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Energy 101Energy Technology and PolicDr. Michael E. WebberThe University of Texas at Austin

Module 21: Electricity IV--Energy Pricing

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Power Plants are Dispatche

by Price and Availability

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A Load Duration Curve Shows the

Distribution of Load Throughout the YCourtesy: Sand

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ERCOT Dispatches Power Plants

in the Order of Least Marginal Cos

Power plants dispatched so

that supply = demand

Marginal Cost =

VOM + HR x FC

!VOM = Variable Operations and

Maintenance Costs ($/MWh)

!HR = Heat Rate (MMBTU/ MWh)

!FC = Fuel Cost ($/MMBTU)

Capacity (MW)

Example: If demand MW, all power plants

the line are dispatch

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Decreasing Natural Gas Prices Have Sh

The Merit Order For ERCOT Dispatch

[Sanders, Blackhurst, andWebber 2013]

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The Prices at Which Power Plants B

Determined by Power Plant Econo

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There are Two Types of Costs

for Power Plants

Variable Costs: Spent

when running the plant

!Fuel

!Variable Operations &

Maintenance (O&M)

Fixed Costs: Must be

spent, even if plant is off

!Fixed O&M, Taxes, and Insuranc

!Capital costs (building the powe

plant)

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Variable Costs are a Function

of Several Parameters

Variable Costs (VC) are a function of:!Heat Rate (HR): expressed in [BTU/kWh]

!Capacity (CAP): expressed in [MW]

!Fuel Costs (FC): expressed in [$/BTU]

!O&M costs (OM): expressed in [$/kWh]

!Capacity Factor (CF): expressed in %

Variable costs are typically expressed as

!$/yr, $/kWh, $/MWh

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Nuclear has the Highest Average Capacity

Nuclear

Coal

Natural Gas CC

Hydroelectric

Renewable

Natural Gas

PetroleumAll Sources

0% 25% 50% 75% 100%

Average Capacity Factor

Capacity factor is a f1. Reliability

2. Use

3. Fuel availability

Actual Output [MWh]

365 days( )! 24 hours/day( )! Rated Capacity MW[ ]( ) = Capacity Factor

Mich

aelE.Webber

2009 U.S. Average Capacity Factors by Energy SourceSource: U.S. Energy Information Administration / Electric Power Annual 2009 Graphic: Michael E. Webber, The University of Texas at Austin

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Calculating Variable Costs Requires Infor

About the Power Plant and Fuel

VC $kWh

!"

#$

= FC% HR +OM[ ]

VC $kWh

!"

#$

= FC $BTU

!"

#$%HR BTU

kWh!"

#$ +OM

$!"

!"&

Variable costs [$/kWh] are a function of fuelcosts, heat rate and O&M expenses

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Calculating Variable Costs Requires Infor

About the Power Plant and Fuel

Variable costs [$/yr] are a function of fuel costs, hrate, O&M expenses, capacity and capacity factor

VC $

yr

!

"#

$

%&

= FC' HR +OM[ ]' e(

VC $yr

!"#

$%&= FC' HR +OM[ ]' CAP ' CF ' 87[

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Calculating Variable Costs Requires Infor

About the Power Plant and Fuel

VC $ yr!"# $%&= FC' HR+OM[ ]'e(

VC $yr

!"#

$%&

= FC $BTU

!"

$%'HR BTU

kWh!"

$%+OM

$kWh

!"

$%

!"#

$%&'e( kWh

y!"#

VC $ yr!"# $%&= FC' HR+OM[ ]' CAP' CF' 8760[ ]

VC $yr

!"#

$%&

= FC $BTU

!"

$%'HR BTU

kWh!"

$%+OM

$kWh

!"

$%

!"#

$%&' CAP [kW]' CF' 8!

"#

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There are also Capital Costs for Power P

Cost for Capacity: $/W or $/kW

! Overnight price

!akaCapital Cost (CC)

Rule of thumb 19902007:

! Capacity:

! ~$1/W

! ~$1000/kW

! ~$1,000,000/MW

! A power plant capable of generating 1000 MW (1 GW)

power would cost $1 billion

2010 CAPEX costs for new capacity from Black & Veatch (Feb 2012)

Fuel

Capacity

p

Natural Gas (Turbine)

Natural Gas

(Combined Cycle)$

Wind $

Solar PV $

Coal (Pulverized) $

Coal (IGCC) $

Nuclear $

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Solar CAPEX Costs Have Been Fallin

EPC = E

Procure

BOP = B

(other s

infrastru

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Capital Costs Are Usually Amortized O

Decades, NOT overnight

n= term of the loan (yrs) = planned life ofthe system

i= interest rate (%/yr)

P= principal amount of loan ($)

A= annual loan payment ($)

M= monthly loan payment ($)

T= total payment ($) = nx A= 12 x nx M

A = P !i(1+ i)

(1+ i)n"

M = P ! ( i

12 )(1+

1

(1+ in)12n

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Annualized Capital Costs Depend

on the Lifetime of the Power Plant

Question: What is the lifetime of a power plant?

Answer:Its like my grandfathers axe. Its had 6 new heads

new handles, but its still my grandfathers axe.

!Source: HoffStauffer

Power plants last as long as the owner continues to invest i

Typical periods are 20 to 40 years

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The Total Costs Include the

Variable and Capital Costs

Total Cost (TC) = Variable Cost (VC) + Cap Cost (CC)

Fixed & Variable [$/kWh], [$/yr]

Someday there might also be additional costs

!Emissions: [$/tonNOx, $/tonSOx, $/tonCO2]

!Water: [$/gallon]

TC $yr

!"#

$%&= VC $

yr!"#

$%&+CC $

yr!"#

$%&

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Costs can be Normalized and Compare

the Levelized Cost of Electricity (LCO

LCOE $kWh[ ]=Total Cost $yr!" #$

Annual Electricity Generation kWyr!"

LCOE $kWh[ ]= VC+CC[ ] $yr!" #$

CAP% CF% 8760[ ] kWhyr!" #$

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The Price for Electricity Generatio

Depends on the Costs Plus Other Fact

Cost of Electricity: /kWh!Includes capital charge, fuel costs, O&M costs

Price of Electricity

!Regulated: Historically, prices are fixed for consumers regardless of fuel

costs, time of day, season, or location

!Market-Based:price depends on markets (supply & demand, profits, etc.

!Moving towards smart meters and real-time pricing

!Typically ~$0.10-14/kWh for commercial/residential

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Prices listed in $/MWhValues include installed capacity

LCOE of Installed and Planned Fleet Va

From $0.06 to $0.275/kWh

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Dr. Michael E. Webber