Grid-Connected Renewable Energy Pam Baldinger Energy Team Office of Infrastructure and Engineering U.S. Agency for International Development Infrastructure Training Course December 2009 1a
Why Should We Care? Clean Energy earmark and climate change funding increased emphasis on renewables Increased interest from USAID countries Increased interest from some US ambassadors Energy Team Response: Grid-Connected Renewable Energy Toolkit Variety of mechanisms to provide TA This presentation can help you identify potential areas to focus TA
Solar Geothermal Biomass Wind energy Hydroelectric RENEWABLE ENERGY RESOURCES
COMMON RENEWABLE ENERGY GOALS & OBJECTIVES Energy independence Environmental benefits Resource diversity Electricity price stabilization Economic development
KEY BARRIERS High capital costs Utility culture & framework Lack of expertise Limitations on private sector investment Lack of transmission access Weak grid
Context: Global Renewable Energy Production DOE Estimates: Slight increase in renewable share, mostly from hydro and wind
Trends: Global Investment in Renewable Energy
Trends: cost of all generation is increasing wind is the most competitive of the renewables large range in costs for many technologies ESTIMATED CAPITAL COST OF NEW GENERATION
LEVELIZED ENERGY COSTS OF VARIOUS POWER GENERATION TECHNOLOGIES LEVELIZED COST ($/MWh) Results: Energy efficiency is the most cost-effective investment Source: Lazard (June 2008) Renewable plant costs are comparable to or lower than conventional plants when operating costs are taken into account Solar plant costs are at the high end of the renewable spectrum
GREENHOUSE GAS MITIGATION COSTS Abatement Cost ($/ton) 100 80 60 40 20 Renewables and nuclear have the lowest estimated carbon mitigation costs Wind (low penetration) nuclear Solar PV Solar CSP Coal CCS (retrofit) Coal CCS (new build) Biomass co-firing Wind (high penetration) Gas CCS (Retrofit) 0 geothermal -5 small 0 hydro 5 10 15 20-20 Abatement Potential (GtCO2e/year) Chart data based on McKinsey, Global Greenhouse Gas Abatement Cost Curve v.2, Jan 2009.
RENEWABLE RESOURCE LOAD PROFILES They re not all the same! Baseload power generation Hydro Geothermal Biomass Variable power generation Solar (PV) Wind May be peaking or dispatchable Concentrated solar
Take Home Points Cost of renewables is virtually all upfront, but long-term benefits are significant Project development/construction time can be significant (2-8 years) Key, therefore, is finding ways to reduce or spread out costs and attract financing Private-sector often plays a critical role for financing and project development (IPP)
Promote market development Support utility RE procurement Encourage private investment Provide long-term contracts Value RE attributes Facilitate access to electricity grid Train RE designers and operators STRATEGIES TO ENCOURAGE DEPLOYMENT
GOVERNMENT AND RE Governments lay the foundation for RE deployment via: Legislation Regulatory structure Administrative oversight of the energy sector
COMMON TECHNOLOGY DEPLOYMENT POLICIES Feed-in tariffs (FIT) Mandatory targets: Renewable Portfolio Standards (RPS) Renewable Energy Standards (RES) Hybrid approaches
COMPARISON OF FIT AND RPS POLICIES FIT system benefits: Quicker market development Supports diverse group of resources Certainty of cost Flexible Lower transaction cost Ease of financing Ease of entry Mandate system (RPS) benefits: Promotes least-cost resources Certainty of quantity sets upper limits Perceived to be more market based Better integration into supply infrastructure
POLICY EXPERIENCE CASE STUDY: INDIA 12,000 Currently 3 rd largest wind market in the world 2008: 9,645 MW Megawatts 10,000 8,000 6,000 4,000 State-level feed-in tariffs are supporting rapid development Strong domestic market led to leading global turbine manufacturer, Suzlon 2,000-1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Cumulative capacity Annual installations
POWER PURCHASE AGREEMENTS The Power Purchase Agreement (PPA) specifies terms and conditions of payment Critical component for IPP financing Typical term: 15-25 years Sets prices for energy and capacity payments Can be used in either RPS or FIT regimes Pro forma PPA lays out standard terms and conditions in a competitive tendering process
FINANCIAL INCENTIVE POLICIES Subsidy-related Capital subsidies Grants Rebates Public investment Low-interest loans Loan guarantees Tax-related Tax credits Tax rebates Tax reductions Accelerated depreciation allowance
TAX INCENTIVES AND INVESTMENT COSTS Impact of Incentives (IPP Financing) 120% 100% 80% 100% 85% 92% 96% 75% 60% 40% 20% 0% Base: 10% ITC, 5-yr MACRS 30% ITC, 5-yr MACRS Base + Prop Tax Exclusion Base + Sales Tax Exclusion All Source: NREL Sargent & Lundy Report
IMPACT OF FINANCIAL VARIABLES Modified Internal Rate of Return (MIRR) Financial details can have an 8-12 cent effect on the ultimate cost of energy from any given plant Private-Dev Bank Debt Private-Tax Exempt Bond 75:25 Debt-to-Equity Private-Taxable Bond Utility Purchase 70:30 Debt-to-Equity Private-Commercial Debt Public-Private Partnership 65:35 Debt-to-Equity Source: Black & Veatch PPA Price (cents/kwh)
TRANSMISSION ISSUES Sufficiency Rules for access Cost allocation - Costs can be born by consumers, developers or both - Most efficient to plan for an entire region/corridor Grid integration - Cooperation among regional utilities eases integration
GETTING ALONG WITH THE NEIGHBORS/ AVOIDING NIMBY Giraffes, zebras, and geothermal power plant
BEST PRACTICES Develop stable policy environment & framework Identify responsible agencies Develop supporting policies and regulations transmission planning and access policies market development policies pricing & cost-sharing policies long-term PPA provisions Develop and implement enforcement provisions Monitor & report on progress toward goals Fine-tune policies prospectively while maintaining framework stability