“We conclude our series on the breakeven cost of generation for a hypothetical grid”, By Doug Sheridan

“ Reserve capacity is an important part of a well-functioning grid. Its purpose is to provide customers with assurance and security that the grid can continue operating without interruption…

With this post, we conclude our series on the breakeven cost of generation for a hypothetical grid served only by newbuild gas-fired plants. In this last step, we add the reserve capacity needed to ensure the reliability of a modern grid.

Reserve capacity is an important part of a well-functioning grid. Its purpose is to provide customers with assurance and security that the grid can continue operating without interruption during plant outages, transmission outages and other power losses. Reserves are also needed to cope with demand spikes that can occur with extreme weather and other load-inducing events.

Reserves are based on the difference between expected peak demand and expected peak supply at that time. The reserve margin is calculated by subtracting peak demand from the peak supply capacity during peak demand, and dividing it by peak demand.

Markets with reserve margins of less than 15% are considered tight, while those with margins greater than 20% might be considered oversupplied. For our purposes, we’ll split the difference and assume a 17.5% margin.

This pushes final gas-fired generating capacity to 176.9 GW with reserves totaling 26.3 GW, including the 7.6 GW of spinning reserves added in Scenario E.

System reserves are not typically used frequently. Even so, they add incremental capital costs to grids. In our case, the cost of reserves on the system—including the spinning reserves—drives total capital investment up almost $29 billion to $190.8 billion.

Non-spinning reserves incur variable costs when spinning reserves are insufficient to meet demand. Non-spinning assets must start up operations in such instances, as well as during times of testing and maintenance. On average, we assume these reserves incur non-fuel variable O&M, maintenance capex and fuel expense at a quarter the rate of spinning reserves. Non-spinning fuel usage rates are also assumed to be one-quarter that of spinning reserves.

In total, O&M and fuel costs for non-spinning reserves add about $1.4 billion per year to system costs. This, combined with increased capital investment in reserve capacity, adds about $3.83 per MWhr to the system breakeven.

In conclusion, the final breakeven for the newbuild gas-fired system is $62.97 per MWhr. This is less than half the breakeven of $129.76 for the same grid served exclusively by newbuild solar panels and batteries (a PV-hybrid system).

A solar + battery system in lieu of a newbuild gas-fired system reduces GHG emissions at a cost of almost $175 per MT of CO2e.

This analysis, like others, continues to leave us skeptical of claims that solar is the "cheapest" form of power. This is especially so as our assumptions give substantial benefit of the doubt to the PV-hybrid system.

As a note, this analysis suggests that gas-fired generation is a more economical option to back up renewables than batteries. We’ll look at just how economical beginning in 2025. Stay tuned.

🏭⚡👀

#energy #electricity #naturalgas