TODAY’S STUDY: THE ACTUAL COST OF NEW ENERGY

Levelized Cost of Electricity Renewable Energy Technologies Study

November 2013 (The Frauhofer Institute for Solar Energy Systems)

Summary

The present study analyzes the levelized cost of electricity (LCOE) of renewable energy technologies in the third quarter of 2013. It predicts their future cost development through 2030 based on technology-specific learning curves and market scenarios.

The main focus is on the LCOE for photovoltaics (PV), wind power and biomass power plants in Germany. As a reference value, the development of the LCOE for new conventional power plants was assessed (brown coal, hard coal, combined cycle gas turbines (CCGT)). Figure 1 shows the calculated LCOE of renewable energy technologies and fossil fuel power plants that were constructed in 2013.

PV power plants reached LCOE between 0.078 and 0.142 Euro/kWh in the third quarter of 2013, depending on the type of power plant (ground-mounted utility-scale or small rooftop power plant) and insolation (1000 to 1200 kWh/m²a GHI in Germany). The specific power plant costs ranged from 1000 to 1800 Euro/kWp. The LCOE for all PV power plant types reached parity with other power generation technologies and are even below the average end-customer price for electricity in Germany of 0.289 Euro/kWh (BMWi 2013). Wind power at very good onshore wind locations already has lower costs than new hard coal or CCGT power plants.

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Currently the LCOE for onshore wind power (spec. invest between 1000 and 1800 Euro/kW) are between 0.045 and 0.107 Euro/kWh. Despite the higher annual average full load hours (up to 4000 hours), offshore wind power with just 0.119 to 0.194 Euro/kWh shows considerably higher LCOE than onshore wind power. The reasons for this are the expensive installation as well as higher operating and financing costs for offshore power plants (spec. invest between 3400 and 4500 Euro/kW).

The LCOE from biogas power plants (spec. invest between 3000 and 5000 Euro/kW) is between 0.135 Euro/kWh (substrate costs 0.025 Euro/kWhth, 8000 full load hours) and 0.215 Euro/kWh (substrate costs 0.040 Euro/kWhth, 6000 full load hours). A heat usage is not considered in the calculations.

In the case of conventional power plants, brown coal profits the most from the low prices of CO2 allowances. Depending on the assumed full load hours, the fuel costs and the price of CO2 allowances, the LCOE for brown coal is at 0.038 to 0.053 Euro/kWh, from hard coal at 0.063 to 0.080 Euro/kWh and from CCGT power plants at 0.075 to 0.098 Euro/kWh.

The full load hours of conventional power plants are integrated into the LCOE with a decreasing tendency, corresponding to the forecasted increasing renewable energy share. Values in Figure 1 therefore only reflect the amount of full load hours for 2013; assumptions for the future are given in Table 4.

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Forecast of the LCOE in Germany through 2030

Figure 2 shows the results for the future development of the LCOE in Germany through 2030. The range reflects the possible cost variations in the input parameters (e.g. power plant prices, insolation, wind conditions, fuel costs, number of full load hours, costs of CO2 emission allowances, etc., see tables 1 to 7). This methodology will be explained for the cost range of PV: The upper limit of the LCOE results from the combination of a PV power plant with a high procurement price at a location with low solar irradiation (e.g. Northern Germany). Conversely, the lower limit is defined by the most inexpensive solar system at locations with high solar irradiation in Southern Germany. This same process is carried out for wind and biomass power plants as well as conventional power plants. The usual financing costs on the market and the surcharges for risks are included d in detail and are specific to the technology. This provides a realistic comparison of the power plant locations, technology risks and cost developments. The level of financing costs has considerable influence on the LCOE and the competitiveness of a technology. Furthermore, all of the costs and discount rates in this study were calculated with real values (reference year 2013). The specific investments in the third quarter of 2013 were calculated based on market research and cost studies.

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Due to the consolidation of the PV market, no significant price reductions are expected on the market through 2014. After this a progress ratio (PR) of 85% (corresponding to a learning rate of 15%) is assumed which will lead to further cost reductions. By the end of the next decade, the lCOE of PV power plants will sink to the range of 0.055 to 0.094 Euro/kWh so that even small rooftop PV systems will be able to compete with onshore wind power and the increased LCOE from brown coal (0.06 to 0.08 Euro/kWh), hard goal (0.08 to 0.11 Euro/kWh) and CCGT power plants (0.09 to 0.12 Euro/kWh). The specific power plant investments will then be 570 to 1020 Euro/kWp. PV utility-scale power plants in Southern germany will drop considerably below the average lCOE for all fossil fuel power plants by 2030.

Today the LCOE from onshore wind power is already at a very low level and will only decrease by a small amount in the future. Improvements are expected primarily by a higher number of full load hours and the development of new locations with specialized low wind turbines.

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Thanks to the expected increase in prices for fossil fuel power plants, the competitiveness of onshore wind power will however continue to improve and the LCOE at locations with favorable wind conditions will reach parity with that of brown coal power plants by 2020 at the latest. In 2030, the local conditions will be especially decisive if onshore wind power can produce less expensive electricity than PV power plants. Offshore wind power still has (compared with onshore wind power) great potential for reducing costs. Through 2030, the generation costs depending on location and wind conditions will drop to values between 0.096 and 0.151 Euro/kWh.

Since only slight decreases in cost are expected for biogas power plants, no learning rates are recorded for biogas.

This leads, in turn, to constant LCOEs by 2030 (0.135 and 0.215 Euro/kWh without earnings from heat cogeneration).

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Solar Technologies in Regions with High Irradiation

In the second part of the study we examine solar technologies for regions with favorable sunlight conditions. Since these markets are often less developed and the political environment is unstable in comparison to Central Europe, for example the MENA region (Middle East, North Africa), a risk surcharge of around 2% is considered in the capital costs. Based on these assumptions, the LCOE of PV is, compared to Germany, not significantly lower as one might expect.

The technologies concentrating solar power (CSP) and concentrating photovoltaics (CPV) are analyzed at locations with a high direct normal irradiation of 2000 kWh/(m²a), corresponding to Southern Spain, and 2500 kWh/(m²a), corresponding g to the MENA region. PV power plants are investigated at the respective locations with a global horizontal irradiation of 1800 kWh/(m²a) and 2000 kWh/(m²a) as well as an additional location with a low solar irradiation of 1450 kWh/(m²a), corresponding to Southern France.

At the considered irradiation range of 1450 to 2000 kWh/(m²a), the LCOE from PV in 2013 lies under 0.120 Euro/kWh for all PV power plant types. At 2000 kWh/(m²a), PV utility-scale power plants are already able to produce power for 0.059 Euro/kWh and therefore have a LCOE that is comparable to power generated from oil, gas and coal.

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In countries without high subsidies in the electricity sector, the LCOE for PV therefore lies below the price for the end-customer. Here investments in PV can be profitable without national support programs. By 2030, the costs for PV electricity at locations with high solar irradiation will fall to 0.043 to 0.064 Euro/kWh.

Parabolic trough power plants with thermal storage capacity of eight full load hours at locations with an annual direct normal irradiation (DNI) between 2000 and 2500 kWh/(m²a) today have a LCOE from 0.139 to 0.196 Euro/kWh. Due to the considerable cost reductions for PV in recent years, PV has a cost advantage over CSP. The advantage of the ability to store energy and the dispatchability of CSP, however, was not taken into account here. With positive world market developments, considerable derable cost reduction will be possible for CSP by 2030, enabling the LCOE to reach values around 0.097 to 0.135 Euro/kWh. This would then correspond to a specific investment for a solar thermal parabolic trough power plant with storage system of 2900 to 3700 Euro/kW.

After the significant decrease in costs in recent years, concentrating photovoltaic power plants at locations with a DNI of 2000 or 2500 kWh/(m²a) can reach LCOE from 0.082 to 0.148 Euro/kWh in 2013. The young technology CPV could, if positive market development continues through 2030, reach a cost reduction ranging between 0.045 and 0.075 Euro/kWh. The power plant prices for CPV would then be between 700 and 1100 Euro/kWp.

For CSP and CPV, there are still great uncertainties today concerning the future market development and thus also the possibility of achieving additional cost reductions through technoogical development. The analysis, however, shows that these technologies have potential for reducing the LCOE and encourages a continued development of these technologies.

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LCOE of Renewable Energy Technologies Study, Version November 2013

This study is an update of the versions from May 2012 (Kost et al, 2012) and December 2010 (Kost and Schlegl, 2010) The methodology and content have been optimized and the current trends in cost development in the last three years have been taken into account.

LCOE presents a basis of comparison for weighted average costs of different power generation technologies. This concept allows the accurate comparison of different technologies. It is not to be equated with the feed-in compensation. The actual spot value of electricity is determined by the daily and hourly variations and weather-related fluctuations in supply and demand and therefore cannot be represented by LCOE. An additional information about the methodology for LCOE can be found in the Appendix on page 36.

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