Energy 56, Cost effectiveness of different energy sources

Among the presentations  that I enjoyed during the EPDP  Conference  2016 last month  held at New World Hotel in Makati were the UPSE graduate student papers. There were 5 papers from 5 presenters, all good. In particular, I like this paper by Ms. Bajaro, reposting here.

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The Cost-Effectiveness of the Energy Sources in the Philippines

By DONNA FAYE E. BAJARO

This proposal seeks to analyze the least cost-effective energy technologies in the Philippines. Specifically, this intends to know the following:

i. Levelized Cost of Energy (LCOE)

ii. Levelized Avoided Cost of Energy (LACE)

iii. Net Value of LCOE and LACE

* Depletable resource like coal is relegated as dispatchable while renewable resources are classified as intermittent generating technologies.

* This study calculates and compares the LCOE and the LACE of dispatchable generating technology, i.e. coal, and intermittent generating technologies during the off-peak period and peak period.

Levelized Cost of Energy (LCOE) – stream of equal payments normalized over the expected energy production that would allow the system operator to recover all costs, which reflects the capital and operating costs of deploying and running new utility-scale generation capacity of any given type, over a predetermined financial life.

Levelized Avoided Cost of Energy (LACE) –a measure of what it would cost the grid to meet the demand that is otherwise displaced by a new generation project

The net value is being used for the comparison of the cost-effectiveness of each energy source since it determines if the economic value exceeds the costs.

Net Value = LACE - LCOE

Results and Discussion (LCOE)

Geothermal has the lowest LCOE while coal and biomass have the highest values during the off-peak and peak periods. As compared to geothermal, coal is 77 times while biomass, unlike the other intermittent technologies, is 150 times higher during the off-peak periods. Moreover, coal is 41 times and biomass is 79 more costly during peak periods.

Notice that the energy produced by the intermittent technologies with zero fuel cost are the cheap ones. These are geothermal, wind, solar, and hydropower, respectively.

Results and Discussion (LACE)

In 2012, the average spot price of electricity in the Philippines is PhP5.08 per kWh (Almendras, 2012) which could possibly increase by a factor of 10 within a day because electricity is costly to store (Borenstein, 2012). See Table 2

Geothermal and hydropower have higher LACE estimates than wind and solar.

Biomass has the least LACE value and is ten times lower than coal.

The increase in the variance of the energy supply, which is largely attributed to the intermittent technologies, contributes to the risk of system outage that consequently incurs large welfare losses. System outage happens when the supply could not meet its demand (Gowrisankaran, 2011).

Thus, dispatchable technologies like coal have the greatest advantage.

Results and Discussion (Net Value)

See Table 2

In this base case scenario, coal gives the highest positive net value, and biomass yields the only negative net value making it the least cost-effective. Take note that biomass is PhP2.81 per kWh lower than coal, that is 273% significantly lower.

Coal and biomass are still the most expensive energy sources while geothermal remains to be the cheapest. Moreover, coal, hydropower, and geothermal have the highest potential revenue. This means that the producers must invest more in these three. However, biomass has the potential loss of PhP1.57-1.79 per kWh.

Conclusion and Policy Recommendation

Even if the cost of generation of coal is one of the highest, its avoided cost is still the lowest since it is dispatchable, i.e. it can be supplied at any amount regardless of the weather conditions. This gives the highest positive net value among the energy sources. This implies that the production of electricity using the coal technology is the most profitable, and therefore, cost-effective.

The country must continue the utilization of the (CHG), and more importantly, the exploration and development of coal and allocates the produced electricity to Visayas and Mindanao.

Consistent with the policy thrusts of the Philippine EnergyPlan2012-2030 (DOE,2012).

The Philippines has 19 coal districts thanks. Insitu coal reserves of 2,268.4 million metric tonnes (MMT) at a minimum out of approximately 2.3 billion metric tonnes of potential reserves.

The assumptions are longer time horizons, and perfect substitutability of the depletable and the renewable resources.

There will come a time that the depletable resource will be fully exhausted, and at the switch or transition point, the use of renewable resource is on the onset. Therefore, the country must utilize the coal until it is completely exhausted and it is no longer cost-effective even if there are left coal reserves on the ground (Tietenbergand Lewis, 2011).

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See also:

Energy 52, Renewables to "save the planet", Germany and UK cases, January 16, 2016

Energy 53, Expensive electricity + mandatory renewables, Philippine case, January 17, 2016

Energy 54, Need for cheaper, reliable energy sources, January 18, 2016

Energy 55, Old renewables and coal are cool, complementary and not contradictory, February 02, 2016

Business 360-33, Cheap energy now and in the future, January 28, 2016