ECONOMIC VIABILITY OF DIESEL-PV-HYBRID
SYSTEMS USING THE “100% PEAK
PENETRATION TECHNOLOGY”
GIZ, 5 JULY 2016
INTRODUCTION
3
Economic and financial viability of hybridising existing – so called
brownfield – diesel grids with a “100% peak PV penetration”
technology;
Impact of hybridisation on the levelised cost of electricity (LCOE);
determining key cost drivers of diesel and hybrid power generation;
Consideration of two different ownership and financing structures on
LCOE:
“Private sector” return expectations – project finance structure, IPP;
“Public sector” return expectations – financing on balance-sheet of
state-owned utility, concessional debt terms;
Sensitivity analysis for diesel prices, equipment costs, PV penetration
levels, and (customer) demand growth;
Analysis of investing, operating and financing cash flows.
HYBRID POWER PLANTS Research focus areas
4
Bequia
St. Vincent
Owner: VINLEC (Public)
Size: 4.12 MW
Customer
s:
~2,300
HYBRID POWER PLANTS Selected sites
Las Terrenas
Dominican
Republic
Owner: Private company
Size: 9.50 MW
Customer
s:
~9,000
Puerto Leguizamo
Colombia
Owner: IPSE, CEDENAR
(Public)
Size: 4.20 MW
Customer
s:
~3,000
Hola
Kenya
Owner: KPLC (Public)
Size: 0.80 MW
Customer
s:
~1,700
Mango
Togo
Owner: CEET (Public)
Size: 1.60 MW
Customer
s:
~1,900
Basse Santa Su
Gambia
Owner: NAWEC (Public)
Size: 1.30 MW
Customer
s:
~3,700
Busuanga Island
Philippines
Owner: NPC (Public)
Size: 3.58 MW
Customer
s:
~12,000
Nusa Penida
Indonesia
Owner: PLN (Public)
Size: 3.65 MW
Customer
s:
~13,000
APPROACH
AND
FINANCIAL
ASSUMPTIONS
6
APPROACH Technical and financial modeling
Input
- Current plant layout
- Load data
- Diesel consumption
- RE resource
availability
- CAPEX and OPEX
assumptions for
diesel, PV, hybrid
HOMER* output
- Sizing of hybrid
system and
individual technical
components
- Diesel/PV split
Financial Model
output
- Economic viability
analysis
- Financial viability
analysis
- Sensitivity analysis
- Growth scenarios
- Cash flow analysis
*The HOMER software determines how variable RE resources can be optimally integrated into hybrid
systems. However, it applies simplified financial assumptions. Only a constant discount rate can be
assumed to calculate the NPVs of the different technical layouts. Also, HOMER does not properly consider
fluctuating diesel price forecasts, revenue streams, tax effects, or changes of the financing structure over
the 20-year lifetime of the project. The financial analysis is hence based on a fully-fledged financial model
that builds upon HOMER output and other input data.
7
FINANCIAL ASSUMPTIONS Private sector case / Project finance terms
Component Assumption
Transaction cost (legal
documentation, due diligence, set-
up of SPVs etc.)
2% of total initial CAPEX
Contingencies (buffer for changes
in equipment costs) 5% of total initial CAPEX
Interest 8% on debt, 2% on cash (nominal cost)
Equity IRR 15% (nominal cost)
Debt/equity split Debt capacity to meet DSCR of 1.2, based on net operating cash
flow, capped at max. debt portion of 70%
Debt tenor 12 years + 1 year grace period
DSRA 6 months debt service
Inflation, cost escalation
2% assumed inflation on revenues and cost components
(including cost of carbon), similar to inflation in the US since the
whole model is based on USD
Project lifetime 20 years
Currency All values are based in USD, to avoid unnecessary currency
mismatches and make different sites comparable
8
OIL PRICE ASSUMPTIONS Example of Nusa Penida, Indonesia
HYBRIDISATION:
POTENTIAL AND
BENEFITS
10
DAILY AVERAGE LOAD vs. POSSIBLE PV
OUTPUT
Example of Nusa Penida, Indonesia
PV output from 3 MW
installed capacity
11
DIESEL/PV SPLIT (CAPACITY AND OUTPUT) Example of Nusa Penida, Indonesia
12
ENERGY DEMAND, PV SHARE & POSSIBLE
SAVINGS
Comparison of sites
* Depending on oil price projection
ECONOMIC
VIABILITY
ASSESSMENT
PRIVATE vs. PUBLIC
SECTOR FINANCE
14
LCOE COMPOSITION Example of Nusa Penida, Indonesia
15
LCOE BREAKDOWN – PRIVATE SECTOR
FINANCE Comparison of sites
16
BREAK EVEN WACC – PRIVATE SECTOR CASE Comparison of Nusa Penida, Indonesia and Hola, Kenya
Nusa Penida, Indonesia Hola, Kenya
WACC: 12.74%
LCOE: 0.404
WACC: 8.03%
LCOE: 0.503
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LCOE – PRIVATE vs. PUBLIC SECTOR
FINANCE Example of Nusa Penida, Indonesia
Private Sector Case Public Sector Case
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RELATION OF COST ADVANTAGE AND… …PV size, solar radiation, local diesel price premium
PV size Solar radiation Local diesel price
premium
The two sites where hybridisation could result in a cost increase (Hola and Basse Santa Su) have by far the smallest
generation capacity; even relatively high local diesel prices and solar radiation cannot compensate the missing scale;
The cost advantage at the largest site (Las Terrenas) is limited by relatively low diesel prices and solar radiation;
The most viable case for hybridisation is Nusa Penida, a mid-sized plant with the highest local diesel price premium
and relatively high solar radiation.
CONCLUSIONS
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CONCLUSIONS Financing
Hybridisation can reduce avg. generation costs and exposure to diesel price volatility;
Financing costs are a major cost driver and, amongst other things, depend on
ownership structure (project finance vs. balance sheet; commercial vs. concessional
terms):
Private sector case (IPP, project finance, commercial terms, WACC from 8.4
to 8.7 percent depending on local tax shield): LCOE reduction at five of
seven sites, but not significant except Nusa Penida (-7.6 percent) if assuming
EIA reference oil price projection;
Public sector case (balance sheet of utility, concessional finance, WACC flat
at 5 percent): Cost savings at all sites (-12 to -15 percent) under EIA
reference scenario;
Appetite of private-sector lenders is likely limited by the small investment volume,
which translates in high transaction costs relative to anticipated revenues
Concessional financing probably required to leverage private investments – at
least until more experience is gained, risks are better understood, and private
financing costs decline.
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CONCLUSIONS Determinants
Plant size, on-site diesel costs and solar radiation are the main determinants
for the economic/financial viability of a hybrid project:
Larger plants can achieve economies of scale by distributing fixed cost of the hybrid
system (like automation tool) over more units of generated electricity The two
sites where hybridisation could result in a cost increase (Hola and Basse Santa Su)
have by far the smallest generation capacity, and even relatively high local diesel
prices (in 2013) and solar radiation cannot compensate the missing scale;
High diesel prices result in high cost savings and allow hybrid systems to offer
partial insurance against the risk of rising fuels costs Crude oil price decline
from 115 USD/barrel (06/2014) to less than 50 USD/barrel (02/2015) jeopardizes
viability of hybrid project; it remains to be seen when prices will increase
again, and where trend will go;
Higher solar radiation allows each unit of PV capacity to produce more (cheaper)
electricity Difficult to manage load in a way that demand curve matches better the
PV output.
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CONCLUSIONS Implementation considerations and challenges
Operation and optimisation of isolated grids is not necessarily at the top of the
agenda of national utilities, as they are often too small to receive much attention in
the national context;
A more thorough cost analysis needs to take into account all site-specific details like
current diesel generation costs and financing conditions – to be disclosed by the
utilities; however, local contacts (on-site at the grid) often lack access to data, and
managers at utility headquarters are rarely aware of optimisation potential on site;
Another hybrid configuration, other RE sources and/or connection to the main grid
might be more cost efficient than hybridisation with the “100% peak PV penetration”;
Level of familiarity with hybrid technologies among stakeholders – in particular in
environments dominated by residential consumption – is often limited;
Transparency and fair communication – especially regarding technology selection,
diesel cost savings and financing assumptions – is necessary to create mutual trust.
APPENDICES
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CAPEX / OPEX Hybrid Diesel only*
Initial CapEx (USD)
Diesel gen-sets 1.47m 1.47m
PV panels 6.12m
Balance of system (converter, battery, automation
solution) 1.99m
Replacement CapEx (USD)
Diesel gen-sets 0.73m (yr 10), 0.37m (yr 12) 0.7m (yr 7), 0.37m (yr 12)
Balance of system (converter, battery, inverter) 1.99m (yr 10)
O&M costs p.a. (USD)
Diesel gen-sets 501,673 707,443
PV system 81,600
Balance of system (converter, battery) 15,776
Diesel consumption (Liter/MWh) 282
Current diesel price (USD/Liter) 1.16
* Since existing diesel generators are already quite old, and in order to ensure a comparative analysis of the diesel and
hybrid cases over the entire investment lifetime, it was assumed that initial investments are required in diesel capacity.
CAPEX AND OPEX ASSUMPTIONS (USD) Example of Nusa Penida, Indonesia
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HYBRID INVESTMENT COSTS (USD) Example of Nusa Penida, Indonesia
Components Initial Costs Replacement
Costs Year 10
Replacement
Costs Year 12
Diesel Gen-Sets 1,475,600 734,400 367,200
PV-Panels 6,120,000
Balance of system (converter, battery, automation
tool) 1,999,200 1,985,600
Capital Investment 9,594,800 2,720,000 367,200
Contingencies (5%) 479,740
Transaction Costs (2%) 191,896
Total Initial Investment 10,266,436
