Renewable Energy Workshop: LCOE Trends

©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.


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



Source: Navigant


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%;




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%;




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



LCOE prices are mainly for illustration, as costs will

vary between projects.


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





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.



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%



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.



Market Risks – State Incentives


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.


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


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


Confidential and proprietary. Do not distribute or copy.

Key C O N T A C T S



Key C O N T A C T S



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

[email protected]

Renewable Energy Workshop: LCOE Trends

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