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• Renewable Energy: 2005 Edition
• Fossil Fuel Generating Costs
• Renewable Sources 2002
• Generating: Technical Note

This report updates sections of a similar report in May 2002 Costs of Fossil Fuel Generating Plant for the New Zealand Ministry of Economic Development.

In the basic analysis the following delivered fuel costs have been assumed: gas $5/GJ; sub-bituminous coal (in North Island) $3.50/GJ; bituminous coal in West Coast South Island $2.50/GJ, everywhere else $3.50/GJ; and lignite (in south of the South Island) $1.50/GJ.

With these fuel costs, total c/kWh unit costs are presented. As well as fuel costs, these unit costs provide for O&M costs and the levelising of capital costs over the life of plant. The unit costs have been estimated on a commercial basis taking into account corporate tax, and with a discount rate of 7.5% (taken to be the post-tax real WACC). The costs therefore indicate the market price of electricity that would be required to make particular types of plant commercially viable. It would however be possible to draw on the unit cost estimates given in the report in a national cost benefit analysis. Appendix A details the basis for the cost estimation and outlines how the cost estimates may be used in both commercial and national cost benefit analyses.

The table below summarises the current (2003 prices) unit cost estimates. The report also contains results of sensitivity analyses (Appendix B) and forward estimates for 2012 and 2025 (Appendix C).

Of the options examined, combined cycle gas turbine plant, at about 5.2c/kWh is estimated to be the lowest cost option for generating electricity. The use of lignite in the South Island, at around 5.7c/kWh, appears to be the next least costly option. However, this is for a 500 MW plant, and this may be larger than required for the South Island market. If the power were to be transmitted to the Auckland region of the North Island, transmission costs and losses could add about 1c/kWh to the cost.

Electricity generated from sub-bituminous coal in the North Island would cost around 7c/kWh. The exact cost would depend on a range of factors, including whether it was necessary to install flue gas desulphurisation (FGD).

Of the options examined, the use of West Coast South Island bituminous coal appears to be the most costly. This option has been examined for a 150MW plant, and the relatively high c/kWh cost is attributable to dis-economies of scale with such a small plant. Although the output from a West Coast power station is likely to be used in the West Coast area and localities in the South Island, if the last MW of generation from a West Coast power station were to meet demand in the Auckland region, transmission costs and losses would increase the cost by about 0.75c/kWh.

FGD is included in coal fired plant estimates. If low sulphur coal is available and FGD is not required, unit cost estimates for the coal fired plant are reduced by about 0.6c/kWh.

If carbon charges are introduced, these will affect fuels differentially. A carbon charge of $15/tonne CO2 would add about 0.7c/kWh to gas fired electricity generation costs, about 1.2c/kWh to the cost of electricity from bituminous and sub-bituminous coal and about 1.3c/kWh to the cost of lignite sourced electricity.

As well as costs, lead times for putting different technologies vary, and these may also play a significant role in developers' commercial decisions on what projects to proceed with. The table below gives an indication of the lead times to commission plant using the different technologies considered in this report.

The lead times in the table cover the periods from project conception to commercial operation. Various coal technologies have been costed (using lignite, sub-bituminous or bituminous coal; with subcritical or supercritical boilers; with or without FGD), but all are considered to have similar lead times.

As the table shows, lead times can vary widely, but are likely to be around two and a half years for an open cycle gas turbine, around four and a half years for a combined cycle gas turbine and around six and a half years for a coal fired station.