The Cost- Effectiveness of the Energy Sources in the Philippines DONNA FAYE E. BAJARO

Transcription

1 The Cost- Effectiveness of the Energy Sources in the Philippines DONNA FAYE E. BAJARO

2 Introduction Share in Total Power Generation, % 39% 27% 6% Coal Oil Natural Gas Renewable Energy

3 Introduction Table 1. Philippine Energy Plan, Sector Short Term ( ) Medium Term ( ) Long Term ( ) Total (in MW) Geothermal , ,495.0 Hydropower , , ,394.1 Biomass Biofuel Wind , ,345.0 Solar Ocean Power TOTAL (in MW) 1, , , ,931.3

4 Introduction This proposal seeks to analyze the least cost- effective energy technologies in the Philippines. Specifically, this intents to know the following: i. Levelized Cost of Energy (LCOE) ii. Levelized Avoided Cost of Energy (LACE) iii. Net Value of LCOE and LACE

5 Introduction Depletable resource like coal is relegated as dispatchable while renewable resources are classified as intermittent generating technologies This study calculates and compares the LCOE and the LACE of dispatchable generating technology, i.e. coal, and intermittent generating technologies during the off- peak period and peak period.

6 Theoretical Framework Levelized Cost of Energy

7 Theoretical Framework Levelized Cost of Energy (LCOE)- stream of equal payments normalized over the expected energy production that would allow the system operator to recover all costs, which reflects the capital and operating costs of deploying and running new utility- scale generation capacity of any given type, over a predetermined financial life

8 Theoretical Framework where: LCOE = (FCF CCo + FOME) AEGH + VOME + FC FCF = Fixed Charge Factor = Discount Rate + Discount Rate (1+Discount Rate) Financial Life 1 CCo = Capital Costs FOME = Fixed Operating & Maintenance Expenses AEGH = Annual Expected Generation Hours = Capacity Factor Number of hours VOME = Variable O&M FC = Fuel Cost

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10 Theoretical Framework Levelized Avoided Cost of Energy (LACE)- a measure of what it would cost the grid to meet the demand that is otherwise displaced by a new generation project

11 Theoretical Framework LACE = where: y t=1 (MGP DH) + CP CCr AEGH MGP = Marginal Gen Price t DH = Dispatched Hours = Number of Hours Resource Operates in Timeslice t CP = Capacity Payment = Payment Provided to Participate in Reliability Reserve CCr = Capacity Credit = Measure of Resource Contribution to Reliability Reserve

12 Theoretical Framework The net value is being used for the comparison of the cost- effectiveness of each energy source since it determines if the economic value exceeds the costs. Net Value = LACE LCOE

13 Results and Discussion Table 2. LCOE, LACE, and Net value (Base case scenario) LACE LCOE Net Value (PhP per kwh) Off- peak Periods Peak Periods Off- peak Periods Peak Periods Off- peak Periods Peak Periods Geothermal Hydropower Biomass (1.7787) (1.5978) Wind Solar Coal

14 Results and Discussion (LCOE) Geothermal has the lowest LCOE while coal and biomass have the highest values during the off- peak and peak periods. As compared to geothermal, coal is 77 times while biomass, unlike the other intermittent technologies, is 150 times higher during the off- peak periods. Moreover, coal is 41 times and biomass is 79 more costly during peak periods. Notice that the energy produced by the intermittent technologies with zero fuel cost are the cheap ones. These are geothermal, wind, solar, and hydropower, respectively.

15 Results and Discussion (LACE) In 2012, the average spot price of electricity in the Philippines is PhP 5.08 per kwh (Almendras, 2012) which could possibly increase by a factor of 10 within a day because electricity is costly to store (Borenstein, 2012). See Table 2 Geothermal and hydropower have higher LACE estimates than wind and solar. Biomass has the least LACE value and is ten times lower than coal.

16 Results and Discussion (LACE) The increase in the variance of the energy supply, which is largely attributed to the intermittent technologies, contributes to the risk of system outage that consequently incurs large welfare losses. System outage happens when the supply could not meet its demand (Gowrisankaran, 2011). Thus, dispatchable technologies like coal has the greatest advantage.

17 Results and Discussion (Net Value) See Table 2 In this base case scenario, coal gives the highest positive net value, and biomass yields the only negative net value making it the least costeffective. Take note that biomass is PhP 2.81 per kwh lower than coal, that is 273% significantly lower.

18 Results and Discussion Table 3. LCOE and Net Value During the Off- Peak Periods, Sensitivity Analysis of Social Discount Rate Off- peak Periods LCOE Net Value 3% 8% 11% 15% 3% 8% 11% 15% Geothermal Hydropower Biomass (1.772) (1.779) (1.783) (1.789) Wind Solar Coal

19 Results and Discussion Table 3. LCOE and Net Value During the Peak Periods, Sensitivity Analysis of Social Discount Rate Peak Periods LCOE Net Value 3% 8% 11% 15% 3% 8% 11% 15% Geothermal Hydropower Biomass (1.586) (1.598) (1.606) (1.618) Wind Solar Coal

20 Results and Discussion Coal and biomass are still the most expensive energy sources while geothermal remains to be the cheapest. Moreover, coal, hydropower, and geothermal have the highest potential revenue. This means that the producers must invest more in these three. However, biomass has the potential loss of PhP per kwh.

21 Conclusion and Policy Recommendation Even if the cost of generation of coal is one of the highest, its avoided cost is still the lowest since it is dispatchable, i.e. it can be supplied at any amount regardless of the weather conditions. This gives the highest positive net value among the energy sources. This implies that the production of electricity using the coal technology is the most profitable, and therefore, cost- effective.

22 Conclusion and Policy Recommendation Table 7. Generation Mix in the Philippines as of May 18, 2015 Generation Mix (in percentage) Luzon Visayas Mindanao Renewable Energy Biodiesel Coal Diesel Natural Gas Geothermal Hydropower Thermal Solar Renewable Energy

23 Results and Discussion Table 8. Power Situation in the Philippines as of May 18, 2015 Luzon Visayas Mindanao System Capacity (MW) 9,816 1,556 1,377 System Peak (MW) 8,444 1,550 1,394 Reserve (MW) 1,025 6 (73) Note that the system capacity and system peak of Visayas and Mindanao is just 14-18% of Luzon. Visayas has only 6 MW reserve margin, and Mindanao has (73) MW, which results to blackouts and therefore, welfare losses.

24 Results and Discussion The country must continue the utilization of the (CHG), and more importantly, the exploration and development of coal and allocates the produced electricity to Visayas and Mindanao. Consistent with the policy thrusts of the Philippine Energy Plan (DOE, 2012). The Philippines has 19 coal districts that has in- situ coal reserves of 2,268.4 million metric tonnes (MMT) at a minimum out of approximately 2.3 billion metric tonnes of potential reserves.

25 Results and Discussion The assumptions are longer time horizons, and perfect substitutability of the depletable and the renewable resources. There will come a time that the depletable resource will be fully exhausted, and at the switch or transition point, the use of renewable resource is on the onset. Therefore, the country must utilize the coal until it is completely exhausted and it is no longer cost- effective even if there are left coal reserves on the ground (Tietenberg and Lewis, 2011).

26 Limitations and Recommendations Reliable data Air emissions