- 1 -

Supportive Policy Framework for Renewable Energy –

Experiences for the design of Feed in-Tariff Systems

6 th March 2012, Tokyo

Maike Schmidt

Zentrum für Sonnenenergie- und Wasserstoff-Forschung

Baden-Württemberg (ZSW)

Tariff Setting for the promotion of Renewable Energy –

General Approach

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The Renewable Energy Sources Act –

Basic principles for tariff setting

Tariff setting based on full costing.

Cost determination based on representative plants which can act as a

model for each technology, focussing on the determination of average

costs and taking cost ranges into account.

Fixed nominal tariff payments over 20 years.

The model assumptions are drawn from a close market observation

and the evaluation of realized plants by independent consultants.

Yearly cutback of the tariffs for new plants (degression), referring to an

evaluation of cost development over time.

Performance oriented payments (per kilowatt-hour produced).

Reviewing of the tariffs every three years.

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General approach for cost assessment

used in Germany

Nominal Levelized Cost of Electricity Generation (LCOE)

LCOE = Annuity of Life Cycle Generation Cost

Mean Annual Electricity Generation

1)1(

)1()1)((

0

T

Tt

t

T

t

tr

rrrOMIAnnuity

Present Value of Life cycle costs Annuity Factor

T = Life Time

I = Investment

OM = Operation & Maintenance r = Weighted Interest Rate

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Yearly cutback of the tariffs for new plants –

an incentive for innovation and cost reduction

Historic experience curves for electricity supply technologies

Global installed capacity (GWe)

0.0001 0.001 0.01 0.1 1 10 100 1000 10000 100000

Investm

ent P

rices (

€2

00

6)/

kW

e)

100

1000

10000

100000

PV (1970-2006)

Wind onshore (1990-2006)

Wind offshore (1990-2007)

Natural gas CC (1975-1997)

Pulverized coal (1942-1997)

PR >1.01975-1990 PR ~ 0.75

1990-1997

PR = 0.92

PR = 0.85 (1990-2004)

PR~ 0.9

PR~ 1.13? 2002 - ?

PR = 0.7941970-2006

PR ~ 1.0?2002 - ?

Source: Junginger et al. 2010

National vs. global

learning!

Adjustment to

national conditions

necessary!

Including market

forecast, expected

cost development of

major components

etc.

Experience curves offer a first indication for setting yearly degression rates

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Maike Schmidt

Zentrum für Sonnenenergie- und Wasserstoff-Forschung

Baden-Württemberg (ZSW)

Tariff Setting for Photovoltaics

in Germany

Supportive Policy Framework for Renewable Energy –

Experiences for the design of Feed in-Tariff Systems

6 th March 2012, Tokyo

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Investment = Price of the installed photovoltaic system

Module

Balance-of-System-Cost

Mounting Wiring

PV cost assessment

in Germany

Installation*

Racking Inverter

* Including grid connection, permitting etc.

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0,95 €/W

0,3 €/W

0,12 €/W

0,07 €/W

0,19 €/W

0,2 €/W

0,14 €/W

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

2,0

2,2

2,4

PV

-Sy

ste

m P

ric

e [

€/W

]

Installer's

Margin

Installation,

planning

mounting

wiring

racking

Inverter

Module

Example for the investment for a PV

plant up to 100 kW in Germany today

Total Investment 1.950 €/kW

• installer surveys

• published technical reports

• published industry data

• screening of corresponding

press releases and news

• scientific surveys and market reports

• the German PV Industry Association

• expert estimates

Data are collected from

PV cost assessment in Germany

Investment = Price of the installed photovoltaic system

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PV cost assessment in Germany

Nominal Levelized Cost of Electricity Generation (LCOE)

LCOE = Annuity of Life Cycle Generation Cost

Mean Annual Electricity Generation

1)1(

)1()1)((

0

T

Tt

t

T

t

tr

rrrOMIAnnuity

Weighted interest rate = 5%

equity : debt = 15 : 85 (varying between 20:80 for large ground mounted

systems and 10:90 or even 100% debt for small roof

top installations)

interest rate for debt capital = 4%

interest rate for equity capital = between 9% and 14%

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Costs for operations and maintenance (O&M) are calculated as a share

of the initial systems costs (investment).

For large scale systems > 1 MW labour costs are added to O&M costs

(> 1 MW: 8.000 € per year; > 20 MW: 20.000 € per year).

The availability of long-term data on O&M cost is limited.

O&M costs are estimated as 1,5 % of the total investment per year

(1 % O&M + 0,5 % miscellanous (insurance, leasing))

1)1(

)1()1)((

0

T

Tt

t

T

t

tr

rrrOMIAnnuity

As the determination method leads to the nominal levelized cost of

electricity generation (LCOE) O&M cost has to be adjusted to the inflation

rate (2% per year).

PV cost assessment in Germany

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207,14 €/kW LCOE =

Annual Electricity Production 900 kWh/kW = 23,00 ct/kWh

The remuneration rate is set to cover all cost for an average installation! The

PV power production shall be feasible without any other subsidy! In this case

23,0 ct/kWh would be a possible rate!

PV cost assessment in Germany

Annuity of Life Cycle Generation Cost

23,221,3

16,1 14,9

22,23 22,23

17,07 17,07

24,43 24,43

18,76 18,76

0

3

6

9

12

15

18

21

24

27

5 kW 30 kW 1 MW 20 MW

Dachanlage Dachanlage Freiflächenanlage Freiflächenanlage

Levelized

co

st

of

ele

ctr

icit

y [

€ct/

kW

h]

Stromgestehungskosten 1. Halbjahr 2012

Vergütung zum 01.01.2012 (-15 %)

voraussichtliche Vergütung zum 01.07.2012 (-9 %)

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Yearly cutback of the tariffs for new plants –

an incentive for innovation and cost reduction

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Influence of bottlenecks and oversupplies

along the value chain in Germany

time

2010:

inverter shortage due to

lacking supplies of

prefabricated parts

high profit margins for

inverter suppliers

2008:

growing silicon demand led

to spot market prices which

were 3 times higher than in

2007

high profit margins for silicon

suppliers

2009 (second half):

shortage of mounting

manpower and capacity

high profit margins for

installers

2006:

module shortage due to

limited production capacities

high profit margins for

module suppliers

Since 2009:

module supplies grow faster

than demand

rapid decline in module

prices

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2004

Cell

Production

Capacity 2004

Module

Production

Capacity 2004

Thin film Production

capacity 2004

Development of PV production capacity

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2006

Cell

Production

Capacity 2006

Module

Production

Capacity 2006

Thin film Production

capacity 2006

Development of PV production capacity

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2010

Cell

Production

Capacity 2010

Module

Production

Capacity 2010

Thin film Production

capacity 2010

Development of PV production capacity

The Photovoltaic world market has grown by more than 10 fold between

2004 and 2010. The turn over rose to 70 billion US$. In 2010 a photovoltaic

capacity equal to 18 nuclear power plants (18.300 MW) has been build!

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Market development in Germany

No degression EEG 2000

EEG 2004

EEG 2009

Degression rate

5% roof tops

6,5% grd. mounted

Degression rate

9% basic rate

+/- 1% depending on

capacity deployment

PV Amendment

2010

Degression rate

9% basic rate

Exceeded adjustment

to capacity deployment

PV Amendment

2011

Exceeded adjustment

to capacity deployment

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Lessons learnt –

recommendations for Japan

Fixed tariff payments over a long time period offer

certainty for investors.

Tariff setting based on full costing makes the

investment attractive.

Monitoring of the market development and periodic

reviewing of the tariffs are crucial.

Start out with a transparent tariff system which is

easily understood.

Introduce a yearly cutback but do not link it to

capacity expansion (keep certainty for investors).