An “intriguing” scenario for solar PV and other renewables in SE Asia – joining forces with coal and gas: guest post by Bart Lucarelli of Roleva Energy

An “intriguing” scenario for solar PV and other renewables in SE Asia – joining forces with coal and gas: guest post by Bart Lucarelli of Roleva Energy

by Bart Lucarelli – bart@rolevaenergy.com

The future of renewables isn’t as simple as a zero-sum alternative between solar and coal or gas generation. At least probably not in southeast Asia. That’s the “intriguing” finding of a study by Bangkok-based Roleva Energy, which has been digging into the numbers behind the dramatic drop in utility-scale solar PV systems around the world and looking at what that may mean for the local solar market.

Roleva comes to some interesting conclusions. Firstly, that it may be “counter-productive” for governments in southeast Asia to impose a heavy carbon tax on fossil-based power generation instead of letting the market do the work of making solar competitive on a levelized cost basis. Secondly, Roleva sees the need to co-locate utility-scale solar plants in remote locations together with coal and gas plants in order to achieve “synergies” between renewable and traditional generation.

 

The cost of electricity from grid-connected, utility-scale, solar PV systems (utility-scale PV systems[1]) has plummeted worldwide over the past 5 years to incredibly low levels. The levelized costs of electricity (LCOE) for utility-scale PV systemscompleted in 2010 ranged from US$ 0.26 – 0.59/kWh.[2]

By mid-2016, the International Renewable Energy Agency (IRENA)[3] reported a global weighted average LCOE for utility-scale PV systems installed during 2015 of US$ 0.13/ kWh with country-specific values ranging from:

– US¢ 6-10/kWh in Europe, China, India, South Africa and the United States;
– US¢ 5.84/kWh in Dubai;
– US¢ 4.80/kWh in Peru and 4.50/kWh in Mexico.

 

Then, in May 2016, Abu Dhabi’s Water and Electricity Administration (ADWEA) announced a winning bid price (weighted LCOE) of US¢ 2.42/kWh for an 800 MWp solar PV project.[4] LCOEs below US¢ 3/kWh were also announced in 2016 for utility-scale PV projects located within Chile’s Atacama desert.

In the attached presentation, Roleva Energy provides a comparative analysis of LCOEs for utility-scale solar PV plants located at assumed sites in the UAE and Bangkok. Roleva Energy used its in-house discounted cash flow model to complete this comparative LCOE analysis on a real 2015/2016 price basis, which included assessments of:

– solar insolation levels between UAE and Bangkok sites on the solar plant’s LCOE
– real equity IRR expectations (4%, 10% and 15% E-IRRs) and their implications for the project LCOE.

 

Roleva Energy structured its comparative LCOE analysis in the context of 3 sensitivity analysis cases:

1. a base case, which represents 2015 cost and performance conditions for a utility-scale solar PV plant;
2. an aggressive case, which represents the lowest EPC prices and O&M costs for 2016 and technical performance factors that leave only a small safety margin;
3. an impossible case, which reflects a set of largely unrealistic assumptions under UAE site conditions that will achieve an LCOE of US¢ 2.42/kWh (winning bid price for ADWEA 800 MW solar PV project).

The assumptions adopted for these three cases are presented on Figure 1.

Figure 1 Solar PV project assumptions for UAE and Bangkok sites

Figure 1 Solar PV project assumptions for UAE and Bangkok sites

[1]  For this paper, Roleva Energy has assessed a hypothetical utility-scale, solar PV plant with a capacity of 300 MWp designed to have a DC:AC sizing ratio of 1:3 and utilizing thin film solar cells and mounted onto arrays that include single axis tracking.

[2] IRENA, “Renewable Energy Technologies: Cost Analysis Series – Solar Photovoltaics”, Volume 1: Power Sector, June 2012.

[3] IRENA (2016), “Letting in the Light: How Solar Photovoltaics will revolutionise the electricity system”, pp. 9-10.

[4] https://www.bloomberg.com/news/articles/2016­09­19/cheapest­solar­on­record­said­to­be­offered­for­abu­dhabi  2/4

 

Results of the sensitivity analysis for an SE Asia site (near Bangkok)

1. For PV sites located near Bangkok and elsewhere in SE Asia, solar PV plants will not be able to achieve a capacity utilization factor (CUF) >19% while solar PV plants located in the UAE and certain locales in Chile can achieve CUFs between 25 and 30%. As a result of the low CUFs achieved in SE Asia, utility-scale solar PV plants are currently not cost-competitive against a generic coal-fired power plant equipped with an ultra-super critical boiler for both the Base and Aggressive Cases.

2. If the assumptions of the Impossible Case are applied, then a solar PV plant located in SE Asia is cost competitive but on the condition that SE Asian governments provide massive project subsidies.

3. Nonetheless, solar power developers (SPDs) have made significant progress at lowering EPC and O&M costs, which have led to the recent public announcements of very low LCOE bid prices for solar PV auctions world-wide. It is now plausible to speak of LCOEs between US¢ 7 per kWh for the Aggressive Case and US¢ 13 per kWh for the Base Case for utility-scale solar PV projects in SE Asia. These LCOE results assume a 30% marginal tax rate (no income tax holiday). This is substantial and impressive progress for solar PV projects in SE Asia, especially when compared against the solar PV LCOEs experienced in 2010, which according to IRENA ranged from US¢ 26 to 59/ kWh.

4. Many solar PV advocates are calling for the imposition of a $40 per ton tax on CO2 emissions from coal and gas-fired power plants (C-Tax); the objective being to internalize the environmental externality of their CO2 emissions. Roleva Energy suggests that imposing a C-Tax of this magnitude would be counterproductive. Costs of solar PV systems are continuing their steady decline due to increased competition, industry expansion and on-going technological advances that are leading to solar cells with higher efficiencies and PV systems with higher CUFs and smaller land requirements. In the opinion of Roleva Energy, it would be better for SE Asian governments to allow the market to work its magic then to intervene with the sole purpose of making the price of electricity higher.

5. Moreover, there are two other important issues, besides price, that need to be resolved before utility-scale solar PV plants can compete in SE Asia on an equivalent basis against coal and gas-fired IPP plants. These two issues are (a) the intermittent availability of the solar resource and (b) the lack of low cost solar PV sites in SE Asia.

6. With respect to solar resource intermittency, low cost storage options are not available at this time. At best, niche applications of compressed air and pumped hydro are available that will allow a limited number of solar PV plants to compete on an equivalent basis against base-load, fossil-fuel fired power plants. The promise of cheap battery storage remains just that- a promise with no cost-effective breakthroughs on even the medium-term horizon, except perhaps for limited amounts of system frequency response using lithium ion batteries.

7. With regard to site availability of sites, high land costs and the inability to procure large vacant sites in developed urbanized areas will force new utility-scale, solar PV plants in SE Asia to locate in undeveloped (and remote) rural areas where site development and transmission line extension costs will create limits to solar PV growth.

8. This opens up an intriguing market possibility for developers of utility scale solar PV plants – the co-location of utility-scale solar PV plants adjacent to base load coal and gas plants in remote areas. This arrangement would allow synergies to be achieved whereby the solar PV plants can, for a price:

– share the transmission and maintenance facilities of base load coal and gas-fired power plants; and

– utilize any spare generating capacity of coal and gas-fired plants to cover periods when the solar resource is weak or unavailable.

9. The option makes considerable sense for Asia where the bulk of its coal and gas-fired power plants are under 15 years old and unlikely to be retired anytime soon. Coordinated dispatch of a solar and a coal (or gas) plant located at the same site would not only serve to improve the reliability of utility-scale solar PV plants (by minimizing the intermittency) but also encourage traditional IPPs to invest more aggressively in solar PV and other renewable energy power plants.

10. Yet, there are few, if any, case studies for Asia of such co-located plants. It is hard to imagine that most of Asia’s existing coal and gas power plants are located in areas where nearby low cost land is unavailable  for building a utility-scale solar PV plant greater than 50 MW. It is more likely that the lack of such examples reflects  the inertia of traditional fossil-fuel IPPs to enter the renewables space due to their lack (i) technical experience with solar PV technology and (ii) out-dated views of LCOE landscape for utility-scale solar PV plants.

11. It is the view of Roleva Energy that significant opportunities exist for traditional IPPs – either alone or via joint ventures with SPDs – to make a least cost transition into solar PV plants, which will not only be profitable, but also highly reliable additions to Asia’s national grids. As the share of electricity generated by solar PV plants increases over time, the need to address the intermittency problem of solar PV (and wind) will grow in importance. Exploring these common siting opportunities will enable pioneers to gain the development and operating experience to grow their businesses now, at the expense of those who wait for the development of low cost batteries and other exotic storage technologies.
  Download the presentation


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