Oz-Energy-Analysis.ORG -- Discussion; Economics of Renewables

This is expected to break into two main strands:
i. How does one cost and compare different scenarios;
ii. What are the economically appropriate forms of support for new technologies.
Both of these questions need be broken down and clarified as the project develops into these areas.

One key point for now: working out costs is difficult. For example, most of the cost of a wind farm is upfront, compared to, say, a gas turbine, where most of the cost is in the fuel over time. Thus economists talk of capital, marginal and levelized costs (and discount rates). Continuing the example, investors and bankers may favour investments with lower capital costs (e.g. gas) over the upfront expense of renewable technologies, especially when the future is uncertain (i.e. the investment involves risk).

The OzEA core team is some way from developing material for this page; however, these aspects are important, and those with knowledge in this area are encouraged to share their thoughts and insight.

OzEA_TMON0002

Leith Elder
Subject: Economics & The Market
Date: 2010-05-17 (at 14:31:43)

Understanding 'The Economics' is one thing, understanding 'The Market' quite another.
Sally Hunt once said "The market SHOULD do what an omniscient planner WOULD do."
But then, if we had an omniscient planner we wouldn't need a market! Catch 22!
To me 'The Market' is like a blind drunk trying to find his way home in the dark.
We already know where we want to go, so lets take a taxi!

OzEA_TMON0004

G.R.L. Cowan, H2 fan until ~1996
Subject: The interesting parts of the economics
Date: 2010-06-17 (at 07:13:24)

(Previously emailed, now more encouragingly titled! )

I've had some difficulty getting down to thinking about oz-energy-analysis.org, partly because the emphasis on what's available now rubs me, an advocate of R&D that would make a big difference fairly soon, the wrong way. I recognize nonetheless that the distinction, now versus soonish, is a vital one.

Maybe I haven't been putting enough faith in the "big" part of your declared wish to have big mistakes and opportunities pointed out. So here: you should do cost calculations, and these should be broken down into cost to government and cost to the electricity provider. This may not be easy to do, but with success will come, I think, a lot more attention than you would otherwise get.

That is because cost to government can be negative when the interaction between renewable power providers and a grid on which are burned both expensive fuels, fuels that bear substantial royalties and/or excise taxes, and cheap ones is such that the more expensive ones are burned.

This may be a sensitive topic. It's hard to find government web pages that say anything like "The province made $120 million on gas burned by electric power plants in 2008, up from $95M in 2007".

From http://www.world-nuclear.org/info/inf68.html I see that Australia's Mandated Renewable Energy Target is a take-or-pay deal. Supposing an electricity retailer had the option of buying a $150 megawatt-hour from a wind turbine farm, but preferred to buy a $100 gas-fired megawatt-hour, it would be allowed to do so -- but if the non-hydro-renewable fraction of its electricity sales were below the mandated fraction, it would pay a "shortfall charge" on that megawatt-hour, now $42, soon to be $65.

If that is paid to government, then government has a strong incentive to make gas mine developers' task easy, and get the cost of natural gas electricity below (the per-MWh cost of wind electricity less $42 or $65).

(It was agreed that costs should be modelled, eventually, but I didn't get an acknowledgment that it's very interesting, and worthy of modelling effort, to track specifically the money won or lost by government due to factors such as the above.)

fc - yes this is interesting. Happy to see others get ahead on the higher level costing issues - I'm working up from elsewhere for now.

OzEA_TMON0005

francis
Subject: peaking
Date: 2010-10-17 (at 18:16:21)

the terminology of "base, intermediate and peak" describes historical variability in the demand. If you look at the demand profile for a state over time these three sections are apparent.

A more general, and future relevant, way to think of this is a spectrum with two extremes:
+ expensive plant that is cheap to run, and
+ cheap plant that is more expensive to run (peaking plant).

There is also the matter of dispatch-ability; the when and how.

Funding for renewables and demand management, in a hyper-rational world, might best focus on the variability in the price. If there is high variability then it can be possible to make money working the ups and downs, and when such schemes succeed they will reduce the extremes. This limits the scale of buy-low'n'sell-high (and load shifting) schemes, at least until they become more efficient, or diversified, to stay profitable.

IF the variability in the market is high enough, then all sorts of business opportunities arise; without sufficient variability these businesses don't exist. And if the project is capital intensive then ... investment risk issues arise.

OzEA_TMON0006

francis
Subject: averages
Date: 2010-12-03 (at 19:50:04)

Did you hear about the statistician who had his head in an oven and his feet in a bucket of ice? When asked how he felt, he replied, "On the average I feel just fine."

OzEA_TMON0007

francis
Subject: the price model
Date: 2011-03-04 (at 03:13:01)

The price model: to start with, and for a bit, I reckon the price is principally driven by the demand. Need to do a little data analysis; hopeful a price by demand model looks ok. Then, can take a 50% renewable scenario, and a years supply and demand, invoke the price model, and see how much the renewables make. The market is constrained to have 10 Billion overall value.

Also want to look at the comparison where the price is set by the demand remainder, according to the same model.

Name:*
Email:*
Website:
Subject:*
What is the longhand for 'Oz'? :*

THE ECONOMICS OF RENEWABLES

Post Comment: