Economic Analysis - Clean Energy Investment Proposals

Economic and Financial Analysis - An Illustration
The economic analysis presented in the knol -  Clean Energy 2030,

http://knol.google.com/k/   jeffery-greenblatt/clean-energy-2030/15x31uzlqeo5n/1# is very interesting to provide an illustration to economic and financial analysis of investment proposals. I extracted the economic analysis portion from that knol to present it here. (Knol - A Google site was closed)

Economics

We made the following economic assumptions in calculating the cost of the Clean Energy 2030 proposal:

Efficiency:

• Efficiency capital cost of 25 cents per kWh annual savings (one-time cost)
• Savings from efficiency of 10 cents per kWh (average electricity price)

Renewable energy:

• Renewable electricity capital costs:
  • Onshore wind: $2 per watt (W) falling to $1.5/W in 2030
  • Offshore wind: $2.5/W falling to $2/W in 2030
  • Solar PV: $6/W falling to $2/W in 2030
  • Solar CSP: $3.5/W falling to $2/W in 2030
  • Conventional geothermal: $3.5/W flat through 2030
  • Enhanced geothermal systems: $5/W falling to $3.5/W in 2030      
• Intermittency cost of $20/MWh (applied to wind and solar)
• Avoided fossil capital costs (for plants planned in baseline but not built in our proposal because of efficiency and renewables):
  • Coal: $2/W constant
  • Natural gas and oil: $1/W constant
• Saved fossil fuel cost (that is not already counted as efficiency savings):
  • Coal: $2/MBtu constant
  • Natural gas and oil: $10/MBtu constant
• No write-down cost for retiring coal plants (all plants assumed to be older than 40 years when retired), no decommissioning cost or salvage value for plants

• Transmission infrastructure cost: $0.30/W for wind (including offshore) and solar CSP

Vehicles:

• Plug-in vehicle premiums: $5000 per plug-in hybrid vehicle (PHEV), $10,000 per pure-electric vehicle (EV), plus $1000 per vehicle for charging infrastructure
• Higher-efficiency conventional vehicle premium $3000 for 45 mpg (pro-rated for lower mpg, down to zero cost for 22 mpg today)
• Fuel cost: $4/gallon gasoline today, doubling to $8/gallon by 2030
• Plug-in electricity cost: 7 cents per kWh (discounted due to flexible smart-charging price)
• Older vehicle buy-back cost: $5000 per vehicle

Carbon (not counted in net savings):

• Carbon credit for CO₂ not emitted (relative to baseline): $20/ton CO₂, doubling to $40/ton in 2030 (applied to both electricity and vehicles)

Table 1. Economic summary (billions of 2008 US dollars).


Costs	Undiscounted total	Net present value*
Electrical efficiency investment	$348	$175
Renewable capacity investment	$1,642	$712
Transmission capacity investment	$133	$59
Intermittency cost	$329	$121
Coal plant write-down, decommissioning and salvage	$0	$0
Plug-in vehicle premium	$1,221	$374
Plug-in electricity cost	$122	$35
Higher efficiency conventional vehicle premium	$325	$146
Vehicle buyback cost	$322	$119
Subtotal	$4,442	$1,742
Savings
Electrical efficiency savings	$1,599	$620
Avoided fossil fuel generation capacity savings	$267	$117
Avoided fossil fuel savings	$437	$162
Plug-in fuel savings	$2,193	$626
Conventional fuel savings	$939	$368
Subtotal	$5,435	$1,893
Net savings	$994	$151
Carbon credits	$1,134	$397
Net savings with carbon credits	$2,128	$548
* Discount rate of 7%/year used for net present value calculations.
(Source:

http://knol.google.com/k/ jeffery-greenblatt/clean-energy-2030/15x31uzlqeo5n/1#)










Bottom line: undiscounted savings exceed costs by $994 billion over the 22 years of the scenario, or if carbon credits are included, $2,128 billion.


Economic variants:
• Making gasoline significantly more or less expensive changes the cost of the scenario relative to the baseline, and here the change can have a sizable impact on net savings. If gasoline rises to $12/gallon in 2030 rather than $8, an additional $1,189 billion in undiscounted savings are realized. If gasoline remains constant at $4/gallon in 2030, an additional cost of $1,317 billion is incurred, changing the balance to a net cost of $323 billion. 




References
Clean Energy 2030 - Google's proposal
http://knol.google.com/k/ jeffery-greenblatt/clean-energy-2030/15x31uzlqeo5n/1#

Original knol - http://knol.google.com/k/ narayana-rao/economic-analysis-clean-energy/2utb2lsm2k7a/450

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