Impact of financial incentives on CSP plant economics [CSTP 2009]

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- Review of key current CSP financial incentives and their stability going forward …

- Review of key current CSP financial incentives and their stability going forward
- Demonstration/case study of how incentives impact a CSP plant’s levelized cost of electricity (LCOE)


Jay Paidipati, Managing Consultant, NAVIGANT

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  • 1. Impact of State Level Financial Incentives on CSP Plant Economics Prepared for Concentrating Solar Thermal Power 2009 June 4, 2009©2009 Navigant Consulting, Inc. All rights Reserved
  • 2. Content of Report This report was prepared by Navigant Consulting, Inc.[1] for Concentrating Solar Thermal Power 2009. The work presented in this report represents our best efforts and judgments based on the information available at the time this report was prepared. Navigant Consulting, Inc. is not responsible for the reader’s use of, or reliance upon, the report, nor any decisions based on the report. NAVIGANT CONSULTING, INC. MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED. Readers of the report are advised that they assume all liabilities incurred by them, or third parties, as a result of their reliance on the report, or the data, information, findings and opinions contained in the report. [1] “Navigant” is a service mark of Navigant International, Inc. Navigant Consulting, Inc. (NCI) is not affiliated, associated, or in any way connected with Navigant International, Inc. and NCI’s use of “Navigant” is made under license from Navigant International, Inc.©2009 Navigant Consulting, Inc. All rights Reserved
  • 3. Table of Contents 1 Introduction 2 Incentive Review 3 Case Study 2©2009 Navigant Consulting, Inc. All rights Reserved
  • 4. Table of Contents 1 Introduction 2 Incentive Review 3 Case Study 3©2009 Navigant Consulting, Inc. All rights Reserved
  • 5. Introduction » Purpose Purpose • This presentation’s purposes are to: - Review state level CSP incentives - Assess their stability in the mid- and long-term - Examine how they impact plant economics 4©2009 Navigant Consulting, Inc. All rights Reserved
  • 6. Table of Contents 1 Introduction 2 Incentive Review 3 Case Study 5©2009 Navigant Consulting, Inc. All rights Reserved
  • 7. Incentive Review » California California’s property tax exemption results in annual savings. Property Tax Exemption • Law: Section 73 of CA tax code allows for a property tax exclusion for solar energy systems. • Stability: Valid through 12/31/2016 Sacramento • Value: CA property taxes are annual payments San Francisco Oakland of ~1% of assessed value. San Jose Fresno • Other Rules: Dual-use equipment (e.g. pipes that carry steam from solar field or natural gas boiler) only qualify for 75% exclusion. Source: California Board of Equalization, May, 2009 Los Angeles San Diego Source: U.S. Geological Survey, Department of the Interior/USGS 6©2009 Navigant Consulting, Inc. All rights Reserved
  • 8. Incentive Review » Arizona Arizona’s property tax reduction is stable in the mid- and long-term through an extension passed in July of 2008. Reduced Property Tax Assessment • Law: Solar energy systems are assessed at 20% of their depreciated value. • Stability: Was set to expire in 2011, but extended through 12/31/2040. • Value: Arizona property taxes are typically 1% to 2% of depreciated value. Phoenix Source: Arizona Department of Revenue May, 2009 Yuma Mesa Tucson Arizona also has a sales tax exemption for solar energy systems, but my Source: U.S. Geological Survey, Department of the Interior/USGS interactions with the Department of Revenue have produced unclear results as to whether large scale CSP systems qualify. 7©2009 Navigant Consulting, Inc. All rights Reserved
  • 9. Incentive Review » New Mexico New Mexico’s incentives require in-state tax liability. Production Tax Credit • Law: Solar energy systems greater than 1 MW are eligible for a production tax credit against NM taxes for 10 years. • Stability: Systems may sign up until 1/1/2018 Santa Fe • Value: Over the 10 year period, the credit ranges from $0.01/kWh to $0.04/kWh • Other Rules: Each solar energy systems capped at Albuquerque 200,000 MWh/Yr of credits and whole program (including biomass and wind) is capped at 2,000,000 MWh/Yr and solar is eligible for 500,000 MWh/yr Roswell more. However, the 2,000,000 MWh are already reserved. Source: State of New Mexico Department of Taxation and Revenue, May 2009 Las Cruces Advanced Energy Tax CreditSource: U.S. Geological Survey, Department of the Interior/USGS • Law: CSP systems greater than 1 MW can receive a 6% tax credit against in-state gross receipts tax, withholding tax or compensating tax liabilities. • Stability: Construction must start before 12/31/2015 • Other Rules: Credit capped at $60M per facility. Source: New Mexico State Legislation, reviewed May 2009 8©2009 Navigant Consulting, Inc. All rights Reserved
  • 10. Incentive Review » Nevada Nevada’s current incentives are were set to expire this month, but the Nevada governor just signed new incentives into law. Sales Tax Abatement • Law: Sales taxes after the first 2.6% are abated for equipment purchases for three years. • Stability: Expires 6/30/2049 Elko • Value: NV sales tax rates vary from 6.5% to 7.75% • Other Rules: Facility must operate in state for at least 5 years. Facility has minimum capital requirements and must create a Sparks certain number of full-time jobs (both depend on size of the Reno city where the facility is).Carson City Source: Nevada Commission on Economic Development May, 2009 Property Tax Abatement • Law: CSP facilities qualify for up to 55% property tax abatement for 20 years. • Stability: Expires 6/30/2049 Las Vegas • Value: NV property tax rates are ~2% to 3% of assessed value. Henderson • Other Rules: Facility must operate in state for at least 5 years. Facility has minimum capital requirements must create a Source: Nevada Bureau of Land Management, certain number of full-time jobs (both depend on size of the Department of the Interior/BLM city where the facility is) and provide a certain hourly wage. Source: Nevada Commission on Economic Development May, 2009 9©2009 Navigant Consulting, Inc. All rights Reserved
  • 11. Incentive Review » Colorado Colorado’s property tax law values solar facilities at the same level as comparably sized non-renewable facilities. Property Tax Assessment • Law: Solar energy systems are valued at the level of comparably size non-renewable facilities. • Stability: Permanent • Value: Colorado property taxes are ~1% per year and the state assesses renewable energy property at the values shown below (between $421 and $1128/kW), rather than a facilities actual installed value ($4,000 to $6,000/kW) Source: Colorado Department of Local Affairs and Colorado Division of Property Taxation May, 2009 Assessed Value for CSP Facilities 1500 Assessed Value 1000 [$/kW] Source: U.S. Geological Survey, Department of the Interior/USGS 500 0 0 10 20 30 40 50 60 70 80 90 100 Nameplate Capacity [MW] 10©2009 Navigant Consulting, Inc. All rights Reserved
  • 12. Incentive Review » Utah Utah’s sales tax exemption reduces installed costs. Sales Tax Exemption Ogden Salt Lake City • Law: Utah exempts the purchase or lease of Provo equipment from sales tax for a variety of renewable energy technologies, including CSP systems. • Stability: Valid through 6/30/2019 • Value: Sales taxes range from 5.95% to 7.95% (depending on county and city). • Other Rules: Leases must be for at least seven years. Does not include tools or equipment for construction. Source: Utah State Tax Commission May, 2009St. George 11©2009 Navigant Consulting, Inc. All rights Reserved
  • 13. Table of Contents 1 Introduction 2 Incentive Review 3 Case Study 12©2009 Navigant Consulting, Inc. All rights Reserved
  • 14. Case Study » Technical AssumptionsA parabolic trough plant was chosen for the case study because themost public data exists on parabolic trough performance. Technical Assumptions New Mexico DNI Map Technology Parabolic Trough Plant Size [MW] 150 Southwestern New Location Mexico First Year Production [GWh] ~420 Storage? No Natural Gas Back Up? No Cooling Technology Wet Tower National Renewable Production Model Software Energy Laboratory’s Solar Advisor Model Approximate Source: National Renewable Energy Laboratory at Location Chosen http://www.nrel.gov/csp/maps.html#nm 13
  • 15. Case Study » Economic Assumptions Economic Assumptions Installed Cost1,2 [$/kW] $4,750 Construction Time [Months] 24 Construction Loan Rate 8% Term Loan Rate 7% Cost of Equity 9% Project Debt/Equity Split 60%/40% Assumed NM Gross Receipts Tax Rate3 6.375% Annual Fixed O&M [$/kW-Yr] 63 Variable O&M [$/MWh] 0.81. Installed costs include Interest During Construction and Escalation During Construction.2. Installed cost does not include any potential transmission upgrades or long-distance transmission. It only includestransmission required to get to reach a substation.3. New Mexico has a gross receipts tax in lieu of a sales tax 14
  • 16. Case Study » LCOE Impacts New Mexico’s state level incentives can impact LCOE up to 13% on top of federal incentives. Impact of State Level Incentives 25 % Reduction After Federal Incentives Levlized Cost Of Electricity [¢/kWh] 20 15 5% 8% 13% 10 5 0 1 = LCOE W/O 2 = 1 - Federal ITC 3 = 2 - Accelerated 4 = 3 - Advanced 5 = 3 - State 6 = 3 - State Incentives Depreciation Energy Tax Credit Production Tax Production Tax Credit Credit and Advanced Energy Tax Credit** The New Mexico Energy, Minerals and Natural Resources Department is still investigating if a facility can take both theproduction tax credit and the advanced energy tax credit. 15
  • 17. Key Takeaways • State level incentives appear to be stable over the near- and mid-term. • State level incentives can have an appreciable (>5%) impact on a CSP plant’s economics. Jay Paidipati Managing Consultant San Francisco, CA 94105 415-399-2191 jpaidipati@navigantconsulting.comAnyQuestions?
  • 18. About NCI » Energy PracticeNavigant Consulting, Inc. (NCI) is a specialized consulting firm knownglobally for its emerging energy technology and strategy expertise. Navigant Consulting Energy Practice Energy Practice Business Planning Business Emerging Emerging • Publicly traded Power Systems, Power Systems, & Performance & Performance Technologies & Technologies since 1996 Markets & Pricing Markets & Pricing Improvement Improvement Energy Efficiency Energy Efficiency (NYSE: NCI) • 2008 revenues - Resource Customer Renewables Procurement Strategies $811 million • 41 offices globally Market Generation Emerging Modeling & Services Technology Economics Performance Energy Fuel Services Improvement Efficiency Transmission Rates & Regulatory Navigant Consulting named "Best Advisory – Renewable Energy" in the 9th Annual Environmental Finance and Carbon Finance Market Survey 17 17
  • 19. About NCI » Energy PracticeNCI’s renewable energy service offering spans technology, policy andmarkets across all major geographical regions. Resource, Strategy Resource Policy Technology Development & Asset Market Research Development & Market & Business Acquisition & Education Assessment Planning & Development• Policy impacts • Incorporation of • Strategic planning and • “Make” vs. “Buy” • Public meeting• RPS portfolio renewables in Executive Visioning • M&A facilitation development Integrated Resource • Competitive • Project feasibility • Photovoltaic• Program resource Planning positioning • Power purchase and service offering allocations • Market size • Business models sales agreements and newsletters estimates • Diversified portfolio • Transmission rights and • Survey and focus • Cost Projections development interconnection group research • Forward price • Risk management • Project financing and curves for RECs • Implementation valuations and locational strategies • Asset/investment pricing optimization • Technology and • RFP development manufacturing due diligence • Evaluation of renewable bids 18
  • 20. About NCI » Renewable Energy Practice Our staff have been working in the renewable energy field for over 29 years with global project experience. Renewable Energy Practice 40 Staff with Technical and Market Expertise: Wind, PV, Concentrating Solar Power, Biomass Power, Geothermal, Hydroelectricity, Ocean Power, Interconnection, Communications, Power Electronics, Smart Grid and Energy Storage Past Client Examples Equipment Manufacturers End-Users Developers & Investors Schott Glas; First Solar; Philips Anheuser FPL Energy; Oppenheimer; Ormat; TPG; Virgin Lighting; Siemens Solar; United Solar; Busch; U.S. Fuels; Constellation; ARC Financial; Morgan Akzo-Nobel; MHI;Texas Instruments; Navy; Stanley; Madison Dearborn; Arpeggio; GKN; GE; Shell Renewables; BP Verizon Credit Suisse; CIBC; State Street Bank Energy/Utility Companies Government Agencies/Trade Associations ChevronTexaco; Phillips Petroleum; LIPA; SRP; We U.S. Department of Energy; U.S. EPA; UK Energies; Hydro Quebec; E.On; Osaka Gas; Ontario Carbon Trust; Massachusetts Technology Hydro; RWE; Austin Energy; Endesa; Public Service Collaborative; GHP Consortium; UK DTI; New Mexico, APS, OPG; Puget Sound Energy; California Energy Commission; U.S. AID; Southern Company; SMUD; Colorado Springs Utilities Edison Electric Institute; Abu Dhabi/MASDAR 19©2009 Navigant Consulting, Inc. All rights Reserved