scenarios for a future energy supply
Moving from principles to action on energy supply and climate change mitigation requires a long-term perspective. Energy infrastructure takes time to build up; new energy technologies take time to develop. Policy shifts often also need many years to take effect. Any analysis that seeks to tackle energy and environmental issues therefore needs to look ahead at least half a century.
Scenarios are important in describing possible development paths, to give decision-makers an overview of future perspectives and to indicate how far they can shape the future energy system. Two different kinds of scenario are used here to characterise the wide range of possible pathways for a future energy supply system: a Reference Scenario, reflecting a continuation of current trends and policies, and the Energy [R]evolution Scenarios, which are designed to achieve a set of dedicated environmental policy targets.
The Reference Scenario is based on the Swedish energy agency‘s long term prognosis until 2030. The energy agency in its series of long term analysis, looks at the energy system development under current policies and an analysis of market developments and energy consumption and production in the longer term. The last such long term analysis was published in 2009 with a time horizon to 2030.
5.1 oil and gas price projections
The recent dramatic fluctuations in global oil prices have resulted in much higher forward price projections for fossil fuels. Under the 2004 ‘high oil and gas price’ scenario from the European Commission, for example, an oil price of just € 28.1 per barrel was assumed in 2030. More recent projections of oil prices by 2030 in the IEA’s WEO 2009 range from € 66/bbl in the lower prices sensitivity case up to € 124/bbl in the higher prices sensitivity case. The reference scenario in WEO 2009 predicts an oil price of € 95/bbl. Since the first Energy [R]evolution study was published in 2007, however, the actual price of oil has moved over € 82.7/bbl for the first time, and in July 2008 reached a record high of more than € 116/bbl. Although oil prices fell back to € 82.7/bbl in September 2008 and around € 66/bbl in April 2010 the projections in the IEA reference scenario might still be considered too conservative. Taking into account the growing global demand for oil we have assumed a price development path for fossil fuels based on the IEA WEO 2009 higher prices sensitivity case extrapolated forward to 2050 (see Table 3.2). As the supply of natural gas is limited by the availability of pipeline infrastructure, there is no world market price for gas. In most regions of the world the gas price is directly tied to the price of oil. Gas prices are therefore assumed to increase to € 19.8-24/GJ by 2050.
5.2 cost of CO2 emissions
Assuming that a CO2 emissions trading system is established across all world regions in the longer term, the cost of CO2 allowances needs to be included in the calculation of electricity generation costs. Projections of emissions costs are even more uncertain than energy prices, however, and available studies span a broad range of future estimates. As in the previous Energy [R]evolution study we assume CO2 costs of $10/tCO2 in 2010, rising to $50/tCO2 by 2050. Additional CO2 costs are applied in Kyoto Protocol Non-Annex B (developing) countries only after 2020.
5.3 cost projections for efficient fossil fuel generation and carbon capture and storage (CCS)
While the fossil fuel power technologies in use today for coal, gas, lignite and oil are established and at an advanced stage of market development, further cost reduction potentials are assumed. The potential for cost reductions is limited, however, and will be achieved mainly through an increase in efficiency.
There is much speculation about the potential for CCS to mitigate the effect of fossil fuel consumption on climate change, even though the technology is still under development.
CCS is a means of trapping CO2 from fossil fuels, either before or after they are burned, and ‘storing’ (effectively disposing of) it in the sea or beneath the surface of the earth. There are currently three different methods of capturing CO2: ‘pre-combustion’, ‘postcombustion’ and ‘oxyfuel combustion’. However, development is at a very early stage and CCS will not be implemented - in the best case - before 2020 and will probably not become commercially viable as a possible effective mitigation option until 2030.
Cost estimates for CCS vary considerably, depending on factors such as power station configuration, technology, fuel costs, size of project and location. One thing is certain, however: CCS is expensive. It requires significant funds to construct the power stations and the necessary infrastructure to transport and store carbon. The IPCC assesses costs at € 12-62 per tonne of captured CO2, while a recent US Department of Energy report found installing carbon capture systems to most modern plants resulted in a near doubling of costs24. These costs are estimated to increase the price of electricity in a range from 21-91%.
Pipeline networks will also need to be constructed to move CO2 to storage sites. This is likely to require a considerable outlay of capital26. Costs will vary depending on a number of factors, including pipeline length, diameter and manufacture from corrosion-resistant steel, as well as the volume of CO2 to be transported. Pipelines built near population centres or on difficult terrain, such as marshy or rocky ground, are more expensive.
The Intergovernmental Panel on Climate Change estimates a cost range for pipelines of € 1-7/tonne of CO2 transported28. Storage and subsequent monitoring and verification costs are estimated by the IPCC to range from € 0.4-7/tCO2 (for storage) and € 0.1-0.25/tCO2 (for monitoring). The overall cost of CCS could therefore serve as a major barrier to its deployment.
For the above reasons, CCS power plants are not included in our financial analysis.
Table 5.3 summarises our assumptions on the technical and economic parameters of future fossil-fuelled power plant technologies. In spite of growing raw material prices, we assume that further technical innovation will result in a moderate reduction of future investment costs as well as improved power plant efficiencies. These improvements are, however, outweighed by the expected increase in fossil fuel prices, resulting in a significant rise in electricity generation costs.