Pricing electricity

Since it appears to be a slow news day I thought that I would explain how RWE appear to be pricing new coal stations (and so far they have announced that they intend to replace Tilbury and Blyth).

Again this is taken from their factbook.



The doesn't show the price of electricity the plants produce, but the cost of running that plant to generate electricity.
Renewables are regarded as "must run" - not because they are cheap, but because they have no running cost (so their capital and the cost of maintenance - which has to be done regardless of how much they generate, set the cost of the electricity they generate).
Nuclear is next - the cost of nuclear is primarily set by the cost of capital to build the thing; fuel is required infrequently and is inexpensive compared with the up-front capital cost.
Then we have coal, closed cycle gas turbines (which uses the waste heat from the exit of the gas turbine to raise steam which is then fed through another turbine), oil (which I think is used in a similar way to coal) and open cycle gas turbines (as closed cycle gas turbines, but without the steam plant on the back end).

A few thoughts spring to mind:
1) This is in winter with an expensive gas price. I suspect CCGT will be cheaper than coal in the summer (but coal isn't normally run in the summer anyway).
2) This list is in order of decreasing capital, increasing fuel costs.
3) RWE have said in the past that adding carbon capture and storage to coal will double its generation cost. This figure doesn't include carbon capture and storage, so costs can be expected to increase.
4) The price of gas and the price of carbon have only been guessed at. These are really subjective - we all know that the price of wholesale gas can quadruple overnight.

So there you go - people say that coal is cheaper than gas. Well, maybe - but that depends on the carbon and gas price.
All we can say is that the price of coal with carbon capture and storage is likely to be more stable than the price of gas.

The cost of climate change

Apparently (and I didn't realise this) the Stern report used a surprisingly low discount rate (an internal interest rate in investment decisions) which may have made the result seem rather cheap.

Increasing the discount rate (the rate at which you can borrow money) increases the price of the investments - the value of the benefits will remain the same.

It appears that an appendix to the governments Climate Change Bill has re-done this work, and come up with a different answer.

This different answer suggests that the bill will cost anywhere up to £205 000 000 000. Of course this will bring benefits - judged to be £110 000 000 000 (by 2050 I guess).

That's one hell of a lot of cash.

Two obvious questions:
1) How do you put a financial value on the Greenland icecap, blue whales and mountain glaciers. I suspect no price has been given - rather this will only be from a UK perspective, and the UK doesn't have these things.
2) What if the UK is alone in reducing emissions? Whilst unlikely we'd still loose the Greenland ice cap, blue whales and mountain glaciers - oh, and half of our economy as everyone fled abroad where business didn't have to pay for the £205 billion.

This is why I favour carbon capture and storage, because it is a technology which can be pushed abroad (and hey, maybe even sold abroad!!!) making it less likely that the UK will act alone. My full argument on UK global leadership is online.