“New Solar + Battery Price Crushes Fossil Fuels, Buries Nuclear” Until You Do the Math

Guest Excelling by David Middleton

Jul 1, 2019, 12:03am
New Solar + Battery Price Crushes Fossil Fuels, Buries Nuclear

Jeff McMahon Contributor
Green Tech
From Chicago, I write about climate change, green technology, energy.

Los Angeles Power and Water officials have struck a deal on the largest and cheapest solar + battery-storage project in the world, at prices that leave fossil fuels in the dust and may relegate nuclear power to the dustbin.

Later this month the LA Board of Water and Power Commissioners is expected to approve a 25-year contract that will serve 7 percent of the city’s electricity demand at 1.997¢/kwh for solar energy and 1.3¢ for power from batteries.

“This is the lowest solar-photovoltaic price in the United States,” said James Barner, the agency’s manager for strategic initiatives, “and it is the largest and lowest-cost solar and high-capacity battery-storage project in the U.S. and we believe in the world today. So this is, I believe, truly revolutionary in the industry.”

It’s half the estimated cost of power from a new natural gas plant.

Mark Z. Jacobson, the Stanford professor…

[…]

Forbes

That’s where I stopped reading the Forbes article.

Coal and gas on notice, as US big solar and battery deal stuns market
Sophie Vorrath 3 July 2019

A Californian solar and battery storage power purchase agreement is plumbing new lows for the cost of electricity from solar – a US-dollar price of 1.99c/kWh for 400MW of PV and 1.3c/kWh for stored solar power from a co-located 400MW/800MWh battery storage system.

The record setting deal, struck by a team at the Los Angeles Department of Water and Power (LADWP) with renewables developer 8minute, seeks to lock-in a two-stage, 25-year contract to serve 7 per cent of L.A.’s electricity demand from the massive solar and battery project.

The project, called the Eland Solar and Storage Center, would be built in two 200MW stages in Kern County north of Los Angeles, with an option to add a further 50MW/200 MWh of energy storage for 0.665 cents per kWh more.

[…]

“This is the lowest solar-photovoltaic price in the United States, and it is the largest and lowest-cost solar and high-capacity battery-storage project in the U.S., and we believe in the world today,” said the LADWP’s manager for strategic initiatives, said James Barner. “So this is, I believe, truly revolutionary in the industry.”

Barner has also noted that the project has been able to make “full use” of a “substantial” federal solar investment tax credit, which amounted to around 30 per cent “basically knocked off the capital cost of the project.”

[…]

Renew Economy

This project would not be feasible without the investment tax credit (ITC). Knocking 30% of the CapEx at the expense of the taxpayer is kind of a big factor here. Tax credits are not the same as tax deductions. Fortunately, the ITC is scheduled to be scaled back over the next few years.

SEIA

There’s also some confusion about the power purchase agreement.

Los Angeles seeks record setting solar power price under 2¢/kWh
The city’s municipal utility is readying a 25-year power purchase agreement for 400 MWac of solar power at 1.997¢/kWh along with 200 MW / 800 MWh of energy storage at 1.3¢/kWh.
JUNE 28, 2019 JOHN WEAVER

[…]

The team told the commissioners that on July 23, they plan to seek approval of a two phase 25-year power purchase agreement (PPA) priced at 1.997¢/kWh for 400 MWac / 530 MWdc of solar electricity delivered at time of generation plus a adder 1.3¢/kWh for the excess electricity later delivered from a co-located 400 MW / 800 MWh energy storage system.

PV Magazine

PV Magazine

The green cheerleaders think that the the electricity generated directly by solar generation will be sold for 1.997¢/kwh and the electricity stored in the battery system will be sold as a separate product for 1.3¢/kwh. From the comments section of the PV Magazine article:

NickM
June 28, 2019 at 11:00 am
Wouldn’t the battery power be an additional 1.3 cents/kWh, so ~3.3 cents total? Otherwise the stored energy is selling for less than the directly generated solar — that sounds odd.

John Weaver
June 28, 2019 at 11:03 am
Separate product, so not added on top of it

[…]

PV Magazine

The math of a “separate product, so not added on top of it” just doesn’t work.

I have not been able to find any actual numbers for the cost to build this power plant. It seems that they are rarely made public these days. All that’s ever announced are ridiculously low prices in power purchase agreements.

If we assume that they got the installed cost down to $1/W and they manage a 33% capacity factor, like the nearby Springbok 1 facility, the 200 MW Eland Phase 1 solar PV system would cost $200 million. Using NREL’s latest estimate of battery storage costs, a 100 MW, 4-hr system would run about $132 million ($93 million w/ITC),. They would lose money on the sales of battery-stored electricity at 1.3¢/kwh.

Solar w/tax credit
Battery w/tax credit
Solar + battery w/tax credit.

Combined, the project has a 144% simple ROI over 25 years, with a 17-yr payout; but this doesn’t include operation and maintenance costs or battery cell replacements. No sane business would risk capital like this; they could generate a 190% ROI from 30-yr Treasuries with virtually no risk. Adding the battery storage at a huge loss doesn’t make any sense. If this was the actual pricing structure, the net price would go down with more battery storage… This simply defies credulity.

The project includes the option to add 50 MW / 200 MWh of energy storage for an additional adder of 0.665¢/kWh. 

PV Magazine

If the battery costs are cumulative to the base price, the project would become more profitable with the battery storage system than without. Increasing the battery storage would increase the net price per kW/h and improve the project economics, rather than worsen them.

Solar Phase 1 + 100MW BESS/4-hr –> 3.297¢/kWh.

100MW/4hr battery w/tax credit.

Solar Phase 1 + 150MW BESS/6-hr –> 3.962¢/kWh.

150MW/6hr battery w/tax credit.

Summary table with ITC

While these prices are “competitive” with natural gas advanced combined cycle power plants, they entirely dependent on subsidies. Even then, the returns are marginal. A 7% discount rate would kill even the Solar + 150MW BESS/6hr project. There’s got to be another angle.

The other angle

How do project developers use the tax credits?
Many project developers do not have enough taxable income to take full advantage of the tax credits. Instead of using it to lower their own taxes, they use it to secure investment dollars from tax equity investors (typically large financial institutions, and occasionally high-net worth individuals). Tax equity investors will provide the developer with funding in exchange for a share of assets in the project. This enables the investors to receive tax credits for every dollar invested (reducing future tax liability) AND receive a return on their investment from the developer.

Typically, all the income for the first five years of a project’s life goes to paying back tax equity investors until they meet their return, at which point the developer will buy out the investor’s stake in the project. Tax equity investment is significant: According to Greentech Media, it makes up 40 to 50 percent of financing for solar projects and 50 to 60 percent for wind projects.  The balance of the project’s capital stack comes from equity and debt financiers.

Level 10 Energy

Even if the solar power developer is unprofitable and has little or no Federal tax liability, the ITC can be effectively sold to investors who can take full advantage of the tax credit.

Take away the tax credit and this is a money-loser

Barner has also noted that the project has been able to make “full use” of a “substantial” federal solar investment tax credit, which amounted to around 30 per cent “basically knocked off the capital cost of the project.”

Renew Economy

Summary table without ITC

A discounted cash flow analysis would kill this project in a heartbeat, if not for the investment tax credit (ITC). Without the ITC, they couldn’t bid such low-ball PPA’s and they would have a much more difficult time securing financing.

What effect will the expiration of renewable energy tax credits have on prices?
Without tax credits, developers will need to turn to more expensive sources of financing to get their project built, which could result in an increase in prices. In addition, they will not be able to lower prices as a result of production tax credits.

In many cases, tax credits were the driving force behind renewable energy becoming less expensive than coal. It remains to be seen whether the expiration of the ITC and PTC will have a dramatic effect on the price of renewable energy. While it is likely that prices will rise, there are several factors that could mitigate how much they rise:

Lower Costs: Advancements in technology have reduced the cost of building wind turbines, photovoltaic cells and other major components of renewable energy projects. In addition, if the tariffs on solar products and steel are removed, equipment costs could decrease.

Increased Demand: Corporate demand for renewable energy and renewable production standards for city and state governments are increasing the number of buyers in the market and overall demand for clean energy. In addition, policy changes like a carbon tax or passing of the Green New Deal could increase demand.

Level 10 Energy

Reality

Most of the country is not as well-suited for solar PV as the Mojave Desert. Whereas, apart from States with pipeline phobia and Hawaii, natural gas works just about everywhere… Even at night and on cloudy days.

While wind and solar might be competitive in some areas…

EIA Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2019

No matter how low the LCOE drops, wind and solar will always be dependent on the wind blowing and Sun shining. Note: The EIA LCOE numbers do not include storage or backup and assume an increase in natural gas prices between 2023 and 2040…

EIA Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2019
EIA Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2019

And, if the reduction of carbon emissions was really that important…

Nuclear and gas kick @$$, wind breaks even and solar is a loser. Real Clear Energy.

While the cost of wind and solar has declined since this graph was published in 2014 one thing hasn’t changed: Nuclear and natural gas can directly replace coal on a 1 MW per 1 MW basis; while wind and solar will never be able to do so. This assumes that it’s actually necessary to replace coal.

But, but, but… What about fossil fuel subsidies?

What about them?

Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2016

As the Gipper would say…

via Watts Up With That?

https://ift.tt/2NVaZgt

July 15, 2019 at 09:03PM

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