The True Costs of Renewables: Solar PV Parity Indicators

The Italian experience

Author: Luca MiragliaPresented by: Riccardo Toxiri

IRENAThe True Cost of Renewables: Asia’s Untapped Economic Potential

SIEW 2014 - 30 October 2014

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OVERVIEW

WHY ANALYZE DATA ABOUT GENERATION COST OF RENEWABLE ENERGY?

• Data about generation costs of renewable energy are crucial in setting support policies

• Systematic collection of cost data is vital to efficient policy making

• Need for this kind of information is perceived by policy makers at the moment of setting the level of incentives

• Monitoring of the renewable energy costs is also a key factor for implementing several analysis for the planning of the sector deployment

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OVERVIEW

WHY ANALYZE DATA ABOUT GENERATION COST OF RENEWABLE ENERGY?

• In Italy the Ministry of economic development has entrusted GSE to implement a monitoring activity on generation costs of renewable energy in order to:

analyze the evolution of the competitiveness of RES technologies

analyze economic and employment impacts of the deployment of renewables and energy efficiency in the national industry

estimate effectiveness of the different national RES supporting schemes, compared to RES measures implemented by other EU Member states

• Legal base:

Legislative Decree 28/2011, art. 40

Ministerial Decree 06/07/2012, art. 24

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INPUT DATA AND OUTPUT ANALYSIS

INPUT DATA

• Feasible potential of resources for each region

• Efficiency and availability of technologies

• Investment costs in the local markets

• Operation and maintenance costs in the local markets

• Cost of fuels

• Financial parameters (WACC and financial leverage)

• Energy remuneration and avoided costs

GENERATION COST

INVESTMENT FEASIBILITY

Net present value

Pay back period

Internal rate of return

LCOE [€/MWH]

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INPUT DATA AND OUTPUT ANALYSIS

OUTPUT ANALISYS

• LCOE sensitivity analysis and comparison between different countries

• Setting of support level on profitability basis and monitoring of policy efficiency

• Impacts on the energy markets

• Construction of bottom-up energy scenarios (like TIMES models)

• Sectorial investment evaluation

• Industrial value chain

Gross and net economic impact

Gross and net job impact

Impacts on the import export country balance

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COST DATA ASSESMENT

EXAMPLE: ON-LINE FORM ON GSE SITE WEB

During the access phase to support schemes, operators are asked to declare data about costs

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COSTS: evolution of specific costs of PV plants in Italy (€/W)

• Fast decrease of investment costs (20% of average annual reduction), especially for large PV plants

• In 2013, the cost of 1-3 kW residential PV plants was 44% of the cost in 2008

• In 2013, the cost of 1 MW ground-mounted PV plants was 25% of the cost in 2008

Source: GSE, Studies Unit - 2014

Source: GSE

COST DATA ASSESMENT: PV EXAMPLE

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In 2014, GSE will publish a detailed report on PV technology, addressing the evolution of related costs from 2008 to 2013. The report, relying on a sound base of more than 500.000 PV plants, analyzes the evolution of a number of technical and economic aspects like:

Cost of PV modules, by technology

Cost of inverters, by power class

Cost of investments, by power class and installation

Operation and Maintenance costs (including soft and financial costs)

Generation costs (LCOE), by power class and installation, for several radiation conditions and costs of capital

Profitability of PV plants accessing the Italian support schemes

Role of self-consumption for PV competitiveness without incentives (Grid Parity)

HOT NEWS

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Importance of collecting up-to-date RE cost data

Recent cost and trends for renewables

Future challenges for policy makers

Regulatory models for the collection of RE cost data for renewables

HOT NEWS

Renewable cost data to support policy making:Design, implementation and best practice workshop

12 December 2014 in Rome, Italy

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Thank You For Your Attention!

Should you have any enquires, please do not hesitate contacting us:

Riccardo Toxiri - International projects and collaborationsriccardo.toxiri@gse.it

Luca Benedetti - Head of Study and Statisticsluca.benedetti@gse.it

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Background information about GSE

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Ownership 100%

MEFMinistry of

Economy and Finance

MSEMinistry of Economic

Development(with others Ministries)

AEEGEnergy Regulator

DecisionsGuidelines

MISSION: GSE promotes the development of renewable energy sources and energy efficiency in Italy,granting economic incentives, managing energetic services and supporting the policy makers

GSE : Italian Energy Services Operator

Electric market, natural gas market and

environmental markets

Research on the energetic system

Purchase of electricity for small customers

Ownership 100%Ownership 100%Ownership 100%

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In Italy there are different systems to promote RES, CHP and Energy Efficiency, managed by GSE

Support schemes for RES electricity• CIP 6/92 * (a kind of feed-in tariff)• Green Certificates for plants that began operating until 2012 (and an additional transition

period); in 2016, for plants that have had access to, the GC will be replaced by sliding feed premium

• Feed-in Tariff * for small plants (up to 1 MW);• Fixed Feed-in-premium for PV (finished) and thermodynamic solar plants;• Sliding Feed-in premium for PV (finished) and all RES plants.

Energy Services for RES and CHP electricity• Net-metering * system for electricity generated by RES (and even by CHP plants up to 200 kW);• Dedicated Electricity Intake * : purchase at average market price of electricity from RES and

other plants (producers opting for electricity sale through GSE).

Support schemes for thermal RES and Energy Efficiency• Renewable Heat Incentive• White Certificates

Biofuels support schemes (based on a blending obligation)• Biofuels Certificates, blending obligation system (biofuels compliant with sustainability criteria)

* GSE purchases the electricity from producers and resells it in the market

GSE’S ACTIVITIES : RES AND EE SUPPORT MECHANISMS

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Support to institutional policy makers

Studies on energy topics (costs and incentives at international level, supply chains and jobs creation, environmental impacts, forecasts and predictions, certification schemes for biofuels, etc.)

Statistical monitoring of RES in the electric, thermal and transport fields, at national and regional level, to follow the approach to the Italian national and regional energy targets

Support to the Public Administration: we assist institutions in implementing their energy policies, by providing studies, data and consulting services, as well the Public Administration, by supplying specialist services in the energy sector

International activities: international relations; participation in the energy projects funded by EU (Concerted Action on RED, PV Parity, Intelligent Energy Europe) as well as in the main international associations of the sector (IEA, IRENA, RES4MED, OME, etc.)

Information and training: promotion of RES and EE (workshops, reports and guides, training, dedicated web-page on incentives, authorization procedures and best practices, etc.)

GSE’S ACTIVITIES : ACTIVITIES BEYOND THE ECONOMIC SUPPORT

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The Italian legislation includes a number of monitoring and studies tasks assigned to GSE

RES STATISTICAL MONITORING to verify compliance with national and regional RES targets

Reports on RES SUPPORT RESULTS in Italy (GC, FIT, FIP)

Report on ECONOMIC AND EMPLOYMENT IMPACTS of RES and EE

Assessment of the ENVIRONMENTAL EFFECTS of RES and EE development

Report on the AUTHORIZATION PROCEDURES of RES plants in Italian Regions

Biannual RES PROGRESS REPORT FOR THE EUROPEAN COMMISSION

Report on GENERATION COSTS in Italy and at international level

Reports and papers on ANALYSIS AND COMPARISON OF INTERNATIONAL RES POLCIES

GSE’S ACTIVITIES : MONITORING TASKS