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  • 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

  • 17

    LCOE PRIVATE vs. PUBLIC SECTOR

    FINANCE Example of Nusa Penida, Indonesia

    Private Sector Case Public Sector Case

  • 18

    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

  • 20

    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.

  • 21

    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.

  • 22

    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 sa

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