The external costs of electricity generation

The ExternE project has done the sums on the external costs of electricity generation. Wind has the lowest external costs, coal has the highest.

Drax power station, UK. The Drax coal-fired power plant, capacity 3.96 GW, is the UK’s largest power station.	Ian Britton

The European Commission’s Externalities of Energy research project, “ExternE”, was set up to calculate the external costs of energy related activities. It has produced a wealth of intermediate data – for example I’ve looked at ExternE’s life-cycle CO₂ emissions data in the earlier post “Carbon emissions from electricity generation: the numbers”, but this time around I’m going straight to the bottom line, the external costs themselves.

An external cost is a cost that is not incurred by those who generate it. For example, polluting activities carry an economic cost, but that cost is borne by third parties, not by the polluter. There are several ways to correct such “negative externalities” of a market activity, using taxes or subsidies. When it’s done through taxation it’s called a “Pigovian tax”.

Here’s ExternE’s definition of external costs:

An external cost, also known as an externality, arises when the social or economic activities of one group of persons have an impact on another group and when that impact is not fully accounted, or compensated for, by the first group.

External Costs,
ExternE, 2003 ^[1]

Kentish Flats Offshore Wind Farm, UK. Its nameplate capacity is 90 MW. Elsam

The ExternE project considered seven types of damage in its valuation of external costs:

• Impact on human health – mortality;
• Impact on human health – morbidity;
• Impact on building material;
• Impact on crops;
• Impact on global warming;
• Amenity losses;
• Impact on ecosystems;

The impacts range from human mortality effects – cancers, accidents, reduced life expectancy – to amenity losses from noise exposure.

The external costs were calculated using an “impact pathway assessment”:

Impact pathway assessment is a bottom-up-approach in which environmental benefits and costs are estimated by following the pathway from source emissions via quality changes of air, soil and water to physical impacts, before being expressed in monetary benefits and costs.

External Costs,
ExternE, 2003 ^[1]

ExternE certainly doesn’t claim to be the last word on external costs of energy, but it is among the most detailed and comprehensive analyses to date.

The results for electricity generation are summarised in the ExternE brochure “External Costs” ^[1], and more detail is available in the “National Implementation” document ^[2].

Fifteen countries and nine electricity generating technologies were studied. Table 1 has the summarised results for the external costs by country and by electricity technology. The external costs are expressed in euro cents per kilowatt-hour of electricity generated.

Table 1.  External costs of electricity generation

Country	Coal & lignite	Peat	Oil	Gas	Nuclear	Biomass	Hydro	PV	Wind
	€ cent per kWhe (a)
Austria	-	-	-	1–3	-	2–3	0.1	-	-
Belgium	4–15	-	-	1–2	0.5	-	-	-	-
Denmark	4–7	-	-	2–3	-	1	-	-	0.1
Finland	2–4	2–5	-	-	-	1	-	-	-
France	7–10	-	8–11	2–4	0.3	1	1	-	-
Germany	3–6	-	5–8	1–2	0.2	3	-	0.6	0.05
Greece	5–8	-	3–5	1	-	0–0.8	1	-	0.25
Ireland	6–8	3–4	-	-	-	-	-	-	-
Italy	-	-	3–6	2–3	-	-	0.3	-	-
Netherlands	3–4	-	-	1–2	0.7	0.5	-	-	-
Norway	-	-	-	1–2	-	0.2	0.2	-	0–0.25
Portugal	4–7	-	-	1–2	-	1–2	0.03	-	-
Spain	5–8	-	-	1–2	-	3–5 (b)	-	-	0.2
Sweden	2–4	-	-	-	-	0.3	0–0.7	-	-
U.K.	4–7	-	3–5	1–2	0.25	1	-	-	0.15
Data are from ref. [1]. The countries listed are the EU15 except Luxembourg, with Norway also included. Units of external costs are € cents per kilowatt-hour of electricity. External costs that exceed the UK domestic electricity price in 2003 are  highlighted . Notes: (a)  Sub-total of quantifiable externalities (such as global warming, public health, occupational health, material damage). (b)  Biomass co-fired with lignites.

What do the numbers show? There’s a significant spread in the country-to-country figures, but overall coal and oil have the highest external costs, and wind has the lowest external costs. Nuclear and solar PV have roughly similar external costs, with nuclear slightly lower, and both are lower than biomass and gas. The hydro figures have a thirty-fold spread between the highest and lowest values, reflecting the very site-specific nature of the impacts from hydropower.

The U.K. Case

Are the external costs large enough to be a significant policy issue? How do the external costs of electricity generation compare with the price of electricity to the end-user? To answer that I’ll pick off the U.K. as an example, and I’ll use 2003 as the reference year, as that’s the year the ExternE brochure was published.

Novar wind farm, U.K. 17 MW nameplate capacity. © npower renewables

For the U.K. case, the lowest external costs are for wind power, at 0.15 euro cents per kWh, and at the other extreme, the highest external costs in the U.K. are for coal, at 4–7 euro cents per kWh.

To get a feel for the size of these costs, how do they compare with the electricity price charged to the end-user?

In 2003, the U.K. industrial electricity price including taxes was  4.9  euro cents per kWh ^[3], and the domestic electricity price including taxes was  10.3  euro cents per kWh ^[4] (at 2003 exchange rates).

For the U.K. case, the external cost of wind power is 30 times lower than the industrial electricity price, and 70 times lower than the domestic electricity price. The external costs of wind power are a very small fraction of total electricity costs.

At the other extreme, the external costs of coal-fired electricity are actually higher than the electricity price charged to an industrial end-user. The external costs of coal-fired electricity are the dominant cost of that technology.

Looking further afield, in two cases (coal in Belgium, oil in France) the external costs exceed the U.K. domestic electricity price in 2003. I’ve highlighted these two in Table 1. In almost all cases, the external costs of electricity generated by coal and oil exceed the U.K. industrial electricity price in 2003.

The external costs of oil-fired electricity are very high, but new oil-fired generating capacity is unlikely to be a significant part of the energy future in any case, so the external costs of oil aren’t a key policy issue here. Coal, on the other hand, has even higher external costs than oil, and many countries are considering very large investments in new coal-fired generating capacity. The exceptionally high external costs of coal-fired electricity are an important issue in that policy decision.

Conclusion

The most significant point I take from this is the very high external cost of coal-fired electricity generation. In many cases, this external cost exceeds the market price of electricity.

Related Posts

• The cost of carbon abatement

References

1. External Costs, Research results on socio-environmental damages due to electricity and transport, brochure EUR 20198, European Commission, Directorate-General for Research, 2003  (WebCite cache)
2. ExternE Externalities of Energy Vol XX:  National Implementation, European Commission Directorate General XII, Science, Research and Development, 1999  (WebCite cache)
3. Industrial electricity prices in the EU and G7 countries (QEP 5.3.1), Quarterly energy prices: tables, (“Annual data” page of spreadsheeet), Department for Business Innovation & Skills, March 26, 2009  (WebCite cache)
4. Domestic electricity prices in the EU and G7 countries (QEP 5.5.1), Quarterly energy prices: tables, (“Annual data” page of spreadsheeet), Department for Business Innovation & Skills, March 26, 2009  (WebCite cache)