Optimising the power grid in Baja California SurBaja California Sur has better power generation...

1 Wärtsilä Services business white paper | Lorem ipsum Dolores ist amet | XX/2016

Optimising the power grid in Baja California Sur

Baja California Sur has better power generation alternatives for the future as currently envisioned. More clean, renewable, economic and reliable power generation can be integrated into the isolated Baja California Sur power grid which requires 584 MW of new thermal generation capacity by 2030. This paper compares two alternatives for this future thermal fleet: power plants based on gas turbine technology and internal combustion engine (ICE) technology.

Selecting the ICE option leads to 232-373 million USD (or 5.7-9.1 percent) system-level cost savings over the years 2016-2030, compared to gas turbine scenarios. If uncertainties are taken into account, such as a delay in constructing an LNG import terminal, the savings can reach 1.5 billion USD (33 percent). The cost savings produced by the flexible, efficient and reliable ICE alternative also translate into less overall fossil fuel consumption and a reduction of emissions in similar levels to the fossil fuel savings.

1. INTRODUCTION 2. SCENARIOS 2.1. Base Case – the Value of Flexible Generation

2.2. Sensitivity Case A: Delay in LNG Terminal

2.3. Sensitivity Case B: High Renewables

3. CONCLUSIONS

APPENDIX

TABLE OFCONTENTS

1


1. Introduction

The isolated power grid of Baja California Sur is facing severe challenges. Due to the booming tourist industry, the electricity demand will almost double by 2030. The population also demands cleaner power with less emissions and more integration of renewable energy. Several old thermal power plants are required to be mothballed. Significant amounts of intermittent wind and solar power will come online. Currently, the price of electricity price is by far the highest in Mexico. According to SENER, the Secretary of Energy of Mexico, as much as 584 MW of new thermal generation capacity will be needed in the grid by 2030. This is a remarkable figure, roughly half of the planned total capacity in 2030 which is 1250 MW.

The key question to decision-makers is: which technology should be chosen for the new 584 MW thermal capacity so that the power system would function optimally in terms of affordability, reliability and sustainability?

Based on data from SENER and Energy Exemplar, Wärtsilä conducted a modelling study where state-of-the-art gas turbine power plants and ICE power plants were compared as alternatives for the new-build capacity. The focus in this in-depth PLEXOS analysis is on system-level cost savings (OPEX+CAPEX). These savings will have a direct impact on the electricity price in Baja California Sur.

UNITED STATES

Baja California SurMEXICO

Mexico City

2


BAJA CALIFORNIA SUR POWER SYSTEM 2016-2030

Figure 1. The generation capacity will roughly double in the 15-year period in

Baja California Sur. The peak demand of electricity will also double. The main

focus of analysis is on the new-build thermal fleet of 584 MW (“New CCGT”

and “New OCGT”). Source: SENER and Energy Exemplar

Figure 2. The share of renewables will grow manyfold in Baja California Sur by

2030.

Wind

Solar

New CCGT

New OCGT

OCGT

Steam turbines

2–Stroke

Peak demand

1,600

1,400

1,200

1,000

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020

16

MW

2017

2018

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2030

LNG terminal becomes available in 2021

Solar 9%

ICE 2–stroke 49%

OCGT 25%

Steam 17%

INSTALLED CAPACITY IN BAJA CALIFORNIA SUR, 650 MW 2016

3


2. Scenarios

2.1 BASE CASE – THE VALUE OF FLEXIBLE GENERATIONThis base scenario includes all the planned capacity in Baja California Sur for the years 2016-2030. Gas turbine assets are compared against ICE power plants to fulfil the thermal new-build target of 584 MW by 2030. According to the guidelines by SENER, this target is further split into combined cycle (CCGT) and open cycle (OCGT) technology, 480 MW and 94 MW respectively1.

In this principal scenario, the liquefied natural gas (LNG) will be available in 2021. This is an optimistic forecast of completing the new LNG import terminal in Baja California Sur. The combined share of wind and solar energy is 16% in 2030, according to default goals published by SENER.

The results of the Base Case can be seen in Figure 3. Compared to the frame gas turbine option, the ICE assets produce cumulative savings of 372.7 million USD by 2030. In other words, choosing ICE technology for the new thermal fleet would lower the total operating costs of the grid by 9.1%.

Compared to the aeroderivative gas turbine option, the ICE alternative saves 232.4 million USD by 2030, or 5.7%. The savings derive from three factors:

Fuel flexibility. Wärtsilä ICE plants can use any liquid or gaseous fuels. In this scenario, they run on inexpensive heavy fuel oil (HFO) until 2021. Then they switch to LNG-based natural gas. The gas turbines, by contrast, have to rely on the relatively expensive light fuel oil (LFO) until LNG becomes available.

Flexible operation. Due to the high penetration of renewable energy, especially solar power, the baseload plants in the system must be extremely flexible and follow the variable output of the renewables. Thanks to the ultra-fast starts and stops, quick ramping capability, and high part-load operation efficiency, Wärtsilä ICE plants outperform gas turbines in this task. This capability also reduces the consumption of fossil fuels in overall.

Reduced spinning reserve costs. To ensure system reliability, the required spinning reserve capacity in the model is 11% of the peak demand or the size of the largest single generation unit – whichever is greater. Therefore, the large unit size of the gas turbine assets, 60-120 MW,would significantly increase the need for spinning reserves from other power stations in the grid. Due to the small unit size, the ICE case would not increase the requirement2.

2 ICE plants are modular, consisting of several gensets that can be operated independently. The largest engine power plant in the world, the 623 MW IPP3 in Jordan comprises thir ty-eight Wärtsilä 50DF engines.

1 For the OCGT requirement, Wärtsilä Flexicycle technology were used. Wärtsilä Flexicycle consists of ICE gensets and a combined cycle heat recovery system. For the OCGT target, Wärtsilä 50DF open cycle power stations were used.

4


ANNUAL CAPEX+OPEX – BASE CASE

Figure 3. In the Base Case, ICE technology, if chosen for the new 584 MW

thermal fleet, would produce significant savings in total electricity generation

costs in the power system compared to the gas turbine options. The savings

come from fuel flexibility, operational flexibility and the reduced need for

spinning reserves. The Base Case assumes LNG availability in 2021.

6FA

LM6000

Wärtsilä

450

400

350

300

250

200

15020

16

MUS

D

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Annual savings (USD million)

Wärtsilä vs. 6FA Wärtsilä vs. LM6000–372.7 –232.4

–9.1% –5.7%

TOTAL

5


BASE CASE DISPATCH WITH WÄRTSILÄ TECHNOLOGY

Figure 4. This one-week dispatch graph for the year 2025 shows how dramatic

the effect of the renewable assets are to the dispatch pattern. Solar PV will

peak at noon daily, and thermal power plants have to ramp down. In the

afternoon, thermal power has to ramp up hundreds of megawatts in a very

short time. The system savings of the ICE option derive largely from the

capability of such ultra-flexible operation.

450

400

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150

100

50

0

MW

ONE WEEK

Solar

Wind

OCGT

ICE 2-stroke

New Wärtsilä 50DF

Steam turbines

New Wärtsilä Flexicycle

2.2. SENSITIVITY CASE A: DELAY IN LNG TERMINALThe timing of finalising the construction of the new LNG terminal in Baja California Sur is crucial to the costs of generating electricity. Natural gas will be new, clean and inexpensive fuel in the area. In the modelling, natural gas will replace HFO in the Wärtsilä assets and LFO in gas turbines whenever it becomes available. The optimistic estimate is 2021, but as there is a real risk of delay, this was modelled to see the consequences.

Compared to the Base Case, a 5-year delay in LNG availability, from 2021 to 2026 causes a dramatic rise in gas turbine option systems costs (Figure 5). However, it causes an equally drastic increase in the relative savings achieved by the ICE option.

In the ICE option, the ICE power plants continue to use inexpensive HFO until 2026, while gas turbines rely on costly LFO. If the LNG imports begin in 2026, the ICE option brings total cumulative savings of 739.1 million USD (17.8%) compared to the frame gas turbine, and 576.2 million USD (13.9%) compared to the aeroderivative gas turbine option by 2030. If there is a delay of 10 years or more, meaning that LNG is not available in 2030, the ICE choice produces savings of 1.475.5 billion USD (33.4%) and 1,270.1 billion USD (28.8%), respectively3.

6

3 An average price of 8 USD/MMBtu is used for LNG. This includes the base mainland price of 5 USD for natural gas, and an additional 3 USD premium for transporting the gas to Baja California Sur in the form of LNG.


2.3. SENSITIVITY CASE B: HIGH RENEWABLESIn the Base Case, the combined share of wind and solar energy is based on default SENER targets: 19% in 2024 and 16% in 20304. However, in August 2016, new official targets for Mexico nationwide were published by SENER. These targets are much more ambitious according to the Law of Energy Transition in the short term: 25% in 2018, 30% in 2021, and 35% in 20245. The question arises of why not integrating more cheap, clean renewable power in Baja California Sur as in the rest of Mexico?

High shares of renewable energy are needed to significantly reduce carbon dioxide emissions from electricity production in a meaningful way. In addition, the price of wind and solar energy is competitive. However, due to their natural variability, wind and solar power cause stress in the power system –especially in an isolated one. The sudden changes in their output have to be compensated by thermal power plants that are flexible enough to absorb the changes6. In the High Renewables scenario, all thermal assets are forced to cycle on a daily basis.

Compared to the Base case, the High Renewables scenario shows more savings for the ICE option: 408.8. million USD (10.3%) against the frame gas turbine, and 255.6 million USD (6.5%) compared to the aeroderivative gas turbine alternative (Figure 6).

Due to their ultra-flexible operation capabilities, Wärtsilä ICE plants balance integrate variable renewables to power systems efficiently7. They can start to full power in less two minutes and shut down in less than one – and do this continuously throughout the day without a penalty in maintenance costs. Their efficiency in part-load is very high, which is also essential in backing up renewables. These are factors behind the savings.

It is worth noting that, on the system level, the High Renewables ICE case is 3.1% cheaper than the ICE Base Case. The same does not apply to the gas turbine options. This means that introducing ambitious shares of wind and solar energy quickly will result in a power grid that is both sustainable and affordable – as long as the thermal assets are flexible enough to support the integration of the renewables.

ANNUAL TOTAL COST OF GENERATION

Figure 5. Natural gas will be the cheapest and cleanest fossil fuel in Baja

California Sur. Therefore, the schedule of constructing the new LNG terminal

is crucial for the electricity production costs of the system. These figures

demonstrate the effect of delays in the LNG availability.

6FA

LM6000

Wärtsilä

450

400

500

350

300

250

200

150

2016

MUS

D

MUS

D

2017

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2030

Savings when LNG available in 2026 (USD million)Wärtsilä vs. 6FA Wärtsilä vs. LM6000

–739.1 –576.2–17.8% –13.9%

TOTAL SavingsWärtsilä vs. 6FA Wärtsilä vs. LM6000

TOTAL Savings

750

650

550

450

350

250

150

2016

2017

2018

2019

2020

2021

2022

2023

2024

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2030

Savings when no LNG available (USD million)

–1,475.5 –1,270.1–33.4% –28.8%

LNG available 2026 No LNG available

6 The four sources of f lexibility include flexible generation, energy storage, interconnectivity and demand response. Generally speaking, only f lexible generation is usually economically and technically feasible in grid scale.

4 Renewables grow agressively in the first modelling years but remain steady after 2023.

7 In the US, Wärtsilä has supplied several 200 MW dedicated wind-balancing ICE plants. The engines in these plants typically start and stop several times per day.

5 http://www.gob.mx/sener/prensa/mexico-a-la-vanguardia-en-eficiencia-energetica?idiom=es energetica?idiom=es

7


ANNUAL TOTAL COST OF GENERATION

Figure 6. If the amount of wind and solar in Baja California Sur increases

according to the latest national targets by SENER, extreme flexibility is needed

from the thermal fleet. ICE technology is superior in such agile operation,

hence producing significant system-level savings compared to the gas turbine

options.

Figure 7. ICE power plants by Wärtsilä are comprised of several independent

10-20 MW engine units. The modular design ensures high reliability: if one

engine is under maintenance, the others are fully operational. Modularity also

enables high part-load efficiency, which is needed in balancing renewables.

6FA

LM6000

Wärtsilä

MUS

D

MUS

D

Savings in high RES case (USD million)Wärtsilä vs. 6FA Wärtsilä vs. LM6000

TOTAL SavingsWärtsilä base case vs. Wärtsilä high RES case

TOTAL Savings

Savings in high RES case (USD million)

–408.8 –255.6–10.3% –6.5%

150

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Wärtsilä - High RES

Wärtsilä - Base Case

2016

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–126.0–3.1%

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High RenewablesLNG available 2016

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3. Conclusions

The Baja California Sur power system is a good example of a contemporary grid with challenges related to increasing electricity demand, fuel availability and ambitious goals for intermittent renewables with a power generation system more clean, reliable and economic. The fact that the grid is isolated, only reinforces these challenges. This PLEXOS modelling shows that new thermal assets in Baja California Sur should be planned from the system-level perspective. Only this kind of helicopter view provides the full picture of how the grid can be developed into a reliable, affordable and sustainable power system.

The model reveals that key to managing the Baja California Sur grid is to increase operational flexibility and fuel flexibility in the thermal fleet. Operational flexibility is needed to follow the output of the renewables as precisely as possible, and fuel flexibility is needed to always use the cheapest and cleanest available fuel. In addition, small unit size reduces the requirement for spinning reserves. All these factors reduce the system costs. This, in turn, directly lowers the electricity price for consumers and industry.

The need for new thermal generation capacity is 584 MW by 2030. The total system costs were modelled using two alternative technologies for this new-build fleet, ICE power plants and gas turbine power plants. The Base Case results show that the ICE option enables 232.4-372.7 million USD (5.7-9.1%) cumulative savings in the Base Case by 2030, compared to the gas turbine alternatives.

In addition, two uncertainty scenarios were modelled, demonstrating a delay in LNG availability, and a very high renewables penetration. The ICE option provides up to 1.475,5 billion USD (33.4%) savings by 2030, compared to the gas turbine options.

The ICE option is superior in all uncertainty scenarios. This means that flexible generation future-proofs the power system against future changes. This future power system is more reliable, economic and clean. Flexibility makes the power system more resilient and helps to manage risks better. Therefore it is a safe investment even when there are major uncertainties. In fact, installing new thermal capacity in Baja California Sur can be seen as an opportunity to optimise the power grid.

The challenges are similar in the rest of Mexico: rising demand, high penetration of renewables, ageing thermal plants and varying availability of cleaner natural gas. These results may predict the right path for the national grid as well, but more research is needed.

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TOTAL GENERATION COST 2016-2030 BY SCENARIO

Figure 8. Wärtsilä ICE technology enables significant system-level savings in

the Base Case and in all uncertainty scenarios. The flexibility of the ICE plants

provide resilience, a guarantee against unpredictable future changes, such as

a delay in LNG availability.

6FA

LM6000

WärtsiläUS

D m

illion

s

6,400

6,000

5,500

5,000

4,500

4,000

3,500

3,000Base case

- LNG 2021LNG delayed 2026 No LNG High RES

+9%+6%

+18%+14%

+33%+29%

+10%+7%

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Appendix

THE CASE FOR AN INTERCONNECTED SYSTEM

Yet another possible development in the Baja California Sur power system is connecting it to the national electricity grid with a DC-link of 650-850 MW capacity. This plan, initiated by the Mexican government, includes 1800 km of bipolar DC cables to the mainland, five substations and two capacitator banks. The connecting cables would put an end to the isolation of the power grid of Baja California Sur, and provide a substantial continuous capacity of affordable imported electricity8.

In this paper, the DC-link plan was included in the PLEXOS modelling as an alternative scenario. One of the conclusions is, quite obviously, that less than 584 MW new thermal capacity will be needed if the connection is build. This is because the 650-850 MW connection would cover most of the electricity demand in 2030, However, it is unclear whether the full capacity of the connection could be used at all times. There may be technical challenges e.g. related to the reduced inertia in the Baja California Sur System. Another conclusion is that the DC-link would lower total system-level costs significantly, because of a new source of low-cost electricity, and a delay in building the connection would increase them.

TOTAL WÄRTSILÄ SAVINGS IN AN INTERCONNECTED SYSTEM

6FA

LM6000

Wärtsilä Flexicycle

USD

milli

ons

6,000

5,500

6,500

4,500

4,000

3,500

3,000

2,500

2,000

650 MW DC connection in 2022 650 MW DC connection in 2026 No DC connection

+7%+6%

+19%+16%

+33%+29%

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Figure 9. A 650 MW connection to the nationald grid of Mexico would cover

most of the electricity demand. The modelling shows that also in this scenario

a system with ultra-flexible Wärtsilä ICE technology would be the most

affordable option. This is especially true if there are unexpected delays in

constructing the 1800 km interconnection.8 It is assumed here that the price for imported electricity would be 40 USD/MWh on average.

12 Wärtsilä Services business white paper | Lorem ipsum Dolores ist amet | XX/2016WÄRTSILÄ® is a registered trademark. Copyright © 2016 Wärtsilä Corporation.Specifications are subject to change without prior notice.

www.smartpowergeneration.com www.wartsila.com/energy

Most importantly, the results show that due to their flexibility, ultra-flexible ICE power plants provide notable savings in all the three modelled DC-link scenarios (Figure 9). If the connection is available in 2022, ICE plants provide 6-7% percent savings compared to the two gas turbine options by 2030. In case there is a delay to 2026 or beyond in the DC-link availability, the savings provided by the ICE case increase to 16-33% by 2030.

The results show a similar hedging mechanism as in the Sensitivity Case A: Delay in LNG Terminal. The ICE option can be seen as not only the most affordable scenario from the system cost point of view but also as a tool for risk management. Building the connection to the mainland is a complex project and delays are possible. By choosing the ICE option for the local new-build thermal generation fleet, additional costs of such delays are minimised.

CONTACT:Raul [email protected]+1 (823) 205 5114

Wärtsilä Energy Solutions is a leading global supplier of ultra-flexible power plants of up to 600 MW operating on various gaseous and liquid fuels. Our portfolio includes unique solutions for baseload, peaking, reserve and load-following power generation, as well as for balancing intermittent renewable energy. Wärtsilä Energy Solutions also provides utility-scale solar PV power plants, as well as LNG terminals and distribution systems. As of 2016, Wärtsilä has 60 GW of installed power plant capacity in 176 countries around the world.

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Optimising the power grid in Baja California SurBaja California Sur has better power generation...

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