Friday, 30 December 2011

2050 pathways analysis now has costs

The new 2050 pathways analysis tool was released earlier this month. Like the earlier version it allows you to select different levels for:
  • supply from different technologies such as nuclear power, wind, fossil fuels 
  • behaviour change, such as increase or decrease in car travel, or the temperature to which we heat our homes
  • efficiency and carbon saving measures, such as home insulation and carbon capture and storage
As well as showing you the resulting level of carbon emissions from your policies (your target is 80% reduction by 2050), it now also has some estimates of the cost, albeit with caveats.
Interestingly the costs ignore discount rates, though not the cost of borrowing (the default interest rate used is 7%). Normally discount rates are set to take account of the fact that you would rather have money now (with a choice of how to spend it) than the same amount of money (in real terms) later. High discount rates favour technologies with low startup costs. However, to meet the carbon emissions reduction target we have to invest massively in some combination of nuclear power, renewables and carbon capture and storage - all of which have high up front costs. Therefore, the failure to include discount rates does not distort the relative costs as much as you might think.

There is a huge amount of information embedded in this tool and it would take a long time to explore all the possibilities and assumptions used. Here are some things I have discovered which are worth noting.

  • The cost optimised pathway (CO) is cheaper than the business as usual pathway (which does not meet the 80% less carbon emissions target), although the difference is not significant: £4598 for the cost optimal pathway versus £4682/person/year for business as usual.
  • Their standard pathways do not include a direct comparison between high nuclear power and high renewables. They do have a high nuclear/low efficiency pathway (Ne) and a high renewables/high efficiency pathway (RE), with the latter being slightly cheaper: £5180 versus £5049. If you put the energy efficiency policies from the high renewables path into the high nuclear path, the cost comes down to £4886, which makes nuclear cheaper than renewables, albeit only by about 3% which is hardly significant.
  • The assumptions for capital cost nuclear power and offshore wind are very similar when listed per kW peak power. However, since the load factor for nuclear power (the proportion of time it operates at capacity) is much higher, the effective cost of wind is 2 or 3 times that of nuclear power.
  • The CO pathway has 10% of our land dedicated to biomass crops. However, reducing this to 5% makes hardly any difference - just £2/person/year
You may also be surprised at some of the behavioural and efficiency policy levels. The high efficiency pathways include:
  • Homes heated to only 16C, compared to 18C in low efficiency Ne.
  • Almost all (24 million) homes insulated and leakiness reduced by 50% - but even in the Ne scenario there are 18 million homes insulated.
  • Domestic cooking is entirely electric (supplied either by renewables or nuclear power).
  • Commercial efficiency measures deployed in high efficiency and cost optimal pathways include 25% reduction in heating energy, 60% reduction in cooling energy, 30% reduction in lighting and appliances energy. 
  • Efficiency measures which cost more money than they save (and are therefore not in CO) include a total shift to zero carbon transport (the CO pathway includes 32% plug-in hybrids and only 48% zero carbon cars) and pure electric home heating - the CO pathway includes substantial components of home heating using waste heat from power stations.
The prediction that reducing our carbon emissions can actually cost less than not doing so is probably the most surprising finding in this report. The reason is the increasing cost of fossil fuels - the central assumption is for a 60% increase in oil or gas price and 30% more for coal. There is a great deal of uncertainty in these price predictions, and if shale gas takes off that could make quite a difference, but the assumptions used seem conservative to me. The fact that there is so little difference in cost between the nuclear versus renewables options is probably a great deal more controversial.

This article was corrected on 31 December to reflect the new price assumptions, rather than those used in the previous analysis.

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