System Effects in Low-carbon Electricity Systems

255 Pages·011.08 MB·English

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Nuclear Development
2012
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NEA

Nuclear Development ISBN 978-92-64-18851-8
Nuclear Energy and Renewables:
System Effects in
Low-carbon Electricity Systems
© OECD 2012
NEA No. 7056
NUCLEAR ENERGY AGENCY
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
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Cover photos: Electricity pylon, France (F. Vuillaume, OECD/NEA); Brokdorf nuclear power plant, Germany (Alois Staudacher); solar panels.
FOREWORD
Foreword
Electricity generating power plants do not exist in isolation. They interact with each other and
their customers through the electricity grid as well as with the wider economic, social and natural
environment. This means that electricity production generates costs beyond the perimeter of the
individual plant. Such external costs or system costs can take the form of intermittency, network
congestion or greater instability but can also affect the quality of the natural environment or pose risks
in terms of the security of supply. System costs in this study are defined as the total costs above plant-
level costs to supply electricity at a given load and given level of security of supply.
Accounting for such system costs can make significant differences to the social and private investor
costs of different power generation technologies. Not accounting for them implies hidden costs that can,
if not adequately anticipated, pose threats to the security of electricity supply in the future. The present
study continues the work of the OECD Nuclear Energy Agency (NEA) on the full costs of electricity
generation in the wake of recent reports on Projected Costs of Generating Electricity (2010), The Security
of Energy Supply and the Contribution of Nuclear Energy (2010) and Carbon Pricing, Power Markets and the
Competitiveness of Nuclear Power (2011).
While the study analyses the system costs of all power generation technologies, it concentrates on
the system effects of nuclear power and variable renewables, such as wind and solar PV, as their
interaction is becoming increasingly important in the decarbonising electricity systems of OECD
countries. In particular, the integration of significant amounts of variable renewables is a complex issue
that profoundly affects the structure, financing and operational mode of electricity systems in general and
nuclear in particular. System costs also vary strongly between different countries due to differences in the
generation mix, the share of variable renewables and the shape of the daily and seasonal load curves.
The study focuses on grid-level system costs that are composed of the costs for network connection,
extension and reinforcement, short-term balancing and long-term adequacy in order to ensure
continuous matching of supply and demand under all circumstances. Such grid-level costs are real
monetary costs that are already being borne today by network operators, dispatchable power producers
using nuclear, coal or gas, as well as electricity customers. An important contribution of this study is
the first systematic quantification of such grid-level system costs for six OECD/NEA countries (Finland,
France, Germany, the Republic of Korea, the United Kingdom and the United States). Including system
costs increases the total costs of variable renewables, depending on technology, country and penetration
levels, by up to one-third.
The study also looks at total system costs in a qualitative manner. This broader set of system cost
would include local and global environmental externalities, impacts on the security of energy supply
and a country’s strategic position as well as other positive or negative spillover effects relating to
technological innovation, economic development, accidents, waste, competitiveness or exports. In
addition, the study also considers the ability of nuclear energy to contribute to the internalisation of the
system costs generated by intermittency in low-carbon electricity systems.
In addition, the study examines the important “pecuniary externalities” or financial impacts that
the introduction of variable renewables has on the profitability of dispatchable technologies both in
the short run and in the long run. In the short run, with the current structure of the power generation
mix remaining in place, all dispatchable technologies, nuclear, coal and gas, will suffer due to lower
average electricity prices and reduced load factors (“compression effect”). Due to its lower variable costs,
however, existing nuclear power plants will do relatively better than gas and coal plants. In particular,
gas plants are already experiencing substantial declines in profitability in several OECD/NEA countries
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NUCLEAR ENERGY AND RENEWABLES: SYSTEM EFFECTS IN LOW-CARBON ELECTRICITY SYSTEMS, ISBN 978-92-64-18851-8, © OECD 2012
FOREWORD
with high shares of variable renewables. In the future, dispatchable technologies, including nuclear, will
require that a portion of their revenues be derived from other sources than “energy-only” electricity
markets if they are to stay in the market and provide the necessary back-up services. Capacity payments
or markets with capacity obligations will play an important part in addressing this issue.
In the long run, nuclear energy will be affected disproportionately by the increased difficulties
to finance large fixed-cost investments in volatile low-price environments. This can have significant
impacts on the carbon intensity of power generation. If, for instance, such baseload is currently produced
by nuclear power, replacing the latter in the future by a mix of variable renewables and gas will mean
that carbon emissions will rise rather than fall.
System costs, both technical costs at the grid level and pecuniary impacts, vary strongly between
countries, depending on the amount of variable renewables being introduced, local conditions and
the level of carbon prices. The latter are particularly important. While nuclear power has some system
costs of its own, it remains the only major dispatchable low-carbon source of electricity other than
hydropower which is in limited supply. Carbon prices will thus be an increasingly important tool to
differentiate between low-carbon and high-carbon dispatchable technologies.
System costs are not only country-dependent, as a policy-relevant issue they are also a complex,
relatively new phenomenon that poses a number of methodological challenges, not all of which have yet
been resolved in a generally accepted manner. The present study provides a contribution to the debate,
which is still ongoing. Further research is necessary and will undoubtedly refine both methodologies
and empirical results. Nevertheless, by building on a systematic review of the available literature and
by contributing some carefully considered methodological advances, the findings herein should help
inform discussions.
The policy implications for governments are clear and unaffected by these methodological consid-
erations. First, governments need to ensure the transparency of power generation costs at the system
level. When making policy decisions affecting their electricity markets, countries need to consider the
full system costs of different technologies.
Second, governments should prepare the regulatory frameworks to minimise system costs and favour
their internalisation. This includes remunerating the capacity services of dispatchable technologies,
allocating the costs for balancing, adequacy and grid connection in a fair and transparent manner and
monitoring carefully the implications for carbon emissions of different strategic choices for back-up
provision. Failure to do so will rebound in terms of unanticipated cost and environmental emission
increases of the overall power supply for many years to come.
Acknowledgements
This study was written by Professor Jan Horst Keppler and Dr. Marco Cometto, OECD/NEA Nuclear
Development Division. Dr. Ron Cameron, Head of the OECD/NEA Nuclear Development Division,
provided managerial oversight as well as substantial comment throughout the process. The work was
overseen at all stages by the OECD/NEA Working Party on Nuclear Energy Economics (WPNE) chaired
by Matthew Crozat (United States) and Professor Alfred Voss (Germany). The study was endorsed for
publication by the OECD/NEA Nuclear Development Committee (NDC).
Several individuals made substantive contributions to different parts of the study. Philippe  Lebreton
(France) provided significant input to Chapter 2 “The Effects of Nuclear Power at the Level of the
Electricity System”. The section on the load following capabilities of nuclear plants “The Flexibil-
ity Potential of Nuclear Power Plants in the Short Run” is based on earlier work by Dr. Alexey Lokhov
(OECD/NEA Nuclear Development Division). For Chapter 5 on “Regulatory Frameworks for the Inter-
nalisation of System Effects and the Adequate Remuneration of Flexibility Services” a first draft
was prepared by Eduard Blanquet i Aragó (OECD/NEA Nuclear Development Division). Section 6.1
on “The Role of Smart Electricity Grids in Facilitating the Interaction between Intermittent Renewa-
bles and Nuclear Power in Integrated Electricity Systems” is based on a study by Dr. Dirk Van Hertem,
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NUCLEAR ENERGY AND RENEWABLES: SYSTEM EFFECTS IN LOW-CARBON ELECTRICITY SYSTEMS, ISBN 978-92-64-18851-8, © OECD 2012
ACKNOWLEDGEMENTS
Dr. Erik Delarue, Dr. Leen  Vandezande, Dr. Benjamin Dupont, Dr. Frederik Geth, Dr. Jeroen Büscher,
Professor  William D’haeseleer and Professor Ronnie Belmans of the Energy Institute of K.U. Leuven
(Belgium) prepared for the WPNE. Section 6.2 on “The Economic Potential of Small Modular Reac-
tors in Integrated Electricity Systems” is based on a study by Dr. Sara Boarin, Professor Marco Ricotti
and Professor Marco Mancini of Politecnico Milano for the WPNE. Finally, Chapter 7 on “Modelling the
System-wide Interaction of Nuclear Power and Renewables: A Case Study of Germany” was contributed
to the work of the WPNE by Dr. Rüdiger Barth, Dr. Heike Brand, Dr. Jürgen Apfelbeck and Professor
Alfred Voß, Institute for Energy Economics and the Rational Use of Energy, University of Stuttgart.
The authors would also like to thank the participants of two workshops on system cost issues, as
well as the participants in the OECD/IEA/NEA Roundtable on the Integration of Intermittent Renewables
in Decarbonising Electricity Systems, for their feedback and contributions. The members of the WPNE as
well as the participants in the workshops and the roundtable are acknowledged in Annex 1.
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NUCLEAR ENERGY AND RENEWABLES: SYSTEM EFFECTS IN LOW-CARBON ELECTRICITY SYSTEMS, ISBN 978-92-64-18851-8, © OECD 2012

TABLE OF CONTENTS
Table of contents
Executive summary .............................................................................................................................................................................. 13
Chapter 1 Introduction: system effects between nuclear energy and variable renewables .......... 25
1.1 W hy a study on the system effects of nuclear energy and variable renewables? .. 25
1.2 The nature of this study ............................................................................................................................ 26
1.3 Notions of system costs and their relation to externalities .............................................. 30
1.4 The question of pecuniary externalities ....................................................................................... 34
1.5 A new role for nuclear energy ................................................................................................................ 38
Chapter 2 The effects of nuclear power at the level of the electricity system ........................................ 43
2.1 Nuclear power plants as part of the electrical system ......................................................... 43
2.2 The siting issue ............................................................................................................................................... 50
2.3 The importance of grid quality for nuclear power plants ................................................... 56
2.4 Costs for a nuclear power plant ........................................................................................................... 60
2.5 Conclusion ......................................................................................................................................................... 61
Chapter 3 The contribution of nuclear power to the minimisation of system effects in
the short and long run ......................................................................................................................................... 65
3.1 The flexibility potential of nuclear power plants in the short run ................................ 67
3.2 Long-term management of nuclear power plant fleets to minimise
system costs .................................................................................................................................................... 89
3.3 Conclusion ......................................................................................................................................................... 100
Chapter 4 Determining and measuring the system costs of power generation ................................... 103
4.1 System costs in the electricity sector: the system cost matrix ....................................... 103
4.2 Quantitative estimation of system costs for selected OECD countries ...................... 121
4.3 De-optimisation of the generation mix and pecuniary externalities ......................... 132
Appendix 4.A OECD system cost model .......................................................................................................................................... 143
Appendix 4.B Supplementary tables and data ............................................................................................................................. 149
Appendix 4.C Calculation of the optimal generation mix using annual LOAD duration curve and residual
duration curves ............................................................................................................................................................. 151
Appendix 4.D Changes in the optimal generation mix – a hidden system cost .............................................................. 155
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NUCLEAR ENERGY AND RENEWABLES: SYSTEM EFFECTS IN LOW-CARBON ELECTRICITY SYSTEMS, ISBN 978-92-64-18851-8, © OECD 2012
TABLE OF CONTENTS
Chapter 5 Regulatory frameworks for the internalisation of system effects and the adequate
remuneration of flexibility services ............................................................................................................ 161
5.1 Introduction ...................................................................................................................................................... 161
5.2 D ispatchable back-up capacity, interconnections, storage and demand
response: four options for the provision of flexibility services ....................................... 162
5.3 Markets for managing variability and the provision of dispatchable capacity ..... 172
5.4 Improving renewable support policies to reduce system effects ................................... 180
5.5 Conclusion ........................................................................................................................................................ 185
Chapter 6 Future visions ............................................................................................................................................................ 191
6.1 The role of smart electricity grids in facilitating the interaction between
intermittent renewables and nuclear power in integrated electricity systems ... 191
6.2 The economic potential of small modular reactors in integrated
electricity systems ....................................................................................................................................... 202
Chapter 7 Modelling the system-wide interaction of nuclear power and renewables:
a case study of Germany .................................................................................................................................... 213
7.1 Objective and background of this analysis ................................................................................... 213
7.2 Methodology and presentation of the model .............................................................................. 213
7.3 The case study ................................................................................................................................................. 215
7.4 Summary ............................................................................................................................................................ 227
Appendix 7.A Structure and working of the E2M2S and the JMM used in the modelling ........................ 229
Appendix 7.B The impacts of the annual volatility of wind and solar generation ........................................ 233
Chapter 8 Lessons learnt and policy recommendations ....................................................................................... 237
8.1 System effects: the need for policy action .................................................................................... 237
8.2 On this study .................................................................................................................................................... 238
8.3 Lessons learnt .................................................................................................................................................. 240
8.4 Policy recommendations .......................................................................................................................... 242
ANNEXES
Members of the Working Party on Nuclear Energy Economics (WPNE) ............................................................ 245
Acronyms .................................................................................................................................................................................................... 249
FIGURES
ES.1 Plant-level, grid-level and total system costs ......................................................................................................... 14
ES.2 Annual electricity supply costs in Germany as a function of different shares of variable
renewables and nuclear ...................................................................................................................................................... 20
1.1 The impact of 35% renewable energy penetration in the western United States .......................... 28
1.2 Wind power and negative prices on the German electricity wholesale market ............................ 36
2.1 Hourly electricity demand curve in Texas (ERCOT) for 3 weeks in 2005 .............................................. 45
2.2 System load following and frequency regulation ................................................................................................ 46
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NUCLEAR ENERGY AND RENEWABLES: SYSTEM EFFECTS IN LOW-CARBON ELECTRICITY SYSTEMS, ISBN 978-92-64-18851-8, © OECD 2012