Renewables: viable option for a bright future

The cost of power produced by renewable energy sources is falling, making them an option that may be viable in a much wider range of future applications

By Kevin Dodman

European Editor

-Interest in renewable energy always seems to increase at times of resurgence in the public debate over fossil fuels, particularly when discussion focuses on how long these fuels will last, their cost and environmental impact.

In recent years, the debate has centered on the environmental issue, as fuel costs have been relatively stable and estimates of the likely lifetime of fossil resources are, if anything, increasing.

During the oil price crisis of the early 1970s, it was estimated that proven reserves of oil would last for 35 years, an obvious reason for looking to alternatives. According to The Economist, that estimate has grown to 43 years at current rates of oil production, while for natural gas, the estimate has risen from 44 years in 1970 to 66 years today. The estimate for coal, the traditional fuel used for power generation, is 235 years at current output levels.

While these figures must be treated with caution, because consumption levels are rising, it should be noted that the estimates are based on proven resources and thus take no account of the discoveries being made in the difficult-to-reach areas where exploitation will be possible using technologies currently under development.

Although increases in the estimated reserves of fossil fuels, and the stability of prices, led to some slackening in public interest in renewables, there has been no decrease in interest among the developers of renewable technologies. They recognize that price stability in the oil market cannot be taken for granted, especially as OPEC countries control around 75 percent of proven oil reserves and have demonstrated their power to influence the market before.

One economic response taken by Western economies since the 1970s has been increasing use of natural gas, nuclear and hydropower resources, which resulted in oil-fired power generation falling from around 20 percent to 10 percent of total capacity. The Economist estimated that nuclear power now provides 17 percent of the world`s electricity, and hydropower provides 18 percent. The power generation industry thus has some insulation from the effects of fluctuations in the oil market; the bigger economic impact would be the effect upon road transport, which is almost 100-percent oil fueled.

Coal and natural gas, the other major fossil fuels used for power generation, have a longer estimated life than oil, which might enable a serious search for alternative ways to generate power to be postponed for a while. However, their environmental emissions bring the need to find alternatives back into sharp focus.

Where now?

Some governments are currently offering subsidies for the use of renewables. In the United Kingdom, the government`s target is 1,500 MW of new renewable generating capacity by the year 2000. To help achieve this, it has adopted a policy of stimulating development of renewable energy sources where there is a prospect of their being economically attractive and environmentally acceptable.

Since 1990, three non-fossil fuel orders (NFFO) have been put in place, requiring the 12 regional electricity companies (REC) in England and Wales to secure the availability of generating capacity from renewable sources.

The purpose of the NFFOs is to create an initial market so that in the not-too-distant future, the most promising renewables can compete without financial support. Until then, they are subsidized using part of the proceeds from a fossil-fuel levy.

The first NFFO, in 1990, involved 75 projects with a total qualifying capacity of 152 MW. The second, in 1991, included 122 projects with a capacity of 472 MW. The latest order, NFFO3, which was announced in November 1994, had 675 applications, resulting in 520 submitted final bid prices and representing an aggregate capacity of 2,464 MW.

A number of factors can lead to the accepted projects not proceeding to completion. With the first two orders, reasons included failure to obtain consents and delays in obtaining fuel supplies. This reduced the effective lengths of some contracts, making them uneconomic.

According to the Office of Electricity Regulation (Offer), the UK regulatory body that oversees the power generation industry, 84 percent of projects under the 1990 order (representing 94 percent of capacity) and 64 percent of projects (37 percent of capacity) under the 1991 order have so far proceeded to generate.

To offset some of the problems associated with the delays, NFFO3 allows up to five years for project commissioning and a further 15 years of contract time. Offer is assuming 70-percent completion rates for wind projects, 75 percent for waste projects, and 95 percent for landfill gas and hydropower projects.

Price convergence

An important objective is to work toward bringing the cost of renewable generation in line with that of fossil generation. To assess the extent of convergence of renewables prices to a competitive market price and thus the likely amount of additional cost to be carried by consumers through the fossil-fuel levy, Offer used two benchmarks for future electricity selling prices (all in real terms): a steady increase from (US)$0.04/kWh at the beginning to about (US)$0.045/kWh by the year 2000 and constant thereafter, and a price of (US)$0.04/kWh throughout.

According to Offer, “It would be possible to select projects to meet the indicated size of the new order (NFFO3) at an average bid price nearly 30-percent lower than paid under the last order.

“On this basis it would be reasonable to set an order to achieve an effective capacity of at least 300 MW (after allowing for projects which fail to go ahead). Whether it would be appropriate to go up to or beyond 400 MW of effective capacity is a more difficult judgment.

“The prices it will be necessary to pay are still of the order of 50-percent more than what might be expected in a competitive market over the next 15 to 20 years. Experience suggests that further convergence of bid prices to market prices can be expected in the next order. This suggests that it may not be appropriate to go up to or beyond 400 MW at this stage. Better value should be obtainable in the future.

“It is important to achieve the aims of the renewables policy in the most economic way, and the minister has emphasized the importance of a convergence of NFFO prices to market prices.

“Selecting projects in increasing order of bid prices would minimize total cost per unit. This would result in an order covering about 70 projects, with a bid price of nearly (US)$0.064/kWh or less, a total qualifying capacity of 400 MW and an expected effective capacity of about 316 MW. There would be 42 landfill gas projects, 24 waste combustion projects and four wind projects.

“The additional cost to customers of the expected effective capacity, over and above the market price, might be between (US)$532 million and (US)$684 million over the 20 years of the order (in 1994/1995 prices), depending on pool prices. The cost could be as high as (US)$679 million to (US)$684 million if all the qualifying capacity were commissioned.”

Offer explained that alternatively, projects might be selected on the basis of uniform convergence toward market prices from the band prices set in the previous order. This would reduce the number of waste combustion projects and increase the numbers of landfill gas and wind projects. The cost could then be between (US)$605 million and (US)$964 million, depending on pool prices and whether all the qualifying capacity was commissioned.

Offer goes on to say, “The minimum cost and uniform convergence criteria do not indicate the selection of hydro or energy crops projects. The lowest bids for projects in these categories are about (US)$0.067/kWh and (US)$0.076/kWh, respectively. If the cheapest hydro project and the cheapest energy crops project were added to the order, this would provide an additional 38 MW of capacity at an additional cost to consumers of nearly (US)$155 million.

“Given that there is already considerable hydro capacity in Britain, it is difficult to see a case for further support at the prices presently offered. The diversity or other value of energy crops and agricultural and forestry waste technologies would have to be very considerable to warrant requiring electricity customers to pay the level of prices at which such projects are presently offered. It may be that lower prices and better value could be achieved in the next order.”

Hydropower growth continues

Worldwide, hydropower growth potential still looks strong. Norwegian hydropower specialist Kvaerner, one of the leading suppliers of hydro turbines, commented that the most important future markets will be in Asia and South America, with China as the most important single market. Siemens of Germany confirmed this, commenting that the total market for hydropower projects worldwide is around 19,000 MW of new capacity per year.

The largest project of them all is the Three Gorges in China, where a giant 18,200 MW hydropower station is being built. Estimates of total cost vary, with one recent report putting it as high as (US)$29.8 billion.

A delegation from Kvaerner visited China in September 1995 to pre-qualify to bid for the 26 low-head Francis turbines needed. Bids are due early this year (1996), with contract awards expected in about a year`s time.

A work force of around 20,000 is already working at the site, starting work on the dam, which will be 2.3 km long and 175 m high. There will be two power stations: one on the west side of the dam with 12 turbines and one on the east side with 14 turbines.

Hydropower helps economic growth

On a smaller scale, the Pangani Falls hydropower station in Tanzania was recently completed. Although small by the standards of the industrialized world–its output is only 68 MW–it has increased the country`s total installed capacity by around 18 percent.

It was funded with development aid from Finland, Norway and Sweden and managed jointly by IVO International of Finland and Norplan, a Norwegian consultant. One of the main objectives of the project was to encourage economic growth in Tanzania by providing a reliable power supply for industry. Early results indicate that this is being achieved, with plant output in line with forecast average annual output of 367 GWh.

Pangani Falls may provide lessons for developers of similar projects elsewhere in Africa and possibly in other areas where there are limited water supplies during the dry season.

A water management program has been introduced for water consumers upstream of the new plant to ensure that sufficient flow is available even during the dry season. This involved repairing and improving the gate structures used to draw water from the river.

Introduction of the program was not easy because many users are farmers not connected to the grid, who may have little interest in saving water for a power plant hundreds of kilometers downstream. A great deal of political commitment was therefore needed at the government level to ensure that the Pangani Basin Water Office, set up to run the program, had sufficient support to see it through.

At one point, the need for water management also looked set to become a political issue in Finland, one of the donor countries, where opponents of the country`s foreign aid budget sought to show that the Pangani River could run dry, making the Pangani Falls project a waste of Finnish taxpayers` money.

So far, the doubters have been proved wrong; but the Pangani Basin Water Office has no room to relax, as there is very little water to spare. Building the new plant effectively by-passed an old 15-MW hydro station built there during the 1930s, but it was anticipated that this plant would be able to generate power when the new reservoir was full. This would normally happen only during flood conditions but would nonetheless be useful additional output for a country with a total installed capacity of only 478 MW (including the new 68 MW).

Since the new plant was commissioned, there has been talk of moving the old installation to another river where sufficient flow might be available to keep the turbines turning more often than they are at the moment.

Untapped potential

There is enormous untapped hydropower potential in many countries in Central Africa. In Tanzania, potential is estimated at 6,000 MW, while Kvaerner estimated that African hydropower stations produce around 50 TWh per year, which is only around 5 percent of technical capacity. The company said that Zaire could produce 775 TWh, over 100 times its existing output.

Knut Ringstad, the Norwegian Trade Council representative in Harare, Zimbabwe, has been reported as saying that Ethiopia is the country that could raise production the fastest. He feels that few people are willing to make long-term investments in Zaire, but that Ethiopia is rebuilding after its civil war and is now generating about 1 TWh per year, a hundredth of its potential capacity.

Other major potential hydropower producers in the region are Zambia, Cameroon, Mozambique and Angola, although the last two have oil and gas reserves, making development of hydro capacity less attractive.

The South African economy is the strongest in the region and currently has a surplus of coal-fired capacity. However, some estimates indicate that the country will become a power importer by the year 2000, which would provide an incentive for neighboring countries to develop hydropower capacity.

Range of technologies becoming attractive

Among the other renewable technologies, several look promising for future use. In the United Kingdom, much interest has been shown in wavepower, particularly because the country has extensive stretches of coastline with weather conditions estimated to be capable of producing cost-effective power.

One recent attempt was the 2-MW OSPREY (Ocean Swell Powered Renewable Energy) machine, developed by Applied Resource and Technology. It was designed to harness power from ocean swells rather than from waves; the swell is trapped in a collector vessel, with its rise and fall driving a Wells turbine.

Unfortunately, the first OSPREY was damaged while being towed to its test site, delaying the first results of what looked like a promising technology.

Elsewhere, much attention is being given to photovoltaic (PV) cells. Tens of thousands of homes in areas such as Kenya, South Africa and Brazil are now reported to be powered this way; and according to The Economist, Kenya now has an unsubsidized trade in PV modules, with more households powered by the sun than by the national grid.

However, that still doesn`t mean they`re cheap, even though economies of scale and improved efficiency have cut costs by a factor of around 50 since the 1970s. Cost per kWh is still around 30-40 cents, but PV installations can be competitive because there are no associated transmission costs.

They would therefore make little sense in areas close to a grid; but for regions where they may be competing against the cost of extending a grid or installing a stand-alone generating plant, they can provide a viable alternative.

One recent estimate was that 2-billion people, around 40 percent of the world`s population, have no electricity supply. Many live in areas with solar energy levels double those of the developed world, presenting an obvious opportunity for photovoltaics. Another likely advantage would be their speed of installation, as they can be fitted and running in hours, rather than the years it takes to build a power plant.

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The Pangani Falls underground powerhouse contains two 34-MW Francis turbines.

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The Pangani Falls hydropower plant tailrace tunnel exit.

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The earth- and rock-fill dam creates a reservoir with a volume of 800,000 m3.

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Completion of the Pangani Falls plant increases Tanzania`s installed power generation capacity by around 18 percent.

References

Third Renewables Orders for England and Wales, November 1994. The Office of Electricity Regulation. (All pictures courtesy of IVO International Ltd.)