Power Generation Economics

The costs of alternative generation options have been assessed, on the basis of key parameters related to fuel prices, capital costs, capacity factors and discount rates. The analysis reveals that, in the current Chinese context and without a price on CO2 emissions, coal is likely to be the most competitive electricity supply source, followed by nuclear and advanced coal. Gas turns out to be the most expensive option, with costs ranging from 4.7 to 7.7 US cents per kWh (Figure 10.17). Coal can provide electricity at costs as low as US cents 2.8 per kWh. The construction cost of nuclear power plants in China is assumed to be in the range of $1 500 to $1 800 per kW. The construction cost of supercritical coal-fired power plants is expected to be in the $600-$900 per kW range.

10.17: Plant Generating Costs in China

10.17: Plant Generating Costs in China

Signal Bars

Nuclear

CCGT Coal Advanced Wind Large coal hydro

Nuclear

Source: IEA analysis.

CCGT Coal Advanced Wind Large coal hydro

The construction of nuclear reactors is highly capital intensive. Current construction costs of nuclear reactors in China range from $1 769 per kW for Qinshan III-1 to $2 069 per kW for Daya Bay. Construction time is a key element affecting the capital cost of nuclear power.

The capital costs of wind power projects in China are lower than those in North America and Europe because of the lower cost for equipment, land and installation. In China, companies undertaking wind power projects are not required to purchase the five-year warranty on equipment that is standard practice in the European Union and the United States. Thus, investors assume all the risk after two years of operation, which banks will accept in China but not elsewhere. Developers may also opt for equipment with lower-quality steel in order to lower investment requirements. Turbines are also relatively new and untested in China, thus potentially yielding slightly more unpredictable output.

On financing, Chinese domestic wind power developers can borrow up to 80% of the project costs, while there is a 66% limit on borrowing by foreign investors. This tends to lower the return on equity of foreign investor-owned projects. Furthermore, to qualify for clean development mechanism (CDM) credits, projects are required to be at least 51% Chinese-owned, which forces international investors to hand over control of the project to a Chinese partner. Most wind power developers expect that higher electricity prices will be offered to wind projects, as the government moves towards a pricing regime more designed to support renewables and more cost-reflective. Currently, the rate of return to foreign investors on wind projects is around 2% to 4%, which explains their lack of enthusiasm. Domestic investors earn much higher returns, of at least 8%, depending on the particulars of the project.

Renewable Energy Eco Friendly

Renewable Energy Eco Friendly

Renewable energy is energy that is generated from sunlight, rain, tides, geothermal heat and wind. These sources are naturally and constantly replenished, which is why they are deemed as renewable.

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