This article first appeared on the BNEF mobile app and the Bloomberg Terminal.
- Fuel represents 70% of total lifetime costs for gas plants
- Pandemic causes gas price to plunge 46% year-on-year
Since 2012, the average annual natural gas price in the U.K. has ranged from 5 to 10 pounds ($6-12) per million British thermal units. However, demand has eroded during the Covid-19 pandemic, causing the price to tumble to 2.63 pounds in the first quarter.
Lower gas prices mean the levelized cost of electricity from a new-build combined-cycle gas power plant (CCGT) fell 27% year-on-year to 45 pounds per megawatt-hour (MWh) today, assuming the generator burns NBP and runs at an average capacity factor of 66%.
A recent BloombergNEF analysis suggests that natural gas might rebound to 5 pounds by 2030. That would push the levelized cost for CCGT projects financed today and operating over the next decades to about 60 pounds/MWh.
BNEF’s Energy Project Valuation Model, used to calculate these levelized costs, lets users test fuel price scenarios and assess their impact on total cost of generation for fossil fuel power plants. The model is updated bi-annually with estimates of capital, operating and financing costs of power projects.
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