The costs of decarbonization – article

physics world     10 Apr 2019 Dave Elliott

The OECD’s Nuclear Energy Agency (NEA) has produced an updated study of System Costs with High Shares of Nuclear and Renewables. Perhaps unsurprisingly, its new reportconcludes that nuclear wins hands down over variable renewable energy (VRE). The agency says that “a mix relying primarily on nuclear energy is the most cost-effective option to achieve the decarbonization target of 50 g CO2 per kWh”.

That may sound unlikely. To some extent you might see the NEA as fighting a losing battle against reality: renewables are getting cheaper and nuclear more expensive in terms of generation cost. Indeed, the NEA does partly accept that, even if it seems to deny, or at least postpone, the scale of the generation cost reversal: “We fully recognise the great strides that variable renewable energies (VRE), such as wind and solar PV, have achieved in this area in the recent past,” it says. “If, according to our data, they are not yet fully competitive with nuclear power on that metric except in particularly favourable local circumstances, they soon might be.” However, the NEA says “their intrinsic variability and, to a lesser degree, their unpredictability, imply that the costs of the overall system will continue to rise over and above the sum of plant-level costs” adding that “what nuclear energy and hydroelectricity, as the primary dispatchable low-carbon generation options, bring to the equation is the ability to produce at will large amounts of low-carbon power predictably according to the requirements of households and industry”.

Hence the emphasis on full system costs. The NEA claims that these increase dramatically as the share of VRE increases, due to the rising back-up costs and also the so-called “profile costs” imposed on the power system. Put simply, this means that conventional plants have to operate less efficiently to cope with VRE, regularly ramping their output up and down. Some are forced to go offline for a while when lower marginal-cost renewables are available, and so lose income. The NEA talks in terms of them meeting variable “residual load”.

Nuclear can’t cope with high VRE

The agency offers four scenarios with increasing shares of VRE — 10%, 30%, 50% and 75%. As the share of VRE rises, the capacity grows to more than three times the base case. Nuclear falls significantly and gas capacity more than doubles. As a summary for the World Nuclear Association says, “the decrease in nuclear is due to the high ramping up/down requirements that VRE imposes on the system. Nuclear can accommodate this but above a certain level it impacts the load factor to such an extent that nuclear becomes uneconomic.”

That’s a big admission – nuclear can’t cope with high VRE. Indeed, it’s not even clear if it can cope well with medium levels of ramping requirement. But the NEA seems to be saying that there’s no need to try, given that the full system cost of high VRE is so prohibitive. However, here is where it gets debatable. The technical costs of balancing have been extensively studied and a widely accepted estimate is that they might add 10-15% to generation costs at medium levels of VRE, depending on what balancing technology is used. Back-up plants and storage are not the only options. Demand can also be managed via smart grid/variable energy pricing, to delay energy demand peaks when VRE inputs are low, and top-up power can be imported to meet the peaks via long-distance supergrids. Both those options can be low cost. Indeed, flexible demand management and smart grids can save money, while supergrid links also allow for exports of surplus, with this, for some countries, earning a net positive income and avoiding the need for wasteful VRE curtailment.

The NEA discounts battery storage for long-term balancing but does not address Power to Gas (P2G) hydrogen production for backup, using surplus VRE. Instead it talks of VRE curtailment and more use of fossil gas to try to balance VRE, while the other plants, including nuclear, must duck and dive to compensate for the changed supply/demand profile. So yes, then their income would be less and their costs higher. The NEA puts the total system cost, including generation, at $130/MWh for a 75% VRE share, with the extra system cost rising from $8/MWh in the 10% VRE scenario to $50/MWh in the 75% scenario. Profile costs are two-thirds of that, balancing/extra grid links one-third.

It doesn’t have to be that way

However, as indicated above and as the UK Energy Research Centre (UKERC)’s seminal report noted, with proper flexible grid-balancing the extra costs need not be so high. They would anyway be met, in the UK, by the capacity market system, which offers support for smart grid-balancing by demand-side management (DSM)/storage and imports, and also for some residual load suppliers — fossil and nuclear. That, of course, assumes that the latter ought to be compensated for what some see as, at least in part, just commercial losses; they are more expensive than marginal-cost renewables. But we may need some of them for balancing, though arguably not nuclear, which, as the NEA seems to admit, isn’t much use at that for higher VRE levels.

The NEA also accepts that renewables are now cheaper. It says that between 2008 and 2015, VRE deployment “caused an electricity market price reduction of 24% in Germany and of 35% in Sweden”. However, this is a little confusing since that fall must have been despite the system costs which, the NEA says, have risen. Wouldn’t they have been passed on to consumers? Regardless, the overall logic of the report seems to be that nuclear plus gas and some hydro is the best way ahead to avoid these costs in future. A simplified version of this view was put recently in a report by Capell Aris for the Global Warming Policy Foundation, which said a system based increasingly on renewables “will deliver significant carbon emissions cuts but will double electricity price” whereas “a system based on gas and nuclear would deliver similar emissions cuts at around half the price”.

However, the NEA evidently has a more nuanced strategic position. It seems to accept that renewables are unstoppable. What it appears to want is for nuclear to get a good share of whatever balancing funding is available, or for that matter anything else that’s on offer (it did well with the Hinkley contract for difference (CfD)). So, adopting a more conciliatory stance, the NEA seems happy to push for a nuclear and renewables element. The report’s foreword says that “a cost-effective low carbon system would probably consist of a sizeable share of VRE, an at least equally sizeable share of dispatchable zero carbon technologies such as nuclear energy and hydroelectricity and a residual amount of gas-fired capacity to provide some added flexibility alongside storage, demand side management and the expansion of interconnections”.

In collaborative mode, it concludes that “those of us working in the nuclear energy area are well aware of the electricity markets are evolving [sic] and that nuclear energy must evolve to meet future requirements. Nuclear energy is well placed to take on these challenges but can also work together with all other forms of low carbon generation, in particular VRE, to achieve the ambitious decarbonisation targets NEA member countries have set for themselves”.

However, I am not sure how many renewable energy enthusiasts will be interested in signing up to this, or be convinced by the NEA’s at times rather tortuous economic arguments. Take a look- it’s pretty dense stuff. Certainly, economic smoke and mirrors aside, it is hard to see how large inflexible nuclear plants can be much use in providing balancing support for renewables, and small modular reactors, which it is claimed might in theory be able to, are still some way off, with unknown cost, safety and security issues. There will be a need for balancing but there are plenty of arguably better balancing options, some of which may be cheaper. For example, time-of-use demand management, by the introduction of flexible pricing, involves no capital costs and may actually reduce the power costs faced by consumers and the cost of running the system overall.

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