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POWER
ECONOMICS OF THE SOLAR POWER INDUSTRY |
Experts in the industry consider that USD 3/WP (that is peak power only installation cost) is a crucial turning point that will create a self-sustaining multi billion dollar solar market. The cost of the technology used by Lion Energy is under USD 2/WP production capacity, for a continuous output plant (as opposed to peak) which is at least 6 times lower than the referrence break point. The low cost is due both to the high efficiency of the system (that leads to fewer collectors and better land usage), and to the low cost of the components and the simplicity in the installation and maintenance of the system.
The expectations of the industry are that economy of scale should bring the costs down. It is though probably safe to assume that with the expected spot market clearing prices at the 3 - 4?/KWh level in low cost markets, the other existing solar technologies will have to be subsidized in some manner for the next 10 years in a competitive market. Ultimately, solar technologies will have to be judged on standard economic criteria. At present, even if estimates of environmental benefits are considered (externalities), the existing solar technologies fall short by a factor of perhaps 6 in case of PV and 3 in case of solar thermal.
Recent concern over the problem of climate change has renewed interest in Solar Thermal Power Plants (STPP) Following are excerpts form a study completed by the World Bank/GEF regarding the feasibility and economics of STTP. The study took in consideration the existing known technologies and does not include the new technology used by Lion Energy.
The market for STPP is large and could reach an annual installation rate of 2000 MW. The best regions for STPP are Southern Africa, Mediterranean countries (including North Africa, Middle East and Southern Europe), India, parts of South America, Southwest U.S./northern Mexico and Australia. The operating characteristics of STPPs are relatively well matched with the intermediate and peak electricity load requirements in these regions.
Two types of collectors have been used in STPPs: parabolic trough and central receiver. Electricity is generated by incorporating the solar collectors with a Rankine cycle power plant or as an add-on to a natural gas combined cycle (referred to as an ISCCS). STPPs in southern California, with a total output of 354 MW, have operated reliably over the past 15 years. New parabolic trough STPPs are estimated to have a capital cost (in developing countries) that is $2,000 to $3,000 per kilowatt (that is peak power only during the sun hours) or 2.5 to 3.5 times that of conventional Rankine-cycle plants. Central receiver STPPs are less mature than parabolic trough and will require several successful projects to scale up to reasonable sizes. The current costs of central receiver STPPs are close to $4,200 per kilowatt (that is peak power) or five times that of conventional Rankine-cycle plants. At the current state of technology development, the cost of solar-generated electricity is between 10 and 15 cents per kWh (at a 10% discount rate). This is two to four times more expensive than power from conventional power plants. Although solar power from ISCCS is 10% to 20% less expensive than for a similar sized Rankine-cycle STPP, it is competing against a much lower cost conventional power plant (combined-cycle).
Two approaches were used to predict the future cost performance of STPP: an engineering approach based on known technical improvements and cost reductions from commercialization and an experience curve approach. The two approaches yielded similar results:
The cost-per- kilowatt of trough plants are expected to fall by 40% and central receiver systems are expected to fall by over 60%. The cost of electricity from conventional power plants is expected to stay constant over the next twenty years. The solar Levelized Energy Cost (LEC) is expected to fall to less than half current values as a result of performance improvements and cost reductions. At these costs, the potential for STPPs to compete with Rankine cycle plants (coal, gas or oil fired) is promising. In the long-term, the LEC for Trough Rankine plants is expected to be within the cost range for conventional peaking plants. If a credit for reduced carbon emissions is included, all STPPs have a lower LEC than coal-fired Rankine plants. ISCCS plants are not expected to produce power that is less expensive than a gas-fired combined-cycle plant. Given the promising results, a three-phase development plan is recommended to commercialize STPPs as summarized below. The three phases are market awareness, market expansion and market acceptance. GEF support is critical to the success of this plan.
| Required Investment in STPPs by Phase |
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| Total Incremental Investment ($ Million) |
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Assumption: a carbon market develops by Phase 3 |
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The success of the commercialization will depend on several factors. First and most importantly is whether the cost and performance goals for STPPs are met. The goals are 10 to 11 cents/kWh at the end of Phase 1, 7 to 8 cents/kWh at the end of Phase 2 and under 6 cents in Phase 3. Second, cost parity is based on a financial credit for reduced carbon emissions. If there is no carbon trading, carbon credits or carbon tax, the adoption of STPPs will be reduced or slowed. Third, trade, tax and other economic barriers must not penalize the solar option. Real-life financing issues can have a major impact on the adoption of any technology. The study was performed as an economic analysis, not a financial analysis. The GEF can play a major role in all three of these factors, ensuring that a cost-effective technology is developed, a program of carbon credits or trading is implemented and financial barriers are limited.
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