levelized cost of energy. summary levelized costs are calculated as a proxy for the ppa price...
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LEVELIZED COST OF ENERGY
Summary
• Levelized costs are calculated as a proxy for the PPA price between a third-party developer and a utility
• LCOEs amortize all capital and operating costs incurred over the plant’s economic lifetime, accounting for tax impacts and tax credits
RPS Calculator Valuation Framework
Levelized Cost of Energy
Transmission Cost
Capacity Value
Energy Value
Net Resource Cost
Integration Cost*
−
=
−
+
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*Not currently quantified in RPS Calculator
Levelized Cost of Energy Calculation of LCOEs has been adjusted to incorporate plausible
changes over time for projects that come online in the future
Version 6.0
Renewable LCOEs calculated for each year to incorporated changes over time:
Capital costs
Financing costs
Tax credits and benefits
Versions 2.0 – 5.0
Renewable LCOEs calculated based on cost and performance of present-day technology
Goals for New Methodology
4
Model Functionality Versions 2-5 Version 6
Differentiate costs of renewable PPAs by technology
Account for future capital cost reductions Account for sunsets of federal and state tax credits and incentives Account differences in near-term and long-term costs of project finance
Translating Resource Cost & Performance to LCOEs
Resource Cost & Performance
Capital Cost
Fixed O&M
Variable O&M
Fuel Cost
Capacity Factor
Degradation
Financing & Tax Inputs
Cost of Capital
Capital Structure
Tax Credits
MACRS
Pro-Forma Cash Flow
Model
Levelized Resource Costs(cost-based PPA
prices)
Financing Life
RPS Calculator
RPS Calculator pairs cost & performance assumptions modeled by B&V with a simple pro-forma financing model to calculate the levelized cost of energy for each generating technology
Pro Forma Parameters
Pro-forma cash flow model accounts for: Capital investment cost and the availability of debt and equity financing Operating and maintenance costs Federal and state income taxes Tax benefits of accelerated depreciation Federal tax credits for renewable resources
The price calculated is sufficient to cover operating costs, provide sufficient debt service coverage, and ensure an adequate return of and on equity to investors Minimum debt service coverage ratio of 1.40
Key Inputs The table below summarizes the key technology-specific input assumptions
for resources installed in 2013:
Assumes all resources must meet a minimum DSCR of 1.40
Federal and state income tax rates are 35% and 7%, respectively
TechnologyFinancing
Lifetime (yrs)Debt Tenor
(yrs)WACC (%)
Debt Cost(%)
MACRS (yrs)
PTC($/MWh)
ITC(%)
Biogas 20 18 7.10% 5.15% 10 $11
Biomass 20 18 7.10% 5.15% 10 $23
Geothermal 20 18 7.10% 5.15% 5 $23
Hydro 20 18 7.10% 5.15% 20 $11
Solar Thermal 20 18 7.10% 5.15% 5 30%
Solar PV* 25 20 7.25% 5.45% 5 30%
Wind 20 18 7.10% 5.15% 5 $23
* Higher cost of capital for solar PV is assumed due to the longer financing lifetime
Modeling Future Changes in LCOEs Estimating future costs of renewable resources is a challenging exercise, as many of the factors
that will affect prices are surrounded by large uncertainty
Most significant levers to our estimates: Capital cost reductions: technological improvement over the coming decades may drive
renewable resource costs down Long run financing: projects financed in the future will not benefit from the low-cost
financing available in today’s low interest rate environment, which is inconsistent with long-run macroeconomic projections of inflation
Bonus depreciation: the eligibility of projects to claim bonus MACRS depreciation ends after 2013
Property tax exemption: the exemption of solar facilities from California property tax is not available to facilities installed after 2016
Federal tax credit sunsets: in 2017, the ITC reverts from its current level (30%) back to 10%; the PTC for renewable resources is currently scheduled to expire at the end of 2013
Assumption: credits and subsidies will expire as currently stated by law One exception: Assumes PTC applies to all projects constructed by 2017 (same lifetime as
ITC)
Capital Costs Over Time
Solar Thermal -Storage
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000
2013 2030
2013
$/M
Wh
Axis Title
Biomass -Large
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000
2013 2030
2013
$/k
W
Axis Title
Wind
$0
$1,000
$2,000
$3,000
$4,000
2013 2030
2013
$/M
Wh
Installation Vintage
Solar PV -Tracking -20MW+
$0
$1,000
$2,000
$3,000
$4,000
2013 2030
2013
$/k
W
Installation Vintage
LCOE calculations integrate projected capital cost trends developed by Black & Veatch Relatively stable for more mature renewable technologies Cost reductions shown for emerging technologies
Trajectories of Resource Costs Long-term trajectories of PPA prices reflect input assumptions:
Near-term price increases are driven by expiration of tax benefits and credits, increase in financing costs
Over a longer period, reductions in capital costs continue to translate to declining PPA prices for emerging technologies
Solar Thermal -Storage
$0
$50
$100
$150
$200
$250
$300
2013 2030
2013
$/M
Wh
Axis Title
Biomass -Large
$0
$50
$100
$150
$200
$250
$300
2013 2030
2013
$/M
Wh
Axis Title
Wind
$0
$50
$100
$150
$200
2013 2030
2013
$/M
Wh
Installation Vintage
Solar PV -Tracking -20MW+
$0
$50
$100
$150
$200
2013 2030
2013
$/M
Wh
Installation Vintage
Drivers of Cost Changes Over Time
Based on assumed capital cost reductions and the proposition that tax credits will not be renewed, future renewable costs will be higher than today
$81
$117
$11 $5
$9
$30 $19
$0
$20
$40
$60
$80
$100
$120
$140
$160
2012
$/M
Wh
Solar PV - Tracking - 20MW+
Modeled 2013 PPA
Prices
Low Interest
Rate Financing
Bonus Depreciation
(expires 2013)
Property Tax Exemption
(expires 2016)
ITC (reverts to 10% in 2017)
Predicted Cost Reduction (16%
from 2013 to 2030)
Modeled 2030 PPA
Price
$81
$119
$10 $5$0
$25 $3
$0
$20
$40
$60
$80
$100
$120
$140
$160
2012
$/M
Wh
Wind - In-State
Modeled 2013 PPA
Prices
Low Interest
Rate Financing
Bonus Depreciation
(expires 2013)
No Property Tax Exemption for
Wind
PTC (not renewed after
2016)
Predicted Cost Reduction (3% from 2013 to
2030)
Modeled 2030 PPA
Price
Summary of LCOEs Over Time• Future increases in costs
are driven by expiration of tax credits & benefits, which are partially offset for some technologies by capital cost reductions
Technology2013
($/MWh)2020
($/MWh)2030
($/MWh)
Biogas – Distributed $ 116 $ 164 $ 164
Biomass – Distributed $ 182 $ 226 $ 226
Biomass – Large $ 121 $ 165 $ 165
Geothermal $ 98 $ 135 $ 135
Hydro – Small $ 301 $ 445 $ 445
Solar Thermal - No Storage $ 181 $ 270 $ 249
Solar Thermal - Storage $ 173 $ 259 $ 236
Solar PV - Distributed $ 132 $ 200 $ 183
Solar PV - Fixed Tilt - 1MW $ 108 $ 165 $ 150
Solar PV - Fixed Tilt - 5MW $ 101 $ 153 $ 140
Solar PV - Fixed Tilt - 10MW $ 92 $ 141 $ 128
Solar PV - Fixed Tilt - 20MW+ $ 88 $ 135 $ 123
Solar PV - Tracking - 1MW $ 97 $ 150 $ 140
Solar PV - Tracking - 5MW $ 91 $ 140 $ 130
Solar PV - Tracking - 10MW $ 84 $ 130 $ 121
Solar PV - Tracking - 20MW+ $ 81 $ 126 $ 117
Wind $ 81 $ 120 $ 119
Wind - Distributed $ 116 $ 162 $ 159
• All costs expressed in 2013 dollars
• LCOEs presented represent a plant with ‘average’ cost and performance attributes for each technology
RPS Calculator Guide
• The parameters that affect resource LCOEs can be found on the following tabs:– Resource_Char: cost and performance input assumptions for
each major category of renewable technology– Pro_Forma: financial model of a cost-based PPA between utility
and third-party developer used to calculate LCOEs used in RPS Calculator
– Resource_Cost: results of LCOE calculations for each technology and each installation vintage (2013-203), expressed by component
• Results hard-coded by macro