Thursday, August 17, 2017

Cost of solar power (69)

As reported widely in RenewEconomy and elsewhere, there is big news from South Australia. A 150 MW solar thermal power station with molten salt storage for 8 hours is to be built by Solar Reserve 30 km north of Port Augusta at the top end of Spencer Gulf.

The politics of power generation in South Australia is extremely vexed, with proponents and opponents of renewable energy fighting bitterly for years.  In recent times, the State government has taken decisive steps to assure the local electricity supply at a reasonable price.  Earlier this year there was an announcement of a large battery system to be built by Tesla, and now we have the announced Aurora concentrated solar thermal (CST) facility.

As a keen student of CST, I'm keen to assess the Levelised Cost of Electricity for the Aurora project, the first of its kind in Australia.

First of all, some reported facts.  RenewEconomy says the cost of the 150 MW project is AUD 650 million.  According to RenewEconomy, the South Australian government will pay between AUD 75 and AUD 78 per MWh, with the deal contingent on financing of AUD 110 million coming from the federal government.

Solar Reserve says the project will have thermal storage good for 1,100 MWh of electricity and will produce 495 GWh of electricity per year (around 5% of the State's needs).  Solar Reserve further says that the normal output will be 135 MW, but there will be the capability to increase that to 150 MW at times of peak demand.  The Capacity Factor based on peak capacity is therefore 495,000 / (150 x 24 x 365) = 0.377.

Let me now estimate the LCOE for the Aurora project using my standard assumptions:
  • there is no inflation, 
  • taxation implications are neglected, 
  • projects are entirely funded 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 Yet more on LEC.

The results are as follows:

Cost per peak Watt          AUD 4.33/Wp
LCOE                              AUD 149/MWh

The components of the LCOE are:
Capital     {0.094 x 650 x 10^6}/{495,000 MWh} = AUD 123/MWh
O&M       {0.02 x 650 x 10^6}/{495,000 MWh} = AUD 26/MWh

Conclusion

I have been waiting for a long time to be able to present such an analysis for an Australian CST project.  At AUD 149/MWh, the LCOE is significantly above that for top-tier Australian PV projects such as Sun Metals (AUD 72/MWh) and Ross River (AUD 77/MWh).  Nevertheless, the benefits of despatchability are significant, especially in the context of bitterly disputed power shortages in South Australia in recent years.  Note again that the maximum price that the State government will pay for the electricity is AUD 78/MWh, so we can conclude (a) that Solar Reserve has performed some fancy financial engineering in arranging this project and (b) that this is a really good deal for the citizens of South Australia.


The graphic shows my LCOE results in USD/MWh over eight years at current exchange rates (AUD = USD 0.7928, EUR = USD 1.1799, JPY = 0.00903, GBP = USD 1.3044) and with the value of currency depreciated at 1.75% per year.  Red indicates solar thermal projects; blue indicates PV projects.  Filled-in circles are for projects that were completed when I made my LCOE assessment; non-filled-in circles are for projects as announced, even if not completed.


Monday, August 7, 2017

Cost of solar power (68)

I've been busy on other projects lately, without time to blog on developments with the cost of solar power.  In the meantime, there have been various announcements of new PV systems in the state of Queensland, culminating yesterday in the announcement of a 1 GW facility.

Now 1 GW is a big round number, surely warranting that I add the project to my set of case studies.

As ever, RenewEconomy has the story.  The project is the Wandoan South Solar Project, to be built near Wandoan in the Surat Basin, up to now better known as a coal and gas province.  The project developer is Singapore-based Equis Energy and the project is described in this press release.  In brief, the 1 GW project will involve a capital investment of AUD 1.5 billion and construction will begin in 2018 and be complete in 20 19.  The annual output from the 3 million solar panels will be 1,800,000 MWh.

The Capacity Factor for the Wandoan project is 1,800,000 / (1000 X 365 X 24) = 0.205.  That's not particularly high, so I conclude the panels will be fixed, although that's not stated in the press release.

Let me now estimate the LCOE for the Wandoan South Solar Project using my standard assumptions:
  • there is no inflation,
  • taxation implications are neglected,
  • projects are entirely funded 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 Yet more on LEC.

Note that I am now using annual maintenance costs at 2% of capital cost.

The results are as follows:

Cost per peak Watt   AUD 1.50/Wp
LCOE                        AUD 95.00 / MWh

The components of the LCOE are:

Capital  {0.094 X 1.5 X 10^9} / 1,800,000 = AUD 78.33 / MWh
O&M      {0.02 X 1.5 X 10^9} / 1,800,000 = AUD 16.66 / MWh

Conclusion

The LCOE (AUD 95/MWh) is not as good as the last two projects that I have analysed from Queensland, namely Sun Metals (AUD 72/MWh) and Ross River (AUD 77/MWh).  I wonder if Equis Energy has just been cautious in their early announcement.  I also think the Capacity Factor (0.205) is on the low side for fixed panels in an area where the solar resource is excellent.


The graphic shows my LCOE results in USD/MWh over eight years at current exchange rates (AUD = USD 0.7928, EUR = USD 1.1779, JPY = USD 0.00903, GBP = USD 1.3044) and with the value of currency depreciated at 1.75% per year.  Red indicates solar thermal projects; blue indicates PV projects.  Filled-in circles are for projects that were completed when I made my LCOE assessment; non-filled-in circles are for projects as announced, even if not completed.