CHILE LEVELISED COST OF ENERGY PRESENTED TO NRDC TYLER TRINGAS, ENERGY ECONOMICS APRIL 2011 Chile Levelised Cost of Energy, April 2011 1
CONTENTS Introduction Objectives Levelised Cost of Energy Model Description Levelised Cost of Energy in Chile Impact of Transmission Costs Impact of CCS Impact of Fuel Prices Learning Curve Impacts Case Study: Time of Day Value Conclusions Chile Levelised Cost of Energy, April 2011 2
INTRODUCTION Bloomberg New Energy Finance (BNEF) is a leading provider of industry information and analysis to investors, corporations and governments in the clean energy and carbon sectors. BNEF has a dedicated global network of 125 analysts, based across 10 offices in Europe, the Americas, Asia & Africa that continuously monitor market changes, deal flow and financial activity, increasing transparency in clean energy and carbon markets. Natural Resources Defense Council (NRDC) commissioned Bloomberg New Energy Finance to prepare an assessment of the levelised cost of energy (LCOE) for various generation technologies in the Chilean power sector and commissioned Valgesta Energía to provide Chilean data. Where the Chilean experience or data was limited or lacking, BNEF drew upon its global database. Where indicated, BNEF conducted independent research in Chile which also supplements the information provided by Valgesta. Chile Levelised Cost of Energy, April 2011 3
OBJECTIVES The analysis first compares the levelised cost of energy (LCOE) for conventional and renewable energy sources in Chile in 2011, 2020 and 2030 to show the evolution of the costs of non-conventional renewable energy technologies. The analysis then shows the impacts of the costs of transmission, fuel and pollution control investments on the LCOE. Finally, the analysis presents a scenario showing the possible impact of non-conventional renewable energy on peak energy prices. Chile Levelised Cost of Energy, April 2011 4
LEVELISED COST OF ENERGY MODEL DESCRIPTION Construction Analysis Development Cost Capital Equipment Cost Construction Cost Cash flow Analysis Equity Investment Annual Operational Analysis Post-Tax Cash flows IRR LCOE The levelised cost of energy represents a constant cost per unit of generation computed to compare the generation costs of different technologies. The specific LCOE is the power price, in USD/MWh, in year 1 that, escalating with inflation through the project life, exactly returns a IRR (in this case, 10%). Capacity Factor Revenues Variable O&M Fixed O&M Depreciation Tax Analysis Power Price Guess By indicating the price at which a technology can profitably sell electricity, the technique allows the LCOE to be representative of a competitive tendering process for actual power contracts. Source: Bloomberg New Energy Finance Chile Levelised Cost of Energy, April 2011 5
FIGURE 1.1: 2011 LCOE CHILE LEVELISED COST OF ENERGY Diesel utilty-scale PV csi commercial cpv two-axis tracking utilty-scale PV csi utilty-scale STEG tower + heliostat utilty-scale STEG trough utilty-scale Geothermal binary utilty-scale Coal utilty-scale CCGT utilty-scale Geothermal flash utilty-scale Wind onshore utilty-scale Biomass all feedstocks utilty-scale 82 73 68 56 51 35 156 155 108 111 91 225 193 197 155 179 277 242 221 284 259 346 328 560 Today, on an LCOE basis, a wide range of nonconventional renewable energy (NCRE) technologies, including biogas/landfill gas, small hydro, biomass, onshore wind, geothermal are competitive with the new build cost of Chile s mainstay energy sources of large hydro, natural gas and coal. Large Hydro Large Hydro Aysen Small Hydro Biogas/Landfill utilty-scale 32 137 45 137 30 169 39 102 USD/MWh 0 100 200 300 400 Energy prices are from CNE data and calculated as the average of 1 st quarter 2011 and the last three quarters of 2010. NCRE LCOE Conventional LCOE Central Scenario SIC Energy Price SING Energy Price Note: Large Hydro are non-aysen projects, small hydro are less than 20MW. Source: Bloomberg New Energy Finance, Valgesta Energía Chile Levelised Cost of Energy, April 2011 6
FIGURE 1.2: 2020 CHILE LEVELISED COST OF ENERGY Diesel utilty-scale PV csi commercial cpv two-axis tracking utilty-scale PV csi utilty-scale STEG tower + heliostat utilty-scale STEG trough utilty-scale Geothermal binary utilty-scale Coal utilty-scale CCGT utilty-scale Geothermal flash utilty-scale Wind onshore utilty-scale Biomass all feedstocks utilty-scale Large Hydro Large Hydro Aysen Small Hydro Biogas/Landfill utilty-scale 35 32 30 39 45 56 60 82 77 78 92 128 110 131 91 133 108 121 121 102 174 143 137 137 159 169 169 187 179 0 100 200 300 400 NCRE LCOE Conventional LCOE Central Scenario SIC Power Price SING Power Price Note: Large Hydro are non-aysen projects, small hydro are less than 20MW. 249 450 USD/MWh *Programa de Estudios e Investigaciones en Energia - Instituto de Asuntos Públicos en Energía Universidad de Chile. Diesel fuel prices beyond 2030 not modelled Source: Bloomberg New Energy Finance, Valgesta Energía Chile Levelised Cost of Energy, April 2011 7 590 By 2020, utility scale PV and solar thermal systems will be competitive sources of energy without subsidies. With increasing thermal fuel prices and decreasing costs for renewables, several technologies such as wind, biomass, geothermal and small hydro will in some cases be a cheaper option for new energy capacity than conventional technologies. Energy prices are based on PRIEN* 2008 forecast to 2030, dynamic case.
FIGURE 1.3: 2030 CHILE LEVELISED COST OF ENERGY Diesel utilty-scale PV csi commercial 104 cpv two-axis tracking utilty-scale PV csi utilty-scale 74 STEG tower + heliostat utilty-scale 87 STEG trough utilty-scale 104 Geothermal binary utilty-scale 82 Coal utilty-scale 78 CCGT utilty-scale 81 Geothermal flash utilty-scale 56 Wind onshore utilty-scale 52 Biomass all feedstocks utilty-scale 35 Large Hydro 32 Large Hydro Aysen 45 Small Hydro 30 Biogas/Landfill utilty-scale 39 91 102 470 610 151 155 221 115 106 127 108 172 123 105 179 137 137 169 USD/MWh 0 100 200 300 400 NCRE LCOE Conventional LCOE Central Scenario SIC Power Price SING Power Price By 2030, most selected renewable energy technologies will be cheaper or competitive with thermal technologies. Energy prices are based on PRIEN* 2008 forecast to 2030, dynamic case. Note: Large Hydro are non-aysen projects, small hydro are less than 20MW. *Programa de Estudios e Investigaciones en Energia - Instituto de Asuntos Públicos en Energía Universidad de Chile. Diesel fuel prices beyond 2030 not modelled Source: Bloomberg New Energy Finance, Valgesta Energía Chile Levelised Cost of Energy, April 2011 8
FIGURE 2: IMPACT OF TRANSMISSION COSTS ON LCOE Diesel utilty-scale PV csi commercial cpv two-axis tracking utilty-scale PV csi utilty-scale STEG tower + heliostat utilty-scale STEG trough utilty-scale Geothermal binary utilty-scale Coal utilty-scale CCGT utilty-scale Geothermal flash utilty-scale Wind onshore utilty-scale Biomass all feedstocks utilty-scale Large Hydro Large Hydro Aysen Small Hydro Biogas/Landfill utilty-scale 35 32 30 39 51 45 56 73 68 82 112 156 155 118 101 102 139 193 156 197 170 180 181 225 229 255 264 286 284 346 328 USD/MWh 0 100 200 300 400 NCRE LCOE Conventional LCOE Transmission Cost Central Scenario SIC Energy Price SING Energy Price 570 Except for distributed generation (not connected to the grid), new generation sources require some transmission build out unless built adjacent to existing transmission. Renewables and large hydro must be located where resources are found and therefore have a wide range of possible costs. Transmission costs for stand-alone coal and gas facilities will depend heavily on where local regulations permit project siting and could vary significantly for an individual project. Source: Bloomberg New Energy Finance, Valgesta Energía Chile Levelised Cost of Energy, April 2011 9
FIGURE 3: 2011 LCOE WITH CCS Geothermal PV csi utility-scale Wind Onshore utilityscale 51 56 90 156 242 264 CCS technology is expensive because it has not yet been commercialized. In addition to incremental CAPEX, it reduces a plant s operating efficiency lowering capacity factors. Natural Gas CCGT Coal 68 200 73 245 USD/MWh 0 50 100 150 200 250 300 NCRE LCOE Conventional LCOE Cost of CCS As a consequence, in 2011 CCS could increase the LCOE by a factor of 2. BNEF does not predict widespread deployment of CCS until 2030, with costs reductions in excess of 25% only occurring in 2050. Note: Assumes Valgesta Central coal scenario and CNE SIC gas price forecast. Source: Bloomberg New Energy Finance Chile Levelised Cost of Energy, April 2011 10
FIGURE 4.1: FUEL PRICE FORECASTS TO 2030 USD/ton USD/MMBtu 350 300 250 200 150 100 Note: Prices assumed steady after 2030 50 16 14 12 10 8 6 4 2 0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Coal Chile historic trend Coal EIA trend Coal Valgesta Central Coal EIA + Export price Coal CNE Gas CNE SING Gas CNE SIC Gas EIA Future thermal prices are very uncertain for Chile and forecasts range widely. These forecasts have a large impact on future LCOE. Valgesta created a weighted-average coal forecast methodology which is our base case assumption although some forecasts are substantially higher. The CNE forecast for SIC from 2012 was used as the base case for natural gas. Source: Bloomberg New Energy Finance, Valgesta Energía Chile Levelised Cost of Energy, April 2011 11
FIGURE 4.2: IMPACT OF COAL PRICE FORECASTS 180 160 140 120 USD/MWh Range of coal price estimates NCRE follow a predictable path for price reductions in the longterm. However, future thermal prices depend on very unknown fuel prices. 100 80 This makes the point of parity with other fuels very uncertain but possibly very near. 60 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Coal (historic trend) Coal (EIA trend) Coal (Valgesta Central) Coal (CNE forecast) Wind onshore PV csi utilty-scale Solar Thermal expected grid parity possible grid parity Source: Bloomberg New Energy Finance, Valgesta Energía Chile Levelised Cost of Energy, April 2011 12
FIGURE 5: LEARNING CURVE, CAPEX ASSUMPTIONS: USDM/W 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 USD/W 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Coal CCGT PV csi residential roof PV csi commercial/bipv PV csi utilty-scale Wind onshore utilty-scale Solar Thermal Tech 2010 2015 2020 2025 2030 % 2020 % 2030 Coal 3.17 3.17 3.17 3.17 3.17 0% 0% CCGT 1.51 1.51 1.51 1.51 1.51 0% 0% PV csi residential roof 3.76 2.20 1.68 1.45 1.35-55% -64% PV csi commercial/bipv 3.48 2.08 1.61 1.38 1.29-54% -63% PV csi utilty-scale 2.98 1.84 1.43 1.23 1.15-52% -61% Wind onshore utilty-scale 2.62 2.02 1.66 1.50 1.36-37% -48% Solar Thermal 4.61 3.00 2.58 2.22 1.90-44% -59% Crystalline silicon PV modules, fall in cost by 25% for each doubling of global capacity. Wind turbine prices in Chile are historically very high but in the medium term we expect them to quickly converge with our global averages. Learning effects ultimately slow as global markets mature and capacity doubles less frequently. Source: Bloomberg New Energy Finance Chile Levelised Cost of Energy, April 2011 13
FIGURE 6: GLOBAL PV EXPERIENCE CURVE USD/W 100 10 1 MW 0.1 1 10 100 1000 10000 100000 1000000 Using inflation-adjusted data back to 1976 from Paul Maycock, Bloomberg New Energy Finance estimates the industry learning rate at 25%. This figure shows blue and purple points representing the actual data points from the historical dataset, and the line is a fit to the experience curve formula. Cumulative volume is on the x-axis and cost is on the y-axis, both on a log scale to make the relationship display as a straight line. historic prices experience curve Chinese c-si module prices Source: Bloomberg New Energy Finance Solar Price Index, Paul Maycock, Solarbuzz Chile Levelised Cost of Energy, April 2011 14
FIGURE 7: GLOBAL WIND TURBINE PRICE INDEX 1.10 1.10 1.00 1.03 1.02 0.95 0.96 0.79 0.86 0.88 H1 2004 H2 2004 H1 2005 H2 2005 H1 2006 H2 2006 H1 2007 H2 2007 H1 2008 H2 2008 1.21 1.20 H1 2009 H2 2009 m/mw 1.06 1.02 0.98 0.98 0.98 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 Our Wind Turbine Price Index includes analysis of approximately 100 turbine contracts globally, including Latin America, encompassing around 20% of the global annual wind market. Because onshore wind turbines represent a mature technology, the learning curve is essentially flat. Offshore wind turbines, by contrast, represent an emerging technology whose costs are expected to decline 15% in the period up to 2030. Disclosed contracts H1 2010 Source: Bloomberg New Energy Finance Wind Turbine Price Index Chile Levelised Cost of Energy, April 2011 15
FIGURE 8: LEARNING CURVE LCOE FORECAST BY PROJECT COMMISSIONING DATE 300 USD/MWh 250 200 150 100 50 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Coal utilty-scale CCGT utilty-scale PV csi commercial PV csi utilty-scale PV csi residential roof Wind onshore utilty-scale Solar Thermal Source: Bloomberg New Energy Finance Chile Levelised Cost of Energy, April 2011 16
FIGURE 9.1: SIMPLIFIED TIME OF DAY MULTIPLIERS FOR CALIFORNIA SHOWING PEAK ENERGY VALUE Value multiplier 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 This analysis only looks at a constant USD/MWh cost, however in reality energy produced at times of peak demand has higher value. For reference, we include a simplified perspective of the value multipliers used by California utilities to represent this time of day value. Customized multipliers would have to be developed for Chile. These multipliers are used to adjust power contracts based on time of day the project delivers power. Utility 1 Utility 2 Utility 3 Hour of day Source: Bloomberg New Energy Finance, California Public Utilities Commission Chile Levelised Cost of Energy, April 2011 17
FIGURE 9.2: SIMPLIFIED DAILY OUTPUT PROFILE OF SOLAR TECHNOLOGIES % of total output 16% 14% 12% 10% 8% 6% 4% 2% This figure shows a typical daily output profile of solar technologies,also using California as a reference. By multiplying the curves in Figures 9.1 and 9.2, power from PV and solar thermal are worth 1.3 1.5x the nominal USD/MWh paid. 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 PV - Commercial PV - Utility Hour of day Solar Thermal Electric Generation (STEG) STEG plus Storage We would expect results to be roughly similar in the SIC. Source: Bloomberg New Energy Finance Chile Levelised Cost of Energy, April 2011 18
FIGURE 10: SOLAR: RESIDENTIAL PV GRID PARITY VS. LCOE: CHILE, MEXICO, BRAZIL POISED TO COMPETE Retail electricity prices (USD/kWh) 0.70 0.60 Grid parity differs in each country dependant on the solar resource and avoided cost of retail electricity. 0.50 0.40 Denmark Hawaii Latin America North America The lines on the graph to the left show how cost declines in solar module prices over time move more countries into grid parity. 0.30 0.20 Germany Italy Japan Spain Turkey Brazil Mexico Chile Europe Asia and Africa $4.00/W $2.00/W Chile is expected to hit retail grid parity by 2014, although sunnier parts of the country will see it earlier. France US California 0.10 China South Africa Peru 0.00 kwh/kw/year 700 900 1,100 1,300 1,500 1,700 1,900 Note: WACC = 10%; O&M = 1.5% of capex; system degradation = 0.7% per year; project life = 25 years; based on 2010 retail electricity prices; no electricity price increase assumed Source: Bloomberg New Energy Finance Chile Levelised Cost of Energy, April 2011 19
FIGURE 11: PROJECTED COST OF POLICY SUPPORT (LCOE MINUS POWER PRICE) USD/MWh 200 150 Depending on the energy policy framework Chile puts in place, the costs of scaling up renewable energy will vary. 100 50 0 Solar Thermal Biomass Geothermal Solar PV (utility) A rough estimate of the costs of deploying each technology can be made by subtracting the projected power price from the projected LCOE of a given technology. -50-100 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Wind High Wind Low Small Hydro A result greater than zero indicates the amount of payment required in excess of the projected power price. Source: Bloomberg New Energy Finance Chile Levelised Cost of Energy, April 2011 20
AREAS FOR FURTHER STUDY The Chilean renewable energy market is still very immature with few data points. Although, the best available data was included in this report, global averages and local analyst estimates were frequently used. As Chile s energy matrix evolves, it is very unclear what entities (small or large independent power producers, large corporates, state-backed entities) will actually be building future energy infrastructure. The financing structures and hurdle rates of the each of these entities could significantly change the actual price of energy from projects within a certain technology. Renewable resource information was of limited availability at the time of this study. Preliminary analysis indicates Chile has world-class solar and geothermal resources and reasonable wind and biomass resources however there are few projects to have confirmed this output and a lack of detailed and publicly available studies. Other relevant costs and benefits are beyond the scope of the study, such as the costs of pollution not related to equipment costs, the costs of integrating variable resources into the grid, the benefits of diversification and other benefits and costs. Chile Levelised Cost of Energy, April 2011 21
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