Short-term and Long-Term System Effects of Intermittent Renewables on Nuclear Energy and the Electricity Mix

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Université Paris-Dauphine, 31 January 2013

Short-term and Long-Term System Effects of

Intermittent Renewables on Nuclear Energy

and the Electricity Mix

Jan-Horst Keppler and Marco Cometto

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OECD NEA System Effects Study

Key Issues

3. Institutional frameworks, regulation and policy

conclusions to enhance the sustainability, flexibility and security of supply of power generation and

enable coexistence of renewables and nuclear power in decarbonising electricity systems

2. Quantitative estimation of system effects of different generating technologies

o Costs imposed on the electricity system above

plant-level costs

o Total system-costs in the long-run

o Impact of intermittent renewables on nuclear energy

and other generation sources

1. Interaction between renewable, nuclear power and

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“System costs are the total costs above plant-level costs to supply electricity at a given load and given level of security of supply.”

• Plant-level costs

• Grid-level system effects (technical externalities)

o Grid connection

o Grid-extension and reinforcement

o Short-term balancing costs

o Long-term costs for maintaining adequate back-up capacity

• Impact on other electricity producers (pecuniary externalities)

o Reduced prices and load factors of conventional plants in the short-run

o Re-configuration of the electricity system in the long-run

• Total system costs

o Take into account not only the costs but also the benefits of integrating new capacity (variable

costs and fixed costs of new capacity that could be displaced)

o Other externalities (environmental, security of supply, cost of accidents, …)

System Effects – An Introduction

Plant-level costs

Grid-level costs

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The Short-run and the Long-run

• Crucial importance of the time horizon, when analyzing adequacy/back-up costs and

impacts on dispatchable generators (no issue for grid costs or balancing costs):

• Adequacy/back-up costs :

o In the short-run (ex post), in a system where existing capacity reliably covers peak

demand, there are no back-up costs for new variable renewable capacity.

o In the long-run (ex ante), variable renewable capacity due to its low « capacity credit »

demands dedicated back-up, which is not commercially sustainable on its own.

• Impacts on dispatchable generators

o In the short-run, the pecuniary externalities of subsidized, variable renewables

(reduced electricity prices and load factors) will over-proportionally affect technologies with high fixed costs such as CCGTs.

o In the long-run, the structural re-composition of residual dispatchable capacity will

over-proportionally affect technologies with high fixed costs such as nuclear. Issue for investors and researchers: when does the short-run become the long-run?

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Methodology:

Long-term optimal mix (I)

Yearly load duration curve

0 10 20 30 40 50 60 70 80 90 100 0 1000 2000 3000 4000 5000 6000 7000 8000 P o w e r (G W )

Utilisation time (hours/year) 0 20 40 60 80 100 E le ct ri ci ty d e m a n d ( G W )

Electricity demand in France (2011)

• Simply obtained by ordering demand from highest to lowest.

• The curve shows the number of hours that electricity demand is higher than a certain level. • Electricity consumed is the integral of load duration curve.

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Université Paris-Dauphine, 31 January 2013 0 100 200 300 400 500 600 700 800 900 1000 0 1000 2000 3000 4000 5000 6000 7000 8000 A n n u a l co st ( U S D /k W /y e a r)

Utilisation time (hours/year)

Gas (OCGT) Gas (CCGT) Coal Nuclear Optimal

OCGT CCGT Coal Nuclear

Methodology:

Long-term optimal mix (II)

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Methodology:

Long-term optimal mix (III)

0 10 20 30 40 50 60 70 80 90 100 0 1000 2000 3000 4000 5000 6000 7000 8000 P o w e r (G W )

OCGT: electricity generated CCGT: electricity generated Coal: electricity generated Nuclear: electricity generated Yearly Load 0 100 200 300 400 500 600 700 800 900 1000 0 1000 2000 3000 4000 5000 6000 7000 8000 A n n u a l c o st ( U S D /k W /y e a r) Gas (OCGT) Gas (CCGT) Coal Nuclear Optimal 0 10 20 30 40 50 60 70 80 90 100 C a p a ci ty ( G W ) E_nucl C_nucl E_coal E_ccgt E_ocgt C_ocgt C_ccgt C_coal • The optimal generation mix

obtained is the one that

minimises the generation cost for meeting a given yearly load duration curve.

• The cost/MWh depends upon the shape of the load duration curve.

Fixed costs Variable costs LCOE USD/MW/year USD/MWh USD/MWh

OCGT 43.5 113.8 118.7

CCGT 96.1 76.4 87.4

Coal 212.8 49.8 74.1

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Methodology: calculating a residual

load duration curve with VaRen

Residual load duration curve (wind at 30%)

0 20 40 60 80 100 E le ct ri ci ty d e m a n d ( G W )

• Represents the load curve seen by the other dispatchable generators after the integration of low-marginal cost wind.

• Statistical analysis (Monte Carlo with 650 runs) • Non-parallel shift of the residual load duration

curve 0 10 20 30 40 50 60 70 80 90 100 0 1000 2000 3000 4000 5000 6000 7000 8000 P o w e r (G W )

Yearly load

Residual load: wind at 30% penetration

+ 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% P ro b a b il it y ( % )

Wind load factor

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Short-run impacts

In the short-run, renewables with zero marginal costs replace technologies with higher marginal costs, including nuclear as well as gas and coal plants. This means:

• Reductions in electricity produced by

dispatchable power plants (lower load factors, compression effect).

• Reduction in the average electricity price

on wholesale power markets, merit order

effect (by 13-14% and 23-33%).

Wind Solar Wind Solar Gas Turbine (OCGT) -54% -40% -87% -51%

Gas Turbine (CCGT) -34% -26% -71% -43%

Coal -27% -28% -62% -44%

Nuclear -4% -5% -20% -23%

Gas Turbine (OCGT) -54% -40% -87% -51%

Gas Turbine (CCGT) -42% -31% -79% -46% Coal -35% -30% -69% -46% Nuclear -24% -23% -55% -39% -14% -13% -33% -23% Lo a d l o ss e s P ro fi ta b il it y lo ss e s

Electricity price variation

10% Penetration level 30% Penetration level • Declining profitability especially for

gas (nuclear is less affected).

• Carbon emissions are considerably

reduced (by 30% to 50%)

• No sufficient economical incentives

to built new power plants.

• Security of supply risks as fossil

plants close. 0 10 20 30 40 50 60 70 80 90 100 0 1000 2000 3000 4000 5000 6000 7000 8000 P o w e r (G W )

Gas (OCGT): Lost load Gas (CCGT): Lost load Coal: Lost load Nuclear: Lost load Yearly Load Residual load

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Long-run impacts on the

optimal generation mix

• New investment in the presence of renewable production will change generation structure.

• In the absence of countervailing measures (carbon taxes), nuclear power will be displaced by a more

carbon-intensive mix of renewables and gas.

• The cost for residual dispatchable load will rise as technologies more expensive per MWh are used.

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Long-term effects:

cost for providing the residual load

We compare two situations: the residual load duration curve for a 30% penetration of

fluctuating wind (blue curve) and 30% penetration of a dispatchable technology (red curve).

0 10 20 30 40 50 60 70 80 90 100 0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 P o w e r (G W )

Wind surplus Wind shortage Load duration curve Residual load curve - wind Residual load curve - dispatchable

85.5 USD/MWh

81.8 USD/MWh

∆= +3.7 USD/MWh_Residual

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Université Paris-Dauphine, 31 January 2013 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% E le ct ri ci ty v a lu e ( % o f a f la t b a n d ) Penetration level (%)

Electricity value - dispatchable

Electricity value - wind

Electricity value - solar

20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% E le ct ri ci ty v a lu e ( % o f a f la t b a n d ) Penetration level (%)

Electricity value - dispatchable Electricity value - wind

Marginal electricity value - wind Electricity value - solar

Marginal electricity value - solar

Value of an intermittent generation source

from a system viewpoint

We can look at the impact of the intermittency from a different perspective:

• Cost for the whole electrical system (externality)

• Value of an intermittent generation source (as seen by the system)

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The notion of capacity credit

The capacity credit is “the amount of additional peak load that can be served due to the addition of a power plant, while maintaining the existing level of reliability”.

0 10 20 30 40 50 60 70 80 90 100 0 1000 2000 3000 4000 5000 6000 7000 8000 P o w e r (G W )

Yearly load

In st a ll e d w in d c a p a ci ty ( 7 8 G W )

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Université Paris-Dauphine, 31 January 2013 70 75 80 85 90 95 0 10 20 30 40 50 60 70 80 90 100 P o w e r (G W )

Utilisation time (hours)

Yearly Load Curve Residual load curve

Dispatchable generation capacity that could be replaced based on averaged values.

CC=5,8 GW / 77,9 GW = 7,5% 70 75 80 85 90 95 0 10 20 30 40 50 60 70 80 90 100 P o w e r (G W )

Utilisation time (hours)

Yearly Load Curve Residual load curve Residual load curve - Max Residual load curve - Min

Dispatchable generation capacity that could be replaced based on averaged values.

Dispatchable generation capacity that can be effectively replaced (IEA).

Residual load curve corresponding to a minimal wind production.

Residual load curve corresponding to a maximal wind production. 1 σ

CC=5,9%

Residual load duration curves allow for simple and reliable estimation of the capacity credit.

• Capacity credit is calculated using complex probabilistic techniques (LOLP) and requires a

sophisticated modeling of the electricity system.

Methodology: estimates of capacity credit

using residual load duration curves

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• Six countries, Finland, France, Germany, Korea, United Kingdom and USA analysed

• Grid-level costs for variable renewables at least one level of magnitude higher than for

dispatchable technologies

System Effects of Different Technologies:

Estimating Grid-level Costs

o Grid-level costs depend strongly on country,

context and penetration level

o Grid-level costs are in the range of 15-80

USD/MWh for renewables (wind-on shore lowest, solar highest)

o Average grid-level costs in Europe about

50% of plant-level costs of base-load technology (33% in USA)

o Nuclear grid-level costs 1-3 USD/MWh

o Coal and gas 0.5-1.5 USD/MWh.

0 100 200 300 400 10% 30% 10% 30% 10% 30% 10% 30% 10% 30% 10% 30%

Nuclear Coal Gas On-shore wind Off-shore wind Solar

To ta l co st [ U S D /M W h ]

Grid-level system costs

Plant-level costs

Technology

Penetration level 10% 30% 10% 30% 10% 30% 10% 30% 10% 30% 10% 30% Back -up Costs (Adequacy) 0.00 0.00 0.05 0.05 0.00 0.00 6.03 7.38 5.71 7.67 15.88 18.04

Balancing Costs 0.53 0.35 0.00 0.00 0.00 0.00 4.19 8.34 4.19 8.34 4.19 8.34

Grid Connection 1.71 1.71 0.94 0.94 0.51 0.51 6.24 6.24 18.68 18.68 13.71 13.71

Grid Reinforcement and Extension 0.00 0.00 0.00 0.00 0.00 0.00 2.23 6.28 1.51 3.82 4.46 13.55

Total Grid-Level System Costs 2.24 2.05 0.99 0.99 0.51 0.51 18.69 28.24 30.11 38.51 38.25 53.64

System Costs at the Grid Level (average of 6 countries - USD/MWh)

System Costs at the Grid Level [USD/M Wh]

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The Total Costs of Electricity Supply

for Different Renewables Scenarios

• Total costs of renewables scenarios are

large, especially at 30% penetration levels:

o Plant-level cost of renewables still

significantly higher than that of dispatchable technologies.

o Grid-level system costs alone are

large, representing up to 67% of the increase in unit electricity costs.

Ref. Conv. Mix Wind on-shore Wind off-shore Solar Wind on-shore Wind off-shore Solar

Total cost of electricity supply 80.7 86.6 91.3 101.2 105.5 116.9 156.2

Increase in plant-level cost - 3.9 7.8 16.9 11.6 23.3 50.6

Grid-level system costs - 1.9 2.8 3.6 13.2 12.9 24.9

Cost increase - 5.8 10.6 20.4 24.8 36.2 75.4

Cost increase - 3.4 7.3 32.3 13.6 25.3 101.1

Cost increase - 3.7 5.6 15.7 12.2 19.1 51.2 G e rm a n y U K U S A

Total cost of electricity supply [USD/MWh]

10% penetration level 30% penetration level

• Comparing total annual supply costs

of a reference scenario with only dispatchable technologies with six renewable scenarios (wind ON, wind OFF, solar at 10% and 30%)

o Takes into account also fixed

and variable cost savings of displaced conventional PPs

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New Markets for New Challenges

A. Markets for short-term flexibility provision

For greater flexibility to guarantee continuous matching of demand and supply exist in principle four options that should compete on cost:

1. Dispatchable back-up capacity and load-following

2. Electricity storage

3. Interconnections and market integration

4. Demand side management

So far dispatchable back-up remains cheapest.

The integration of large amounts of variable generation and the dislocation it creates in electricity markets requires institutional and regulatory responses in at least three areas:

B. Mechanisms for the long-term provision of capacity

There will always be moments when the wind does not blow or the sun does not shine.

Capacity mechanisms (payments to dispatchable producers or markets with supply obligations for all providers) can assure profitability even with reduced load factors and lower prices.

C. A Review of Support Mechanisms for Renewable Energies

Subsidising output through feed-in tariffs (FITs) in Europe or production tax credits (PTCs) in the United States incentivises production when electricity is not needed (including negative

prices). Feed-in premiums, capacity support or best a substantial carbon tax would be

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Methodology: long-term optimal mix

Residual load duration curve (solar at 30%)

0 20 40 60 80 100 E le ct ri ci ty d e m a n d ( G W )

• Represents the load curve seen by the other dispatchable generators after the integration of low-marginal cost solar.

• Statistical analysis (Monte Carlo with 650 trials) • *** + 0 10 20 30 40 50 60 70 80 90 100 0 1000 2000 3000 4000 5000 6000 7000 8000 P o w e r (G W )

Yealy load Residual load 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0 3 :0 0 0 9 :0 0 1 5 :0 0 2 1 :0 0 0

January February March April May June July August September October November December

S o la r lo a d f a ct o r

Solar load factor - yearly insolation data and variability

Maximal "Solar radiation" Minimal

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Impacts on CO

₂

emissions

and electricity price

In the short-run, renewables replace technologies with higher marginal cost, i.e. fossil-fuelled

plants emitting CO₂.

• Electricity market prices are significantly reduced (by 13-14% and 23-33%)

• Carbon emissions are considerably reduced (by 30% to 50%).

In the long-run, low-marginal cost renewables replace base-load technology.

• No changes in electricity market prices at penetration levels < 25% (time-weighted prices).

• The long-term effect on CO₂ emissions depends on the base-load technology displaced

(nuclear or coal):

o If there was no nuclear on the generating mix, renewables will reduce CO₂ emissions.

o If nuclear was part of the generating mix, CO₂ emissions increase.

Reference

Wind Solar Wind Solar

[%] [%] [%] [%]

Short-term -31% -29% -66% -44%

Long-Term 2% 4% 26% 125%

Short- and long-term CO₂ emissions

10% Penetration level 30% Penetration level

[Mio tonnes of CO2]

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Cost of providing residual load

10% penetration 30% penetration W in d S o la r

+4.3 USD/MWh_Ren +8.7 USD/MWhRen

+25.8 USD/MWh_Ren

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Value of intermittent generation:

a simple example for a flat band

0 10 20 30 40 50 60 70 80 90 100 P o w e r (G W )

Load duration curve

Residual load curve - ideal generator

• The value of the electricity produced by the ideal generator is calculated as the difference between the cost of supplying the original load duration and the residual curve.

• The value of the flat band for the system is equal to the cost of base-load technology.

A generator providing a flat power band (30% of the electricity)

Result

• A parallel shift on the load curve.

• The flat power band replaces base-load technology.

• No changes in the capacities and electricity production of medium- and peak-load

technologies.

Total cost Specific cost

[Bil. USD] [USD/MWh]

Original load curve 37.18 78.20

Residual curve 27.32 81.96

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Université Paris-Dauphine, 31 January 2013 0 10 20 30 40 50 60 70 80 90 100 0 1000 2000 3000 4000 5000 6000 7000 8000 P o w e r (G W )

Yearly load

Value of wind at 30% PL 8.58 60.16

Value of intermittent generation:

the 30% wind penetration case

• The total cost for the residual load is higher the value of wind is lower.

• We define the value factor (or utility factor) as the value of a fluctuating technology relative to that of a flat band.

• Value factor depends on technology, penetration level and country.

A wind providing fluctuating power (at 30% penetration level)

Result

• Non-parallel shift on the load curve.

• Significant changes in the composition of the generating mix (proportionally more peak-and medium-load capacity).

• The wind production replaces base-load technology on more than one-to-one basis.