Elsevier

Solar Energy

Volume 76, Issue 4, April 2004, Pages 499-507
Solar Energy

CO2 mitigation costs for new renewable energy capacity in the Mexican electricity sector using renewable energies

https://doi.org/10.1016/j.solener.2003.06.001Get rights and content

Abstract

Carbon dioxide mitigation costs for the Mexican power sector are calculated in order to compare the business as usual (BAU) scenario, based on natural gas capacity growth, to a transition scenario where electricity generation growth using natural gas after 2007 is replaced by renewable energies (solar, wind, hydro and biomass). The mitigation costs are obtained using the following parameters: natural gas price, discount rate and technological progress. The latter is expressed in terms of the anticipated decrease in capital costs, as reported in electricity generation technological literature. Our results show that when technological progress is considered, CO2 mitigation costs decrease rapidly from 14 $/tCO2 (in this paper $ express 1997 US dollars and t means metric tons) to zero when the price of natural gas nears 2.68 $/GJ, (for some readers, it can be useful to know that 1.0 US$1997/GJ is 1.19 US$2001/MMBTU) which is almost the same as the 2002 price. This means that for middle natural gas prices a “no regrets” situation can be achieved. Our results also show that for prices higher than 2.80 $/GJ, the incorporation of the technological progress parameter transforms the transition scenario into a “no regrets” scenario for all the discount rate values considered in this study.

Introduction

Renewable energy sources and technologies are once again being taken seriously as a response to climate change concerns. Wohlgemuth and Missfeldt (2000) analyzed the Kyoto mechanisms to promote renewable energies for greenhouse gas (GHG) mitigation. In its third assessment report on climate change, the IPCC Working Group II recommends a substitution of renewable technologies for conventional energy technologies as an effective GHG mitigation measure (WGII, 2001). This report also emphasizes the need to establish the economic basis for this substitution. Our task, therefore, is to calculate GHG mitigation costs using renewable energy technologies in relation to conventional technologies.

A recent study by the Interlaboratory Working Group (2000) shows that renewable energy sources can satisfy up to 18% of the total electricity generating capacity in the USA by 2020. The carbon mitigation costs, however, are assigned by the researchers instead of being calculated by the model itself.

Most country studies that include GHG mitigation analysis present CO2 mitigation costs for the whole energy system and do not show explicitly the mitigation costs for the electricity sector (Halsnæs, 1996; EIA, 1998). Chandler et al. (2002) and Herzog et al. (1997) are some of the few studies that make specific reference to mitigation costs using renewable technologies in the USA electricity sector. In a case study of India, mitigation costs of renewable electricity technologies between 3 and 15 $/t of carbon equivalent for the India case are reported by Chandler et al. (2002).

Table 1 shows mitigation cost reported by power plant type according to Herzog et al. (1997). The resulting large range of estimated costs, gathered from various sources that use different assumptions, makes it difficult to determine which value to use, Herzog considers that more work needs to be done to reduce this uncertainty.

Some climate change mitigation studies in Mexico have considered specific renewable technologies for electricity generation. For example, Chandler et al. (2002) consider wind plants as one of the most important opportunities for climate change mitigation available to Mexico until 2010. Mitigation costs, however, are not reported. Other articles (CISCC, 2001) report mitigation costs for wind plants whose value is −11.9 $US94/tCO2. Finally, works by Sheinbaum and Masera, 2000a, Sheinbaum and Masera, 2000b show four CO2 mitigation costs corresponding to four renewable energy technologies: wind, micro-hydro, biomass and geothermal. Their mitigation costs are calculated up to year 2020, with values that range between −18.84 $US94/t for biomass cogeneration and +17.9 $US94/t for geothermal. Their results show that three of these renewable energy technologies do not have a cost for society. These values suggest the importance of renewable energies as a mitigating options in the Mexican electricity sector; nevertheless, their results are obtained by using as a standard for comparison a fuel-oil scenario that was the historical trend of the electricity sector expansion until early nineties. In contrast, our study uses as a standard for comparison a natural gas scenario.

All the previously mentioned studies lack an explicit analysis of CO2 mitigation costs in relation to fossil fuel price and discount rate variations. It is essential to take into account these variations because unexpected changes in these parameters can transform an unprofitable scenario into a “no regrets” one. A “no regrets” scenario is present when changing one or several technologies produce a diminishing of CO2 emissions without an additional cost. These studies fail to mention their hypotheses about technological progress of renewable energies for electricity generation in the medium and long term, which makes it difficult to compare mitigation costs and to discuss the relevance of hypotheses. In addition, these studies focus on individual renewable technologies, one at a time, while our work studies the combined effect of several technologies at the same time. This difference makes it scientifically unsound to compare the two studies.

In this study we evaluate mitigation costs of a transition scenario in which electricity generation scenario is based on renewable energy technologies, measured in relation to an electricity generation BAU scenario based on natural gas technologies. We make explicit our hypotheses regarding technological progress (expressed in terms of decreasing capital costs), as well as natural gas price and discount rate variations.

Section snippets

Methodology

The following mitigation cost assessment is based on cost (C) and benefit (B) estimates expressed in present value (PV), and in a CO2 emissions reduction derived from the comparison between the transition scenario and the BAU scenario. The time period selected for analysis is from 1996 to 2025. The base year selection of 1996 allows us to verify that the initial years of our simulation are valid when compared with real data. Choosing the final date as 2025 follows the perspective that this year

Results

Here we present the benefit–cost ratios and CO2 mitigation costs, taking into consideration the variables of natural gas price, discount rate and technological progress.

Conclusions

The incorporation of technological progress is fundamental because without it “no regrets” scenarios never occur in the chosen range of fuel prices and discount rates. Without technological progress the obtained values for CO2 mitigation costs are always positive, varying from 3 to 27 $/tCO2. When the hypothesis of technological progress is included, expressed in terms of decreasing capital costs, these values diminish by 13.5 $/tCO2 resulting in “no regrets” scenarios when natural gas price is

Acknowledgements

The authors thank DGAPA-UNAM for financial support through project IN309002, and would like to acknowledge the technical assistance given by Marı́a de Jesús Pérez Orozco and the editorial help of Beatrice Briggs.

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