The Last 30% - How to Displace Coal & Gas from the Grid

When it comes to the design of a low-carbon grid on the basis of variable renewable generation plus storage, we have speculated what on optimal all-inclusive system cost could be, based on today's technology cost. We have also estimated that in an optimal combination, scaling up wind & solar alone could typically carry about 70% or more of the actual load for most European countries.

In many parts of the world, we already see significant investments in wind and solar generation, increasingly complemented by batteries for grid stability and  intra-day arbitrage.

However the assumed H2 based long duration storage remains at this time mostly in the domain of research.

The reason is that fossil fuel plants powered by natural gas or coal are currently too cheap to be displaced from the role of fully dispatchable flexibility provider of last resort.

What would it take to displace fossil fuels entirely from the grid? It is unlikely that low-carbon long-duration storage solutions, for example based on hydrogen will become significantly cheaper any time soon, if ever.

One solution would be to limit or tax CO2 emissions from electricity production in order to make low-carbon alternatives more attractive. How high would the cost of CO2 emissions have to be in order for the low-carbon alternatives to become the cost optimal solution?

The above graph shows again the results of a linear programming optimization based on current hourly electricity demand as well as wind & solar production profiles for the Germany bidding zone with the same model and cost assumptions as used here.

For the purpose of illustration, we are assuming the fuel cost of natural gas to be 20 Euro per MWh, which has not been the case for Europe since the last decade. On top of that, we are assuming a variable carbon emission cost from 0 to 400 Euro per ton of CO2-equivalent emissions. For the emission rate of gas power plants, we assume 0.5 t/MWh based on the data for Europe from electricitymaps.com. We are also assuming that the natural gas could be burned in the same combined-cycle power-plants that are also used to discharge the H2 based long duration storage.

	100	200	300
Load (total / avg / peak)	465.6TWh / 53GW / 76.3GW	465.6TWh / 53GW / 76.3GW	465.6TWh / 53GW / 76.3GW
Generation (total / avg / peak)	479.7TWh / 54.7GW / 112.5GW	531.2TWh / 60.6GW / 173.4GW	539.2TWh / 61.5GW / 176.4GW
Generation PV / ONW / OFFW / Gas	24.5% / 39.1% / 0.0% / 36.5%	35.5% / 45.5% / 14.7% / 4.3%	33.7% / 49.4% / 14.2% / 2.8%
Annual Cost / Cost per MWh	41.1B€ / 88.3 €/MWh	46.0B€ / 98.8 €/MWh	46.8B€ / 100.5 €/MWh
Gas fuel cost	90.0 €/MWh	140.0 €/MWh	190.0 €/MWh
System Efficiency	97.1%	87.7%	86.3%
Surplus	2.7%	2.5%	2.7%
Storage contribution	11.9TWh (2.5%)	82.0TWh (17.6%)	83.0TWh (17.8%)
SDS Power	13.8GW	30.7GW	26.9GW
SDS Capacity / Duration	77.8GWh / 5.6h	190.5GWh / 6.2h	163.1GWh / 6.1h
SDS contribution	11.9TWh (2.5%) 152 cycles	39.8TWh (8.5%) 208 cycles	34.4TWh (7.4%) 210 cycles
SDS capacity factor	0.10%	0.15%	0.15%
SDS LCOS	101.1 €/MWh	72.7 €/MWh	72.3 €/MWh
LDS Power (charge/ discharge)	--	32.6GW / 48.7GW	36.3GW / 49.2GW
LDS Capacity / Duration	--	8235.6GWh / 169h	9579.1GWh / 194h
LDS contribution	--	42.3TWh (9.1%) 6 cycles	48.6TWh (10.4%) 6 cycles
LDS capacity factor	--	0.10%	0.11%
LDS LCOS		168.7 €/MWh	154.7 €/MWh

At today's gas prices of about 50 Euro per MWh and carbon credits cost around 80 Euro per ton, we are already in the range of 100-150 on the diagram above. This is where H2 based storage might start to become partially competitive, assuming wind & solar production are well above 70% of demand.

Wind and solar production in Germany is today around 50% of yearly demand and because of high gas prices, coal has replaced gas as the main source of dispatchable power generation.

In order to displace gas generation completely, the CO2 cost would need to increase up to about 400 Euro per MWh, which might still be below the expected cost for long-term geological carbon capture and storage.

The slow displacement of gas over a wide range of effective fuel cost indicates a diminishing return for the buildout of wind and solar generation initially as well as storage at even higher cost levels. But this also means that there is room for gradual and opportunistic build-out where the first trances of capacity of each technology generate a higher return than later ones.

This analysis only shows which configuration would be optimal in steady-state for a given cost of carbon emissions if the whole system were to be built from scratch at today's cost. In reality energy infrastructure is built and needs to be amortized over the course of decades. Existing and already paid off plants typically have a financial advantage and the financial burden for new entry is typically higher. The optimization also ignores any transmission costs, losses or constraints.

On the other hand, we can also hope that continued innovation might continue to lead to lower costs for some technologies in the future.

This simulation only focuses on the total cost of electricity generation to the commonwealth, not including the cost of distribution. The simulation also does not include how the owners of individual generation assets might recuperate their cost from any combination of income from various markets (energy, capacity, grid services etc.) as well as a variety of direct and indirect subsidies.