Why we should be investing in renewable energy

As South Africa looks to renew its energy sector, comparisons are often made of how much one source of electricity costs versus another. Carrying out this exercise is much more difficult than might at first appear, but this must not deter the attempt. What are the problems encountered when comparing renewable sources such as wind or solar with coal-fired or nuclear generation?

Comparisons of capital costs of various methods of generation

There are usually few problems comparing capital costs. Coal and wind cost between $2 million and $2.5 million per MW installed in most global markets. Nuclear comes in more expensive between $3.3 million and $3.5 million, and solar photovoltaics (“PV”) come in now at around $3.2 per MW installed.

At a global average, a 1 000 megawatt wind farm or coal plant would cost up to $2.5 billion. This equates to a cost of up to R18 billion.

Comparing fuel costs

But capital costs merely describe one element of the total cost.

Consider the fuel costs in the case of coal: a 1 000MW coal plant burns about 3.27 million tonnes of coal each year. The local cost of coal is $19/tonne. The total fuel cost is therefore $62 million each year. A South African coal plant owner spends the same again as the capital cost every 32 years at this local coal price. However, if the fuel cost were to flex to represent the traded international cost of coal, the annual cost would be much higher. At a traded cost of $80/tonne this represents $244.5 million annual expenditure, (the global average cost over the past year). In that situation, a coal plant owner spends the same again as the capital cost every eight years. In addition to the cost of coal, the costs of disposing of the ash, and there is a 33% ash content in South African coal, also has to be taken into account.

Wind is a free fuel. Solar is a free fuel. No fuel costs and no ash. We begin to see how difficult it is to compare costs.

Carbon fines

Consider carbon fines. A 1 000MW coal-fired power station releases 7.1 million tonnes of CO2 each year. This would cost in fines (at the current rate of €13/tonne) R858 million annually. If the fine, as predicted, rises to €40/tonne the cost would be R2.64 billion annually. So in a situation where CO2 were fined at €40 a tonne, the owner would have to spend the equivalent of the capital cost of a new coal-fired power station every six years.

Wind and solar emit no CO2, so there are no fines.

Here is a very interesting fact. Private investors are very unlikely to invest in a coal plant in South Africa. They look at the same facts as we are looking at here and the see huge carbon fines being applied to their plant when it begins producing. How can they tell what the cost of production will be (fines and traded coal costs included) in 2020, 2030 or 2040? There is no clear line of sight to continuing profits so no one will invest.

Wind or solar on the other hand are good investments.

Life duration

Consider an engineering angle. Coal and nuclear plants are thermal power stations. They make electricity by heating steam. This places great stresses on the generating assets. Another life-shortening factor is corrosion in the combustion zones of the boiler. These conditions eat into the life of thermal plant so its maximum life is 30 to 40 years. The plant has to be taken out of service as progressively more maintenance has to be carried out. The running costs escalate and the availability and reliability of the boilers and turbines reduce.

A wind farm on the other hand operates at room temperature and pressure. With the replacement of some components, like blades, a wind farm will operate for 100 years. With normal maintenance, the roads, towers, transformers, substations, nacelle bodies, electrical connections and foundations will all be around in a century.

Water needs

Thermal plants need water. A 1 000MW coal-fired power station uses 8 900 000 m3, which is the same as 8 900 000 tonnes every year. In a water-stressed country like South Africa, this means there is less for households, farm irrigation and industrial processes. At the average rate of usage a 1 000MW coal plant consumes enough water to satisfy 520 000 households per annum.

Wind and solar PV consume no water.

Conclusion

My central contention is that, apart from capital costs it becomes very difficult to compare the life cycle costs of sustainable forms of electricity generation with coal-fired and nuclear-powered generation.

For South Africa the decision to go the coal route commits the state to many times the initial investment during the life of the coal plant. It’s not enough to compare the capital costs of coal with renewables, or even the fuel costs. Ongoing non-fuel costs have to be considered and those costs for a coal plant are a good deal higher than for renewables.

With wind and solar what you see is what you get, one upfront cost and some small annual costs related to maintenance, rates, and rental payments

In my next blog I would like to examine the fixed price feed in tariff for renewables. The headline price is one element, but the average cost of electricity is in effect lowered when wind and solar are introduced into the system.