PV LCOE in Europe

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1 PV LCOE in Europe - Eero Vartiainen 1, Gaëtan Masson 2, Christian Breyer 3 31 st EU PVSEC, Hamburg, Fortum Power and Heat Oy, 2 Becquerel Institute, 3 Lappeenranta University of Technology

2 Motivation There is a clear lack of public unbiased reports on PV LCOE (Levelised Cost of Electricity) which have: Up to date input data Transparent methodology and assumptions, especially regarding cost of capital Proper sensitivity analysis The best study so far identified by the authors was the report by Fraunhofer ISE on behalf of Agora Energiewende (Feb ) 2

3 Background The work was initiated by EU PV Technology Platform and was carried out the by the PV LCOE Working Group of EUPVTP Steering Committee Report published in June and available at The major differences in this paper are: Extension of the time horizon from to Refinement of the perfomance ratios More thorough sensitivity analysis 3

4 PV LCOE definition PV LCOE here is the average generation cost, i.e., including all the costs involved in supplying PV at the point of connection to the grid: PV LCOE = n t=1 ] CCCCC + [OOOO(t)/(1 + WWWW NNN ) t n [UUUUUUUUUUU 0 1 DDDDDDDDDDD t / (1 + WWWW RRRR ) t ] t=1 where WACC Real = (1 + WACC Nom ) / (1 + Inflation) - 1 Net present value (NPV) for the investment with nominal WACC is zero when valuing the generated electricity for the real LCOE. 4 E.g., 5% equals 7.1% nominal WACC with 2% annual inflation

5 Aim of the study is to identify the main drivers affecting PV LCOE Input parameters studied Values (base value in bold) Market segment 5 and 50 kw p, 1 and 50 MW p Location SPA, ITA, FRA, GER, UK, SWE Real cost of capital (WACC) 2/5/8% per a for large-scale Operational expenditure 10/20/30 /kw p per a Market growth 0/10/15% CAGR - Learning rate 16/20/24% Exchange rate 1.00/1.33/1.60 USD/ Module efficiency improvement 0.2/0.4/0.6%-points per a Module degradation 0.2/0.5/0.8% per a System lifetime 25/30/35 a 5

6 Historical learning rate for PV modules is about 20% Every time the global cumulative PV capacity has doubled, module price has reduced by 20% 6 Source: International Technology Roadmap for Photovoltaic, 2014 results (April )

7 Annual market volume in the Base case is about 350 GW p in Annual PV shipments (GW p ) Fast growth Base case Slow growth For -2019, SolarPower Europe (6/) high, medium and low scenarios are used Base scenario: according to IEA Technology roadmap for PV (2014) - (10% CAGR); 2.5% CAGR after Slow scenario: 50 GW p annually -30; 2.5% CAGR after Fast scenario: 15% CAGR -30; 2.5% CAGR after For -, replacement installations according to volumes are added 7

8 Cumulative market volume in the Base case ~7000 GW p by Cumulative PV shipments (GW p ) Fast growth Base case Slow growth

9 Average PV module price in Europe most likely halved by and reduced to one third by 0,6 Average module price ( /W p ) 0,5 0,4 0,3 0,2 0,1 Slow growth Base Fast growth 0, Price estimation based on the three cumulative volume scenarios and historic 20% learning curve 9

10 System prices in for various market segments PV system price ( /kw p ) BoS Module kwp 50 kwp 1 MWp 50 MWp 10

11 System prices for a 1 MW p system - 1,0 PV system price ( /W p ) 0,8 0,6 0,4 0,2 BoS Module 0,0 11

12 PV LCOE in Europe for a residential 5 kw p system (with VAT) PV LCOE ( /MWh) for 5 kw p London/ Stockholm/ Helsinki Munich Toulouse Rome Malaga CAPEX with 4% CAPEX with 2% CAPEX with 0% 20 OPEX 0 12

13 PV LCOE in Europe for a commercial 50 kw p system (w/o VAT) PV LCOE ( /MWh) for 50 kw p London/ Stockholm/ Helsinki Munich Toulouse Rome Malaga CAPEX with 6% CAPEX with 4% CAPEX with 2% 40 CAPEX with 0% 20 0 OPEX 13

14 PV LCOE in Europe for a 1 MW p system (w/o company taxes) PV LCOE ( /MWh) for 1 MW p London/ Stockholm/ Helsinki Munich Toulouse Rome Malaga CAPEX with 8% CAPEX with 5% CAPEX with 2% 20 CAPEX with 0% 0 OPEX 14

15 PV LCOE in Europe for a 50 MW p system (w/o company taxes) PV LCOE ( /MWh) for 50 MW p London/ Stockholm/ Helsinki Munich Toulouse Rome Malaga CAPEX with 8% CAPEX with 5% CAPEX with 2% CAPEX with 0% 0 OPEX 15

16 Summary of the sensitivity analysis Location (Malaga/Stockholm) Real WACC (2%/8%) OPEX (-/+50%) Market growth (fast/slow) Learning rate (24%/16%) Currency rate (1.6/1.0 /USD) Efficiency increase (0.6%/0.2%) Lifetime (35/25 years) Degradation (0.2%/0.8%) Sensitivity of LCOE (%) Comparison with a 1 MWp system in Toulouse with a 5%, base CAPEX and OPEX, 20% learning rate, 1.33 USD/ currency rate, 0.4% point annual efficiency increase, 30 years lifetime and 0.5% annual degradation 16

17 Conclusions: PV will be competitive by in most markets PV already competitive with retail electricity all over Europe, by it will be the least cost option almost anywhere Location and cost of capital have the biggest influence on PV LCOE Uncertainty in OPEX is more significant than in CAPEX, volume growth and learning rate have a relatively small impact It is most urgent for the policy makers to create a stable environment for investments, in order to decrease the cost of capital and thus the LCOE of PV 17

18 Acknowledgements To the EU PV Technology Platform and especially to the Steering Committee and Expert Pool members who contributed to the work Thank you! 18

Dr. Simon P. Philipps, Christoph Kost, Dr. Thomas Schlegl

Dr. Simon P. Philipps, Christoph Kost, Dr. Thomas Schlegl FRAUN HOFER INSTITUTE FOR SOLAR EN ERGY SYSTEMS ISE UP-TO-DATE LEVELISED COST OF ELECTRICITY OF PHOTOVOLTAICS Background from Fraunhofer ISE relating to IPCC WGIII 5th Assessment Report, Final Draft, September