Analysis on Energy Cost of LCET-CN based on ERIA Energy Outlook Models 2024

Edited byShigeru KimuraCitra Endah Nur Setyawati Analysis on Energy Cost of LCET-CN based onERIA Energy Outlook Models 2024 Economic Research Institute for ASEAN and East Asia (ERIA)Sentral Senayan II 6thFloorJalan Asia Afrika No. 8, Gelora Bung KarnoSenayan, Jakarta Pusat 10270Indonesia © Economic Research Institute for ASEAN and East Asia, 2024ERIA Research Project Report FY2024 No. 12Published in August 2024 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form by any means electronic or mechanical without prior written notice to andpermission from ERIA. The findings, interpretations, conclusions, and views expressed in their respective chapters areentirely those of the author/s and do not reflect the views and policies of the Economic ResearchInstitute for ASEAN and East Asia, its Governing Board, Academic Advisory Council, or theinstitutions and governments they represent. Any error in content or citation in the respectivechapters is the sole responsibility of the author/s. Material in this publication may be freely quoted or reprinted with proper acknowledgement. Foreword Currently, the national pathway to achieve carbon neutrality by 2050 or later is a key focus.Optimisation approaches such as the Linear Programming method are commonly appliedto select zero-emission fuels and technologies under cost-minimisation conditions. ERIAbegan exploring national pathways to achieve carbon neutrality by 2050 or later in 2019–20 under the EAS Energy Outlook framework. However, it used an econometric approachto select traditional renewable energy sources (hydro, geothermal, and biomass), variablerenewable energy sources (solar and wind), nuclear power, CCS for thermal power plants,and hydrogen use for industry, transport (road), and thermal power plants (known ascofiring) manually. ERIA has newly produced LCET-CN (Low Carbon Energy Transition – Carbon Neutral)scenarios for the 17 EAS countries in addition to the BAU (Business as Usual) and APS(Alternative Policy Scenario), which reflects aggressive EEC and RE targets. This LCET-CNscenario does not guarantee a cost-minimum pathway due to the application of theeconometric approach. However, using the energy outlook results until 2050, we canconduct a cost comparison analysis between BAU and LCET-CN. In other words, wecompare the future energy costs of a fossil fuel society and a clean energy society. Energy costs consist of the following items: a. Fossil fuels, which include coal, oil, and gas,b. Power investment costs,c. Hydrogen costs,d. CCS costs. The BAU scenario requires significant fuel costs for coal, oil, and gas, and thermal powerinvestment. In contrast, the LCET-CN scenario requires renewable energy, nuclear power,hydrogen, and CCS. Energy consumption and power generation by all power sourcescome from the EAS Energy Outlook for both BAU and LCET-CN, but fuel prices (includinghydrogen), unit investment costs of all power sources, and CCS costs are assumptions.Thus, if we change the assumptions, the cost comparison results will also change. This report includes: a. Revised LCET-CN results, and b. The cost comparison results for the 17 EAS countries. However, both the LCET-CN and the cost comparison analysis do not cover all low or zero-carbon fuels and technologies. These include thermal power generation with cofiringhydrogen, ammonia, and biomass; the necessary capacity of battery electric storage systems (BESS) for solar PV; demand and supply of e-fuels and e-methane; and DACCS(Direct Air Carbon Capture and Storage) and BECCS (Bioenergy with Carbon Capture andStorage). ERIA primarily uses an econometric model, which has limitations in reflecting all low andzero-carbon fuels and technologies. Nonetheless, ERIA, in collaboration with ERIAWorking Group members for the EAS Energy Outlook and Energy Saving Potential in theEast Asia Region, is dedicated to incorporating these fuels and technologies as much aspossible. We hope this report will provide valuable discussion points regarding the achievement ofcarbon neutrality to energy policymakers, academia, and private/public companies in theEAS region. Tetsuya Watanabe President of ERIA (Economic Research Institute for ASEAN and East Asia) Acknowledgements This report was prepared in collaboration with the ERIA Working Group for EAS EnergyOutlook and Energy Saving Potential, which consists of energy outlook modelers from the17 EAS countries. Additionally, I would like to express my appreciation to the Institute ofEnergy Economics, Japan (IEEJ) for updating the energy outlook and energy-savingpotential, as well as the LCET-CN scenario for the EAS +7 countries. I also extend my gratitude to ERIA research associates, namely Citra Endah Nur Setyawatiand Ryan Wiratama Bhaskara, for their engagement in publishing this report. Finally, Iwould like to give special thanks to the ERIA editing team, led by Stefan Wesiak, for their