Power generation cost analysis.power generation_cost_analysis

Euro-Mediterranean
Energy Market Integration Project

Germany

France

Lebanon
Power Generation Cost Analysis
Belgium What really matters ?

Cairo, 24 October 2011
Dr. Albrecht Kaupp, Team Leader

“The contents of this publication are the sole responsibility of
the author and can in no way be taken to reflect the views of the
European Union”.

This project is funded
by the European Union
1

Birds View of the Cash Flow Sheet


Is there a science, logic, politics, or
common sense behind some published FIT ?

900 kWh/kW
FIT = US$ 0.38/kWh
( Germany 2011 Data)

1,500 kWh/kW
Price = US$ 0.35/kWh
(California, average)

FIT = US$ 0.23/kWh

Common sense is missing!
1500/900 = 1.67 and therefore southern FIT should be around US$ 0.23/kWh
assuming all other parameters including risk assessment are equal
3

Finance Practices

Loan B ( 5 -12 ) years

Loan A ( 3 -7 years )

Working Capital Loan

Equity (= “own money”)


“Plain Vanilla”
Coupon Bond

Expensive
Shareholder
loan

Equity
options


US$ 100,000 for 5 years at annual 8% fixed interest =
8,000+8,000+8,000+8,000+8,000 + 100,000 + = US$ 140,000

Plain
Fixed maturity bond
Vanilla Fixed interest rate ( coupon)
Known cash flow pattern
Known face value
Investor risk medium
Sometimes tradable


Shareholder Firm listed on stock exchange
(RoE) Return on Equity expectation
LI- Model for FIT calculation
No security for shareholder
Shareholder risk high


Shareolder
(RoE)

RoE can be a misleading concept.
Assume you buy a business for $ 100,000. If your business
makes an annual net profit of $ 10,000 on these $ 100,000
than the RoE is 10% for this year.
However if $ 50,000 had been borrowed from the bank and
the bank is paid $ 3500 interest a year than only $ 50,000 are
your equity.
The net profit is then only $ 10,000 - $3, 500 = $ 6,500 and the
RoE becomes 6,500/50,000 = 13% while the Return on Capital
remains 10%.
Consequently assuming in FIT calculations excessive debt
financing of RE power plants may allow for very high RoE
although the return on Capital is meager and the firm is a
very high risk. What really counts is the Net Present Value

US$ 100,000 for 5 years at annual 8% fixed interest =
60 monthly annuities x 2028 = US$ 121,680 paid back

Expensive Treated the same as a the other
Loan loans A, B, C…..
Fixed Maturity
Fixed annuity payment
Cash flow to bank known
Requires securities


What is a Feed-in-Tariff anyway ?

Parliament Eminent Experts

Treasury Electricity Consumers
10

What is a Feed-in-Tariff anyway- Part 1 ?

Sponsoring Minister and Parliamentarians

“ An Act to provide a leveled playing field and improve
competiveness of renewable energy based electricity
generation with the objective of creating additional jobs
for the local industry, or even export opportunities”

11


Eminent Expert

“ Tariff for renewable energy based electricity
generation which should provide investors “full
cost recovery + profit” over the economic life of
the investment. In other words almost risk free !

12


Treasury’s expectations

“ A tariff that covers the incremental costs of
renewable energy based electricity generation but
that should not increase the energy subsidies in
the national budget“ . In other words tax it !

13


Opinion of those electricity consumers that
do not participate in a FIT scheme

“ We all love clean and green electricity as long
as the FIT does not impose a tax of between 3%
and 10% on our monthly electricity bill.

14

Relevant inputs - 1

- No matter which power plant is analyzed, each one has
a specific annual NET YIELD in kWh/kW or MWh/MW
that must be specified in the technical offer.

- For RE plants avoid any other specification such as
power plant efficiency or plant load factor.

- The NET YIELD is quantified at the feed-in-meter that
measures the kWh sold and refers to first year averaged
performance or the expected initial performance.


Technical Information
Typical average Net Yield and PLF figures
Technology Net Yield PLF
Nuclear Power Plant 8200 94
Base Load Coal 7700 88
Combined Cycle Gas Turbine 5500 63
Wind average Egypt ~ 3100 ~ 35
CSP with storage (3 - 8 hours) > 3000 > 35
CSP (no storage) Egypt 1930 22
Wind average 25,000 MW Germany 1840 21
PV Egypt 1670 19
PV Germany 880 10
Peak Load Gas Turbine 800 9


Typical range of over night investment costs 2010
Technology US$ Million / MW
CSP with storage (3 - 8 hours) >100 MW 5-9
CSP (no storage) > 100 MW 3-5
PV (rooftop very small < 5 – 20 kW) 4-5
PV large >100 MW 2-3
Base load coal power plant, 800 MW block 1.8 - 2.5
Wind > 1 MW 1.6 - 2
Combined cycle gas turbine 0.7 -1
Peak load gas turbine 0.5

Note that in particular PV power plant as well as gas turbine
power plant prices are changing constantly due to highly
fluctuating demand and supply. All figures are order of magnitude.

Relevant Inputs - 2

- The Plant Load Factor (PLF) in percent is always calculated
by dividing the Net Yield by 8760 hours.

- Each power plant has operation and maintenance costs that
can be expressed as a percentage of the investment costs.
Variable fuel and consumable costs are not included

- O&M costs are exposed to an annual inflation in %


Typical average operation and maintenance costs
Technology % of investment
PV larger grid connected power plant 0.5 -1.0
Wind( excludes royalties for land of US$ 1.5 – 2.0
2,000-15,000 per MW/year)
Thermal CSP (depending on technology) 2.0 – 4.0
Combined Cycle Gas Turbine 5 -10

- Operation and maintenance costs do not include any
variable fuel costs or consumables but may include
annual royalties or fees paid for the land.
- The fixed O&M costs are linked to the investment
costs and not to the kWh generation costs !

Relevant Inputs - 3

- Some power plants experience an annual deterioration in %
of the first year’s expected Net Yield

- One may calculate the incremental generation cost against
a Base Tariff in Currency / MWh and also assume an annual
inflation rate of this Base Tariff in % .

- The generation costs are calculated over an observation
period which may or may not be the useful power plant life


Relevant Inputs - 4

- Fossil fuel fired thermal power plants are specified by their
efficiency. Best expressed in “Net GWh(e) / HHV of fuel”

- The fuel costs are universally expressed in “Currency per
MWh of energy based on the higher heating value (HHV)”

- Fuel cost change with annual inflation / deflation in %


Energy, mass and volume converter
http://www.iea.org/stats/unit.asp
1 Barrel of oil = 1.72 MWh
1 Million BTU = 0.293 MWh
1000 cubic feet natural gas about 1 Million BTU
1000 cubic feet = 28.3 cbm
Natural Gas Price Conversion to MWh
US$ / Million BTU 5 10 20
US$ / MWh 17 34 68
Barrel of Oil Price Conversion to MWh
US$ / Barrel 50 75 100
US$ / MWh 29 44 58

Range of fossil fuel power plant efficiency figures
Technology Efficiency %
District heating or cooling power plant 60 - 85
Diesel generator set with heat recovery 50 - 90
Combined Cycle Gas Turbine 50 - 52
Base load coal (sub to super critical range ) 38 - 45
Large diesel generator set > 1 MW 40 - 44
Small diesel generator set 10 - 50 kW 32-36
Jet engine peak load power plant 30


Real example of a large subcritical 600 MW hard coal
fired power plant performance based on four different
definitions of power plant efficiency.

• The green colored definition is recommended since
it reflects on reality. However it is also always the
lowest figure of all four definitions

GCV NCV
Net MWh 36.0% 37.4%
Gross MWh 39.1% 40.7%


Relevant Inputs - 5

- To simulate dual firing specify how many more GWh of
electricity in % of the RE based Net Yield shall be generated

- There may additional investments costs in US$ / MW for the
fossil fuel option necessary.

- MW-f calculates the necessary MW capacity of the fossil fuel
option under a PLF=85% scenario for this option.


Relevant Financial Inputs - 5

- The financing model covers all common financing scenarios
including grant, equity and up to four loans.
- The length of repayment of each loan, the nominal annual
interest rate in % and the grace period must be specified for
each loan contributing to financing of the investment costs


Example : 100 MW PV plant

Important features
• Nominal cash flows over 20 years to show a
realistic picture of the cost and price developments
• Actual annual payments to pay back the loan
with interest including the return on equity for the
private sector investors over 20 years
• The important inflation of services and goods is
influencing three cost items: The O&M cost, fuel
costs and reference base tariff.


Annual generation over 20 years

……


Generation costs and weighted average

……


Operation and Maintenance Costs

……


Operation and Maintenance Costs, Cents/kWh

……


Total annual costs in US$ Million

……


Incremental Cost or Savings , Cents / kWh

……


Incremental Cost or Savings , US$ Million

……


Accumulated incremental Cost or Savings

……


THANK YOU
albrecht.kaupp@giz.de
39

Power generation cost analysis.power generation_cost_analysis

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