MARGINAL COST OF WIND AND SOLAR PV ELECTRICITY GENERATION Impact of Responding to Dispatch Instructions July 17, 2015 D I S P U T E S & I N V E S T I G AT I O N S E C O N O M I C S F I N A N C I A L A D V I S O RY M A N A G E M E N T C O N S U LT I N G
Section 1» Introduction Section 2» Approach & Methodology Section 3» Analysis of Wind Generation Section 4» Analysis Solar PV Generation Section 5» Results Privileged and confidential 1
Introduction IESO commissioned Navigant to undertake a study of the marginal cost to wind and solar PV generation when responding to dispatch instructions Objective 1 Estimate the marginal cost (MC) of production for transmissionconnected wind and solar photovoltaic (PV) generation facilities in Ontario; and Objective 2 Analyse the impact of various extreme weather conditions and the requirement to follow dispatch instructions (i.e. the act of having output curtailed) on the marginal cost of production. Privileged and confidential 2
Introduction The MC of production for wind and solar PV generators is effectively equal to the variable O&M costs» Marginal cost is generally defined as the change in total cost that arises when the quantity produced is increased by a unit.» Absent fuel or other direct input costs, the marginal cost of production for wind and solar PV generation facilities is the incremental operation and maintenance (O&M) cost that is incurred as a result of an incremental unit of production.» In some instances certain components may have finite useful lives or finite defined times between maintenance requirements, usually referred to as mean time between failures, which are affected by the total units of production.» Hence, each incremental unit of production results in an incremental cost. Privileged and confidential 3
Introduction Variable O&M costs are defined as the subset of total O&M costs that increase or decrease according to the amount of electricity produced Variable O&M Fixed O&M Predictive maintenance includes activities performed on equipment expected to fail soon, typically based on the results of condition based monitoring. Corrective maintenance is performed to repair equipment that is damaged or underperforming. Preventive maintenance includes activities that are performed on a scheduled basis regardless of the condition of the equipment.» Total O&M costs: all expenditures linked to the maintenance (preventive, corrective, predictive) and physical operation of the plant.» Expressed either in $/MWh (implies variable costs), or in $/kw-year (implies fixed costs). Can be converted using an assumed average capacity factor.» Navigant will refer to total O&M costs in terms of $/MWh (recognising that costs are part variable and part fixed). Privileged and confidential 4
Approach & Methodology Navigant completed interviews with: ISOs, wind and solar generation owners/operators, and wind turbine and solar panel and inverter OEMs» Telephone interviews were conducted with relevant stakeholders across North America Interview Group Wind Solar PV Total Independent System Operators (ISOs) N/A N/A 2 Operators 6 5 11 Original Equipment Manufacturers (OEMs) 2 2 4 Privileged and confidential 5
Approach & Methodology Navigant also reviewed secondary research and conducted interviews with two ISOs that have conditions and market rules that are similar to IESO» New York Independent System Operator (NYISO) and Midcontinent Independent System Operator (MISO) both dispatch wind, solar, or both resources. Stated that they do not directly monitor or track the marginal or variable cost of wind and solar generation. They inferred that the bidding behaviour of the group (i.e. they did not comment on a single particular generator) suggests a small, near zero, variable cost of production. This inference was based on anecdotal evidence suggesting that wind generators in these markets typically appear to bid into the real-time or day-ahead energy market at a value equal to the negative of the value of the federal production tax credit.» Secondary research did not uncover any directly relevant studies from other jurisdictions that address the incremental impact of curtailment on the marginal cost of production for wind and solar generation. Privileged and confidential 6
Approach & Methodology Both qualitative and quantitative information on the impact of various factors on the MC of production was gathered from interviewees» The following factors were explored with interviewees: The impact of curtailing output on O&M costs associated with particular pieces of equipment; The impact of a complete shutdown of the facility on O&M costs; The restart or ramp-up process to return to full production capability and the risks associated with delays; and, Back-feed or station service requirements in case of a shutdown or insufficient self-generation.» Interviews were also supplemented with technology/component specific questions (e.g., inverters for solar and pitch systems for wind).» Navigant also discussed generic findings from other interviews and secondary research to assess consistency and reasonableness across different manufacturers, locations, and conditions. The interview process resulted in a range of O&M costs that were relatively consistent across interviewees. Privileged and confidential 7
Approach & Methodology The following conditions and factors below were analysed based on discussions with generation owners/operators and OEMs: What are Variable O&M Costs under various conditions? Normal, or base case conditions Wind: Extremely high wind Frequent icing Solar: Frequent ice or snow buildup What is the impact of frequent partial shutdown? System or components affected Incremental O&M costs Time to regain full capacity Wind: Incremental impact due to high wind or icing conditions Solar: Incremental impact due to icing conditions or snow buildup What is the impact of full plant shutdown? System or components affected Incremental O&M costs Time to regain full capacity Costs for station service during shutdown Wind: Incremental impact due to high wind or icing conditions Solar: Incremental impact due to icing conditions or snow buildup Privileged and confidential 8
Analysis of Wind Generation Wind power generation facilities consist of the following main components:» Blade or rotor, which converts the energy in the wind to rotational shaft energy;» A drive train, usually including a gearbox and a generator;» A tower that supports the rotor and drive train; and» Other equipment, including controls, electrical cables, ground support equipment, and interconnection equipment. Privileged and confidential 9
Analysis of Wind Generation O&M costs vary widely depending on size, age, and location of turbines and there was a lack of industry consensus on costs of service and maintenance Scenario Base (normal) wind regime High wind regime Frequent icing conditions Findings» Major contributor to overall O&M costs over the life of an asset is parts replacement, followed by labour.» The average variable O&M cost for modern utility-scale wind plants is relatively low in the early years, increases steadily during the middle years, and levels off at a relatively high level towards the end of a 25-year asset lifecycle.» The average variable O&M cost of a wind plant is approximately the same as the base case.» The main difference will be increased wear and tear on the pitch system, since more time will be spent in the upper end of the power curve, i.e., when wind speeds are greater than ~13 meters/second (m/s).» The average variable O&M cost of a wind plant could be significantly higher than the base case.» After long periods of sustained shutdown or lack of power, a cold start-up sequence for a wind turbine generator might require the use of additional heaters of component and subsystem gear and control boxes. Privileged and confidential 10
Analysis of Wind Generation Several components were found to have increased wear and tear due to curtailment conditions Conditions Partial curtailment conditions Findings» Several components will experience increased wear and tear when power output is changed frequently.» The primary components affected likely include substation capacitor bank switchers and pitch systems.» Operation of capacitor bank switchers is highly site-specific, as they are primarily exercised in plants in radial locations on the grid and when the capacitor banks are used for voltage control. In such cases, some plants that are being dispatched regularly are experiencing premature failures.» Pitch systems are also exercised each time there is a change in power output (for this analysis we assume that wind turbine generators are equipped with variable pitch systems).» In order to curtail wind turbine generators with fixed pitch systems, they must be shut down completely by braking and opening the circuit breaker. Full curtailment conditions» The same components are affected in the same manner that they are affected by partial curtailment.» The power output changes in the same manner and frequency, and the cost estimates will be the same.» For the full curtailment condition when the breakers or switches at each wind turbine generator are opened, there will be additional wear and tear on the breakers or switches. Privileged and confidential 11
Analysis of Solar PV Generation Solar PV generation facilities consist of the following main components:» solar panels;» racking and fixtures;» cabling connecting panels to inverters, and inverters to the grid;» inverters and associated cooling systems and shelters;» relays and breakers at individual inverters and at the main grid interconnection; and» associated access roads, lawn, and fencing. Source: Midwest Green Energy Privileged and confidential 12
Analysis of Solar PV Generation O&M costs vary depending on size, age, and location of the solar facility as well as the O&M strategies employed Scenario Findings Base (Normal) Wind Regime» Total O&M costs for systems with trackers are generally higher than for fixed systems.» Inverter OEMs design for a specified period and set maintenance intervals based on calendar dates, not production.» Likewise, plant operators generally contract O&M service providers based on a fixed annual fee that is not tied to production.» As such variable O&M costs for a solar PV facility are essentially zero. Icing Conditions Or Snow Buildup» Output from panels by partially obstructing the incident radiation with light coverage.» The buildup of snow and resulting performance degradation depends on several factors.» The impact of snow and ice buildup is material to the annual energy output of a solar farm in Ontario.» However, in all cases the O&M expense related to snow removal is considered a fixed cost. Privileged and confidential 13
Analysis of Solar PV Generation Curtailment conditions were found to have minimal impacts on O&M Conditions Partial Curtailment Conditions Full Curtailment Conditions Findings» Achieved through a uniform reduction in output from all the inverters at a facility or by fully shutting down some of the inverters while allowing the remainder to run at full capacity.» Minimal impact on equipment life since reducing inverter output increases the direct current voltage, reduces operating current, and lowers the inverter temperature. Operating in this zone may actually extend inverter life. It will also reduce the duty cycle of the associated cooling fans and air-conditioning units extending their life as well.» If inverters are fully shutdown, it will result in more power cycling and thermal cycling relative to their design life. However, the inverters have been designed to drop to a zero power level each night. As such, the additional thermal cycles will have a minimal effect on inverter life.» Will result in more power cycling and thermal cycling relative to the design life of the equipment.» Systems with axial tracking may also see increased wear as they continue to track, remain stationary, or move to a rest position during a full curtailment. However, in both cases the equipment has been designed to drop to a zero power or rest state each night. As such, the additional thermal cycles and tracker movement will have a minimal effect on their life.» In cases where the main breaker is opened, there will be some additional wear on the breaker. However, in the case of a controlled shutdown power is brought to zero before the breaker is opened.» Given the low frequency of events where the breaker is opened, full curtailments are expected to have a minimal impact on life. Privileged and confidential 14
Results The marginal cost for wind generators to respond to partial or full curtailment was found to be less than $3/MWh (USD) in all conditions Description Units Low to medium wind regime High wind regime Icing conditions Average variable O&M cost USD/MWh $8.0 - $14.0 $8.2 - $14.4 $10.0 - $17.0 Incremental O&M cost due to partial curtailment USD/MWh $0.2 - $2.1 $0.2 - $2.1 $0.2 - $2.1 Incremental O&M cost due to full curtailment USD/MWh $0.5 - $2.6 $0.5 - $2.6 $0.5 - $2.6 Time to regain full plant capacity after partial curtailment Minutes <1 <1 <1 Time to regain full plant capacity after full curtailment Minutes ~5 ~5 Depends on time down Privileged and confidential 15
Results The marginal cost for solar PV generators to respond to partial or full curtailment was found to be approximately $0/MWh in all conditions Description Units Normal conditions Icing conditions Average variable O&M cost USD/MWh $0 $0 Incremental O&M cost due to partial curtailment USD/MWh $0 $0 Incremental O&M cost due to full curtailment USD/MWh $0 (minimal cost for trackers) $0 (minimal cost for trackers) Time to regain full plant capacity after partial curtailment Minutes 0.5-5 0.5-5 Time to regain full plant capacity after full curtailment Minutes ~5 ~5 Privileged and confidential 16
Appendix Discussion Guide
Marginal Cost of Wind and Solar Interview Discussion Guide Impact of Weather 1. What weather events or conditions have a significant impact on O&M costs? a) Extreme cold weather b) Extreme hot weather c) Lightning d) Other 2. What systems or components are most affected by each of the above conditions or events? 3. For each system or component identified above, what is the difference in plant availability, failure rate or incremental O&M cost [due to each identified weather condition]? 4. What newer technologies are available which help to minimise the incremental costs identified above? Impact of Following Dispatch 1. What systems or components are most affected by each of the following dispatch requirements? a) Braking from load (partial plant shutdown) b) Complete shutdown of a facility 2. For each system or component identified above, what is the difference in plant availability, failure rate or incremental O&M cost [due to a partial or complete plant shutdown]? 3. What newer technologies are available which help to minimise the incremental costs identified above? 4. What are the costs associated with risk of delay or failure during the restart process? 5. What are typical back-feed costs for station service supply, in case of a shutdown or insufficient self-generation? Privileged and confidential 18