The high capital investment costs of various RES-E options have been a major impediment to broader market penetration. Hence, since the early market introduction, investment costs have decreased substantially for utmost all RES-E technologies. Apart from all kinds of biomass (biogas, solid biomass, sewage and landfill gas), renewables have zero fuel costs, so electricity generation costs are determined – besides investment needs – by operation & maintenance costs only. Therefore, running costs for RES-E are normally low compared to fossil fuels.
In the model Green-X, the calculation of electricity generation costs for the various generation options is done by a rather complex mechanism as described in the framework for model implementation – internalized within the overall set of modelling procedures. In this way, plant-specific data (e.g. investment costs, efficiencies, full load-hours, etc.) are linked to general model parameters such as interest rate and depreciation time. The latter parameters are dependent on a set of user input data as policy instrument settings, etc..
Current situation - costs of electricity from RES-E
In order to give a better illustration of the current economic conditions of the various RES-E options, exemplary marginal electricity generation costs are depicted in Figure 1 (long-run marginal costs) and Figure 2 (short-run marginal costs). As explained in 'Dynamic cost-resource curves - Methodology for model implementation in Green-X' the economic decision for building a new RES-E plant is based on long-run marginal costs (see Figure 1). Hence, to increase generation of RES-E, promotion strategies must provide financial incentives to cover the gap between market prices for electricity and these RES-E specific costs. In contrary, for most RES-E short-run marginal costs are lower compared to conventional options such as coal- or gas-fired power plant.
Generation costs as presented in the graphs refer to the year 2004, i.e. the default starting year of the variety of Green-X scenarios, but are expressed in €2002. Thereby, for long-term marginal generation costs (as applied to new plants), a default capital recovery factor is used – based on the following settings: Weighted average cost of capital z = 6.5%; payback time PT = 15 years. The broad range of costs for several RES-E represents, on the one hand, resource-specific conditions such as are relevant, e.g. in the case of photovoltaics or wind, which appear between and also within countries. On the other hand, costs also depend on the technological options available – compare, e.g. co-firing and small-scale CHP plants for biomass.
Figure 1. Long-run marginal generation costs (for the year 2004) for RES-E in EU-15 countries
Figure 2. Short-run marginal generation costs (for the year 2004) for RES-E in EU-15 countries
Future cost development – expected progress up to 2020
The investments in RES-E projects (within the EU and worldwide) stimulate technological learning, leading to lower generation costs in the future. Figure 3 depicts the expected investment costs for the various RES-E options in case of a 'business-as-usual' (BAU) development for the period up to 2020. The highest cost reduction can be expected for tidal & wave energy as well as solar electricity ‑ both photovoltaics and solar thermal electricity production – and wind power.
Figure 3. Development of the investment costs according to the BAU scenario
