CASE STUDY: Cost-Effective Dispatchable Renewable Energy

Small and inflexible grids (typical of island economies & remote industrial loads) have the greatest economic incentive to adopt cheaper, locally produced renewable energy. 

 

A typical, 100 MW grid with 100% oil-fired generation, will have marginal generation costs ranging between $175/MWhr to $260/MWhr (with costs to the rate-payer typically between $300-$400/MWhr). 

When compared to the cost of generation of an average large-scale wind project ($50-$80 MWhr) or large-scale solar generation project ($75-$120 MWhr), the benefit of renewable energy seems self-evident. (Before factoring in the substantial ancillary benefits of Renewable energy, which include the following):

 

BENEFITS of DISPLACING OIL-FIRED GENERATION WITH RENEWABLE ENERGY: 

  1. Lower cost of electricity.

  2. Annual Energy cost certainty.

  3. Locally produced clean energy source.

  4. Source of local training, jobs & prefessional development.

  5. Local tax revenue source.

  6. Decreased dependence on oil imports.

  7. Enhanced economic incentive for industrial growth.

  8. Enhanced & Sustainable environmental and public health benefits. 

 

Unfortunately, the self evident value proposition of displacing oil-fired generation with renewable energy has heretofore proven elusive to island economies and remote industrial loads.

The reality is that there are real and intractable technical and economic challenges that are born of managing intermittency on grids that lack the scale,  sophistication and regulatory framwork that are the backbone of industrialized nations.

While it is relatively simple for the CAISO (California grid) to manage 30% penetration of its capacity as intermmittent sources, the same does not hold true for the typical 100 MW capacity grid with 100% oil-fired generation looking to adopt just 30 MW of new wind or solar capacity must confront the following challenges: 

  • Technical Challenge: Ramp-rate requirements of the grid will increase exponentially compared to the baseline (on the order of 30x (yes - thirty)). 

  • Economic Challenge: Avoided fuel burn does not add up to the output of the new renewable generation. For every 1 MWhr of $50 wind produced there is an additional marginal fuel cost of between $70-$130 (in this example) to enable sufficient back-up of renewable capacity (in this example) - resulting in an effective real LCOE of $120-$18/MWhr. This negative equation is compounded by the poor fuel efficiency diesel and oil-fired generation has at minimum load. 

  • Financing Challenge: Unlike diesel fired generation, the all-in lifetime cost of renewable energy projects must be paid up-front. Thus, accessing competive costs of capital is a critical component to enabling renewables to displace conventional fossil-fired power sources. While soveriegn and exchange rate risk always play a roll, they are known risks that can be managed. The biggest challnege to a typical 100 MW grid is achieving scale. A series of incremental 1-2 MW projects over 10-15 years wilresult in high costs of capital BUT a single 100 MW project with high capacity factors due to integrated storage and multiple generation sources will have the scale to attract the interest of global capital markets.

 

The BAD news: 

  • These challenges are real and very much responsible for the lack of penetration of renewable energy within the economies and industrial sectors with the highest cost of energy.

  • This example is only for 100 MW oil-fired grid looking to adopt 30 MW of renewable capacity, which is still a very low penetration by energy (10-15%).

 

The GOOD news:

  • The technology and methodologies to resolve these issues exists and is proven.

  • The 100 MW oil-fired grid (used in this example) can immediately transiton from 100% oil-fired to 40-60% renewable while: 

    • Decreasing annual fuel burn by greater than 30%.

    • Decreasing net system cost of generation by 10-25%.

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