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Potential climate change impacts on the economics of offshore renewable energy portfolios Dougal Burnett Professor Gareth Harrison Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 1 Today’s Agenda Climate Change Sensitivity of - Resource Offshore Wind Wave and Others - Levelised Costs (and risk) - Optimal Electricity Generation Mixes Using Mean Variance Portfolio Theory (MVPT) ARIES Project - Marine Related Activities Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 2 Research Question What is the potential impact of climate change on renewable energy resource and future optimal electricity generation portfolio mixes in the UK? WHY? • All studies (to date) using ‘Mean Variance Portfolio Theory’ (MVPT) studies assume resource output based on the characteristics of the current climate. Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 3 Research Flowchart Current and future climate scenario parameters Conversion to technology and placement Cost modelling for both current and future climate scenarios Optimal portfolio mix analysis for current and future climate scenarios Comparison of optimal portfolio mix for current climate with optimal mixes for future climate scenarios Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 4 Research Flowchart Offshore Wind: An overview of the process for generation of the ‘Offshore Wind Resource Model’ Current and future climate scenario parameters Conversion to technology and placement Cost modelling for both current and future climate scenarios Optimal portfolio mix analysis for current and future climate scenarios Comparison of optimal portfolio mix for current climate with optimal mixes for future climate scenarios Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 5 Offshore Wind Resource Model Showing Winter and Summer months for wind and capacity factor Mean Wind Speed at 80m height Current Climate (1961-1990) Data Source HadRM3 Capacity Factor Current climate (1961-1990) based on VESTAS V90 3MW Wind Turbine Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 6 Potential Wind Farm Deployment 54 Wind Farm Locations Included: (Operational, In Construction, Consented, In Planning) Installed Capacity = 47.8 GW Overall Annual Capacity Factor = 39.2% Overall Annual Energy Output = 164.2 TWh Assumptions: 95% technical availability, 10% array wake loss, 2% electrical cable loss Installed Capacity (GW) Overall Baseline Capacity Factors and Energy Output – Including Losses ANN JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Capacity Factor (%) 39.2 47.1 46.8 44.5 39.6 34.3 29.1 26.1 29.7 37.6 43.7 46.0 46.8 Energy Output (TWh) 164.24 16.75 15.05 15.83 13.65 12.17 10.00 9.25 10.56 12.93 15.56 15.82 16.67 Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 7 Wind Climate Change Impact Probabilistic Projected Wind Speed Change (%) Normal Distribution 1 0.9 Format: Value = 50% (10%, 90%) 0.2 Probability Density 1.1 10% probability of being less than 7.5 50% probability of being less than 10 90% probability of being less than 12.5 0.8 Value = 10 (7.5, 12.5) 0.7 0.15 0.6 0.5 0.1 0.4 Cumulative Probability 0.25 0.3 0.05 0.2 0.1 10% 0 2 3.6 5.2 6.8 50% 8.4 10 90% 11.6 13.2 0 14.8 Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 16.4 18th 18 and 19th April) 2012 8 Impact on Offshore Wind Output 2050s and 2080s UK Potential Offshore Wind Farm Output - Baseline and 2050s - including losses Medium Emissions with 50%, 10% & 90% Probabilities Energy Output (GWh) 18000 16000 14000 12000 Baseline 2050s 10 2050s 50 2050s 90 10000 8000 6000 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC UK Potential Offshore Wind Farm Output - Baseline and 2080s - Including Losses Medium Emissions with 50%, 10% & 90% Probabilities Energy Output (GWh) 18000 16000 14000 12000 Baseline 2080s 10 2080s 50 2080s 90 10000 8000 6000 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 DEC 9 Impact on Offshore Wind Output 2050s and 2080s •54 Wind Farm Locations Included: •2050s – Annual Reduction of 3.4 TWh for 50% probability level (-2.1%) •2080s – Annual Reduction of 5.5 TWh for 50% probability level (-3.4%) Offshore Wind - Future Climate Energy Output Scenario Generated (GWh) Change (GWh) Baseline 164,245 2050s 10% Probability 151,774 -12,471 -7.59% 2050s 50% Probability 160,835 -3,410 -2.08% 2050s 90% Probability 168,822 4,577 2.79% 2080s 10% Probability 148,498 -15,747 -9.59% 2080s 50% Probability 158,687 -5,558 -3.38% 2080s 90% Probability 167,803 3,558 2.17% Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 Change (%) 10 Other UK Resource Assessments Wave Energy Shetland Onshore Wind Solar PV Pierson-Moskowitz Spectrum Orkney Cornwall Western Isles Hydro Power Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 12 Research Flowchart Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 13 Levelised Costs 2010 & 2020 Levelised cost for offshore wind in 2020 & Projected climate change variability Own Calculations. Based on input parameters from (Burnett 2012; Mott MacDonald 2010; Allan et al. 2010, 2011; IEA 2010; Ernst & Young 2011) Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 14 Example of risk adjusted costs An example showing risk due to fuel price variability captured directly within the levelised cost (a CAPM type approach) (empirically derived using the historic price risk for coal and natural gas ) Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 15 Research Flowchart Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 16 Mean Variance Portfolio Theory - Background Mean Variance Portfolio Theory (MVPT) • Introduced by Markowitz (1952) as a tool to create efficient financial investment portfolios MVPT and Electricity Generation Portfolios • Widely used in recent years to explore optimal efficient electricity generation portfolios that include renewable energy • First explored by Bar-Katz and Levy (1978) • Pioneered by Shimon Awerbuch (2003, 2005, 2006, 2007…) • (Doherty et al. 2006; Delaquil et al. 2005; Grubb et al. 2006; Jansen et al. 2004; Roques et al. 2006a; White 2007). Bazilian and Roques (2008) Used to explore Marine Technologies in the Scotland electricity generation mix. Allan et al. (2011) Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 17 Mean Variance Portfolio Theory - Background Capitalises on the diversity between historical cost characteristics of the two technologies (In the example the correlation of historical cost components of each technology = -0.6) “An efficient portfolio is where the cost is lowest for a given level of risk; or where risk is lowest for a given cost” Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 18 Cost – Risk Graph 2020 Projected Technology Cost – Risk Characteristics Projected levelised costs from Burnett (2012) Historical Risk data from Awerbuch et al. (2007) and Allan et al. (2011) UK 2009 mix from DUKES (2011) Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 19 MVPT – Physical Constraints MVPT Analysis – Physical Constraints (External physical constraints are required to be placed on technologies when MVPT is applied to electricity generation technologies) MVPT technology constraints for three future scenarios Technology 2009 UK mix (%) Approx Upper Constraint 2020 (%) Upper Constraint 2050 (%) Upper Constraint 2050 20% (%) Gas 44.5 39 5 5 Gas & CCS 0 1 30 20 Coal 28.1 34 5 5 Coal & CCS 0 1 30 20 Nuclear 18.6 20 50 20 Onshore Wind 2.03 12.0 15 20 Offshore Wind 1.47 10 15 20 0 10 15 20 Hydro 1.41 5.0 5.0 20 Biomass 2.86 10 10 20 Wave 0 2.5 10 20 Tidal Current 0 2.5 5 20 Solar PV 0.005 2.5 10 20 Far Offshore Wind Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 20 MVPT Analysis on Cost-Risk Graph Derived MVPT efficient frontiers for the three different future constraint scenarios (At each point on each efficient frontier is an optimal generation mix) Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 21 A closer look at three points on the 2050s efficient frontier Technology 2050 Upper Constraints Point A Point B Point C TWh Point A (Medium Cost & Risk) = Overall a more diverse mix Point B (High Cost, Low Risk) = large renewables share and limited nuclear etc. Point C (Low Cost, High Risk) = large nuclear share and limited renewables (No Offshore Wind, No Wave) Gas 25 0 25 0 Gas & CCS 150 17.5 6.6 27.8 Coal 25 0 25 0 Coal & CCS 150 11.5 13.6 0 Nuclear 250 121.3 25.5 250 Onshore Wind 75 75 75 75 Offshore Wind 75 74.7 70.7 0 Far Offshore Wind 75 0 75 0 Hydro 25 25 8.5 25 Biomass 50 50 50 50 Wave 50 50 50 0 Tidal Current 25 25 25 25 Solar PV 50 50 50 47.2 Cost (£/MWh) - 86 100.5 73.1 Risk (%) - 6.0 4.3 10.4 CO2 (MT) - 1.8 34.5 1.1 CO2 Reduction from 1990 (%) - 99.1 83.1 99.4 Example assumes 2050 total UK electricity generation 500 2012 TWh th April) Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19= 22 The cost-risk mix along the 2050s efficient frontier Low Cost = large nuclear share and limited renewables Electricity Generation (TWh) 500 450 90 400 80 350 70 300 60 250 50 200 40 150 30 100 20 50 10 0 73.5 75.5 77.5 Electricity Generation (TWh) 500 Low Risk = Large share of Offshore Wind & Wave CO2 (MtCO2) 100 0 79.5 81.5 83.5 85.5 87.5 89.5 Cost (£/MWh) 91.5 93.5 95.5 97.5 Solar PV Tidal Wave Far Offshore Wind Offshore Wind Onshore Wind hydro Nuclear Biomass Gas with CCS Gas Coal with CCS Coal CO2 99.5 CO2 (MtCO2) 100 450 90 400 80 350 70 300 60 250 50 200 40 150 30 100 20 50 10 0 Solar PV Tidal Wave Far Offshore Wind Offshore Wind Onshore Wind Hydro Nuclear Biomass Gas with CCS Gas Coal with CCS Coal CO2 0 4.3 4.7 5.1 5.5 5.9 6.3 6.7 7.1 7.5 7.9 8.3 8.7 9.1 9.5 9.9 10.3 Risk (%) - standard deviation Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 23 Cost – Risk Graph 2050s climate variability 2020 Projected Technology Cost – Risk Characteristics showing 2050s climate variability Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 24 Cost – Risk Graph 2080s climate variability 2020 Projected Technology Cost – Risk Characteristics showing 2080s climate variability Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 25 Efficient Frontier Variability Due To Climate Change MVPT Efficient Frontier – Variability due to climate change Showing the variability of MVPT efficient frontiers for different future climate scenarios (includes variability of on- and offshore wind, solar PV, wave and hydro). Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 26 Variability in Technology Mix at Point A Changes in mix required to maintain the baseline climate portfolio cost and minimal risk for the different climate projection scenarios Affected technologies: Nuclear, Gas & Coal with CCS Offshore Wind, Wave Technology Baseline 2050 50% 2050 10% 2050 90% 2080 50% 2080 10% 2080 90% Gas 0 0 0 0 0 0 0 Gas & CCS 17.5 22.6 33.3 25.6 25.7 36.5 26.1 Coal 0 0 0 0 0 0 0 Coal & CCS 11.5 17.6 29.2 23.5 21.2 32.7 24.1 Nuclear 121.3 121.8 140.7 90.6 124 142.8 90.5 Onshore Wind 75 75 75 75 75 75 75 Offshore Wind 74.7 75 71.9 75 75 63 75 Far Offshore Wind 0 0 0 11.2 0 0 10.1 Hydro 25 25 25 24.1 25 25 24.2 Biomass 50 50 50 50 50 50 50 Wave 50 38 0 50 29 0 50 Tidal Current 25 25 25 25 25 25 25 Solar PV 50 50 50 50 50 50 50 Cost (£/MWh) 86.0 86.0 86.0 86.0 86.0 86.0 86.0 Risk (%) 6 6.1 6.9 5.3 6.2 7 5.3 CO2 (MT) 1.8 2.5 4 3.2 3 4.5 3.3 CO2 Reduction from 1990 (%) 99.1 98.8 98.0 98.4 98.5 97.8 98.4 Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 27 ARIES (Adaptation and Resilience in Energy Systems) ARIES is part of The Adaptation and Resilience in a Changing Climate (ARCC) Coordination Network (ACN) of EPSRC funded projects A Collaborative project with Heriot Watt University AIM - To deliver a comprehensive risk framework to assess and manage UK energy system (electricity and gas) resilience to climate change: ARIES will establish a scientifically sound framework for assessing future impacts and adaptation at a UK and regional level. Using a bottom-up approach, it will capture the potential for changes in future energy supply and demand and the consequent impact on electricity and gas system resilience. It will identify climate risks for individual supply and demand factors and, through integrated modelling, allow examination of system-level risks and cumulative effects. ARIES is a very broad project covering all aspects of adaptation and resilience in energy systems as society progresses towards a low carbon energy system and future climate variability. The ARIES offshore wind, marine and electricity generation related research will build upon and further develop much of what has been presented in the previous slides in this presentation: Higher resolution spatial and time-series resource models including frequency of extreme events Improved and more complete climate scenario projection data Regionalised resource assessments…. ….. For more info: http://www.ukcip-arcc.org.uk Or contact Professor Gareth Harrison [email protected] or Dougal Burnett [email protected] Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 28 ARIES Some of the other University of Edinburgh offshore wind and marine resource research activities to feed into ARIES and improve resource modelling Wavewatch III model ECMWF reanalysis data (Atul Agarwal) Edinburgh University - UK mesoscale UK Wind Resource Model (Sam Hawkins) UK Tidal Current Resource Scenario Assessment (Dr. Abhinaya Sankaran Iyer) Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 29 Thank you for your attention. Any Questions? Economics of Ocean Energy and Marine Energy – HMRC, UCC (Cork 18th and 19th April) 2012 30