Tuesday, May 10, 2016

Cost of solar power (62)


The PV world is buzzing with the recent announcement from the Emirate of Dubai about bids to construct the 800 MW Sheikh Maktoum Solar Park Phase III installation.  The winning bid was USD 30 per MWh; the under-bidder was USD 36.9 per MWh.  These bids are definitely under the cost of new-build fossil fuel power stations.

For information on the Sheikh Maktoum project, see here (RenewEconomy) and especially here (Apricum).

A couple of months ago, I reported on the Rubi PV project in Peru for which my estimate for the Levelised Cost of Electricity was USD 52/MWh.  Let’s see how the Sheikh Maktoum plant compares.

As is often the case, press reports for Sheikh Maktoum Solar Park Phase III do not give the hard information required for LCOE comparisons, namely peak power (AC to grid), capital cost and annual output.  All we have is 800 MW capacity and the winning bid: USD 30/MWh.

And as the linked Apricum report mentions …

“The price bid by Masdar/FRV [the winning bid for Sheikh Maktoum Solar Park III] is 19% lower than the second-lowest bid submitted by JinkoSolar.  It can be expected that both JinkoSolar and the third-lowest Acwa Power pushed their proposals very close to what can be considered commercially feasible today.  One may speculate how Masdar and FRV seemingly manage to play in a universe of their own.  Because the majority of the expenses for a solar plant lie in the upfront cost of construction, which gets recovered over numerous years, the cost of financing is a key overall cost driver.  One can suspect that Masdar had access to long-term financing through the wealthy emirate of Abu Dhabi that no commercial banks, the primary source of capital for the other bidders, could match in cost.

Bingo!  I reckon that hits the nail on the head.

The Apricum report also goes on to speculate (knowledgeably it seems to me!) that the winning bid incorporated one-axis tracking and that the capital cost for a 800 MW AC facility would be around USD 1.0 billion, or USD 1.25/Wp.

[For comparison purposes, my previous blog post contained reliable costs for 22 recent bids for government supported PV projects in Australia.  The average capital cost (AC to grid) was AUD 2.25/Wp, equivalent to USD 1.67/Wp at today’s conversion rate.  I expect things could be done a bit cheaper in Dubai, so let’s stick with Apricum’s cost estimate.]

What about the annual output of PV plants with one-axis tracking in Dubai?  My previous post referred to data from ARENA (Australian Renewable Energy Agency).  Out of the 22 projects that were described, the average Capacity Factor (AC to grid) for one-axis systems was 26%, and the CF figure for systems in the state of Queensland, probably a similar solar resource to Dubai, was 28%.  Let’s use that figure.

So for Sheikh Maktoum Solar Park III, we could estimate the annual output to be 24×365×0.28×800 = 1,962,240 MWh.

Let me now estimate the LCOE for Sheikh Maktoum Solar Park III 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 are as follows:
Cost per peak Watt              USD 1.25/Wp
LCOE                                     USD 58/MWh

The components of the LCOE are:
Capital           {0.094 × 109}/{1.962 × 106 MWh} = USD 48/MWh
O&M              {0.020 × 109}/{1.962 × 106 MWh} = USD 10/MWh

Conclusion

The estimate using my standard methodology is nearly double the price bid by Masdar/FRV, USD 58/MWh compared to USD 30/MWh.  I think my maintenance costs are a bit high, but the biggest explanatory factor would be the financing costs.  I’m sure that the proponents for Sheikh Maktoum Solar Park III have financing costs that are much less than 8% per annum over 25 years.  There may also be taxation advantages that are specifically excluded in my methodology.

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

One last comment.  The general trend is clear: the price of solar is coming down, the price of fossil fuel and nuclear generation is going up.  Moreover, the crossover point has probably already been reached, and if a realistic cost of carbon emissions were included then it would be game over for fossil fuel generators.

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