SCOE: Society's Cost of Electricity: How society should decide on the optimal energy mix

© Siemens Wind Power 2014. All rights reserved. siemens.com/answers
SCOE – Society’s costs of electricity:
How society should find its
optimal energy mix
Siemens Wind Power / 2014 – Christoph Neemann

18-04-24
© Siemens Wind Power 2014. All rights reserved.
Page 2 Siemens Wind Power August 20, 2014
Can society afford
(offshore) wind power? ?

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Levelized Cost of Electricity –
The standard yardstick for comparing technologies

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LCOE
Introduction
LCOE is too short-sighted for deciding on an
economy’s power mix
Judging electricity sources only by
levelised cost of energy (LCOE)
stems from ages where electricity
production was by definition big-
scale and localised at load
centers.
With new energy sources
entering the scene, this approach
falls short.
In this analysis, we try to shed
a fair light to total-economy
costs and benefits of energy
production, comparing Wind
Offshore vs its alternatives.
Variability
Employment
effects
Geopolitical
risks
Transmission
needs
LCOE
Social
costs
Hidden
Subsidies

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SCOE: Society’s
costs of electricity
Geopolitical impact
Economy &
employment
System costs +
LCOE
Social costs
Variability costs
Transmission costs
Hidden subsidies
LCOE
Approach
Revealing the true cost and the macro-economic
costs of energy: SCOE – Society‘s costs of electricity
True cost of
electricity
Macro-economic
cost of electricity
„Ex-works“
electricity price
Examples
• UK: Reduced tax on fossil fuels
• Waste disposal and desaster costs
• Grid reinforcements needed for
renewable integration
• Fuel + OPEX + CAPEX + CO2
• Capacity payments to gas plants for
providing backup
• Job creation: Direct, indirect (suppliers)
and induced (by additional consumption)
• Decline of house prices around power
plants & wind farms
• Hedging against fuel price risk for
imported fuels
SCOE Components

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Page 6 Siemens Wind Power / CWN / E W ST SCC
SCOE: Society's costs of electricity [EUR/MWh]
Projection for United Kingdom in 2025 - Average Scenario
Nuclear Coal Gas Photovoltaics Wind On Wind Off
LCOE
- thereof CO2
Cost subsidies
Transmission
Variability
LCOE +
System costs
Social impact
Employment effects
Geopolitical impact
SCOE
E W ST SCC / CWN / 2014-08-26 / Projection for United Kingdom in 2025 - Average Scenario
79,2
0,0
59,8
0,0
0,9
140,0
0,1
-33,0
0,0
107,2
115,3
58,4
2,5
0,0
0,5
118,3
0,1
-10,5
1,7
109,6
82,9
26,0
0,5
0,0
0,0
83,5
0,1
0,0
5,4
89,0
105,2
0,0
0,0
6,6
15,2
127,0
0,0
-49,4
0,0
77,6
55,4
0,0
0,0
2,0
14,3
71,6
4,8
-16,1
0,0
60,4
95,0
0,0
0,0
2,0
13,4
110,4
0,0
-49,4
0,0
60,9
SCOE Analysis United Kingdom
Projection for 2025
CAPEX OPEX FuelLegend LCOE Split:
With certain pre-requisites in place, Offshore can be among the most competitive
electricity sources in the UK by 2025, while Gas is the most competitive backup.
CO2

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Page 7 Siemens Wind Power / CWN / E W ST SCC
SCOE: Society's costs of electricity [EUR/MWh]
Projection for Germany in 2025 - custom Scenario
Nuclear Coal Gas Photovoltaics Wind On Wind Off
LCOE w/o CO2
- thereof CO2
Cost subsidies
Transmission
Variability
LCOE +
system costs
Social impact
Employment effects
Geopolitical impact
SCOE
E W ST SCC / CWN / 2014-08-26 / Projection for Germany in 2025 - custom Scenario
79,2
0,0
47,4
0,0
1,0
127,6
0,1
-34,1
0,3
93,8
80,3
23,4
0,0
0,0
0,5
80,8
0,1
-6,2
2,5
77,2
67,3
10,4
0,4
0,0
0,0
67,8
0,1
0,0
5,9
73,8
100,2
0,0
0,0
10,8
15,4
126,4
0,0
-49,3
0,0
77,1
55,4
0,0
0,0
3,2
14,5
73,1
4,0
-19,4
0,0
57,8
95,0
0,0
0,0
2,8
13,6
111,4
0,0
-49,0
0,0
62,3
SCOE Analysis Germany
Projection for 2025
With certain pre-requisites in place, Offshore can be among the most competitive
electricity sources in Germany by 2025, while Gas is the most competitive backup.
CAPEX OPEX FuelLegend LCOE Split: CO2

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The analysis will try to bring some substantiation
into a set of hypotheses
Mid-term, Wind Offshore can significantly reduce the gap to grid parity.0
Wind Offshore – like other renewables – requires an early refurbishment of
transmission grids and intermittency leveling facilities like backups or storage.1
2
A fair price of CO2 emissions would make wind energy‘s environmental
benefits far more obvious.3
While Wind Onshore is already close to grid parity, its expansion is reaching
limits.4
Wind power creates more local employment and positive GDP impacts than
other energy sources.5
6 Wind power is a natural hedge against fuel price changes and allows geopolitical
independency
Conventional technologies‘ costs that have not been fully addressed to their
cost base, giving them an ill-founded advantage.

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2
limits.4
independency
0

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Reducing the gap to grid parity
Wind Offshore is only at the start of its learning curve
with a lot of cost reductions to come
Although being the youngest electricity source and having had only limited
chance yet to gain experience, Wind Offshore shows significant cost reductions.
Status:Data as of end 2013
0
Technology lifetime Installed global capacity
Years GW
113
75
63
38
33
23
Coal
Gas
Nuclear
Photovoltaics
Wind Onshore
Wind Offshore
1970
1600
401
113
318
7
Coal
Gas
Nuclear
Photovoltaics
Wind Onshore
Wind Offshore

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Offshore can achieve major cost reductions by using
the scale potential of offshore
0
Airbus 380 Soccer field
Feature Onshore
Today Future
Turbine rating [MW] 3 6 10
Rotor diameter [m] 101 154 195
Swept area [m²] 8.012 18.627 29.865
Load factors [%] 40 54 54
Annual energy production [GWh] 10,5 28,4 47,3
Powered homes 2.262 6.106 10.177
Note: Turbines for IEC Class I (High wind speed)
Offshore
Assumptions: Household consumption per year: 4648 kWh

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Reducing the gap to grid parity
Offshore cost reduction is effective in multiple areas
Wind Offshore will be able to realise scale effects in terms of size and utilisation
that will exceed onshore performance, resulting in better efficiency.
0
Image courtesy of Bladt Industries A/S
FoundationsTurbines Grid access
Operations &
Maintenance
 Standardize offshore
foundation design
 Industrialise
manufacturing
 Reduce
component cost
 Increase energy
production efficiency
 Drive scale effects
and industrialisation
 Increase turbine
component quality
 Reduce O&M hours
and visits frequency
 Reduce grid access
complexity
 Innovative grid
solutions

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Offshore Levelised Cost of Electricity (LCOE)
EUR/MWh
GW
Annual installations
0
50
100
150
200
250
1990 1995 2000 2005 2010 2015 2020 2025 2030
0
50
100
150
200
250
1990 1995 2000 2005 2010 2015 2020 2025 2030
Prognos/Fichtner 2013:
120km, 50m Prognos/Fichtner 2013:
120km, 50m
Prognos/Fichtner 2013:
120km, 50m
0
50
100
150
200
250
1990 1995 2000 2005 2010 2015 2020 2025 2030
0,0 0,0 0,1 1,3
4,0
15,0
12,9
11,1
Forecasting Wind Offshore with learning curve
methodology will lead to LCOE of 70-90 EUR/MWh in
2030 – fully in line with the range of Gas & Coal
Conservative progression
(9,5% learning rate)
Optimistic progression
(13,5% learning rate)
project data points typical conditions
Assumed underlying onshore
wind offshore learning curve
i.e. same rate of cost improvement (11,5%)
for each doubling of capacity
0
LCOE range Gas/Coal
incl CO2
Source: Own analysis based on learning curve approach, supported by datat from Prognos/Fichtner 2013: Cost reduction potentials of offshore wind power in Germany
http://www.offshore-stiftung.com/60005/Uploaded/SOW_Download|EN_ShortVersion_CostReductionPotentialsofOffshoreWindPower.pdf
Datapoints pilot projects
near shore

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2
limits.4
independency
1

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Transmission and backup requirements
Renewables requires changes in the architecture of
the onshore energy grid.
Existing electricity grids have been designed for high-capacity conventional
power plants close to load centers. A greater share of renewables will now
demand for an early one-time refurbishment of transmission grids, allowing for
more decentralised and production-optimised grid designs. This is a one-time
investment, like building the grids was a century ago.
Total Comments
Grid investments onshore mEUR 3.838
OPEX costs p.a. mEUR 38 1 % of CAPEX p.a.
Grid lifetime Years 40
Discount rate % 10
Annual electricity production offshore TWh 219
Additional grid costs EUR/MWh 1,97
Source: National Grid 2011, The Crown Estate: Offshore Transmission Network Feasibility Study
Comments: Assumption offshore load factors: 50%
http://www.nationalgrid.com/NR/rdonlyres/4FBE15A0-B244-4BEF-87DC-8D0B7D792EAE/
49346/Part1MainBodysection191.pdf
1

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Renewables requires changes in the architecture of
the energy grid.
Existing electricity grids have been designed for high-capacity conventional
power plants close to load centers. A greater share of renewables will now
demand for an early one-time refurbishment of transmission grids, allowing for
more decentralised and production-optimised grid designs. This is a one-time
investment, like building the grids was a century ago.
Transmission capacity needed
until 2022 in Germany
Surplus on electricity from Grid reinforcement
Source: DENA Netzenwicklungsplan 2013
http://www.netzentwicklungsplan.de/NEP_2013_Teil_I.pdf
Planned transmission lines
In construction/consented
1
Transporting electricity is cheaper than transporting the base fuel!
Total
Wind
Offshore
Share
Coal transport
North Sea -
Southern
Germany2
Additional grid costs p.a. mEUR 946 183
Annual electricity production by renewablesTWh 269 66
Additional grid costs EUR/MWh 3,5 2,8 5,0
Sources
1 DENA Netzstudie II, Dez 2010
http://www.dena.de/fileadmin/user_upload/Publikationen/Erneuerbare/Dokumente/Endbericht_dena-Netzstudie_II.PDF
2 VBG PowerTech 9/2007: Steinkohlekraftwerke: Konzepte und Faktoren der Standortauswahl
http://www.steag-energyservices.com/fileadmin/user_upload/steag-
energyservices.com/downloads/veroeffentlichungen/Assumptions: Wind Offshore has a share of all grid costs proportional to its installed capacity
Installed capacities 2020: Offshore 14 GW, Wind Onshore 37 GW, Photovoltaics: 18 GW
Capacity factors: Wind Offshore 54%, Wind Onshore 42%, Photovoltaics 11%

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In a state-of-the-art grid, the geographical distribution of
wind farms reduces intermittency
Geographical distribution of wind farms allows an inter-grid compensation of
intermittency: “There is always wind blowing somewhere!”.
A European initiative for a super-grid will help to level out production and deman
1
Wind farms spread over a distance
show less interdependency in output
than single turbines
A North Sea super grid can allow for further
compensation of intermittency
Power Output correlation of ~2000 UK wind sites
Distance between recording sites [km]
Source: http://www.eci.ox.ac.uk/publications/downloads/sinden06-windresource.pdf
Source: http://allenandyork.wordpress.com/2011/09/

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In many countries, wind offshore is close to load
centers.
40 % of the world population live within 100 km from the shore. For many big
cities like in the US, China and Latin America, offshore wind requires less
investment into transmission than onshore.
Source: SEDAC - Socioeconomic Data and Applications Center of NASA 2000
http://www.nasa.gov/images/content/712130main_8246931247_e60f3c09fb_o.jpg
1

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Relative wind speed distribution Load distribution over year
Wind speed probability (peak probability = 100) % of rated power
Assumptions wind resource Assumption turbines
Mean wind speed
m/s Weibull-k
Rating
MW
Rotor diameter
m
Avaliability
%
Offshore 9,5 2,2 Offshore 6,0 154 97
Onshore high wind 8 2,0 Onshore high wind 3,0 113 97
Onshore low wind 6,0 1,9 Onshore low wind 2,3 113 97
* Source PV load curve: PhD thesis N Ehlers 2011, p. 196, data Southern Germany
** Source PV load curve:PV installation Veitbronn, Year 2013
Wind speed index
(mean wind speed = 100)
Cumulated annual hours
(ranked from high to low by % of rated power)
http://w w w .ensys.tu-berlin.de/fileadmin/fg8/Dow nloads/
Publications/Dissertation_Ehlers_2011.pdf
Offshore
Onshore
high wind
Onshore
low wind
Photo-
voltaics*
0
20
40
60
80
100
0 2000 4000 6000 8000
Onshore high
Onshore low
Offshore0
20
40
60
80
100
0 50 100 150 200 250 300
Relative wind speed distribution Load distribution over year
Wind speed probability (peak probability = 100) % of rated power
Assumptions wind resource Assumption turbines
Mean wind speed
m/s Weibull-k
Rating
MW
Rotor diameter
m
Avaliability
%
Offshore 9,5 2,2 Offshore 6,0 154 97
Onshore high wind 8 2,0 Onshore high wind 3,0 113 97
Onshore low wind 6,0 1,9 Onshore low wind 2,3 113 97
* Source PV load curve: PhD thesis N Ehlers 2011, p. 196, data Southern Germany
** Source PV load curve:PV installation Veitbronn, Year 2013
Wind speed index
(mean wind speed = 100)
Cumulated annual hours
(ranked from high to low by % of rated power)
http://w w w .ensys.tu-berlin.de/fileadmin/fg8/Dow nloads/
Publications/Dissertation_Ehlers_2011.pdf
Offshore
Onshore
high wind
Onshore
low wind
Photo-
voltaics*
0
20
40
60
80
100
0 2000 4000 6000 8000
Onshore high
Onshore low
Offshore0
20
40
60
80
100
0 50 100 150 200 250 300
Calculation of intermittency compensation
Offshore wind has far less fluctuation in power
output than other renewables
1
Offshore winds have less spread in wind speeds vs
the average, resulting in a more stable power
output.
An offshore turbine operates at rated power for 2200
hrs per year, while low wind onshore only reaches
640 hrs.

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Calculation of intermittency compensation
Rationale for calculating intermittency compensation
costs: Gas is the most efficient backup mid-term
1 GW of wind installed
Backup capacity of ~ 880 MW Gas needed
Demand
Wind output
0
250
500
750
1000
0 2000 4000 6000 8000
Wind output
MW
Cumulated hours p.a.
Demand
Gas output
0
250
500
750
1000
0 2000 4000 6000 8000
Gas backup output
MW
Cumulated hours p.a.
Compensation of Gas
plant for CAPEX/fixed
OPEX for the amount
of time where it is not
running at 60% load
factor
To estimate intermittency costs, a gas backup capacity of 88% of installed wind
capacity is assumed. The gas power plant is compensated for the time being idle
by a payment for their CAPEX and fixed OPEX ~ 15 EUR/MWh.
1

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To minimise the need for residual capacity to
compensate intermittency, an even higher
offshore wind share is advised
Anteil Offshore an der Windstromerzeugung (%)
AnteilWindanderErzeugungausWindundPV(%)
Standardabweichung der Residuallast
0 20 40 60 80 100
50
55
60
65
70
75
80
85
90
95
100
(GW)
46
48
50
52
54
56
58
60
62
64
66
An 80% renewables scenario in Germany cannot be
realised without significant share of offshore wind;
offshore wind helps to reduce residual capacities.
Even with PV and wind onshore built to their
technical limits, they can only deliver 80 % of
the renewable electricity needed
Technical
maximum wind
onshore: 198
GW
Technical
maximum
photovoltaics:
275 GW
Annual Electricity demand and potential supply for
Germany in an 80% renewable scheme
Source: Fraunhofer IWES 2013: Energiewirtschaftliche Studie
zur Bedeutung der Offshore-Windenergie. Kurzfassung
http://www.fraunhofer.de/content/dam/zv/de/forschungsthemen/energie/
Energiewirtschaftliche-Bedeutung-von-Offshore-Windenergie.pdf
248 TWh
Renewable 390 TWh
supply
80%
Other
20% 162 TWh
Primary energy
demand
= 800 TWh p.a.
Renewable
Electricity
Primary
energy
demand
Gap to
80%
renewable
supply
Electricity
supply
Gap
37 GW Offshore Wind
needed to close the gap
Residual capacity needs can be minimised
with a mix of 20% PV, 30% wind onshore and
50% wind offshore
Colours: Residual power standard deviation (GW)
Share of offshore in total wind
Share of wind in renewables portfolio Mix with minimal
residual power
demand
4

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1
2
limits.4
independency
transmission grids and intermittency leveling facilities like backups or storage.
2

18-04-24
Different nature of cost-base and price-base
subsidies: We don‘t count renewable price subsidies
as they don‘t distort the cost base
1
4,0
3,0
2,0
PriceProfit
1,0
Apparent
costs
Cost-base
subsidy
2,0
True costs
Structure of cost-base subsidies
e.g. government carrying costs caused by producer
3,0
5,0
4,04,0
Subsidised
price
Subsidy
2,0
Real
price
Profit
1,0
Apparent
costs
Cost-
base
subsidy
0,0
True
costs
Structure of price-base subsidies
e.g. feed-in-tariff or price premium
Line of visibilityLine of visibility
• Cost-base subsidies create an apparent or visible cost
base that seems lower than the true cost (when
addressed by cause)
• Example: The disposal costs for nuclear waste are not
fully carried by the plant operator; hence he does not
show the full costs he causes
• Pure price-base subsidies have true costs at the same
level as apparent costs (no hidden costs).
• The subsidy is used to lower the real price to a
competitive price level
• There are no hidden costs behind the line of visibility
SCOE is focusing on comparing the true costs of electricity generation. That is
why cost-base subsidies are included, but price-based subsidies are not.

18-04-24
Conventional technologies‘ costs have been
receiving subsidies up to today that lower their
apparent cost base.
Conventional energy sources have received several kinds of governmental
support during their introduction phase to allow for quick and efficient scale-up.
Many of these subsidy mechanisms are still in place.
To create a level playing ground, all subsidies have to be made transparent.
2
Global direct subsidies estimates Per-Country direct Subsidies to conventional fuels
2010 2010
Fossile Fuels 16,8 Hard Coal 43,7 2,5
Renewables 7,0 Natural Gas 0,4 0,5
Nuclear Power 33,4 45,1
Sources: Sources:
BNEF Press Release July 29, 2010: Subsidies … Energy consumption: Eurostat 2010
IEA 2012, Key world energy statistics
Assumptions: Net efficiency gas: 60%, coal: 45%
Global
EUR/MWh
Subsidies: OECD (http://www.oecd.org/site/tadffss/),
Financial Times (http://www.ft.com/intl/cms/s/0/fda9ea9a-ac29-11e2-a063-
00144feabdc0.html#axzz2V9jJs2J9)
FÖS 2011 (http://www.foes.de/pdf/2012-08-Was_Strom_wirklich_kostet_lang.pdf)
Only subsidy components considered that lower cost base of technology
EUR/MWh EUR/MWh
United KingdomGermany

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Climate Change Prevention
A fair CO2 price of 40 EUR/t would give coal a cost
surplus of 22 EUR/MWh
3
Lifecycle CO2
emission Cost for CO2
Cost
Increase
kg/MWh EUR/MWh EUR/MWh
Nuclear 12 +0,4
Coal 781 +23,4
Gas 429 +12,9
Photovoltaics 41 +1,2
Wind Onshore 11 +0,3
Wind Offshore 12 +0,4
Sources:
IPCC 2014, Working Group III: "Climate Change 2014:Mitigation of Climate Change", Annex III, page 10:
http://report.mitigation2014.org/drafts/final-draft-postplenary/ipcc_wg3_ar5_final-draft_postplenary_annex-iii.pdf
Assumption of 40 EUR/to as a lower end of fair CO2 price: McKinsey 2007:
http://www.epa.gov/oar/caaac/coaltech/2007_05_mckinsey.pdf
0,1
7,8
4,3
0,4
0,1
0,1
0,5
31,2
17,1
1,6
0,4
0,5
Today: 10 EUR/t CO2
Future: 40 EUR/t CO2

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Especially nuclear plant operators are not held
responsible for all costs in their value chain
In addition to the currently known subsidies, there are hidden cost risk due to
environmental damage or catastrophies which tax payers have to come up for.
We assumed a virtual insurance fee against nuclear desasters of 14 EUR/MWh.1
“At Pennsylvania’s Three Mile Island in
1979, one reactor partially melted in the worst
U.S. accident, earning a 5 rating. Its $973
million repair and cleanup took almost 12
years to complete” (Bloomberg, 30.03.2011)
2
Sources: 1 Versicherungsforum Leipzig 2011: Berechnung einer risikoadaquaten Versicherungspramie zur Deckung der Haftpflichtrisiken,
die aus dem Betrieb von Kernkraftwerken resultieren
http://www.bee-ev.de/_downloads/publikationen/studien/2011/110511_BEE-Studie_Versicherungsforen_KKW.pdf

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1
2
limits.4
independency
transmission grids and intermittency leveling facilities like backups or storage.
3

18-04-24
The CO2 emissions assigned to burning fuel are not
capturing the whole story
Burning fuel
Power plant
operations
Power plant
construction
Fuel
distribution
Fuel
generation
During mining:
• Energy and auxiliary
materials for well
operations
• fuel consumption
for transportation
• Pipeline leakage
• Energy and raw
materials for
construction
• Operations of
auxiliary equipment
and transport to site
• Auxiliary power,
people and material
transport and
logistics
• Chemical
conversion of
carbon share of fuel
to CO2
Direct emissions
base for CO2
certificate trade
Lifecycle emissions
determining impact on CO2 concentration in the atmosphere

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Environmental impact
We use two different approaches to measure the
impact of carbon dioxide
• Fair value of CO2 view:
• Regardless of local legislation, we address a price to
CO2 emissions that is considered high enough to
compensate the adverse effects
• Calculation: Lifecycle emissions per MWh x
fair CO price (=40 EUR/to)
1 • Powerplant operators view
• Based on assumptions of CO2 prices given by local
authorities (e.g. national governments, EU), we
calculate what an operator needs to pay for his direct
emissions
• Calculation: Direct emissions per MWh x certificate
price (depending on location)
2
CO2 Emissions kg/MWh
Price tag
EUR/to CO2
UK Example
2025
0
10
20
30
40
50
60
70
80
0 200 400 600 800
2
1
724 kg/MWh @ 80,7 EUR/to
781 kg/MWh @ 40 EUR/to
58
EUR/MWh el
31
EUR/MWh el
Even if self-imposed CO2 prices are not in place, the environmental damage comes at a cost.
Therefore we use a fair value as a second referencein case the self-imposed mechanisms fall
short.

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Carbon price floor targets United Kingdom
EUR/t CO2
https://w w w .gov.uk/government/uploads/system/uploads/attachment_data/file/41794/6667-update-short-term-traded-carbon-values-for-uk-publ.pdf
Source: UK Department of Energy and Climate Change: Updated short-term traded carbon values used for UK public policy appraisal, Oct 2012
37
62
87
67
81
87
0
10
20
30
40
50
60
70
80
90
100
2010 2015 2020 2025 2030
CO2 carbon
price floor
per year
CO2 lifetime
average price for a
power plant going
online in this year*
Climate Change prevention
Government aims to put a fair price to CO2 will make
especially coal-fired power plants less competitive.
Fair CO2 price
Marginal costs of
CO2 reduction
measures to keep
global warming
below 2°C:
40-50 EUR/t2
2 Source: McKinsey,
http://www.epa.gov/oar/caaac/c
oaltech/2007_05_mckinsey.pdf
Recently low CO2 certificate prices are not reflecting actual cost of CO2, but are a
result of too optimistic demand forecast. Corrective action required by EU
governments to reach fair pricing of CO2.
3
* A power plant going online in 2025 will pay CO2 taxes from 2025-2055 (30 years lifetime).
For LCOE, the lifetime discounted value of CO2 emission is considered, not only the one in the starting year.

18-04-24
2
limits.4
independency
4

18-04-24
Learning curve: Onshore Levelised Cost of Electricity (LCOE)
EUR/MWh
GW
Annual installations actuals and forecast
0
50
100
150
200
250
300
350
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
0
50
100
150
200
250
300
350
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Siemens forecast
(high wind)
Siemens forecast
(Low wind)
0
50
100
150
200
250
300
350
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
0,4 0,2 1,3 4,0
11,3
32,8 37,3 38,9
46,8 49,6
In onshore, the industry already demonstrated an
impressive track record of cost reduction, with grid
parity in reach
4
Real wind power data points
Assumed underlying onshore
wind learning curve
i.e. same rate of cost improvement (13%)
for each doubling of capacity
Variable cost range
Gas/Coal incl CO2
Conservative progression
(10 % learning rate)
Optimistic progression
(16% learning rate)
LCOE range Gas/Coal
incl CO2
Source: own analysis by learning curve methodology of known LCOE datapoints and market installation actuals and forecasts

18-04-24
The move into areas with less wind resources is
currently driven by resource-based incentive, but is
economically far less favourable.
New installations move from coastal high wind
areas to medium and low wind areas due to lack of
additional wind sites
Source: Fraunhofer IEWS 2013: Windenergie Report Deutschalnd 2012,
http://windmonitor.iwes.fraunhofer.de/bilder/upload/Windenergie_Report_Deutschland_2012.pdf
Distribution of installations in Germany
Status: End 2012
Coastal areas
North German Plain
Low mountain range
New additions take place in the areas
with low wind, being less competitive.
4

18-04-24
But high wind sites are already utilised to a great
extent. Mid/low wind sites can still be extended, but
will have higher costs.
Wind resources Germany
Source: Fraunhofer IWES 2013: Windenergie Report Deutschalnd 2012,
http://windmonitor.iwes.fraunhofer.de/bilder/upload/Windenergie_Report_Deutschland_2012.pdf
Distribution of installations in Germany
Status: End 2012 Mean wind speed
m/s
Power
density
MW/km²
Installed fleet: ~ 31 GW (End 2012) Total potential: ~ 198 GW (=2% of land usage)
Source: BWE 2012, Potenzial der Windenergienutzung an Land
http://www.wind-energie.de/sites/default/files/download/publication/studie-zum-potenzial-der-windenergienutzung-
land/bwe_potenzialstudie_kurzfassung_2012-03.pdf
4

18-04-24
Some studies assume that property values decline
around onshore wind farms; social acceptance is
also influenced by visual impact
9d
7d
5 km
Hypotheses
One of the major obstacles to wind
onshore is reluctance against the
visual impact
Findings
House prices decline around wind
farms by ~3% in a 5 km radius1
Result
Per MWh, the house price
decline accounts for ~4-5 EUR
1 Source: Heintzelman/Tuttle 2011: Values in the Wind.
http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1887196_code1021813.pdf?abstractid=1803601&mirid=3
Note: Other recent sources say there are no relations between wind farms and house prices. To have a safe assumption, we used one of the more pessimistic cases.
Result
4
Visually impacted area
Wind farm,
12 turbines
d= rotor diameter

18-04-24
Social Impact
Visual impact by wind farms will rise significantly if
current offshore plans are replaced by onshore wind
UK Onshore Wind Farm Density Today UK Onshore Wind Farm Density 2030
with all offshore plans moved onshore
4
Legend: visually affected are of one single wind farm
Assumptions
Onshore additional installations 0 (0% of 5,85 GW)
Offshore plans move onshore 0 (0% of 35 GW)
Average onshore w indfarm size 12,0 turbines
Average turbine rating 2,3 MW
Visibility around w ind farm 5,0 km
Average distance between wind farms: 31,3 km
Land area from where wind farms visible: 15%
10km
50km
Assumptions
Onshore additional installations 5,85 (100% of 5,85 GW)
10km
50km

18-04-24
Social Impact
Visual impact by wind farms will rise significantly if
current offshore plans are replaced by onshore wind
DE Onshore Wind Farm Density Today DE Onshore Wind Farm Density 2030
with all offshore plans moved onshore
4
Assumptions
Onshore additional installations 10 (100% of 10 GW)
Average wind farms visible: 1,1
10km
50km
Assumptions
Onshore additional installations 0 (0% of 10 GW)
10km
50km

18-04-24
Social Impact
Studies show that consumers are willing to accept
higher electricity prices for lower visual impact.
4
People’s willingness to pay to get offshore wind farms out of sight is expected to
reflect the onshore situation to the same extent.
Sources:
1 Ladenburg/Dubgaard 2007: Willingness to Pay for Reduced Visual Disamenities from Off-Shore Wind Farms in Denmark.
http://www.webmeets.com/files/papers/ERE/WC3/881/Willingness%20to%20Pay%20for%20Reduced%20Visual%20Disamenities%20from%20Off-
Shore%20Wind%20Farms%20in%20Denmark.pdf
2 Navrud, S. (2004): MILJØKOSTNADER AV VINDKRAFT I NORGE Sammendragsrapport til SAMRAM-programmet.Norges Forskningsråd.Notat .Institutt for Økonomi og
Ressursforvaltning.Universitetet for Miljø- og Biovitenskap (UMB).

18-04-24
2
limits.4
independency
5

18-04-24
Localisation of supply chain
Due to component size and high lot sizes, Wind
Offshore is more suitable and in need for localisation
The critical mass for building a partially local supply chain is far lower for wind
offshore than it is for other energy sources (especially conventionals)
Units to be installed for annual production of 10 TWh
Nuclear
Coal
Wind
Offshore
PV
Low unit # and relatively simple
component logistics
Very few items requiring
sophisticated logistics
# Units
Gas
1,0
2,0
366 turbines
1098 Blades
1464 Tower segments
27‘500‘000
modules
2,3
Drivers of localisation
Simple component logistics
(container shipment) decreases
need for local supply chain
Logistical complexity and
component size
5

18-04-24
Job creation by Wind Offshore
The level of GDP impact depends on the scope of
localisation (Scenario UK 2020)
85,9
5,4
4,4
6,6
1,5
6,0
62,0
67,5
53,0
103,0
61,0
18,0
90,0
63,0
36,0
73,0
86,6
4,8
11,7
2,6
Local rotor manufacturing & assembly
Local tower manufacturing
Wind Onshore low localisation
Photovoltaics
Gas @ 100% local fuel
Gas @ 50% local fuel
Gas @ 0% local fuel
Coal @ 100% local fuel
Wind Offshore max localisation
Local nacelle assembly
Rotor Export (100% on top)
Local rotor manufacturing & assembly
Local tower manufacturing
Local foundation manufacturing
Wind Offshore low localisation
Wind Onshore with max localisation
Local nacelle assembly
Nuclear
Gross GDP Return
[% of LCOE] Assumptions
CAPEX local content %
• Nuclear: 35
• Coal: 35
• Gas: 37
• PV: 40
• Wind Onshore: 25-39
• Wind Offshore: 27-40
Share of domestic fuel %:
• Gas: 0-50-100
• Coal 0-50-100
• Nuclear 100
5
Sources:
Own analysis, mainly based on
Ernst&Young 2012: Analysis of the value creation potential
of wind energy policies (Link)
Assumptions:
CAPEX GDP impact is comparable for all conventional
technologies (nuclear, coal gas)

18-04-24
LCOE
Split by %
Coal
Wind
Main value add components
CAPEX 43%
OPEX 10%
Fuel 47%
CAPEX 74 %
OPEX 26%
While coal relies to a great extent on exploitation of fossil
resources with low value add impact, wind value chain is
consisting of multiple layers of value add activities
Blade mfg
Installation
Tower mfg
Nacelle assy
Steel mfg
Raw mat mfg
Tool mfg
Generator assyCopper mfg
Servicing
Monitoring
Fleet operations
Spare parts
Construction & erectionComponent assy
Parts
mfg
ServicingMonitoringSpare parts
Mining &
Processing
Mining Equipment
Fossil resources
5

18-04-24
Offshore wind has superior local effects on
employment – creating wealth for the economy
• It creates more local employment opportunities and has a more positive impact on GDP
than any other energy source.
• Especially in structurally weak areas in urgent need of jobs and investment.
billion
21‘000
job years
Already more than 35% of
contracts awarded for the
production & installation of
Offshore Wind farms go to UK
companies
86% of service contracts are
allocated locally.
For every billion EUR invested in
wind power, 21‘000 people are
employed for one year in the EU.
Sources: Ernst&Young 2011: Analysis of the value creation potential of wind energy policies (Link)
BVG Associates 2011: UK content analysis of Robin Rigg offshore wind farm (Link)
BVG Associates 2012: UK content analysis of Robin Rigg Offshore Wind Farm O&M (Link)
5

18-04-24
Wind offshore is especially catching up for job losses in rural areas and in the
marine sector, reducing structural unemployment
Wind Offshore helps regions and sectors with
structural problems to raise employment
Germany Offshore Industry:
•90% of value add created in small and medium-sized enterprises1
•Already 18‘000 dedicated jobs, especially in Northern Germany2
•Creating employment in structurally lagging region and sectors
1 PwC, http://www.pwc.de/de/energiewende/offshore-windenergie-kommt-gewaltig-in-fahrt.jhtml
2 Handelsblatt: http://www.handelsblatt.com/unternehmen/industrie/hochsee-windkraft-tausende-jobs-in-offshore-branche-in-gefahr/8274098.html
5

June 27, 2013
Confidential © Siemens AG 2013 All rights reserved.
Page 45 Christoph Neemann / E W ST MC
Myth: Offshore only gives employment to Northern countries in
Germany
Fact: Offshore Wind creates value-add and employment all across
Germany
Source: PwC/wab 2012: Volle Kraft aus Hochseewind
http://www.wab.net/images/stories/PDF/studien/Volle_Kraft_aus_Hochseewind_PwC_WAB.pdf
12%
13%
18%
Share of Offshore Turbine Value-add [%]
9,8
17,1
13,4
4,9
4,4
8,0
1,5
3,7
12,2
8,8
2,0
2,7
0,7
3,4
1,1
6,3

18-04-24
Wind power costs are man-power intensive; more-
over, a high proportion is sourced locally
United Kingdom fuel import rates and sources
Sources: LCOE: Siemens-internal analysis
Gas & Coal imports and sources: https://www.gov.uk/government/publications
Fuel imports
Fuel imports
Cost elements of LCOE
in % of total LCOE (excluding CO2 costs)
6
10
18
26
75
47
19
43
82
74
CAPEX OPEX Fuel
5

18-04-24
Once built up, a local supply chain can also serve
export markets
Building expertise on crafting wind turbines can lead to a benefitial export
business case, fostering local growth and employment
5
in GW by 2030 (*2020)
United Kingdom
Germany
France
Netherlands*
Sweden*
Denmark*
Belgium*
Total ex UK
Offshore Installation
Targets/Estimates
Northern European Countries
15,0
15,0
6,0
3,0
2,8
2,0
41,8
38,0

18-04-24
2
limits.4
independency
6

18-04-24
Geopolitical independency
Fossil fuel prices are volatile and subject to
geopolitical sensitivities.
Fuel prices of conventional sources, especially natural gas are volatile; moreover
the limitations of their availability create a bottleneck risk.
Approach to valuation of geopolitical impact:
Import share of fuel x fuel costs x hedging premium (~17 % for gas) = geopolitical costs
Hedging premium derived from long-term (2 years) future hedges on fuel prices
6
Source: U.S. Energy Information Administration (http://www.eia.gov)
0
50
100
150
200
250
300
350
0
2
4
6
8
10
12
14
01/'06 01/'07 01/'08 01/'09 01/'10 01/'11 01/'12 01/'13
Henry hub Natural gas spot price
USD/mmBTU
Hard coal prices
USD/to, Central Appalachian

18-04-24
Can society afford
(offshore) wind power?
How can society afford
not to do (offshore) wind power?
?!

18-04-24
Summary: Why SCOE changes the way you look
at the electricity mix
Onshore und Offshore Wind will be the most cost competitive
electricity sources on macro-economic level by 2025
Flexible gas power plants are the most cost-efficient backup
technology
The continued build-out of wind power will take place less out of
political reasons, but out of economical reasons

18-04-24
Summary of Key assumptions
Projection for United Kingdom in 2025 –
Average Scenario
Projection for United Kingdom in 2025 - custom Scenario
Technology-specific assumptions
Topic Item Units General Nuclear Coal Gas
Photo-
voltaics
Wind
Onshore
Wind
Offshore
LCOE Fuel costs EUR/MWh_therm 4 10 26
Capacity factors % 92 86 63 11 37 54
Environment CO2 emission rate g/MWh 0 330 200 0 0 0
CO2 price EUR/t 81
CO2 costs per MWh EUR/MWh 0 58 26 0 0 0
Baseload level % of rated power 94 97 100 0 6 12
Fixed costs of gas backup EUR/MWh 15,2
Transmission grid investment kEUR/MW 92
Distribution grid investment kEUR/MW 61 61
Avg house price decline % 5,0 5,0 5,0 0,0 5,5 0,0
Impact radius house prices km 3,0 3,0 3,0 0,0 3,0 0,0
Average population density vs country average% 20
Average House price value total country EUR/sqm 1.953
Average living space per person sqm/person 44
House price level vs average % 50
Local content CAPEX % 35 35 35 35 35 38
Local content OPEX % 80 80 80 80 80 80
Domestic fuel share % 95 34 22 0 0 0
Geopolitical Hedging costs % of fuel price 8,3 11,6 16,5 0,0 0,0 0,0
General assumptions
Topic Item Units Value
GVA Multiplier CAPEX 1,67
GVA Multiplier OPEX 1,33
GVA Multiplier Fuel 1,14
E W ST MC / CWN / 2014-08-25 / Projection for United Kingdom in 2025 - custom Scenario
Economy
Intermittency
Transmission
Social
Economy

18-04-24
Projection for Germany in 2025 –
Average Scenario
Projection for Germany in 2025 - custom Scenario
Technology-specific assumptions
Topic Item Units General Nuclear Coal Gas
Photo-
voltaics
Wind
Onshore
Wind
Offshore
LCOE Fuel costs EUR/MWh_therm 4 10 26
Capacity factors % 92 86 63 11 37 54
Environment CO2 emission rate g/MWh 0 330 200 0 0 0
CO2 price EUR/t 32
CO2 costs per MWh EUR/MWh 0 23 10 0 0 0
Baseload level % of rated power 94 97 100 0 6 12
Fixed costs of gas backup EUR/MWh 15,2
Transmission grid investment kEUR/MW p.a 13
Distribution grid investment kEUR/MW 100 100
Avg house price decline % 5,0 5,0 5,0 0,0 5,5 0,0
Impact radius house prices km 3,0 3,0 3,0 0,0 3,0 0,0
Average population density vs country average% 20
Average House price value total country EUR/sqm 1.800
Average living space per person sqm/person 45
House price level vs average % 50
Local content CAPEX % 35 35 35 35 35 35
Local content OPEX % 80 80 80 80 80 80
Domestic fuel share % 0 0 14 0 0 0
Geopolitical Hedging costs % of fuel price 8,3 11,6 16,5 0,0 0,0 0,0
General assumptions
Topic Item Units Value
GVA Multiplier CAPEX 1,67
GVA Multiplier OPEX 1,51
GVA Multiplier Fuel 1,14
E W ST MC / CWN / 2014-08-25 / Projection for Germany in 2025 - custom Scenario
Economy
Intermittency
Transmission
Social
Economy

18-04-24
Economic impact
Explanation of GDP multipliers
Why there is a multiplying effect on money spent
• If an investor decides to have a wind
farm built, his money creates jobs at the
turbine supplier (direct jobs)
• The turbine supplier needs components
and raw materials. This demand creates
jobs upstream the supply chain (indirect
jobs)
• The money earned in these jobs is partly
spend on consumption, leading to
induced jobs.
The multipliers for direct, indirect and induced jobs vary, especially depending on
the length and complexity of the upstream value chain.
This is the reason why CAPEX (mainly manufacturing, assembly and construction) has
a higher multiplier than OPEX (where there is less upstream activity).
Fuel production has very limited upstream (significant part of GVA is profit), and
hence creating limited indirect and induced jobs.
5

18-04-24
Employment effect Employment effect per country and technology Multipliers to allow scaling
EUR/MWh EUR/MWh of different scenarios
1,14 EUR return to GDP for each EUR spend on domestic fuel
Remaining employment effect from CAPEX/OPEX
EUR/MWh
* Supported by UK macro-economic statistics data
Assumptions: Local content on OPEX stable at 80%
Multipliers on local CAPEX constant across countries
Empiric multiplier relation CAPEX/OPEX=1,19*
DE
FR
ES
UK
PT
0
5
10
15
20
25
30
35
40
45
50
0 20 40 60 80
Domestic gas[% of consumption]
Linear correlation between
domestic gas costs &
employment:
1,14 EUR Employment
effect for each EUR spend
on domestic fuel
20,0 15,5 16,0
46,0
16,2
64,4 57,5 56,0 53,7
45,0
DE FR ES UK PT
Gas Wind
11,2 14,4 15,6 15,6 16,2
64,4 57,5 56,0 53,7
45,0
DE FR ES UK PT
Gas Wind
1,66
1,39
1,14
Domestic
CAPEX
Multiplier
Domestic
OPEX
Multiplier
Domestic
fuel
multiplier
Calculation of GVA multipliers from
Ernst & Young 2012 and other sources
Analysing the correlation between domestic fuel and local value add, the return to
Gross Value added per EUR spend on fossil fuel is ~1,4 EUR, with a correlation
factor of 97,7%.
Source: Ernst & Young, Analysis of the value creation potential of wind energy policies, 2012
http://www.ey.com/Publication/vwLUAssets/Analysis_of_the_value_creation_potential_of_wind_energy_policies/$FILE/Analysis_of_the_value_creation_potential_of_win
d_energy_policies.pdf
5

18-04-24
Assumptions on Multipliers used for SCOE
calculation
Item Multiplier Rationale Sources
CAPEX 1,67 • CAPEX has not very high value add in TIER-0 (e.g.
at turbine manufacturer), so there are high
upstream effects due to multiple level of suppliers
E&Y 2011
CEBR 2012
OPEX 1,33 • OPEX is highly driven by labour cost and less
complex upstream activity (only for spare parts),
hence value is lower than for CAPEX
E&Y 2011
BVG 2012
Fuel 1,14 • Fuel has literally no or low upstream . From the
direct effect, there is a lot of value-add in terms of
profit (and taxes), but very limited upstream activity
that could lead to indirect effects.
E&Y 2011
General remark: Identical multipliers used for all technologies as they all have complex value chains consisting of industrial scale manufacturing
and construction, OPEX can be considered similar, and fuel as well
Sources:
BVG 2011: UK content analysis of Robin Rigg offshore windfarm  Link
BVG 2012: UK content analysis of Robin Rigg offshore windfarm operations and maintenance  Link
Ernst&Young 2011: Analysis of the value creation potential of wind energy policies  Link
CEBR 2012: Cambridge Econometrics: The macro-economic benefits of investment in offshore wind  Link
…
5

18-04-24
Evaluation principle GDP Impact
Key drivers are local value-add and multipliers for
indirect and induced labour.
CAPEX
OPEX
Fuel
LCOE
Split
GDP
Multipliers
Local
content
Gross
Economic
benefit
Domestic
CAPEX
Domestic
OPEX
Domestic
Fuel
CAPEX
Impact
OPEX
Impact
Fuel
impact0-100%
75-85%
10-50% x 1,67
x 1,39
x 1,14
Domestic
Value-add
• All money spent on electricity, i.e. LCOE,
can be traced back to fuel, CAPEX and
OPEX.
• An economy only benefits from these
spendings if they take place locally
• The domestic value add is defined as the
sum of localised profits and local labour.
These two elements will go into the GDP.
• The local value add triggers further
employment up the value chain. This
effect is reflected by multipliers that differ
by the type of work conducted.
• Example: A blade manufacturing facility
will most likely trigger a higher local
production of glas fibers or moulds at
suppliers. Close to the new
manufacturing site, a bakery, a
supermarket and a hotel will open,
creating further employment.
Rationale of gross economic impact
5

18-04-24
Economic impact
Compensation for high gross effect
100,0
56,0
94,0
65,0
71,0
86,0Nuclear
Wind Offshore
Wind Onshore
Photovoltaics
Gas
Coal
Minimum
Gross economic impact
„Economic
advantage“
Minimum
5
“Economical advantage” is the delta to the energy source with the lowest gross
economic impact .

SCOE: Society's Cost of Electricity: How society should decide on the optimal energy mix

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