And the solar panels will have to be enormously more efficient with payback of energy and carbon debt measured in months, not years…and Helmut, I don’t know where do you get your ideas about that super cost efficient transmission to send “half around the globe”. Seriously? You have any numbers on that?…Perhaps you should consult German Government about their “Electricity Highway”…they seem to have some problems with it…
Bas Gresnigt says
“we better have … cheap very compact storage”
That type of storage is in principle ready, but not needed yet. So Germany schedules deployment in 2024 (in 2025 wind+solar will generate 45% of all electricity).
It’s mass produced Power-to-Gas(H²) plants in standard containers with storage in deep earth cavities. Germany and NL use already such gas stores. Capacity enough to survive an whole winter without wind.
Germany has many major pilots running such as PtG(H²) plants at car refill stations for the upcoming H² cars, buses and trucks.
“modern … economy build around … power on demand”
Such economy will become backwards.
In Germany alu smelters already adapt their operation on the fluctuating power prices. They have flexible arrangements with their workers. They compete others off the market thanks to their cheap electricity.
My family puts dish-washer, washing machine and dryer mainly on at night because then our electricity is a few cents / KWh cheaper.
With the introduction of smart metering for consumers we will see utilities offering options to buy electricity for the fluctuating price at the APX (whole sale market) + a surcharge for transport and administration. That offers options for the automatic start of electricity consuming machines based on the APX price signals, etc. etc.
Consider that lighting takes little electricity with improving LEDs.
Rok Pernus says
Bas, all nice and well, but still not (good) enough…not even remotely. Interestingly, you’re mentioning cheap electricity at night, where do you think that comes from?
Mostly from baseload, and perhaps some wind…
There’s only so much we can do with demand response, before we starting messing up economy. Combining two probabilistic systems like weather and economy can lead only into chaos.
The point I want to make is, that we should focus on what we can do now while developing better technologies for post-fossil fuels era. And it will be mostly solar, but not with PV we know today. Perhaps supplemented with some waste biomass.
Wind is severely limited, geographically and by feedback effects. Not to mention NIMBY.
Anyway, It doesn’t take a mathematical genius to figure out, that PV panels with 15% real life efficiency and batteries with embodied energy 400x that of storage capacity cannot be scaled sustainably. Ever!
How will you manage transition with such inefficient technologies. It’s really a Catch 22 situation. If we don’t scale up solar PV and battery production, we’ll never be able to substitute fossil fuels. If we do, we’ll run into carbon debt, due to embodied energy. Specially, with majority of PV panels being produced in China, with electricity carbon intensity double that of European. And globally, 80% of global energy demand comes still from fossil fuels as well as 70% of energy demand growth. How do you suppose to manage that.
Energiewende has so become more a part of problem, than a solution.
On the other hand, Germany could have already met all the 2030 targets by now and phase out coal and nuclear just by reducing space heating demand of entire building stock to current standards while burning the same amount of natural gas, heating oil and waste biomass in co-generation cycle to cover electricity and heat demand. And it would be much cheaper too. The technologies for that existed already 30 years ago and could have been applied all over the interconnected EU (as well as the most part of industrialized world), lowering CO2 emissions by 30% below current levels. And we’d all breath a little better now. But sadly, that was not the case.
And we still waste 1/3 of primary energy through cooling tower of thermal power plants. The question of course is, what to do with India and China. Perhaps we should start with efficient use of waste biomass there.
But however we turn it, if there’s one lesson to be learned from all this, is that no policy, no subsidies, and no business model can make a deficient technology sustainable. It is as futile as building a perpetuum mobile.
And if we want to make Energy transition work, there’s no way around Efficiency Transition.
And stop wasting energy money and time on something that doesn’t work. Energy transition protagonists might mean well, but as a saying goes:
road to hell is paved with good intentions!
In case of global warming, literally!
Bas Gresnigt says
One of your wrong assumptions:
“Wind is severely limited…”
NL consumes ~120TWh/a (17mln people).
It has 57,000km² of the N.Sea. With one 10MW wind turbine per km² and using 50% of the sea (other 50% for shipping lanes, fishing, etc), we can install 280GW wind capacity.
Those turbines operate with 50%-60% CF, so produce >1200TWh/a. That is 10 times more the the electricity we consume.
So offshore wind alone can produce all energy NL needs. Then we also have onshore wind, etc.
Note that offshore wind is now one of the cheapest methods to generate electricity. Price decreasing towards ~1,5cnt/KWh (far cheaper then fossil & nuclear).
Present ideas are that wind will produce in 2030 >70% of Dutch power.
Rok Pernus says
Really, do you have any study to prove your point?….where did you get your numbers from anyway…
Cause as far as I know, off-shore turbines are incredibly difficult to build: rough seas, corrosion, steady wind is a curse and a blessing. Your 1,5c/kWh probably wont even pay for nuts and bolts…
Every “learning curve” have some bottom, it cannot go bellow material bill and labor cost, and with pressure on material resources it can go even up…
As far as I know, the lowest auction price in Netherlands has so far been 56€/MWh, I don’t know if with or without connection. And there’s still a considerable external cost due to fluctuations not acounted for. So at some point there will be some storage needed as a buffer. And that won’t be cheap. The big question is also decommissioning. That’s already a problem, that haven’t been addressed yet.
As far as wind energy potential goes, is not that simple either. According to Max-Planck (https://www.mpg.de/9389067/wind-energy-wind-electricity) and Harvard studies, theoretical yield of any wind farm at 10000 sqkm fully exploiting the local wind potential is 1.1 w/sqm, due to slowing down wind.
That would of course be economically unsustainable, so there will always be a trade off, where only a fraction of a wind potential can be used.
In your case, even at rather optimistic capacity factor of 0.6, that’s 300TWh/a in your case. Still a lot, but only 1/4 of your estimate. But, as already said, it would be extremely expensive due to low yield, not to mention a negative effect on the whole eco-system. And that’s where NIMBY comes in. So only a fraction of this number is realistic.
Wind can be an important energy source,
locally (e.g. Atlantic shores and in Northern sea), but will be only marginal in wider European and global context.
So it’s limited geographically and by own feedback effects…
So sorry to burst your bubble, but engineering and physics are never simple, and reality is often much more complex as many would like it to be…
Bas Gresnigt says
@Rok,
Last winter Dutch govt tendered a 700-750MW offshore wind farm for which only subsidy free bids were allowed. Vattenfall won (several bidders).
Bidders had to show bank guarantees for installation and decommissioning after 30years, and of course also had to sign that they pay a substantial penalty in case the wind farm doesn’t run in 2022.
They also had to send their business case, so govt engineers and accountants can check whether it’s real and they will make a profit. We don’t want wind farms that loose money on our precious part of the N.Sea, because such situation implies lower quality maintenance, etc.
Dutch grid operator Tennet will install an under-station / concentration platform to which the winning bidder has to connect at his own costs. As always in NL, the costs of the under-station and the high tension cables to the NL backbone grid are paid for by consumers.*)
The Dutch tender of this winter will probably ask bidders how much they will pay for the license to operate a 700-750MW wind farm in that stretch of the N.Sea (similar as with oil/gas concessions).**)
As that wind farm has to run a year later (in 2023) we expect more fierce competition…
________
*) It’s not clear whether the under-station with its back-bone cabling at sea is more expensive than onshore ones. E.g.
In Westland (near my house) Tennet installed an under-station for CHP installations at market gardens (cheaper). Then they had to install high tension cabling to the backbone which created NIMBY, so the cables had to go under-ground (far more expensive).
I estimate that this became more expensive than the offshore under-station with back-bone connections…
**) Until ~2025 our offshore wind farms are 700-750MW because the standard offshore under-station can handle that. There after the wind farms become 1GW as then a new 1GW standard under-station will be developed.
Karel Beckman says
Bas, your cost figure for offshore wind is plain wrong, as Rok has pointed out. Please be clear about that. You are not responding to his criticism of that number. If you want to remain credible either correct it or show evidence of your number. Thank you.
Rok Pernus says
Bas, it’s a bit difficult to see your point here…Here’s a little study made by pwc ( https://www.pwc.nl/nl/assets/documents/pwc-unlocking-europes-offshore-wind-potential.pdf )..
According to it, NL intents to install 11,5 GW capacity till 2030, which will translates to roughly 60TWh/a (assuming 0,6 capacity).
That’s 20% of the entire wind potential (taking into account yield based on Max-Planck study), and probably as good as it gets, before you seriously start to mess up wind patterns. I guess that anything more will slow down wind to the level, where it all wont make even economic sense anymore due to increased LCOE…
Which kind of proves my point…That’s still 50% of NL electricity demand, but nowhere near 10 times of it, you claimed…and yes, NIMBY you mentioned will be ever more common driving cost up as well…and we still haven’t discussed storage…so chances are, prices will even rise again…
Helmut Frik says
The numbers of Max Plank institute are not relevant on small areas like the netherlands, they are relevant on areas >1000km diameter. So the netherlands can extract much more than 1,1W/m² provided that there are areas without / with little wind power generation e.g. west of Cornwall.
So a higher wind power generation in the netherlands is possible, but not without side conditions.
The limits of the Max Plank institute and others are the limits when wind patterns start to change.
Nthe neccessity for storage is generally overestimated significantly, because the alternative, to smooth out generation along the 3 dimensions of space insted of along the dimension of time.
RWE, 50 Hz etc. estimate that no significant amounts of storage are needed up to 80% renewables share in generation.
stronger and big grids can allow higher share of renewable generation without significatly more storage.
Bas Gresnigt says
@Rok,
Yes, offshore wind will deliver 50%. But we are also developing onshore wind (incl. those in lakes)…
Hence the idea that wind may deliver 70% in 2030.
Bas Gresnigt says
@Rok & Karel
The 1,5c/kWh = €15/MWh:
My previous comment showed Dutch offshore wind offered in 2017 for market price being ~€33/MWh, the weighted av. 2017 EPEX Leipzig day ahead price.
– Influence wind turbine size
Price developments with tendered 700MW Dutch offshore wind farms:
2021: 8MW, price €72,70/MWh*)
2022: 9.5MW, price €54.50/MWh*)
(size +19%, price -25%, NPV -21%)**)
2023: 12MW, price ~€33/MWh
(size +26%, price -39%, NPV -32%)
Extrapolating: 16MW turbines (+33%) produce for ~€21/MWh(-37%), and then
coming 20MW turbines (+25%) would deliver for ~€15/MWh(-29%).
Not sure whether 25MW will deliver much price decreases (new turbine test sites facilitate 25MW testing).
-Influence market size
For these products prices decrease with ~20% for each market size doubling***).
E.g. Recent low N.Sea auction prices provoked major expansion plans in USA.
I estimate that with these competitive prices (€33 => €21 => €15/MWh), the offshore market will increase a factor 10.
So the price becomes ~€15/MWh.
– Other situations, e.g.
In the plains in USA wind is at $20/MWh (=€17/MWh) using ~3MW turbines with CF’s of 50%-60%.
Same CF as in the N.Sea with 8MW – 9.5MW turbines.
In the plains further price decreases are expected, as with offshore wind.
=> €15/MWh or lower.
______
*) Price for first 15 yrs. The 15yrs thereafter => market price = ~€33/MWh
**) Decrease of NPV (=Net Present Value) using 6%/a interest.
***) BP 2018 technology outlook states 19% decrease for all wind per doubling of the market size. I estimate that offshore will decrease more (offshore = newer, smaller market).