Monday, February 29, 2016

Cost of solar power (60)


There was an interesting article by Henry Lindon in Sustainnovate recently about record low PV prices that were bid into a renewable energy solicitation in Peru.  The winning bid by Enel Green Power was USD 47.98 per MWh for a 144 MW project; the second successful bidder was Enersur at USD 48.50 per MWh for a 40 MW installation.

In the same context, this link to RenewEconomy shows other recent competitive PV bids in PV reverse auctions.  There are many successful bids in the range USD 50 to USD 80 per MWh.

This leaves me in a quandary.  How to relate these low bids to my analysis of the Levelised Cost of Electricity?  Who knows what financial engineering underlies the bids?  Who knows whether it’s a loss-leader, or the recipient of a shadowy export enhancement grant?

The only hope is to find more complete specifications for these projects in the hope that there will be sufficient information for me to apply my standard LCOE analysis.  Fortunately there might be just enough information available from these recent events in Peru.  Let me explain …

The Rubi PV project by Enel Green Power is to be located in the Mocquegua region of southern Peru, which Wikipedia informs me is at latitude 17°S and elevation 1,410 m.  I’m sure the solar resource would be outstanding.  This press release describes the successful PV bid and includes details of Enel’s associated successful wind and hydropower bids in Peru.

The Rubi PV project has peak power 144 MW AC and annual output 440 HWh, whilst the 126 MW Nazca wind project will generate 600 GWh per year and the 20 MW Ayanunga hydro project will generate 140 GWh per year.  Taken together as a single entity, the peak power output is 290 MW and the annual output is 1,180 GWh.  The respective Capacity Factors are 0.34 (solar PV), 0.54 (wind) and 0.80 (hydro).  The respective CO2 abatements are 270 kt (PV), 370 kt (wind) and 109 kt (hydro).

The cost of the three projects is approximately USD 400 million and the installations will be complete before 2018.  That’s it – the full extent of the information.

Let me make a pro rata calculation for the cost of the PV component, that is assume that the cost of the Buri PV project is 144 MW × USD 400 million / 290 MW = USD 198.6 million.

I’ll now analyse the Buri PV project using my standard assumptions:
  • there is no inflation,
  • taxation implications are neglected,
  • projects are funded entirely by debt,
  • all projects have the same interest rate (8%) and payback period (25 years), which means that the required rate of capital return is 9.4%,
  • all projects have the same annual maintenance and operating costs (2% of the total project cost), and
  • government subsidies are neglected.
For further commentary on my LCOE methodology, see posts on Real cost of coal-fired power, LEC – the accountant’s view, Cost of solar power (10) and (especially) Yet more on LEC. 

Note that I am now using annual maintenance costs of 2% of capital cost rather than 3% as in posts during 2011. 

The results for the Buri PV installation are as follows:

Cost per peak Watt              USD 1.38/Wp
LCOE                                     USD 52/MWh

The components of the LCOE are:

Capital           {0.094 × 199×106}/{440,000 MWhr} = USD 43/MWhr
O&M              {0.020 × 199×106}/{440,000 MWhr} = USD 9/MWhr

Conclusion

Well, those numbers are astonishing, both for cost per peak Watt and LCOE.  Admittedly this part of Peru seems to be a paradise for solar energy, but this LCOE estimate is the best I have ever seen, and by a long way.  It’s very similar to the price that Enel Green Power successfully bid into the solicitation.

I fully realise that my pro rata calculation of the PV component is based on a heroic assumption, but at least that has to be my first approximation.  (It does mean that the wind and hydro components of Enel's offering will be very cheap indeed.)

The closest comparison that I have analysed is the 100 MW Amanecer PV project in Chile, also located in a region with a superb solar resource.  For Amanecer, I estimated USD 2.61 per peak Watt and USD 110 per MWh.

I’m shaking my head in wonder.  I just don’t see how Enel Green Power can do things at half the cost of Amanecer.

Acknowledgement: Thanks to Anthony Kitchener for referring me to the Rubi PV project.