Electricity Generation in Fiji

Matthew Dornan and Frank Jotzo

Resource Management in Asia-Pacific Program
Crawford School of Economics and Government
Contact: Matthew.Dornan@anu.edu.au
AARES, February 2011
Assessing the Impact of Renewable
Technologies on Costs and Financial Risk
Crawford School of Economics
and Government
Contents
Context
Research Purpose
Modelling Method and Results
Findings
Refining the Model
Context Impact of Oil Price Volatility
on Cost of Electricity in the Region
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F$/barrel
Context: Response of the
Fiji Electricity Authority (FEA)
FEA: target of 90% of power
from renewables by 2011
Primary goal:
Lower costs and
reduced vulnerability

Figure 3.2 Grid-Based Electricity Generation in Fiji,
2009
58%
39%
2%
1%
Hydro-based generation
Oil-based generation
Biomass and Bagasse
Wind and Solar power
Environmental concerns are of
secondary importance
Reflected in language of National Energy
Policy: provision of adequate, secure and
cost-effective energy supplies
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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
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Hydro-based generation
Oil-based generation
Wind-based generation
Total generation (MWh)
Research Purpose
Gap in knowledge
Despite FEA investments, there have been few
attempts to assess or quantify the impact of
renewables on financial risk in Fijis electricity
sector
Purpose of research:
Apply a method for simultaneously assessing
the potential contribution of renewable
technologies to the security and cost of
electricity supply in Fiji
Method: Stand-alone Costs of
Electricity in Fiji
0 20 40 60 80 100
Hydro-power
Oil-power
Bagasse
Biomass
Wind-power
Solar-power
Geothermal
Generation Costs (FJc/kWh)
Existing Costs
Future Costs
Limitations of Stand-alone Least
Cost Analysis
Does not incorporate risk
Does not address the variability of output from
renewable sources or required backup capacity
Capacity factors are assumed
Increasingly, portfolio analysis is used to value
electricity sector investments
Awerbuch and Berger (2003)
Application of portfolio theory to Europe + United
Kingdom, United States, Mexico

Method: Features of the Model
Incorporating risk
Model improves on least-cost analysis by
estimating financial risk for each technology,
using:
STDev of historical cost of oil-based generation
IEA data on cost variation associated with renewables
The model measures the impact of each
technology on the risk profile of the portfolio

Method: Features of the Model
Incorporating risk capital cost, O&M, fuel
Financial Risk by Technology
0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40
Oil - New
Oil - Existing
Hydro - New
Hydro - Existing
Bagasse - New
Biomass - New
Biomass - Existing
Wind - New
Wind - Existing
Solar - New
Geothermal - New
STDev of past costs
Method: Features of the Model
This model goes beyond standard portfolio theory
by addressing the issue of intermittency and
backup capacity requirements:
Calculating output of renewables capacity
endogenously in the model
These are used to calculate:
Required oil-based backup capacity for a given
renewable capacity
Actual oil-based generation
Method: FEA Scenario
Model also sets limits to production from
renewables based on resource availability

Investment in renewables is compared to FEA
2025 scenario, where:
Annual output forecast to reach 1435 GWh
The FEA reference scenario forecasts:
52.3 MW additional hydro-based generation capacity
25.8 MW bagasse capacity
20 MW additional biomass capacity
Cost and Risk Implications of Portfolios of Electricity Generation
Technologies, 2025
Exi sti ng Renewabl e
Capaci ty
FEA Scenari o
FEA pl us Hydro,
Geothermal
Exi sti ng pl us Bagasse,
Bi omass, Geothermal
(not Hydro)
FEA pl us Wi nd, Sol ar
FEA wi th no bagasse
FEA pl us Hydro, Bagasse
and Geothermal
FEA pl us Bagasse,
Geothermal
FEA pl us doubl e Bi omass
and Geothermal
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0.025 0.035 0.045 0.055 0.065 0.075 0.085 0.095
Risk: Standard deviation of expected levelised average cost
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Cost and Risk Implications of Changes in 2025 Electricity Production
FEA Scenari o (1435
GWh per year)
FEA Scenari o wi th
Lower Demand (1148
GWh per year)
Exi sti ng Renewabl e
Capaci ty
FEA Scenari o wi th
Hi gher Demand (1722
GWh per year)
FEA pl us Hydro,
Bagasse and
Geothermal
FEA pl us doubl e
Bi omass and
Geothermal
0.280
0.285
0.290
0.295
0.300
0.305
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0.315
0.320
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0.025 0.035 0.045 0.055 0.065 0.075 0.085 0.095
Risk: Standard deviation of expected levelised average cost
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Findings (1)
Modelling results indicate that:
Investment in low cost renewables modestly
lowers average generation costs, and
significantly reduces financial risk
There are significant energy security benefits to
investments in renewables beyond those predicted by
the FEA, as well as moderate cost reductions
Low cost renewables in Fiji include:
Biomass, Bagasse, Geothermal, Hydro

Findings (2)
Investment in high cost renewables such as
wind and solar-power reduces financial risk
but increases average generation costs

The scenario where there is no production
from bagasse has higher expected
generation costs and involves more
financial risk

Findings (3)
The worst case scenario is one where there
is no further investment in renewables

Limiting electricity demand (through say,
energy efficiency measures) has a similar,
but less significant impact on expected
generation costs and financial risk
compared to investment in low cost
renewables


Refining the Model
Sensitivity analysis:
Both 5% and 10% discount rates (consistent
with IEA)
Incorporation of energy efficiency measures
Data availability an issue

Thank You