In a previous article, the broad gap existing between the distribution & transport costs of electricity and (natural) gas has been highlighted. The table below shows these distribution & transport compared costs for a standard residential customer in Belgium, for all the distribution grid operators in Belgium (excepted for Brussels).
Before diving into the matter let us put the frame around the considered costs. Referring to the published grid costs on the website of the regulators, we get the following information (for 2017 with a reference consumption of 3,5 MWh for electricity and 20MWh for gas) : items codes taken into account for electricity (E210-E899), items codes taken into account for gas (G100-G899 + Fluxys costs estimation for residential customers). Transport costs could be excluded because they account only for a small part of the grid costs, roughly 10%, but were kept for the completeness of the analysis.
The taxes were actually excluded, because they have only a political sense and can thus not be approached neither along an economical nor a technical point of view.
You will notice by yourself, in the table below, that the taxes on electricity transport are far higher in Wallonia than in Flanders (roughly the double, bringing the total transport costs to the triple of the ‘bare’ transport itself). To be very clear, there are still other taxes on top (yes it is), but they are not considered here.
|Ores BW||82||35||ORES Lux||16,85||1,60|
|Ores Est||128||36||Ores Mouscron||16,54||1,60|
|Ores Hainaut||94||36||Ores Namur||22,29||1,60|
|PBE||119||19||30||year consumption (kWh)||20000|
|year consumption (kWh)||3500||average||12|
All prices in these tables are VAT exclusive.
Without trying to evaluate the defensible cost for the distribution & transport service, we directly wonder why the costs for electricity distribution & transport are so much higher than the one for gas. One could argue that the yearly distributed energy volume for gas is roughly six times the electrical one (for household customers on a yearly basis), but according to the logarithmic volumes decaying law (log10 6 = 0,778, thus [1/[1+0,778]] = 0,562), this cannot explain a difference of more than 44% (we will also see further in this article that only a multiplication of the volume by 40 enables a reduction of the cost by 50%, in this case a multiplication by 6 of the volumes results in a reduction of less than 33%). Furthermore, the total Belgian gas consumption (for other purposes than the production of electricity by gas fired power plants) is no more than 2,0 times the one of electricity (in 2015, electricity: 65 TWh/year, natural gas: 131 TWh/year), showing that at global level the volume effect should still be lower (less than 16%). Energy volume is thus not the factor or argument we are looking for.
Seeking for other ones, we can think about losses. The net losses are indeed covered by an item in the electricity tariffs while absent in the gas ones (but surely covered in behind). But they stand for less than 1,5% in the total of the distribution & transport costs. On the other hand, gas distribution & transport requires (pressure) energy to balance the pressure drop encountered by the gas flow along the pipes, the concerned energy must be injected in pumps which generate the necessary pressure and flow. The pressure drop corresponds to 1,5% at global level. No real difference at that point thus between electricity and gas.
The electricity grid is composed of wires, transformers, circuit breakers where the gas grid is made of pipes, pumps, valves. The comparison of the costs of both investments would probably lead to a fair similarity, in relative term to distributed energy. The investment in the grid itself requires much more (transformation) cabines for electricity than for gas but an unneglectable part of the electrical grid is aerial (much cheaper than the one lying underground) and gas network requires more intervention due to potential explosion hazard (thus more manpower, exploitation and maintenance costs).
The total invoice (across all types of users, taking the whole market into account) for electricity distribution & transport grid use is roughly twice the total invoiced for the use of the gas distribution & transport grid while the ratio is just inverse concerning the distributed & transport energy, making the electricity distribution & transport grid costs, per unit of energy, 4 times as high as the one for gas. Our analysis does not reveal any justificatory for this huge difference, but would there be a one, this difference (factor 4 in distribution & transport costs), it would in itself be a strong reason to switch from central power plants system to the ultimate local power generation model where each household is equipped with a small gas fired CHP. Indeed, if there exists any good reason for such higher costs for electricity distribution & transport, then we should probably better choose another type of energy to distribute & transport.
On the basis of this observation the right question is rather: which energy should be transported and distributed the most efficiently (and thus also the most economically) to supply our electrical appliances and more generally our energy needs ?
To answer this question, we have to extend our investigation to the transport and distribution of other energy vectors (fuel is not a right word for electricity, vector is more generally applicable).
Let us first have a look to the regulated transport & distribution costs of common energy vectors. The table below depicts the costs of the most common energy vectors, grouped in categories (bare energy itself, distribution & transport, taxes) and per MWh (to relate them to a comparable and useful unit instead of a mix of kg, liter or whatever).
|electricity||35,0||126,0||39,1||3,5||2017||add 10€/MWh for the supplier|
|natural gas||16,5||17,0||1,7||20||2017||GCHV: 11,5 kWh/Nm³|
|gasoil (heating) ≥ 2000l||44,8||7,7||2,1||20||2006||GCHV: 10,67 kWh/l|
|gasoil (heating) ≥ 2000l||35,7||7,3||2,4||20||2017||source APETRA|
|gasoil (heating) < 2000l||44,8||9,5||2,1||20||2006||GCHV: 10,67 kWh/l|
|gasoil (heating) < 2000l||35,7||9,3||2,4||20||2017||source APETRA|
|gasoil (car)||44,8||14,4||30,3||11,2||2006||GCHV: 10,67 kWh/l|
|gasoil (car)||35,7||16,1||50,1||11,2||2017||source APETRA|
|propane (bulk)||11,9||0,8||20||2006||GCHV: 13,8 kWh/kg|
|propane (bulk)||34,2||12,6||0,8||20||2017||source APETRA|
|propane (bottle)||60,9||1,4||20||2006||GCHV: 13,8 kWh/kg|
|propane (bottle)||34,9||65,8||1,5||20||2017||source APETRA|
Some prices are shown for 2006 as well. 2006 has been chosen because it is the oldest year for which data have been retrieved.
The goal is to illustrate a possible evolution on the long term. But in our analysis, we will only take 2017 into account.
For electricity, the (full bunch of) taxes are the one in Flanders, you have to add 21€/MWh to get the level in force in Wallonia.
The yearly consumption of gasoil for car is based on the Belgian average of 15.000 km/year and a consumption of 7l/100km.
In this table we notice the following (among others) for the distribution & transport in 2017:
- the costs for (natural) gas (through the grid) and the ones for vehicle gasoil (delivered to personal cars and other vehicles) are quasi equal
- the costs for propane in bulk (delivered by trucks to households) are nearly twice the ones for heating gasoil (173%) but cheaper than the ones for vehicle gasoil (78%)
- the costs for vehicle gasoil (filling by the user at gas station) are 2,3 times the ones for heating gasoil (230%) and nearly equal to the ones for gas (95%)
- the costs for propane in bottle (delivered, in bottle, by trucks to households) are 9,5 as high as the ones heating gasoil (950%) and 3,9 as high as the ones for gas (390%)
- the costs for electricity are 17,7 as high as the ones heating gasoil (1770%) and as 7,4 high as the ones for gas (740%)
Now, we can try to understand these, sometimes impressive, differences. Since the (bare) energy price for gasoil (heating or for vehicle) is more than the double of the one for gas while the distribution & transport costs for both are nearly equal (for gas and vehicle gasoil), the energy price does not seem to impact these costs (or for very few). The difference between the distribution & transport costs for the 2 types of gasoil reinforces obviously this assertion.
The fact that the distribution & transport costs for vehicle gasoil are 230% of the ones for heating gasoil, would mean the necessary infrastructure and exploitation costs for vehicle gasoil are 2,3 times as expensive as the ones for heating gasoil. In an attempt to discover the origin of this important difference, we can list their cost items that could contribute to this difference (excluding the ones that are common to both):
- for vehicle gasoil, we have: large trucks to fill the tanks of the gas station, the gas station itself and the personal at the gas station
- for the heating gasoil, we have: small trucks (+driver who also achieves the filling and cashing), the call center (to appoint the deliveries)
From this comparison, we could infer that the distribution & transport costs to the corner of the street (where the gas station stands) are the double of the costs for a delivery at a higher level (the fuel storage, from where the small trucks are originating), or conversely that the distribution & transport costs from the fuel storage till the corner of the street (gas station) are equal to the ones associated to the distribution at the gas station itself (1 cost unit from fuel storage to gas station + 1 cost unit at gas station = 2 cost units, assuming the transport from the fuel storage till the gas station as nearly equal to the distribution & transport from the fuel storage to the household). We must however take into account that the heating gasoil delivery concerns roughly 2000 liters (once by year), while a usual filling at the gas station concerns a delivery of 50 liters (repeated on the average roughly 20 times by year), thus a factor 40 in the individual filling leads to a factor 2 in the distribution & transport costs. This is still further than the factor 10 (logarithmic volume price decaying) we evoked when considering the possible volume effect on the gas distribution & transport cost in comparison to the ones of electricity.
The distribution & transport costs for vehicle gasoil and gas are roughly equal, which means that the distribution & transport costs for gaseous and liquid fuels are globally equivalent and much lower than the ones for electricity (roughly 1/7th), all of them concern deliveries to the ultimate lowest level: the house. If we had considered the heating gasoil instead of vehicle gasoil, we had got still higher differences, but we have seen the differences in required infrastructure between vehicle and heating gasoil are the cause of this extra difference.
The distribution & transport costs for propane in bottle is more than 5 times (522%) the ones of propane in bulk and 3,9 times (390%) the ones for vehicle gasoil and gas. Thus the costs of acquiring the bottles, filling them, transporting them and managing all this business costs 9,5 times the costs of distribution & transport for heating gasoil and 3,9 times the ones for vehicle gasoil and gas. But this is still no more than (roughly) half the distribution & transport costs for electricity. Surprising.
If one would install a small gas fed power generator at home, which figures out 25% yield, the total marginal cost of the produced power should be 35 (€/MWh) x 4 (1/25%) = 140 (€/MWh), where 35 is the total cost of natural gas (energy + distribution & transport + taxes, for a residential customer), thus roughly only the distribution & transport costs of electricity (energy and taxes excluded). Within these 140 €/MWh, the gas distribution & transport costs stand for no more than 68 €/MWh, just a little bit more than half the distribution & transport costs of electricity (but with a yield of no more than 25%).
Of course the power generator will require an investment and maintenance and some extra investment to guarantee the continuity of the power delivery. The total investment would stay between 2.000 and 5.000€ (the latest in a limited market demand, the first in a large market demand) and the maintenance cost would not exceed 200€/year. These costs are not far from the electricity distribution & transport costs (investment written off over 10 years, thus 200-500€ / year and 200€/year maintenance bring the total between 400 and 700 €/year, thus 114-200 €/MWh).
With a total cost of electricity of electricity (all in, thus energy and taxes included) around 250€/MWh, the total cost of self-produced power using a gas fired ICE is only a bit above (18%). But if an extra investment (of roughly 1.000€) is made to recover the heat lost in the exhaust of the ICE, roughly 75% of this heat can be recuperated to warm water for heating or sanitary use purposes, the game should then change because for each MWh of power generated, there are also 2,25 MWh of heat recovered.
So that when having produced 3,5 MWh of power there are also 7,8 MWh of heat recovered, lowering the heat to be produced by the boiler by the same quantity. In other words, the total gas costs afforded to produce the power must be partially worn by the heating, because instead of using 22,2 MWh for the heating (20MWh heat per year provided with a heating device offering a yield of 90%, without recovery of the heat coming from the exhaust of the ICE) it must now only use 13,6 MWh ( 20MWh – 7,8MWh = 12,2MWh, to be produced with a yield of 90% requires a consumption of 13,6MWh). Roughly 300€ (22,2 MWh x 35€/MWh = 778 €; 13,6MWh x 35€/MWh = 476 €; 778€ – 476€ = 302€) of the 490€ consumed to produce the power, can be recovered in heat. One can thus pretend that the energy cost of the generated power is no more than 190€ (490€ – 300€ = 190€) or 54€/MWh (marginal generated power cost), lowering the total cost of power to 690-990€, or 200-285€/MWh.
Today we have thus already reached the breakeven threshold, demonstrating that the total cost of electricity, despite of the (very) low bulk energy market price, is too high merely due to distribution & transport costs that are far above the one observed for other energy vectors.
The question is thus why are these costs so high and, if they cannot be lowered by roughly a factor 2 to 3, why should electricity keep on being produced in large concentrated power plants rather than installing small CHP’s in each house ?