In IX – Onshore Wind Costs we looked at the capital and O&M costs of building onshore wind power. We stayed away from converting the numbers into “Levelized Cost of Energy”, or LCOE, because it obscures too much – instead we just tried to get a rough idea of the costs.
The data presented in the article was a little dated and one of our commenters pointed to more recent values (corrected my information) for capital cost which makes it very simple:
Capital cost of onshore wind farms = €1M per MW nameplate. (The article itself had €1.2M per MW).
For reference, right now €1 = US$1.13, but at times during the last 10 years the rate has been above $1.40.
What does it cost to build a gas plant? Once again I’ll use out-of-date values, this time because a great textbook from 2009 has some pretty good breakdowns. And as we’ll see, the capital cost is not so significant, it’s mostly about the fuel cost.
These days, combined cycle gas plants are the fashionable item to have. Their efficiency is very high and they are relatively quick to build – typically around 2 years.
Figure 1 – From Kehlhofer et al 2009
The efficiency figures for the gas plant are output electrical energy at the high voltage transformer terminals / energy of input fuel.
Like onshore wind farms, combined-cycle gas plants are proven technology. You know they are going to work – in fact, many are built by EPCs (the costs we will look at are EPC costs) = “Engineering, Procurement & Construction” companies. You pay the money and the EPC gets the job done – a turnkey job. On commissioning they have to run the plant for x number of days or months at nameplate for the customer to sign off. Penalties and rewards apply. While I’m sure there are some sad stories out there, as in any industry – with competent management you will get a plant of a given efficiency, given operation costs and given construction costs.
Here are some costs, for combined-cycle and other conventional technologies. We will focus on the other technologies another time (for example, the nuclear data is not reliable because so few have been built recently):
So the capital cost of the gas plant is about $0.6M per MW, versus something like $1.1M per MW for wind (at prevailing exchange rates). These are nameplate values. As we saw, the actual “capacity factor” of wind is dependent on where you plant it. Oklahoma might be 41%. Ireland might be 31%. Germany might be 18%.
On the other hand, gas plants can run almost as much as you want. For well-designed and operated plants we have these figures, where reliability gives you what you lose from unplanned problems, while availability gives you what you lose from unplanned and planned outages (these are necessary for upgrades & maintenance):
So let’s run with 90% availability for the gas plant.
Readers might wonder why some gas plants only run for 10% of the time – it’s not (usually) because they have been badly designed, it’s because those plants are designed as peaker plants, deliberately designed to run only when the spot price is high. You can’t store electricity, so at times of high demand and problems with general supply the spot price can be 10x the normal price (or much more). Some plants are designed to start up quickly, throw caution to the wind, grab the cash and turn off. They turn on a dime, so to speak.
And as we will see, the numbers don’t change that much if we chose 85% or even 80% availability. Of course, if you designed a combined-cycle gas plant to run as much as possible and you only achieved 80% availability year after year – you wouldn’t be doing a great job.
Let’s look at operations and maintenance costs. These conventional plant O&M costs have been broken up between “per MWh” costs and fixed annual costs. We saw with the wind farms that these two categories existed as well, but the numbers had all been converted into “per MWh” and we only had that to work with – a value around $14/MWh):
Comparing Combined Cycle Gas with Wind
Most discussions about “costs” throw out a number and the average reader can’t break it apart. If you are in one of the cheerleading squads this is excellent. Just pick your favorite LCOE quoted without any analysis, reference points, or clarity and “prove” your point. Hurray for my side!! We’re winning!!
Here, I will attempt to make it as clear as I can without equations (other than 1+1=2 and 10/2=5) how the costs compare.
Smaller gas plants are less efficient and have higher costs bases, and we are really interested in getting large amounts of power out of the door, so we are going to use the costs of the 800MW plant as the basis for our calculation (scaled up a little).
Let’s think about a reference 1GW plant.
For wind farms this means we have to think about where the wind farms will be located. For now, let’s think about Europe, which seems to average 25% capacity – that is, if you have 4GW of nameplate wind farm capacity you can expect over one year to average 1GW. (But note we’re using US currency). At the end, we will look at the magic of Oklahoma and what that does for our simple sums.
For the gas plant we will assume our 90% availability and so we need to build 1.1 GW of nameplate.
Now, a little conversion factor is necessary, if you produce 1GW (=power) for 1 hour you produce 1GWh (=energy), which is 1000MWh (=energy in different units). If you average 1GW of output and run for one year you produce (rounded up) 8.8M of these MWh (=8760 x 1000).
So both our wind farms and our gas plant are producing 8.8M “MWh” per year.
That’s so we can compare them.
- Fuel = $0 (nice)
- O&M = $14/MWh (can also be written as 1.4c/kWh) – from IX – Onshore Wind Costs
- Fuel = $ lots & lots
- O&M = fixed $10M + $2.50/MWh = $1.10/MWh (i.e., $10M/8.8M MWh) + $2.50 = $3.60/MWh
The fuel is easy to calculate (we’ll come to that), but obviously the cost depends on the gas price which fluctuates a lot. Here is the European and US price, over 7 years to end-2014:
And the US price up to July 2015 (also in that strange British unit):
So we need a couple of reference points. We’ll pick $3, around the recent US price – and $10, the end-2014 European price.
Our favorite gas plant has an efficiency of 56.5% so we need to input 1.77 (=1/0.565) units of energy for every 1 unit we turn into electricity at the output transformer.
Energy data is wonderful. Usually in one report you can read gas production in billion cubic meters (volume, new school), later in trillion cubic feet (volume, old school), then in MBTUs (energy, old school), then in GJ (energy, new school), then in MWh (energy, not quite new school, but easy to convert from your consumer bill of kWh). Somewhere in the report the energy will also be quoted as MBoe (million barrels of oil equivalent – energy, very old school but also very contemporary). It’s all designed so you need to pay expensive consultants to explain the report to you.
In other news, Usain Bolt ran the 100m in a new stadium record of 61,336 furlongs per fortnight.
For simplicity, pretend 1 GJ (a billion joules – energy) = 1 MBTU (million British thermal unit). The correct value is 0.95 but forget that.
And 1 GJ (energy) = 278 kWh (energy) = 0.28 MWh (1W running for 278,000 hours = 1W running for 278,000 x 3600 seconds = 1GJ)
Sorry for all the numbers, but I think it’s helpful to show the paper trail, rather than just pull a rabbit out of a hat. For people interested, you can do the numbers yourself..
So – for each MWh output at the transformer, we need to put 6.4GJ (=1/(0.278 x 0.565) of gas energy into the inlet flange of the plant.
Roughly speaking, we see gas costs for our two reference prices (taking into account plant efficiency) of $19/MWh (6.4 x $3) and $64/MWh (6.4 x $10). What does this mean? Nothing changes for wind, but we can add up our running costs for the gas plant:
- Fuel = $0 (nice)
- O&M = $14/MWh
- Fuel = $ 19/Mhr & $64/MWh
- O&M = $3.60/MWh
- Total = $23/MWh & $68/MWh
Now let’s look at capital cost. The gas plant can’t be built overnight, it takes a couple of years so converting the “overnight cost” to the real cost including interest adds about 10%. We’ll do the same to the wind farm, which probably takes longer to build out, but also it can start producing from day 90 instead of waiting until the end of how ever many years the wind project takes:
Wind – 4GW nameplate
- Cost = €4BN x 1.1 (for capital during startup) x 1.13 (exchange rate) = $5BN
Gas plant – 1.1GW nameplate
- Cost (see notes) = $0.75BN (includes capital during startup) x 1.1 (converting cost per GW to 1.1GW) = $0.83BN
If we do the nice simple calculation as I did in the wind farm example we can divide this capital cost by 20 for an annual cost. It’s simple, but unfortunately too simple:
- Wind farm capex = $250M per year (no cost of capital) = $28/MWh (for 8.8 MWh per year)
- Gas plant capex = $ 42M per year ( ” “) = $4.70/MWh (” “)
There is a annuity calculation that allows us to compare the cost year by year, depending on the life of the equipment and the cost of capital. I’ll present the results of the calculation and we will see that it doesn’t make a big difference for the gas plant (because the fuel cost is so much higher), but does have quite an impact on the wind farms.
By way of example, for capital upfront, if we take 1/20th of the cost per year, we get 5% of the total capex per year (=1/20).
But if we take into account a “cost of capital” of 8% per year, the capex “really costs” 10% of the total per year. So “cost of capital” has actually doubled our effective capital cost. This is normal.
So let’s look at the “real capex cost” for 15, 20 and 30 year lifetimes of equipment, at 5%, 8% and 12% cost of capital:
We see the ratios are the same. But because the gas plant costs 1/6 of the wind farm, the actual gas plant capex is very low compared with its fuel cost. In essence, it doesn’t really matter what values we choose when we look at the gas plant (it matters to the owner, but not to us, for our purposes of broad comparison). On the other hand, cost of capital (“interest rate”) and time of operation make a big difference for the wind farm because the capex costs dominates.
Lets review our total operating costs:
- Wind = $14/MWh
- Combined-Cycle Gas = $23/MWh (@$3/GJ) – $68/MWh (@$10/GJ)
- Extra operating cost of gas over wind = $9/MWh (@$3) – $54/MWh (@$10)
So now we can calculate the total cost. Overall, if we look at the difference between the two tables, i.e., the capex difference, and add the opex difference, at recent European gas prices, for 20 year+ time horizons, wind is a little more competitive than gas plants (unless the cost of capital gets too high). At recent US gas prices, wind is way more expensive than gas.
Hey, wind is cheaper than gas
Hey, gas is cheaper than wind
Something for everyone.
Lots of numbers. It’s deliberate.
If you just want the answer that helps your cause, there it is – pick the one you like. If you want to understand the real story, a little work is needed.
What we can see is that even for quite different costs of construction for the gas plant, it won’t affect the comparison of gas vs wind. This matters a lot for a gas plant owner, along with the plant efficiency. But it doesn’t have much impact on our comparison numbers.
All of the numbers calculated can be questioned. There is no right answer. But hopefully everyone can see that the values that affect the cost comparison are:
a) price of gas, and
b) capex cost of wind turbines along with interest rate and lifetime of the turbines
We’re Not in Kansas Anymore
Let’s consider Oklahoma. Now the capacity factor has jumped up to 41%. So our upfront capex cost to produce an average 1GW has reduced from $5BN to about $3BN. Lovely. I recalculated the numbers (gas capex hasn’t changed, opex hasn’t changed for either):
If we pick 8% and 20 years we see that wind power capex is only $25/MWh more than the gas capex cost.
So with our “gas opex adder” of $9/MWh for cheap “I can’t believe it’s not Christmas” US gas, wind is still pricey. Wind is still $16/MWh more expensive ($25-$9).
But with our “cor blimey what are those Europeans doing” opex adder of $54/MWh, wind is now $29/MWh cheaper ($25-$54) than gas.
And last but not least, who’s the buyer?
If we have a local buyer for this 1GW of power, we are in good shape. Although the current low US gas prices still make wind a little more expensive than gas in the Oklahoma example, recent history might make a wind power entrepreneur feel positive.
But suppose our customers are in New York. It’s about 1,000km in old money to get from windy Oklahoma to New York. We have a 2.5GW nameplate wind farm, so during windy periods we are producing 2.5GW. Now we need to get it 1000km.
According to our calculations in VIII – Transmission Costs And Outsourcing Renewable Generation this will cost around $2.5BN, give or take a little (or maybe a lot).
So we have almost doubled our capex price. Possible we have moved (in the wrong direction) past our European example, to a worse cost base. At our benchmark 8%, 20 year lifetime we are at capex approaching $70/MWh. Add in opex of $14/MWh = $84/MWh. So we are way more pricey than gas if we want to supply New York.
Of course, we can redo our calculations for a wind farm closer to New York, and on the minus side we might have a lower capacity factor for wind, but on the plus side maybe we can connect to a nearby under-capacity transmission line. Or worst case, we might need to build a transmission line – but it will be a lot shorter.
The gas plant has a constraint too – building gas pipelines aren’t cheap. (I forget the numbers I learnt but they might be in the same order of magnitude as power transmission lines for similar GW).
However, the gas plant entrepreneur is lucky, they can look at a map of gas pipelines and a map of power transmission lines and pick the optimized spot. It’s quite likely they will be able to tap off an existing gas pipeline and connect to an existing transmission line.
The benefit of incumbency and decades of infrastructure that they don’t have to pay for.
A bewildering array of numbers.
If you want to get your hands around the problem, it takes a little work, but it’s not so hard. Gas plants are cheap to build by comparison with the fuel costs. The fuel costs dominate. Wind farms are very expensive to build, have no fuel costs but still cost a bit to look after.
Gas plants can mostly be cited where you want – so you choose close to pipelines and close to transmission lines. Wind farms are often (but not always) subject to more location constraints – what you gain in better capacity factor (more wind) you might lose in building expensive transmission.
Which is cheaper per MWh of energy delivered to the customer? It depends.
So many cheerleaders with so many confident answers. And yet the right answer depends on the situation, the gas price, the cost of capital, the current capital cost of wind turbines, and most of all, where you are citing the wind farm and where your customers will be.
If there’s a lesson, it’s that turning a complex problem into one number doesn’t reduce confusion, it increases it.
What’s the average age of the population of Japan compared with the USA? The comparison can be a useful one. Still, it would be nice to see the demographic bulge – the graph of population vs age is much more useful than one number.
What’s the average weight of the population of Germany vs Mexico? Now we are really getting to a useless number (don’t we want to know the proportion of under 10s and over 70s before we draw any conclusions? And the average height of Mexicans vs Germans?)
If you add a carbon price to gas, wind will look better. You can easily do that yourself with the numbers in the article.
For people convinced that decarbonization is urgent, any extra cost of wind is of no issue. For people convinced that decarbonization is a total or partial waste of time, any extra cost of wind just illustrates how pointless the exercise is.
I make no comment on those points – I simply wanted to get an understanding of the cost comparison (here’s hoping I didn’t miss a factor of 1000 in one of my calculations).
If you want to figure out how to get to 50% renewables (% of electricity production) none of these numbers help.
Baseload Power and Messianic Storage have not yet been covered. That’s still a mystery.
Articles in this Series
Renewable Energy I – Introduction
Renewables II – Solar and Free Lunches – Solar power
Renewables III – US Grid Operators’ Opinions – The grid operators’ concerns
Renewables IV – Wind, Forecast Horizon & Backups – Some more detail about wind power – what do we do when the wind goes on vacation
Combined-Cycle Gas and Steam Turbine Power Plants (3rd Edition), Rolf Kehlhofer et al, PennWell (2009)
Their LCOE calculations:
Breakdown of the plant costs for interest: