04b Energy Costs and Prices

Transcription

1 04b Energy Costs and Prices Brussels, 23 th October 2015 Prof. Michel HUART MECA H417 / MECA H530 Sustainable energy A. General overview Lesson plan Content Prices and costs (CAPEX, OPEX, LCOE) Average costs/prices, marginal costs/prices Time value, Inflation, Retail price index, Discounting, Current value and Constant value International wholesale energy market: Prices and evolutions (oil, natural gas, electricity, coal, ETS CO 2 ) Belgian retail energy market: Prices, components, AAGR, evolutions. (household, companies) General learning outcome You are able : To characterize the energy prices and costs; To solve exercises of energy costs (as a buyer) Specific learning outcomes To describe the presented concept (ie look at the content) To calculate average prices, marginal prices, constant value with energy bill data To estimate future cost making using assumptions and market observations

2 Bibliography extract EVERETT Chap 12. Costing energy. P Extract p HERMANS MACKAY -3- Price and costs Price, what does it mean? Price = Exchange value in a currency of a good or a service. A price is something determined in the marketplace. It does not reflect the intrinsic value of the good or service, but the balanced price between supply (seller) and demand (buyer). On the seller side, the price is the amount the seller receives (without taxes or subsidies) On the buyer side, the price is the amount that the buyer gives (with taxes or subsidies) The price of energy is a market value. Cost, what does it mean? At the buyer side: Cost = Sum of expenses incurred for the purchase of a good/service At the seller side: Cost = Sum of expenses incurred for the production/delivery of a good/ service The cost of energy At the demand side: the cost of energy is the energy bill. At the supply side, the cost of energy is the minimum amount for which the producer must sell energy in order for its production to make an acceptable profit. The key components of cost are: CAPEX: capital expenditure including those of decommissioning OPEX: operation and maintenance expenditure including fuels expenditure and waste management costs. Other material ECOFYS, Subsidies and costs of EU energy 0and%20costs%20of%20EU%20energy_11_Nov.pdf Levelized cost of electricity renewable energies study by Fraunhofer Institut

3 ie Breakdown of production cost for electricity -5- EVERETTp OPEX intensive ie gas CCGT: ¾ of the costs are fuel cost CAPEX intensive ie Onshore wind: 8/10 of the costs are capital costs LCOE - Levelized cost of energy LCOE is the value that must be received for each unit of energy produced to ensure that all costs are recovered and it integrates a (reasonable) profit. LCOE discounts the cost of energy (d) and takes into account an incomes by discounting the production (d ) I 0 = Investment ( ) t = year of operation (1,2,, N) N = Economic life time in years C t = Annual total costs of the year t ( ) d = discounted rate (real if excludes inflation or nominal if includes inflation) P t = Energy output of the year t (ie kwh) d = reasonable income interest It is generally used to compare alternative energy supply technologies or systems. OK if LCOE is lower than energy price supply Interesting reference for renewable energy : Levelized cost of electricity renewable energies study by Fraunhofer Institut

4 Levelized Cost of Energy (LCOE) : New electricity prod. ECOFYS, Subsidies and costs of EU energy 7 Levelized Cost of Energy (LCOE) : New electricity prod. ECOFYS, Subsidies and costs of EU energy Remarks: - Indicative values - Depend methodology and assumptions 8

5 Levelized Cost of Energy (LCOE) : New heat prod. ECOFYS, Subsidies and costs of EU energy 2012 /MWh Remarks: - Indicative values - Depend on methodology and assumptions 9 Average cost <> Marginal cost In economy, marginal cost is the cost of producing one more unit of a good. Energy costs include two components: fixed costs (standing charges: ie subscription) variable costs (depending on consumption) Variable Fixed Cost ( ) Average cost = total cost / consumption Marginal cost = variable cost / consumption Consumption (kwh) Red slope < Blue slope -10-

6 Time value of money In practice, an euro tomorrow is not worth the same as an euro today. Purchase capacity of an amount of money is time-dependent. There are several separate factors involved in the time value of money: Inflation. The rate of change of the retail price index per year. It changes the capacity of purchase of money ( ). The normal time preference for money. Given a choice most people would generally rather have an euro today than an euro in the future. The opportunity cost. Money can be lent out and interest charged. A value X (amount of money) can be invested over time to yield a return -> X+return Generally, 2012 > 2013 and V(expressed in 2012 ) < V(expressed in 2013 ) Retail Price Index - RPI Inflation characterizes the "depreciation" of money over time. It is calculated based on the RPI. For Belgium : Source : Average (geometric mean) of multiplier factor (1+RPI/100) of last 10 years ( ) = +2.1%

7 Discount rate (d) The method for converting cash flows to a time-equivalent basis is called discounting. (By discounting, you can mix amounts of different incomes date). PV = Present value ( today ) What will be an amount one year later? FV = PV x (1 + d) FV = Future value ( future ) in two years : FV = PV x (1 + d) 2 Value is an amount of money in «n» years : FV = PV x (1 + d) n Conversely, an amount received in 1 year values : PV = FV / (1 + d) d is a choice parameter that integrates the opportunity cost of the capital (basic rate) and the risk of the investment. It s an individual choice. Current prices or Nominal price : Day by day price. Price without inflation adjustment. Constant prices or Real price (year reference) Discounted prices with inflation as discounted rate. Discounted price Discounted prices with specific discounted rate. Set a Discount rate (d) For example, in the electricity sector in OECD countries, companies consider d = 3-10 % (Ref Systèmes énergétiques p 677) (A) It can be determined starting from a basic rate raised with a risk factor (Basic rate ie: Linear bond 10 years) (B) WACC (Weighted Average Cost of Capital) (C) Simplified for household : ie of references : Opportunity of alternative investment : Passbook : 1-2% Interest rate of loan :.; mortgage : 2-4% (D) Simplified for companies : Opportunity of alternative investment Interest rate of loan : Expected rate shareholders Remark : Of the various factors affecting the net benefit of energy efficiency and renewable energy investments, the discount rate is one of the most dramatic

8 Price evolution: Trend lines Price evolution Observation: Energy market prices show an irregular growth trend, an evolution with waves Trend lines are used in simple models (linear or exponential) Linear growth (lg) V n = V 0 (1 + n lg) Exponential growth with index (eg) V n = V 0 (1 + eg) n Eg = AAGR (1 year period) Example : V 0 = 100; V 12 = 314 lg = 17,82% eg = 10% Energy price outlook What will be the price of energy in the future? Knowing the price at a date (P 0 ) Making the assumption of a growth rate (Exponential evolution with index - r) Calculate the price n year later P n = P 0 (1 + r) n Remarks - The growth rate in current value include inflation - The growth rate in constant value doesn t include inflation - Since 1990, the trend of price of oil increases (x2 every 10 years index of 7%) more than RPI ( 2%). Spot prices Brent

9 Europe Brent Spot Price FOB (Dollars per Barrel) From May 1987 until October 2015 Which is the interest rate for doubling a value after a determined number of years? 100*(1+r) y 100 Year(y) r (%) , , , , , , , , ### 8, ### ### ### ### ### ### 9, ### ### ### ### ### ### ### ### ### ### ### 10, ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 11, ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 12, ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 13, ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### 14, ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ### ###

10 Exercices -Calculate average unit cost and marginal cost of a bill of energy - Calculate constant value (at a reference year) - Add amounts of different incomes date - Estimate future price making assumption of the evolution index Exercise 1. Smith family lives in Brussels and has an annual electricity consumption of 3,000 kwh. The energy bill of 2014 amounted to including a fixed charge of Calculate the average price of 1 kwh and the marginal price. What will be electricity bill in 2017? (Expressed in current and in 2014 ). Justify your assumptions Average price = / 3,000 kwh = Marginal price = (740-80) 2014 / 3,000 kwh = Assumptions : AAGR = +4% RPI= +2.1% (because trends observed in the last 5 years) Bill in 2017 : 740 (1.04)³ = 832 Bill in 2017 : 740 (1.04)³ / (1.021)³ =

11 Energy wholesale markets in Belgium 21 Barrel oil price Energy price is driven by barrel oil price. Current price Constant price $2012 Wholesale oil prices is related to world events affecting oil production or oil demand. Until 1970, energy constant prices has globally decreased. Oil shocks in 70 and end 80, and end 90. Since end 90, prices increase dramatically -22-

12 Europe Brent Spot Price FOB (Dollars per Barrel) From May 1987 until October Production > Consumption Supply and demand law price

13 /MWh Wholesale natural gas international market Natural gas wholesale (Market M+1, [ /MWh]) between 2012 and September Henry HUB : USA ; PEG Nord : France ; NCG, GASPOOL : Germany ; TTF, ZIG : Belgium Source : CREG /MWh Wholesale electricity international market Belgium and neighbours countries Wholesale electricity current price (long term Y+1) Belgium (BE), Netherlands (NL), Germany (DE), France (FR): Evolution 2011 September 2015 Source : CREG

14 Coal $/tonne Source : AIE Key World Energy Statistics 2014 ETS CO2 Market c /l + 6 c /l + 3 c /l + 1,5 c /l Source : Thomson Retuers Point Carbon The combustion of litres of oil emit 1 ton CO 2 28

15 Energy retail prices in Belgium Electricity : 1 kwh (for domestic use or company use) Gas oil (diesel) : 1 litre Petrol, gasoline : 1 litre Domestic fuel oil : 1 litre LPG Natural gas : 1 m³ Propane : 1 litre 1 kg of coal 1 kg of wood pellets 1 stere of logs wood Breakdown of retail energy prices Delivered energy price includes three main components Energy production Energy transport and distribution Taxes (excise, value added tax (VAT), others contributions)

16 Electricity Wallonia Annual bill - 3,500 kwh Source CWaPE: 04/07/2015 Average price VAT included 2015: 21.1 c 2013: 23.4 c Average price exclusive of VAT 2015: 19.9c 2013:19.3 c Note VAT applied on every component: 21% April Augustus 2015: 6% Natural gas Wallonia Annual bill kwh Source CWaPE: 04/07/2015 Average price VAT included 2015: 6.8c 2013:7.0 c

17 Fuels Belgium Transport fuel - gasoil Heating fuel - gasoil Production Distribution APETRA contribution BOFAS contribution Excise and energy contribution VAT (21%) Production Distribution APETRA contribution Heating social funds contribution Excise and energy contribution VAT (21%) Maximum fuel prices September 2015 Source: date 12/09/2015 APETRA contribution : (oil minimal bulk storage) BOFAS contribution (soil rehabilitation of filling station) Energy contribution (social funds) -34-

18 Retail price for private individuals (BE) Average current prices - Belgium (last five years) Ref. Renouvelle 69 December 2014 Electricity (3500 kwh) Brussels Electricity (3500 kwh) Flanders Electricity (3500 kwh) Wallonia Natural gas (23260 kwh) - GCV Gas oil (2000 l) - GCV Wood chips (30% RH) - NCV Wood logs (30% RH) - NCV Wood pellets (bulk) - NVC Propane (bulk) - GCV Evolution trends: AAGR of prices for household (BE) Average current prices - Belgium Ref. AAGR Dec AAGR Dec Domestic fuel oil % -3.6% Natural gas % % Electricity +8.9 % % RTI % % Average Annual Growth Rate: AAGR Value n Value 0 AAGR is a geometric mean of a proportional growth or an exponential evolution

19 Electricity price Evolution Household : Average price ( /kwh VAT included) by annual consumption level Eurostat Ref : Icedd SPW DGO4 Oct 2014 Companies : Average price ( /kwh exclusive of VAT) by annual consumption level Eurostat Natural gas Evolution Household : Average price ( /GJ GCV VAT included) by annual consumption level Eurostat 1 GJ = 278 kwh 15 /GJ PCS = 5.4 c /kwh PCS GCV = 11.1 kwh/m³ - NCV = 10 kwh/m³ 5.4 c /kwh GCV c /kwh NCV Companies : Average price ( /GJ GCV exclusive of VAT) by annual consumption level Eurostat Ref : Icedd SPW DGO4 Oct

20 Oil prices (Belgium -> 2012) Petrol 98 RON Petrol 95 RON Pump gas oil Heating gasoil Figure 16 Average annual current prices Source SPF EPMECME, DGSIE (Prix maxima TVAC à monnaie courante) From ICEDD - Bilan énergie 2012 SPW-DGO Year /l Transport fuels evolution (Belgium )