Post on 19-Aug-2015
©2014 Navigant Consulting, Inc.
DISPUT E S & INVESTI GATI O N S • ECONOMI C S • F INAN CI A L ADVISO RY • MANAGEM E N T CONSULT I NG
May 5, 2014
LCOE Trends
Shalom Goffri | Associate Director, Energy Practice
AWEA WINDPOWER 2014 AWEA Renewable Energy Workshop Las Vegas, NV
1 ©2014 Navigant Consulting, Inc.
LCOE » Definition
Levelized cost of electricity (LCOE), in $/kWh, is determined by the PV system cost, O&M, financing considerations, and system performance.
Key Factors Affecting $/kWh for a Given PV System
=
Fixed Costs
PV Modules
BOS
Annual Costs
Debt
Equity
O&M
Incentives
Federal
State
Electricity Generation (kWh)
Solar Resource
Module Efficiency
System Losses
LCOE
Levelized Cost
of Energy
+ –
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
Note: Both the numerator and denominator must be discounted to Present Value in order to get a levelized value.
2 ©2014 Navigant Consulting, Inc.
LCOE » Average Selling Price Trends Average PV module prices have dropped significantly over the past few years, and ASPs are below $1.00/Wp for large customers.
$0
$1
$2
$3
$4
$5
$6
$7
Mo
du
le A
ve
rag
e S
elli
ng
Pric
e (
$/W
)
Year
Module Average Selling Price Trends, 1991-2014
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
Source: Navigant
3 ©2014 Navigant Consulting, Inc.
LCOE » Capacity Factor » c-Si vs. CdTe
In most parts of the U.S., thin-film (CdTe) modules are likely to provide better or equal performance over crystalline silicon.
c-Si/CdTe Difference Capacity Factor, Fixed Tilt Systems
+4.5%
0
+4.5%
Energy
Output
Difference
c-Si
CdTe
System Assumptions: Tilt – 30°; PV system size 10MW; Derate Factor: 81.1%;
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
4 ©2014 Navigant Consulting, Inc.
LCOE » Capacity Factor » c-Si, Fixed vs. 1-axis
Single-axis tracking systems can generate 25-30% more power compared to fixed tilt ones, especially in the western U.S. states.
30%
24%
20%
c-Si Energy Output
Difference
c-Si Energy Output Difference, Fixed vs. 1-Axis Tracking
System Assumptions: Tilt – 30°; PV system size 10MW; Derate Factor: 81.1%;
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
5 ©2014 Navigant Consulting, Inc.
LCOE » Cost of Capital Impact
Mature technologies can achieve a more favorable financing, improving their price position. As solar technologies mature, we expect them to benefit from more attractive financing terms.
0.00
0.05
0.10
0.15
0.20
c-Si c-Si - 1 axis
tracking
Thin-Film PV CSP - No Storage
LCO
E (
$/k
Wh
)
Debt:Equity 80:20
Debt:Equity 70:30
Debt:Equity 60:40
Debt 6% equity 8%, 10 yrs debt, 25 yr lifetime, 1 MW size, 35 $/kW/yr O&M. Assumes 30% ITC and accelerated depreciation
LCOE by Technology, Capital Structure Impact
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
LCOE prices are mainly for illustration, as costs will
vary between projects.
6 ©2014 Navigant Consulting, Inc.
LCOE Trends » Incentives
Federal incentives such as the Investment Tax Credit (ITC) are more predictable longer term. While the ITC for PV is set to change at the end of 2016 the industry has time to plan for this occurrence.
Market Risks – Federal Incentives
Incentive Risk Implications
Investment
Tax Credit
At the end of 2016
ITC is expected to
expire and drop
from 30% to 10%.
• Fully installed system prices for ground mount installations will have to
reach $1.00-1.20/W to remain competitive.
• Installers that are not able to reduce prices will have a difficult time
remaining competitive and the industry is expecting a market shakeout.
• Anti-dumping tariffs on Chinese modules are considered the main threat
to reaching competitive pricing as they can increase prices by $0.15-
0.20/W.
• A similar argument can by made for the residential and commercial
segments. The value of the ITC is around $0.75/W to third party
providers, prices will have to decline by that amount to compensate for
the decline in ITC.
• Companies like SolarCity1 and SunRun2 are already reducing costs by
becoming more vertically integrated via downstream and upstream
acquisitions.
• Solar leases are expected to still be attractive in most states post ITC
reduction.
Sources: 1. SolarCity, October 9, 2013 2. SunRun, February 4, 2014
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
7 ©2014 Navigant Consulting, Inc.
LCOE Trends » Incentives
With an ITC of 30%, residential grid parity for an example location in CA is achieved around $4.50/W. Following the ITC reduction to 10%, residential grid parity in the same location is achieved around $3.70/W.
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
$0.05 $0.15 $0.25 $0.35 $0.45
Ca
pa
city F
ac
tor
Cost of Electricity ($/kWh)
Installed
System Cost
Assumptions: debt rate 8%; equity rate 10%; debt:equity 70:30; 20 yrs debt; O&M $27/kW/yr;
$0.05 $0.15 $0.25 $0.35 $0.45
Cost of Electricity ($/kWh)
$10/W
$9/W
$8/W
$7/W
$6/W
$5/W
$4/W
$3/W
$2/W
$1/W
Levelized Cost of Energy, ITC Impact
California
Re
sid
en
tia
l
Re
sid
en
tia
l
ITC 30% ITC 10%
8 ©2014 Navigant Consulting, Inc.
LCOE Trends » Incentives
State incentives, RPS targets, and net metering are subject to change and depend on the local political environment and election outcomes.
Incentive Risk Implications
Renewable
Portfolio
Standards
RPS targets are voluntary
in many states and are
subject to change in others.
• Compliance with RPS targets drives utility scale installations in
most states.
• States with SREC markets are the exception as utilities can buy
SRECs from any PV system (including rooftop) to comply with
the RPS target.
State
Incentives
State incentives are subject
to change.
• State incentives are subject to change depending on the political
will and election results.
Net
Metering
Net metering rules are set
for each state making them
subject to change.
• Recently in AZ the utilities in the state led by Arizona Public
Service challenged the net metering rules. The Public Utility
Commission ruled to keep net metering in place but imposed a
$0.70/kW charge on solar systems.
• While the AZ regulator chose to compromise with the solar
industry and keep net metering in place challenges in other
states may have varying outcomes.
Fixed Costs + Annual Costs - Incentives
Electricity Generation (kWh) LCOE =
Market Risks – State Incentives
9 ©2014 Navigant Consulting, Inc.
LCOE Trends » Forecasts
The installed system price of solar PV and wind plants is expected to continue declining over the coming years while natural gas prices are expected to increase beyond $5.00/MMbtu in 2020.
Price Projections, Various Technologies
2014 2020 2025 2030
Solar PV 2014 $/W 2.15 1.56 1.38 1.11
Wind 2014 $/W 1.77 1.72 1.70 1.67
Natural
Gas 2014
$/MMbtu 3.80 5.22 5.82 6.44
Assumptions: Natural gas prices are assumed for Henry Hub; Solar PV prices are assumed for large utility ground-mount systems.
10 ©2014 Navigant Consulting, Inc.
LCOE Trends » Forecasts
With the price of wind and PV installations declining and the long term competitiveness these plants is projected to be in line with some natural gas plants in the near future.
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
2014 2020 2025 2030
LCO
E (
20
14
ce
nts
/kW
h)
Solar PV Wind Natural Gas
LCOE Projections, Various Technologies (cents/kWh)
Notes: Assumes Federal incentives only. e.g. 30% ITC for solar and accelerated depreciation. ITC for PV decreases to 10% after 2016. PV is fixed axis. Wind incentives include the PTC in 2014 and no incentives beyond that.
Source: Navigant Consulting, Inc. 2013
11 ©2014 Navigant Consulting, Inc.
LCOE » Various Technologies
The wholesale cost of electricity for PV is currently more expensive than conventional power generation, but the gap is closing.
U.S. Levelized Cost of Electricity (cents per kWh, $2013)
11.00
9.00 9.50
7.50
4.50 4.50
3.50
2.00
9.50
7.50
6.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
LCO
E (₵
/kW
h)
O t h e r R e n e w a b l e E n e r g y C o n v e n t i o n a l S o l a r
Notes: Assumes Federal incentives only. e.g. 30% ITC for solar and accelerated depreciation. PV is fixed axis. CSP assumes trough technology. Natural gas price of $3.80/MMBTU. Wind incentives include the PTC .
Source: Navigant Consulting, Inc. 2013; Geothermal: Installed Cost: $5/W, Capacity Factor: 80%, ITC: 10%
Key C O N T A C T S
©2010 Navigant Consulting, Inc.
Confidential and proprietary. Do not distribute or copy.
Key C O N T A C T S
©2010 Navigant Consulting, Inc.
Confidential and proprietary. Do not distribute or copy.
Key C O N T A C T S
©2010 Navigant Consulting, Inc.
Confidential and proprietary. Do not distribute or copy.
Key C O N T A C T S
©2014 Navigant Consulting, Inc. 12
Shalom Goffri, Ph.D. | Associate Director
Houston, TX
+1.617.460.2731 direct
shalom.goffri@navigant.com