future costs of electricity generation
5.3 future costs of electricity generation
Figure 5.6 shows that the introduction of renewable technologies under the Energy [R]evolution scenario does not increase the costs of electricity generation in New Zealand compared to the Reference scenario. Because of the lower CO2 intensity of electricity generation, electricity generation costs will become economically favourable under the Energy [R]evolution scenario and by 2050 costs will be NZ$ 1.9 cents/kWh below those in the Reference version.
Under the Reference scenario, the unchecked growth in demand, an increase in fossil fuel prices and the cost of CO2 emissions result in total electricity supply costs rising from today’s NZ$ 5.5 billion per year to NZ$ 6.9 billion in 2050. Figure 5.6 shows that the Energy [R]evolution scenario not only complies with New Zealand’s CO2 reduction targets but also helps to stabilise energy costs. Increasing energy efficiency and shifting energy supply to renewables lead to long term costs for electricity supply that are still 1% lower than in the Reference scenario, although costs for efficiency measures of up to NZ$ 5 ct/kWh are taken into account.
Under the Energy [R]evolution scenario, however, New Zealand would shift almost 100% of its entire energy investment towards renewables and cogeneration. Until 2025, the fossil fuel share of power sector investment would be focused mainly on CHP plants. The average annual investment in the power sector under the Energy [R]evolution scenario between today and 2050 would be approximately NZ$ 1.55 billion.
Because renewable energy has no fuel costs, however, the fuel cost savings in the Energy [R]evolution scenario reach a total of NZ$ 35 billion up to 2050, or NZ$ 0.88 billion per year. The total fuel cost savings based on the assumed energy price path therefore would cover 300% of the total additional investments compared to the Reference scenario. These renewable energy sources would then go on to produce electricity without any further fuel costs beyond 2050, while the costs for coal and gas will continue to be a burden on national economies.