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Part 5: Investment and Electricity Cost Calculation

Franz Trieb

MBA Energy Management, Vienna, September 9-10, 2010

Slide 2Trieb

Investment Cost Modelling

Slide 3TriebNeij 2008

1. Capital goods become cheaper due to mass production, larger units, advances in research & development and increasing competition.

2. There is no scientific model but a lot of experience that leadto an empirical model function.

3. Each time the installed amount of a product doubles, theinvestment cost goes down by a rate of X% (learning rate).

4. If one assumes an expansion rate of a product with time, one can model the progress of investment cost declination of a product over time.

5. Investments are often given in constant monetary value, inflation has to be added if time scales are introduced.

Learning Curves Theory

Slide 4Trieb

Equipment Cost Learning Curves

WETO 2003, NAO 2008

Slide 5Trieb

log2logPR

0

x0x P

Pcc

Cost Learning Curve Function

PR progress ratio = (1 – learning rate)Cx specific investment at point xC0 specific investment at reference point 0Px cumulated capacity at point xP0 cumulated capacity at reference point 0

Neij 2003

Slide 6Trieb

Learning Rates for Different Technologies

Neij 2008

Slide 7Trieb

Source: Greenpeace 2009 Installed Capacity (GW) Reference ScenarioYear 2005 2010 2020 2030 2040 2050 Photovoltaic 2 10 49 86 120 153Concentrating Solar 0,35 2 28 150 300 500Wind Offshore 0 1 35 110 135 160Wind Onshore 59 124 311 330 390 420Hydropower 878 989 1215 1400 1560 1710Biomass Power 21 28 52 72 86 95Geothermal Power 9 11 17 22 28 33Ocean Energy 0 0 2 4 7 9

Source: Greenpeace 2009 Installed Capacity (GW) energy (r)evolution scenarioYear 2005 2010 2020 2030 2040 2050 Photovoltaic 2 21 269 921 1800 2900Concentrating Solar 0,35 5 83 200 468 800Wind Offshore 0 1 35 110 135 160Wind Onshore 59 164 858 1512 2085 2573Hydropower 878 978 1178 1300 1443 1565Biomass Power 21 35 56 65 81 99Geothermal Power 9 12 33 71 120 152Ocean Energy 0 1 17 44 98 194

Global Capacity Projections

Greenpeace 2008

Slide 8Trieb

Photovoltaic System Cost Perspectives

0

1000

2000

3000

4000

5000

6000

2000 2010 2020 2030 2040 2050

Year

PV S

yste

m C

ost [

€/kW

p]

2009 market prices

MED-CSP 2005, LBBW 2009, ECOFYS 2009

2005 market prices

MED-CSP Scenario

Slide 9Trieb

Wind Power Investment Cost Perspectives

MED-CSP 2005, ECOFYS 2009, Lead Study 2009

0

500

1000

1500

2000

2500

3000

3500

4000

2000 2010 2020 2030 2040 2050

Year

Win

d Po

wer

Sys

tem

Cos

t [€/

kW]

OnshoreOffshore

market prices onshore

cost estimates offshore

Slide 10Trieb

Hydropower Investment Cost Perspectives

0

1000

2000

3000

4000

5000

6000

2000 2010 2020 2030 2040 2050

Year

Hyd

ropo

wer

Sys

tem

Cos

t [€/

kW]

smalllarge

ECOFYS 2009

Slide 11Trieb

Biomass Investment Cost Perspectives

ECOFYS 2009

0

500

1000

1500

2000

2500

3000

3500

2000 2010 2020 2030 2040 2050

Year

Bio

mas

s Po

wer

Sys

tem

Cos

t[€

/kW

]

Biogas Plants Large Scale Biomass

Slide 12Trieb

Geothermal Power Investment Cost Perspectives

ECOFYS 2009, own estimates

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2000 2010 2020 2030 2040 2050

Year

Geo

ther

mal

Pow

er S

yste

m C

ost

[€/k

W]

HYDRO < 2000 m HYDRO 4000 m HDR 6000 m

Slide 13Trieb

CSP Investment Cost Perspectives Year PR 2005 2015 2030 2050 UnitWorld CSP Capacity 354 5000 150000 500000 MWSolar Field 90% 360 241 144 120 €/m²Power Block 98% 1200 1111 1006 971 €/kWStorage 92% 60 44 29 25 €/kW h

0

2000

4000

6000

8000

10000

12000

2000 2010 2020 2030 2040 2050 2060Year

Spe

cific

Inve

stm

ent [

€/kW

] .

SM4SM3SM2SM1ANDASOL 1Nevada Solar 1

DLR 2009

SM = Solar Multiple1 Solar Field = 6000 m²/MW1 Storage = 6 hours (full load)

Solar Field1

Storage1

Power Block

Solar Field2

Solar Field3

Solar Field4

Storage2

Storage3

SM1 SM2 SM3 SM4

Electricity

Solar Field1

Storage1

Power Block

Solar Field2

Solar Field3

Solar Field4

Storage2

Storage3

SM1 SM2 SM3 SM4

Electricity

Slide 14Trieb

Specific Investment Cost as Function of Time

0

2000

4000

6000

8000

10000

12000

14000

16000

2000 2010 2020 2030 2040 2050

Year

Spe

cific

Inve

stm

ent [

€/kW

]

Offshore WindOnshore WindPhotovoltaicConcentrating Solar SM4Hydrothermal < 2000 mHydrothermal 4000 mHot Dry Rock 6000 mLarge HydroSmall HydroLarge Scale BiomassSmall Scale BiomassBiogas PlantsOcean Energy

Slide 15Trieb

Specific Investment Cost as Function of Time

values in €2005/kW

2000 2010 2020 2030 2040 2050Offshore Wind 2600 2100 1800 1500 1300Onshore Wind 1150 1050 950 900 850 820Photovoltaic 5500 2830 1590 1250 1010 910Concentrating Solar SM4 10920 8675 6152 4982 4640 4299Hydrothermal < 2000 m 4000 3000 2300 2100 2050 2000Hydrothermal 4000 m 5600 4300 3300 2700 2550 2500Hot Dry Rock 6000 m 14000 10000 7500 6100 5500 5000Large Hydro 2150 2300 2400 2500 2550 2600Small Hydro 3600 3900 4050 4100 4150 4200Large Scale Biomass 2400 2200 2000 1970 1950 1940Small Scale Biomass 7800 7180 6700 6350 6000 5700Biogas Plants 2800 2700 2600 2510 2430 2400Ocean Energy 3000 2500 2250 2100 2050 2000

Slide 16Trieb

Electricity Cost Modelling

Slide 17Trieb

Cel levelised cost of electricity in €/kWh in constant present monetary value

Inv investment cost in €

FCR fix charge rate as function of interest rate (i) and economic lifetime (n) in %/y

O&M net present value of annual operation, maintenance and insurance in €/y

F net present value of annual fuel cost in €/y

Eyear electricity generated per year = installed capacity (kW) annual full load hours (h/y)

yearel E

FMOFCRInvC

&

Levelised Electricity Cost Model

1)1()1(

n

n

iiiFCR

www.dlr.de/tt/trans-csp

Slide 18Trieb

Coal Price

www.oilnergy.com

Fuel Cost Perspectives?

Slide 19Trieb

Parameters for Levelised Electricity Cost Model

Economic Life years

Efficiency % *

Fuel Price Escalation %

Operation & Maintenance % of Inv./y

Annual Full Load Hours hours/year*

Steam Coal Plants 40 40% 1.0% 3.5% 5000Steam Oil Plants 30 40% 1.0% 2.5% 5000Combined Cycle Natural Gas 30 48% 1.0% 2.5% 5000Wind Power 15 1.5% 2000Solar Thermal Power 40 37% 1.0% 3.0% 8000Hydropower 50 75% 3.0% 2600Photovoltaics 20 10% 1.5% 1800Geothermal Power 30 13.5% 4.0% 7500Biomass Power 30 35% 3.5% 3700* vary for different countries and sites

www.dlr.de/tt/trans-csp

Slide 20Trieb

0

10

20

30

40

50

60

70

80

90

100

2000 2010 2020 2030 2040 2050

Year

Ave

rage

Pric

e of

Oil

[$/b

bl]

Gas

[$/G

J] a

nd C

oal [

$/to

n]

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sequ

estr

atio

n Sh

are

&

Sola

r Sha

re o

f CSP

Pla

nts

Oil Price $/bbl Coal Price $/t Gas Price $/GJCSP Solar Share [%] CO2 Sequestration Share

Further Parameters for Levelised Electricity Cost Model

www.dlr.de/tt/trans-csp

Slide 21Trieb

Full Load Hours h/a 2000 2010 2020 2030 2040 2050Load 6005 6005 6005 6005 6005 6005Wind 2325 2359 2393 2427 2460 2494Photovoltaics 1353 1515 1677 1697 1707 1717Geothermal 7500 7500 7500 7500 7500 7500Biomass 2800 2800 2800 2800 4000 3500CSP Plants 1900 3500 4500 5000 5000 5000Wave / Tidal 4000 4000 4000 4000 4000 4000Hydropower 1705 1705 1705 1705 1705 1705Oil / Gas 3261 2533 2240 1787 1517 1225Oil 2458 2185 2427 1537 686 686Gas 4805 2707 2173 1856 1707 1225Coal 6202 6202 6202 6202 6202 6202Nuclear 8367 8367 8367 8367 8367 8367Import Other (incl. Sola 4920 4667 3500 2800 1333 533Import Solar HVDC) 0 0 6000 6250 7000 5625

Performance Parameter: Representative Full Load Hours

Slide 22Trieb

0

5

10

15

20

25

30

2000 2010 2020 2030 2040 2050Year

Ele

ctric

ity C

ost [

c/kW

h]

Import SolarPhotovoltaicsWindWave / TidalBiomassGeothermalHydropowerCSP PlantsCoalOilGasNuclear

Electricity Cost Learning Curves (example Spain)

www.dlr.de/tt/trans-csp

discount rate 5%/y at constant monetary value

Slide 23Trieb

Electricity Cost (Example Spain)

4.04.55.05.56.06.57.07.58.0

2000 2010 2020 2030 2040 2050Year

Ele

ctric

ityC

ost[

c/kW

h]

TRANS-CSP Mix BaU Mix 2000

€2000, Fuel Cost: IEA / WEO 2005, after 2020 CCS

Investment Phase Profit Phase

Slide 24Trieb

Allowable Cost of Different Power Segments Segment Source / Technology Min. Rev. Max. Rev.

ct/kWh ct/kWhPump Hydro StorageFuel OilGas TurbineBiomassGeothermalCSPCoal Gas Combined CycleCSPBiomassGeothermalCoal LigniteNuclearRiver Run-OffGas Combined CycleCo-generationWindPhotovoltaicsCSPGeothermal

Base Load 3 6

10 25Peak Power

Intermediate Power 5 12

DLR 2006

Slide 25Trieb

Exercise

Slide 26Trieb

Example: Load Curve in Cyprus 2007

1056

1,047

843

269

050

100150200250300350400450500550600650700750800850900950

1,0001,0501,100

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 19.00 20.00 21.00 22.00 23.00

MW

Time of Day

Total Power Output During Days with the Highest and Lowest Demand for 2007

Power Output Dur ing Sum m er Day With Maxim um Total Generat io n (Highest Sum mer Day Deman d), Mon day 30/7/2007. Includes Cont ributions f rom Iindepe ndent Produce rsPower Output Dur ing Sum m er Day with Max im um Total Genera tion (Highest Sum mer Day Deman d), Mon day 30/7/2007. EAC Output only

Power Output Dur ing Winter Day with Maximum Tota l Generation (Highe st Winter Day Dem and), Thursday , 20/12/2007

Minimum Dema nd of the Ye ar (Mond ay, 16/4/2007)

Actu al Total Gen erat ion (MW)

Gas Turbinesfired with Diesel

Slide 27Trieb

Base Load Capacity MW 4000Base Load Annual Electricity GWh/a 30000Base Load Fuel Cost (Coal + NG + HFO) $/MWh 15,0

Medium Load Capacity MW 2500Medium Load Annual Electricity GWh/a 10000Medium Load Fuel Cost (Coal + Fuel #2) $/MWh 35,0

Peak Load Capacity MW 1000Peak Load Annual Electricity GWh/a 2000Peak Load Fuel Cost (Diesel + Fuel #2) $/MWh 60,0

Cost Escalation of Fossil Fuels %/a 1,5%Specific Power Block Investment (B+M) $/kW 1200Specific Power Block Investment (Peak) $/kW 400Project Rate of Return % of Inv./a 10,0%O&M Rate % of Inv./a 2,5%Fuel Efficiency Base & Medium Load % 35,0%Fuel Efficiency Peak Load % 30,0%

Reference LCOE of CSP in 2010 $/kWh 0,280Reference Direct Normal Irradiance kWh/m²/y 2400CSP Progress Ratio % 88,0%Exchange Rate $/€ 1,19

Example of a typical Power Park Structure

Slide 28Trieb

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

0,40

2010 2020 2030 2040 2050Year

LCO

E ($

2010

/kW

h) Peak Load LCOE

Medium Load LCOE

Base Load LCOE

Average LCOE

Fuel Powered Electricity Cost Development by Sector

Slide 29Trieb

0,00

0,05

0,10

0,15

0,20

0,25

0,30

2010 2015 2020 2025 2030 2035 2040 2045 2050Year

Leve

lized

Cos

t of E

lect

ricity

.

($20

10/k

Wh)

0

200000

400000

600000

800000

1000000

1200000

Glo

bal I

nsta

lled

Cap

acity

(MW

) .

1000 824639000

95000

240000

417500

595000

772500

950000

CSP Electricity Cost Learning Curve

Slide 30Trieb

B

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

2010 2020 2030 2040 2050Year

LCO

E ($

2010

/kW

h)

LCOE of CSP at DNI2400 kWh/m²/a

Average LCOEwithout CSP

Break Even of Average Electricity Cost

Slide 31Trieb

0,00

0,05

0,10

0,15

0,20

0,25

0,30

0,35

2010 2020 2030 2040 2050Year

LCO

E ($

2010

/kW

h)

LCOE of CSP at DNI2400 kWh/m²/a

Peak Load LCOE

Medium Load LCOE

Base Load LCOE

Average LCOEwithout CSP

Break Even of Electricity Cost by Sector

Slide 32Trieb

0

5000

10000

15000

20000

25000

30000

2010 2020 2030 2040 2050Year

Loca

l Ins

talle

d C

apac

ity (M

W) .

Peak CSP CapacityMedium CSP CapacityBase CSP CapacityPeak Fuel CapacityMedium Fuel CapacityBase Fuel Capacity

Introduction of CSP by Sector

Slide 33Trieb

0,07

0,08

0,09

0,10

0,11

0,12

2010 2020 2030 2040 2050Year

LCO

E ($

2010

/kW

h) Average LCOEwithout CSP

Average LCOE withCSP

Average LCOE withPeak CSP

a

b

c

Additional Cost of Consumers

Slide 34Trieb

Conclusions

Slide 35Trieb

Renewable sources of electricity are very expensive, most countries are too poor to afford their marketintroduction.

The Old Paradigm

Slide 36Trieb

Renewable sources of electricity become cheaper themore they are used, while fossil fuels become moreexpensive the more they are used.

What has been overlooked:

Slide 37Trieb

A fast introduction of renewable sources of energy forpower generation is the only way to stabilize the futurecost of electricity at a relatively low level.

The New Paradigm

Slide 38Trieb

NAO 2008 The Nuclear Decommissioning AuthorityTaking forward decommissioning, London 2008http://www.nao.org.uk/publications/0708/the_nuclear_decommissioning_au.aspx

WETO 2003 European Commission Directorate-General for Research, World Energy Technology Outlook, Brussels 2003http://ec.europa.eu/research/energy/pdf/weto_final_report.pdf

Neij 2003 Neij, L., et al., Experience Curves: A Tool for Energy Policy Assessment, Lund University, European Commission, Lund 2003http://www.iset.uni-kassel.de/extool/Extool_final_report.pdf

Neij 2008 Neij, L., Cost development of future technologies for power generation—A study based on experience curves and complementary bottom-up assessments,Energy Policy 36 (2008) 2200– 2211

oilnergy 2008 www.oilnergy.com

DLR 2009 Dr. F. Trieb, C. Hoyer-Klick, Dr. C. Schillings, Global Potential of Concentrating Solar Power,SolarPaces Conference, Berlin Stuttgart 2009, www.dlr.de/tt/csp-resources

Sources and Literature

Slide 39Trieb

ECOFYS 2009 Krewitt, W., Nienhaus, K., Klessmann, K., et al. Role and Potential of Renewable Energy and Energy Efficiency for Global Energy Supply, Stuttgart, Berlin, Utrecht, Wuppertal 2009

NEEDS 2006 NEEDS New Energy Externalities Developments for Sustainability, European Commission Brussels 2006, http://www.needs-project.org

greenpeace 2008 energy [r]evolution – a sustainable global energy outlook, greenpeace 2008http://www.greenpeace.org/raw/content/international/press/reports/energyrevolutionreport.pdf

DLR 2006 Trieb et al., Trans-Mediterranean Interconnection for Concentrating Solar Power, German Aerospace Center,Stuttgart 2006, http://www.dlr.de/tt/trans-csp

Sources and Literature