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CHILE LEVELISED

COST OF ENERGY

PRESENTED TO NRDC

APRIL 2011

TYLER TRINGAS, ENERGY ECONOMICS

Chile Levelised Cost of Energy, April 2011 2/ / / /

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


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.


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.


LEVELISED COST OF ENERGY MODEL DESCRIPTION

Source: Bloomberg New Energy Finance

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%).

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.

Development

Cost

Capital

Equipment

Cost

Construction

Cost

Capacity

Factor

Equity

Investment

Post-Tax

Cash flows

IRR

LCOE

Power Price

GuessTax AnalysisVariable O&M

Revenues

Fixed O&M

Depreciation

Cash flow Analysis

Construction Analysis

Annual Operational Analysis


39

30

45

32

35

51

56

68

73

82

197

155

156

193

225

346

102

169

137

137

179

259

91

111

155

108

284

221

242

277

328

0 100 200 300 400

Biogas/Landfill utilty-scale

Small Hydro

Large Hydro Aysen

Large Hydro

Biomass all feedstocks utilty-scale

Wind onshore utilty-scale

Geothermal flash utilty-scale

CCGT utilty-scale

Coal utilty-scale

Geothermal binary utilty-scale

STEG trough utilty-scale

STEG tower + heliostat utilty-scale

PV cSi utilty-scale

cPV two-axis tracking utilty-scale

PV cSi commercial

Diesel utilty-scale

NCRE LCOE Conventional LCOE Central Scenario SIC Energy Price SING Energy Price

560

FIGURE 1.1: 2011 LCOE CHILE LEVELISED COST OF

ENERGY

Source: Bloomberg New Energy Finance, Valgesta Energía

USD/MWh

Note: Large Hydro are non-Aysen projects, small hydro are less than 20MW.

Today, on an LCOE basis, a

wide range of non-

conventional 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.

Energy prices are from CNE

data and calculated as the

average of 1st quarter 2011

and the last three quarters

of 2010.


39

30

45

32

35

60

56

78

77

82

131

110

92

174

128

450

102

169

137

137

179

121

91

121

169

108

159

133

143

249

187

590

0 100 200 300 400


Small Hydro

Large Hydro Aysen

Large Hydro




CCGT utilty-scale

Coal utilty-scale




PV cSi utilty-scale


PV cSi commercial

Diesel utilty-scale

NCRE LCOE Conventional LCOE Central Scenario SIC Power Price SING Power Price

FIGURE 1.2: 2020 CHILE LEVELISED COST OF ENERGY



*Programa de Estudios e Investigaciones en Energia - Instituto de Asuntos Públicos en Energía

Universidad de Chile. Diesel fuel prices beyond 2030 not modelled

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.

USD/MWh


FIGURE 1.3: 2030 CHILE LEVELISED COST OF ENERGY

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.

39

30

45

32

35

52

56

81

78

82

104

87

74

155

104

470

102

169

137

137

179

105

91

123

172

108

127

106

115

221

151

0 100 200 300 400


Small Hydro

Large Hydro Aysen

Large Hydro




CCGT utilty-scale

Coal utilty-scale




PV cSi utilty-scale


PV cSi commercial

Diesel utilty-scale

NCRE LCOE Conventional LCOE Central Scenario SIC Power Price SING Power Price

610

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


FIGURE 2: IMPACT OF TRANSMISSION COSTS ON LCOE

USD/MWh


39

30

45

32

35

51

56

68

73

82

197

155

156

193

225

346

102

170

181

139

180

264

101

112

156

118

284

229

255

286

328

0 100 200 300 400


Small Hydro

Large Hydro Aysen

Large Hydro




CCGT utilty-scale

Coal utilty-scale




PV cSi utilty-scale


PV cSi commercial

Diesel utilty-scale

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.


FIGURE 3: 2011 LCOE WITH CCS


USD/MWh

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.

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.

73

68

51

156

56

245

200

264

242

90

0 50 100 150 200 250 300

Coal

Natural Gas CCGT

Wind Onshore utility-scale

PV cSI utility-scale

Geothermal

NCRE LCOE Conventional LCOE Cost of CCS


FIGURE 4.1: FUEL PRICE FORECASTS TO 2030


USD/ton

USD/MMBtu

0

50

100

150

200

250

300

350

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

0

2

4

6

8

10

12

14

16

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

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.

Note: Prices assumed steady after 2030


FIGURE 4.2: IMPACT OF COAL PRICE FORECASTS


NCRE follow a

predictable path for price

reductions in the long-

term. However, future

thermal prices depend

on very unknown fuel

prices.

This makes the point of

parity with other fuels

very uncertain but

possibly very near.

60

80

100

120

140

160

180

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

Range of coal

price estimates

USD/MWh


FIGURE 5: LEARNING CURVE, CAPEX ASSUMPTIONS:

USDM/W


USD/W

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

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

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.

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%


FIGURE 6: GLOBAL PV EXPERIENCE CURVE

Source: Bloomberg New Energy Finance Solar Price Index,

Paul Maycock, Solarbuzz

0.1

1

10

100

1 10 100 1000 10000 100000 1000000

historic prices experience curve Chinese c-Si module prices

USD/W

MW

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.


FIGURE 7: GLOBAL WIND TURBINE PRICE INDEX


Wind Turbine Price Index

€m/MW

0.790.86

0.95 0.960.88

1.00 1.03 1.02

1.10 1.10

1.21 1.20

1.061.02

0.98 0.98 0.98

H1

2004

H2

2004

H1

2005

H2

2005

H1

2006

H2

2006

H1

2007

H2

2007

H1

2008

H2

2008

H1

2009

H2

2009

H1

2010

H2

2010

H1

2011

H2

2011

H1

2012

Disclosed contracts H1 2010

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.


FIGURE 8: LEARNING CURVE LCOE FORECAST BY

PROJECT COMMISSIONING DATE


USD/MWh

50

100

150

200

250

300

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


FIGURE 9.1: SIMPLIFIED TIME OF DAY MULTIPLIERS FOR

CALIFORNIA SHOWING PEAK ENERGY VALUE

Source: Bloomberg New Energy Finance, California Public

Utilities Commission

Value

multiplier

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Utility 1 Utility 2 Utility 3 Hour of day

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.


FIGURE 9.2: SIMPLIFIED DAILY OUTPUT PROFILE OF

SOLAR TECHNOLOGIES


% of total

output

Hour of day

0%

2%

4%

6%

8%

10%

12%

14%

16%

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

Solar Thermal Electric Generation (STEG) STEG plus Storage

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.

We would expect results

to be roughly similar in

the SIC.


FIGURE 10: SOLAR: RESIDENTIAL PV GRID PARITY VS. LCOE:

CHILE, MEXICO, BRAZIL POISED TO COMPETE


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

Retail electricity prices (USD/kWh)

kWh/kW/year

Grid parity differs in each

country dependant on the

solar resource and avoided

cost of retail electricity.

The lines on the graph to

the left show how cost

declines in solar module

prices over time move more

countries into grid parity.

Chile is expected to hit retail

grid parity by 2014, although

sunnier parts of the country

will see it earlier.

BrazilChile

Peru

Mexico

Hawaii

CaliforniaUS

Spain

Germany

Italy

Denmark

France

Turkey

ChinaSouth Africa

Japan

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

700 900 1,100 1,300 1,500 1,700 1,900

Latin America

North America

Europe

Asia and Africa

$4.00/W

$2.00/W


FIGURE 11: PROJECTED COST OF POLICY SUPPORT

(LCOE MINUS POWER PRICE)


USD/MWh

Biomass

Geothermal

Small Hydro

Solar PV (utility)

Solar Thermal

-100

-50

0

50

100

150

200

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Wind High

Wind Low

Depending on the energy

policy framework Chile

puts in place, the costs of

scaling up renewable

energy will vary.

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.

A result greater than zero

indicates the amount of

payment required in

excess of the projected

power price.


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.


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the author of the relevant article or features, and does not necessarily reflect the opinion of Bloomberg New

Energy Finance. The opinions presented are subject to change without notice. Bloomberg New Energy

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CHILE LEVELISED COST OF

ENERGY

TYLER TRINGAS

[email protected]

CHILE LEVELISED COST OF ENERGY - NRDC · Chile Levelised Cost of Energy, April 2011 1 CHILE...

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Transcript of CHILE LEVELISED COST OF ENERGY - NRDC · Chile Levelised Cost of Energy, April 2011 1 CHILE...