As demand for electricity increases steeply across the region, governments are keen to develop new power generating capacity that yields the maximum amount of power for as little cost as possible. This is just as true for publicly-procured projects as it is for independent power projects (IPPs) as the costs get passed to the consumer indirectly by power purchase agreements.
|Cost of power generation from competing technologies|
|CCGT ($5.05 gas)||55|
|Western coal ($15/tonne)||67|
|Eastern coal ($84/tonne)||91|
|Source: EIA, EPA, NYMEX, Barclays Capital|
As a result, all-in costs associated with different types of power projects are important. Such analysis has limitations. For instance, the location of a country and logistics of, for instance, importing coal to a country will affect the cost of a power plant significantly. Similarly, some may argue that the situation differs on a country-by-country basis depending on whether the state is an oil and gas producer or importer.
Nevertheless, general indications relating to the price of different types of power are useful. According to new research conducted by the UK’s Barclays Capital, the cost of power from combined-cycle gas turbines (CCGT) is $55 per MWh, while coal ranges from $67 to $91 per MWh. Nuclear and wind cost an average of $106 per MWh each. All figures are based on production with no subsidies and no carbon costs.
Power plants are typically built to operate for several decades and so any cost analysis needs to take this into consideration also. “[We find] that CCGTs hold a cost advantage unless one assumes that there will be continuously high gas prices, one can find discounted wind turbines , or expects carbon prices to be high,” says the Barclays Capital report.
The price of gas is the most important aspect. A new eastern coal plant will be cheaper than a new CCGT only if gas prices are higher than $10.67 per MMBtu over the life of the plant. A coal plant beats a gas-fired unit when gas prices are above $6.91 a million BTU.
Utilities are inherently suspicious of long-term gas prices. The forward price of gas for the next five years has been estimated at $5.05 a million BTU, but this could easily be different in reality and certainly after five years. Supply and demand for natural gas are obviously critical.
There are other important considerations to bear in mind such as baseload power versus intermittent power that is unresponsive to demand. On the other hand, cheaper turbines and significant government support for renewable power in the form of subsidies should not be underestimated.
While there are limitations to the application the analysis, it should nevertheless be taken into consideration. Saudi Arabia is expected to spend about $100bn on power generating between 2011 and 2020 alone. Sourcing the most cost-effective power is consequently vital.