Tuesday, March 8, 2016

Cost of solar power (61)


ARENA (Australian Renewable Energy Agency) has recently released data on 22 projects that are applying for government funds to build large PV installations in Australia.  RenewEconomy has more details.  This is a treasure trove of information, and ARENA is to be congratulated for the initiative and its diligence.  The 22 proponents have now been invited to prepare complete applications for financial support from ARENA. 

By the way, the Australian Government is still trying to close down ARENA as a separate agency (in favour of moving it under the direct control of the Environment Minister), and they also are still trying to repeal laws governing the Clean Energy Finance Corporation.  So far, the government has been thwarted by cross-benchers in the Senate, but an election is due this year.  And the world is still getting hotter and hotter.

But, back to estimates for the Levelised Cost of Electricity (LCOE) …

The 22 projects are all multi-megawatt, come from all states in Australia and include both fixed and tracking systems.  There are some interesting variations between states and fixed/tracking technologies, but I won’t dwell on those.  Rather I’ll just look at average figures for the 22 projects.  This will give a comprehensive snapshot of costs in Australia as of today.

As stated, the average Capacity Factors across all 22 projects were 0.202 (DC ex-panels to inverter) and 0.246 (AC ex-inverter to grid).  That’s a bit confusing, but means the average proponent undersized the inverters relative to the panels by about 10%, presumably as a result of their costing calculations for optimal plant performance.  I’ll calculate the annual output of the average 1 kW system in AC to the grid as 0.202 × 24 × 365 = 1,770 kWh.

What about capital cost?  Well the ARENA data is helpful there too.  The average costs are AUD 1.86 per Watt (DC ex-panels) and AUD 2.25 per Watt (AC to grid).

Let me now estimate the LCOE 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 average of the 22 ARENA PV proposals are as follows:

Cost per peak Watt              AUD 2.25/Wp
LCOE                                     AUD 144/MWh

The components of the LCOE are:
Capital           {0.094 × 2,250}/{1.770 MWhr} = AUD 119/MWhr
O&M              {0.020 × 2,250}/{1.770 MWhr} = AUD 25/MWhr

Conclusion

According to my standard methodology, the LCOE for the average of the proposed 22 large PV projects is AUD 144 per MWh.  This is rather higher than most LCOE students would calculate.  As Giles Parkinson of RenewEconomy writes:

“As a rough guide, a capital cost of around $2.20/watt AC is expected to translate into a levelised cost of generation of around $125/MWh, based on ARENA’s 10 per cent weighted average cost of capital methodology.”

However, in my defence, I’d say that my methodology does not include taxation advantages due to depreciation, which are included in the ARENA methodology.  I specifically exclude such considerations because I’m interested in international comparisons, and tax laws vary greatly between countries.

For comparison of these current Australian costs with installations around the world, please see my LCOE graphic (which I need to update).

One last point.  The ARENA data also includes details of operating expenditure.  For some time now, I have been thinking that my annual O&M costs (2% of capital cost) are high.  The ARENA data will allow me to check that.  But that will be the topic of my next post.