Electra II, a model for evaluating the cost of electricity generation technologies

December 28, 2010

Now that almost everything is measured or judged in euros, there are some things that are not easy to put a price on. When a government has to decide which technology to opt for in order to generate electricity, it is easy to add up the costs of raw materials or of the installations for each one, but more abstract aspects such as the environment are either left out of the equation or the arithmetic involved is not done correctly. With the goal of putting the environmental cost and other criteria in its place, Ms Macarena Larrea drew up the Electra II mathematical model, which shows that taking criteria other than merely monetary ones into consideration changes the ranking of which technologies are the most economic. Her thesis, defended at the University of the Basque Country (UPV/EHU) is entitled, Internalisation of the external costs of electricity production.

Ms Larrea explained that, in order to evaluate technologies for generating electricity, the external costs also have to be taken on board. This involves costs such as environmental ones, as well as others such as political ones, competitiveness, the security of supply or future generations. The thesis corroborates that Electra II responds to this need: it enables deciding what is the most interesting technology based on a number of heterogeneous criteria, without having to place all of them on the same scale. The model brings together the aspects to be considered in terms of detriment and benefits. Thus, the most economic technology will be, in an overall calculation, that which best meets all the criteria.

Not using monetary values

As the thesis explains, Electra II throws up results closer to reality than most of the techniques for the internalisation of external cost. These latter consist of regulatory norms and advantages for renewable energies, incentives and other measures. Ms Larrea holds that they have more disadvantages than Electra II given that, amongst other things, these criteria are based on political decisions, prioritising one aspect in concrete (such as greenhouse gas emissions); and, in the case of incentives, this means an additional outlay from the government.

According to Ms Larrea, in reality the ideal technique would be the calculation of the external cost, but its implementation poses more problems than Electra II. The calculation of the external cost requires putting a price on these costs, and both selecting criteria to be taken into consideration and putting a price on each one of these are subjective decisions, a basic requirement being a multidisciplinary and international work of consensus. Electra II, however, does not need to grant monetary value to these impacts, rather it gives a degree of importance to each criterion.

Nuclear energy wins

After applying the Electra II model to various technologies for generating electricity, the thesis concludes that, effectively, as new criteria, apart from the monetary one, are applied, the order of optimum technologies varies and distances itself from the structure currently existing in the electricity system. Worthy of mention is the effect of introducing environmental criteria, which alters completely this ranking structure: while in principle nuclear technology and lignite appeared to be the two favourites, after considering environmental criteria, natural gas comes first, followed by nuclear technology and minihydraulics, while lignite disappears from the map.

After considering all the criteria, the thesis decided that nuclear technology was the one that obtained the best results overall, while coal, fuel oil and photovoltaic technology are the least interesting, especially fuel oil. Notable amongst renewable energies is minihydraulics, followed by wind parks.

Finally, the thesis concludes that, if a single criterion prevailed over the others for choosing technologies to be used --unlike with Electra II--, this would cause a reduction in the diversity of primary energies which, in turn, would reduce the guarantee of supply. Ms Larrea underlines the necessity of a diversified energy basket. She believes that there is no indispensable energy technology and that renewable energies are not an alternative, but complementary. Moreover, she highlights that Electra II can help in deciding, within this diversification, which technology is the most suitable to use in each case.
About the author

Ms Macarena Larrea Basterra (Bilbao, 1977) is a graduate in Business Management, has a Masters in Maritime-Port Business Management and she doctored in Business Promotion and Development. She presented her thesis at the Business Organisation Department of the Higher School of Engineers in Bilbao (University of the Basque Country-UPV/EHU) under the direction of Francisco Javier Zubillaga Zubimendi, member of the Department. Ms Larrea currently has a scholarship from the Cátedra de Estudios Internacionales of the UPV/EHU, within the Energy Group.

Elhuyar Fundazioa

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