PwC RENEWABLE ENERGY VIEW 2015
relaxation of targets in another area, or vice versa, while still delivering the requisite 15%across the three sectors.
Themost recent data available indicates renewables share of power generation reached 19.2%in 2014 (2013: 14.9%), heat 2.8%in 2013 (2012: 2.3%) and transport 4.4%in 2013 (2012: 3.7%).5 Based on current deployment rates, power is the only sector in which an outperformance of the existing DECC targets for renewable energy generation is likely, and even here, any outperformancemay only bemarginal. So whatmight this trade-off look like in practice?
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Figure 5: Relationship between power, heat and transport targets6 Surface Transport
State of the Renewable Industry 8% 37%
12% 30% 11% 32% 10% 34% 9% 35%
7% 38% 6% 40% 5% 41%
When considering technology specific costs, there are two technologies where the evidence suggests costs have fallen below the assumptions used in last year’s report: offshore wind and solar PV.
4% 43%3.1.2. Technology costs 3% 44% 2% 46%
33% 35% 36% 38% 39% 41% 42% 44% 45% 47% 49%
investment costs has been to apply existing factors where no new evidence suggesting a shift beyond the assumed cost reduction trajectory has been identified. Our reference point for these estimates has been the ARUP derived capital cost factors applied in the 2014 report8
. These capital cost
10% 9% 8% 7% 6% 5% 4% 3% 2% 32% 33% 35% 36% 38% 39% 41% 43% 44% 46% 47%
34% 36% 37% 39% 40% 42% 44% 45% 47% 48% 50%
36% 37% 39% 40% 42% 43% 45% 46% 48% 50% 51%
37% 38% 40% 41% 43% 45% 46% 48% 49% 51% 52%
factors include: • Pre-development costs • Construction costs (turbines, foundations, civils)
• Grid costs • Other infrastructure The ARUP capital cost factors include
The figure below shows the assumed LCOE trajectory set out in the CRMF required to reach £100/MWh in 2020, along with the estimated LCOE based on themost recent data collected. The falling LCOE of offshore wind supports the cost reduction assumption which has been applied in the investment factors
This highlights is the need for a coordinated approach to targets that is not obvious fromcurrent policy.
Levelised Cost of Energy (LCOE) is the calculated cost to produce electricity over the life of the asset (typically 20-25 years), based on expected power output (MWh). LCOE includes all of the assets lifetime
costs, such as construction, financing, fuel,maintenance, tax and insurance. Some costs are excluded, such as costs of selling power (due to Power Purchase Agreement discounts or fees) andworking capital costs.
learning and efficiency effects, based on the International Energy Association’s learning rate of 7%.
5 DUKES 6, February 2014 &March 2015 6 Renewable Energy Strategy, PwC analysis
3.1.1. Input costs The cost factors used do not include exchange rate movements, due to the uncertainty of such movements. It is important to recognise the impact that exchange rates can have on overall costs of securing large CAPEX items, for example turbines, with developers entering into purchase agreements outside their country of origin exposed to greater risk. For consistency our approach has been to exclude the exchange rate fluctuations as these remain uncertain and challenging to accurately forecast. Commodity prices are also important to the cost of individual technologies; for example, rising steel prices are expected to be the main contributor to price inflation
his report is solely for the use and benefit of Renewable Energy Association and should not be relied upon by any other party. Figure 7: Offshorewind LCOE compared to Pathways study (technology acceleration)9
State of the renewable industry - Investments in renewable electricity, heat and transport PwC
100 120 140 160
20 40 60 80
-
Works Completion 2010-2011
Works Completion 2012-2014
FID 2012-2014 FID 2017 Target 2020
It could be argued that equivalent cost savings would be expected for onshore wind, given the technology similarities (WTGs, financing, supply chain).However, onshore wind is impacted by fundamentally different planning conditions, which act as a barrier to the scale of onshore developments which would be required to realisemany of the costs saving opportunities that have allowed offshore to reduce its LCOE. Turbine size, for example, has not increased at the same rate onshore (offshore projects reaching FID 2012-14 are dominated by
80 REview Renewable Energy View 2015
38% 40% 41% 43% 44% 46% 47% 49% 50% 52% 54%
Investment in Renewables 46%
39% 41% 42% 44%
47% 49% 50% 52% 53% 55%
for wind energy up to 2025.
41% 42% 44% 45% 47% 48% 50% 51% 53% 55% 56%
The new evidence which points to a fall in offshore wind is the Offshore Renewable Energy Catapult (OREC) Cost ReductionMeasurement Framework (CRMF) report. The CRMF assesses cost reduction in the offshore industry annually against the trajectory required to deliver an LCOE of £100/MWh in 2020. The findings of the January 2015 assessment suggest the industry is in fact ahead of the benchmark pathway, although the CRMF assessment is calculated over a 25 year period (contrasted with a 15 year CfD).8
The figure above illustrates the impact of increasing the proportion of renewable power from DECC’s base case assumption of 30%(i.e. 12%renewable heat and 10% renewable transport). The values shown in the table indicate the proportion of power thatmust be generated from renewable sources, at a given contribution from both transport and heat.What this shows is that a shortfall against either the heat or transport targets requires a significant increase in renewable power contribution. Under the 2015 forecasts prepared by DECC, renewable electricity is expected to reach a 34%share of demand by 2020. This would allow for a 3%reduction in transport targets, providing heat reached 10%.
One commodity that has been the subject of the greatest change in price during 2014 was crude oil. The collapse of oil market prices dominated headlines during the latter months of 2014, but to what extent does this impact investment in renewable electricity generation?
3.1.2. Technology costs When considering technology specific costs, there are two technologies where the evidence suggests costs have fallen below the assumptions used in last year’s report: offshore wind and solar PV.
The new evidence which points to a fall in offshore wind is the Offshore Renewable Energy Catapult (OREC) Cost Reduction
TFIGURE 6 OFFSHORE WIND LCOE COMPARED TO PATHWAYS STUDY (TECHNOLOGY ACCELERATION)10 7 FIGURE 5 RELATIONSHIP BETWEEN POWER, HEAT AND TRANSPORT TARGETS7
136
131 121
Pathways LCOE@Works Completions LCOE@FID LCOE Target 2020
www.r-e-a.net
Heat LCOE (£/MWh, 2011 Prices)
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