Application of the UNFC to Renewable Energy Resources

David MacDonald, BP

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Why this project now?

• Renewable energy is on a significant growth trend

• The same issues impacting mineral and petroleum projects are relevant for renewable energy

• There is a real need for a consistent framework for comparing renewable projects with conventional energy forms

• UNFC could meet these needs with minimal modification, providing a tool for communication around issues of sustainable energy

No methodology exists 

1. to assess resources (in boe or other metric) of a renewable asset

2. to contrast renewable investment against hydrocarbon (economics per barrel, reserves, etc)

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What could be the outcome of this work?

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Intr

oW

ind

Sola

rB

iofu

els

Oth

er

What it is• First version of a practical handbook to assess

renewable resources, with a:• commercial guideline for resource progression, as

well as a• technical guideline by technology

• An assessment of a renewable portfolio, including• resources and production in BOE by 2020• Equivalent financial metrics (lifting cost, finding cost,

margin per barrel, etc.)

What it is not• A methodology used for external reporting (SEC, financial

reports, etc)• A demonstration that renewable barrel is cheaper or more

attractive than an hydrocarbon barrel (this is not a case for renewable)

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We are not the only ones thinking about renewable resources

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Advocacy material for biofuels Country assessment of all energy resources

Geothermal: closest link between oil and gas and renewables

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Estimates of global renewable resources are very material on a global scale

3.8x1All Solar technologies, including MultiCrystaline Silicon, ThinFilm,

Concentrated Solar Power and Solar Thermal

1.0xConventional, deep hydrothermal and

engineered Geothermal

0.5xOnshore and offshore

Wind

0.4xBiomass to

power

0.15xHydropower

0.05xMarine, including tidal

and wave

1 Read: Solar resources could provide close to 4 times as much energy as the world needs today

Source: BP Statistical Review, EU Renewable Association, BP AE Strategy & Fundamentals

8 446420

Marine 0,00

Solar 0,01

Geothermal 0,15

Wind 2,31

Biomass 9,27

Hydropower 43,06

% Resources Exploited by 2011

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Renewable energy is on a substantial growth trajectory serving customer needs - governments and individuals - for local, sustainable energy

Source: BP Energy Outlook 2030, January 2012

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Renewable energy is growing fast in the global energy mix

Renewable energy is fast growing and will be material

Shares of World Primary Energy%

Key Energy Trends• Diversification of energy mix• Gas is the only fossil fuel growing [relative to others] to 2030• Renewables represents one fifth of all additional BOE to 2030

and is the fastest growing form of energy (similar to nuclear industry in 70s and 80s)

World Power GenerationThousand TWh

Key Power Trends• Higher global income implies increased electrification,

especially from non OECD• Renewables attain 10% global power market share by 2030,

driven by policy and increased cost competitiveness

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Sugarcane and energy grass ethanol can be major elements of primary energy production

Sugarcane and cellulosic ethanol have the potential to form material and cost competitive sources of supply

Source: adapted from Booz Allen Hamilton analysis based on information from IEA, DOE and interviews with super majors; IBGE, UNICA, Conab, CGEE, Unicamp, CTC, , BP Biofuels Team

Transportation Fuels Supply Curve - 2020

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Biofuels - resource renewal

Stylised Conventional Crude Production Profile

Time (years)

2008 20452025

Pro

duct

ion

(kbp

d)

0

200

Min 30 year production life

Brazil SC ETOH Strategy

US LC ETOH Strategy

Brazilian SCE & US LCE production models deliver over the lifetime of the assets. Barrel reserves are equivalent to access to feedstocks.

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Time horizon Production uncertainty

Energy system equivalence Energy price

Biofuels

We have non-depletablecrops but different contract lengths for

feedstock and crushing mill lifetime of 30 years.

Feedstock availability is uncertain but manageable

Biofuels have upstream and downstream

activities, similar to fossil fuels

Biofuels prices are volatile but mostly global

Wind and solar power

We have a non-depletable resource but a land lease of 25 years

and a technology lifetime of 20 years.

Wind and solar power production is fairly

certain over the project lifetime

Wind and solar power are downstream energy carriers

Wind and solar power prices are less volatile but

local

We have identified a few challenges to develop a methodology for RE resources comparable to the fossil fuels methodology

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Do we use a conservative or aggressive time

horizon to calculate the reserves?

At what point in the energy system do we account for RE reserves and with

what methodology?

What P90, P50 or P10 do we use to estimate future

production?

What price do we use to value RE

reserves?

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RE resources are infinite but reserves calculation accounting needs to adopt a time horizon

Biofuels Wind and solar power

Resource availability

Land lease

Equipment lifetime

Contract for feedstock

PPA or spot market 0-20

20

25 2520

30

5

years years

e.g. Brasil sugar cane

e.g. Brasil sugar cane

(crushing mill)

e.g. US LC

e.g. 0 for power sold on spot market; 20 for power sold with PPA

e.g. wind turbines

e.g. 50 years = 1 lease extension

Not applicable for biofuels, but applicable for biomass to power

Not applicable for solar and wind power because energy source is free

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Biofuels Wind power Solar power

Uncertainty nature

• Biomass yield

• Output arbitrage

• Feedstock quality

Wind speed patterns• Sun irradiation

• Cloud cover

Uncertainty range

(P90, P50, P10)Yield, e.g. sugarcane

35 (P90)–55 (P10) T/haNet capacity factor

25% (P90)–40% (P10)Net capacity factor

10% (P90) –20% (P10)

Uncertainty mitigation

• LT contracts with farmers

• Share the risk

• Feedstock market

Upfront on-site wind speed measurements

Upfront on-site solar irradiation measurements

Uncertainty over the expected production is an issue for biofuels but less for wind and solar power

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Limited uncertainty and fairly predictable

Uncertainty but manageable

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Analagous components of wind generation

RESOURCE RECOVERABLETECHNICALLY

RECOVERABLE/

FEEDSTOCKCONVERSION PRODUCT TRANSPORTATION

3 Stage

Gearbox

Turbine

Generator Transformer Electricity

To Grid

Transmission

and

Distribution

LOSSES

POWER (MW) 2

8%

1.84

6% 4% 1%

Wind Power Density (WPD)

60%1

1 Modern turbine efficiency 35-45%. Absolute technical limit of 59.7% efficiency – Betz’ Law

2.245.6

KINETIC MECHANICAL ELECTRICAL

Gap between Recoverable and Feedstock narrows with:

- Improved blade efficiency

- Larger diameter turbines

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Biofuels Wind and solar power

‘Price’ options Global market price

Local power price (PPA or spot market) + subsidies

(e.g. FIT or PTC)

Levelised cost of electricity by technology

Pros Straightforward 1 global price for all

• No fluctuation (PPA and FIT)

• Small fluctuation (spot and RPS)

• Less subject to local variations

• Commonly used methodology

Cons Highly fluctuating (similar to fossil fuels)

• Prices local and regulated

• Not 1 price for all

• Underestimate compared to power price

• Changes over time with learning

Accounting solutions

• Past average price

• Price on 31 Dec (SPE)Past average local power

priceCurrent or future levelised

cost

To value RE reserves you can use a global price for biofuels but it is less straightforward for power

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Note: In oil and gas, price has direct impact on reserves because it dictates the COP (Cessation of Production); the

higher the oil price, the bigger the reserve

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Next Steps

• Developing a draft general specifications for renewable energies

• Develop a bridging document for one renewable energy (biofuel)

• Stakeholder participation

− All four groups

• Discuss work with EGRC (2013)

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