Photovoltaic Grid Parity Monitor - Chilean Edition 2015
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This webinar presents the 6th PV Grid Parity Monitor issue, exclusively focused on the Chilean market. PV competitiveness will be analyzed for three sectors: residential, commercial and utility-scale. The perspective of each analysis is essentially different and, consequently, so are the data and methodology considered for each segment. These aspects will be discussed during the webinar. The landscape of the current renewable energy regulation will also be depicted. http://www.leonardo-energy.org/webinar/chilean-edition-pv-grid-parity-monitor
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Photovoltaic Grid Parity Monitor - Chilean Edition 2015
- 1. PV Grid Parity Monitor Chile GPM 1st Issue Chilean Market Financial AdvisoryStrategy Consulting Market IntelligencePolicy Consulting Leonardo ENERGY Webinar Series/ Madrid (Spain) 6 May 2015 at 17h00 CET Carolina Fondo, Manager cfr@creara.es
- 2. • ECLAREON - CREARA • Grid Parity Monitor (GPM) - Introduction Agenda Platinum sponsors: - Introduction - Definitions and Methodology - Results - Conclusions 2
- 3. Creara and Eclareon (Spain) merged their business to form Creara Energy Experts and consolidate their leadership in sustainable energy services • Founded in Madrid in 2003 • Specialist in energy efficiency and energy savings • Opened in Madrid in 2005 • Management consultants in smarter energy RECENT CORPORATE EVENTS COMPANY OVERVIEW Platinum sponsors: 3 and energy savings • CREARA’s services: - Consulting - Engineering - Management - Training smarter energy • ECLAREON’s services: - Policy consulting - Strategy consulting - Financial advisory - Market intelligence
- 4. • ECLAREON-CREARA • Grid Parity Monitor (GPM) - Introduction Agenda Platinum sponsors: - Introduction - Definitions and Methodology - Results - Conclusions 4
- 5. The GPM Series analyzes grid and generation parity in several markets; this 6th issue focuses on the Chilean market INTRODUCTION Overview of PV GPM Series Objective • To analyze the PV attractiveness for residential, commercial and utility-scale segments Geographical Focus • 14 promising markets all over the world - Europe: France, Germany, Italy, UK, and Spain - LatAm: Brazil, Chile and Mexico - Other: Australia, Israel, Japan, Morocco, Turkey and USA (California and Texas) GPM SERIES Platinum sponsors: Methodology • It is based on a rigorous and transparent methodology - This presentation includes a summary of the main assumptions and considerations - Other: Australia, Israel, Japan, Morocco, Turkey and USA (California and Texas) Frequency • It is recurrent: it will be updated every year to show the evolution of PV profitability Inputs • It uses real and up-dated data as inputs, not estimates - Includes turnkey quotations of local PV installers from each of the countries under study, as well as from global PV players • It includes specific and detailed information per country (and city, when applicable) - For example, the discount rate, retail electricity prices, and inflation Source: CREARA 5
- 6. The PV Grid Parity Monitor is sponsored by renowned international companies INTRODUCTION • Platinum Sponsors SPONSORS Platinum sponsors: 6 • Gold Sponsors
- 7. The PV Grid Parity Monitor is supported by relevant partners Technical PartnersSupported by INTRODUCTIONPARTNERS Platinum sponsors: Partner Association 7
- 8. PV “grid parity” is the moment when the cost of generating PV electricity is equal to the price paid for grid electricity DEFINITIONS & METHODOLOGY Grid electricity price PV electricity cost (LCOE*) CLP / kWh Grid Parity Simplistic Illustration of PV Grid Parity RESIDENTIAL & COMMERCIAL Platinum sponsors: For the sake of simplicity this report compares PV LCOE with retail electricity prices In reality, depending on the local self-consumption regulation, a part of the PV generation might be lost or valued at a lower rate (100% self-consumption ratios are not attainable) Note: * Levelized Cost of Electricity Source: CREARA analysis Years • Grid electricity is cheaper than PV-generated electricity - PV needs support mechanisms (FiT, tax credit, etc.) • PV-generated electricity is cheaper than grid electricity - It is more convenient to self- consume PV electricity than to buy electricity from the utility 8
- 9. LCOE of a PV system refers to the constant and theoretical cost of generating PV electricity over the PV system lifetime 200 400 600 800 1.000 8,800 9,000Indicative Total Cost of a Small-Scale PV System • PV Levelized Cost of Energy (LCOE) accounts for all costs associated with a PV system over its life - These may include initial investment, O&M, taxes, debt service, among others • It assumes a constant value per year and is expressed as cost per kWh Initial Investment Operating Expenses Key: DEFINITIONS & METHODOLOGYRESIDENTIAL & COMMERCIAL ‘000 CLP Platinum sponsors: 0 200 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 0 50 100 150 200 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 CLP / kWh PV LCOE of the PV System Source: CREARA analysis expressed as cost per kWh - It incorporates total PV electricity generated over the system’s lifespan • It considers the return required from the investment, to discount future costs (and production) to present 9
- 10. For the commercial segment, income taxes are relevant costs and should be considered in the LCOE calculation Cost flows of a commercial PV System Initial investment Operating expenses Key: Tax shield • The commercial segment differs from the residential segment: - For a commercial electricity consumer (private corporation), income taxes are relevant costs, as they affect cash flows • Therefore, this analysis calculates after-tax costs and includes the impact of ‘000 CLP DEFINITIONS & METHODOLOGYRESIDENTIAL & COMMERCIAL Platinum sponsors: Source: ECLAREON analysis 10 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 PV LCOE of the PV System costs and includes the impact of depreciation for tax purposes - The PV Levelized “After-Tax” Cost of Electricity (simply, LCOE) is compared to the after-tax cost of grid electricity 0 50 100 150 200 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 CLP / kWh
- 11. For a specific PV system, PV LCOE is fixed as soon as the PV system is built, but grid electricity prices are likely to increase LCOE of PV Technology vs. Grid Electricity Price 0 50 100 150 200 2009S1 2009S2 2010S1 2010S2 2011S1 2011S2 2012S1 CLP/ kWh LCOE of PV technology Grid electricity price DEFINITIONS & METHODOLOGYRESIDENTIAL & COMMERCIAL Platinum sponsors: 2009S1 2009S2 2010S1 2010S2 2011S1 2011S2 2012S1 Years 0 50 100 150 200 250 300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 CLP/ kWh Years of operation of the PV system Grid electricity price LCOE of a specific PV system installed in S1 2012 LCOE of A SPECIFIC PV System Installed S1 2012 vs. Grid Electricity Price Source: CREARA analysis 11
- 12. PV “generation parity” is the moment when profitability requirements of PV investors are completely fulfilled with wholesale electricity prices Reference price in the wholesale market Required PV tariff based on investors’ profitability requirements CLP / kWh Generation Parity Simplistic Illustration of PV Generation Parity DEFINITIONS & METHODOLOGYUTILITY-SCALE Platinum sponsors: requirements Years • Electricity from wholesale markets is cheaper than PV-generated electricity - PV sponsors will need support mechanisms (FiT, tax credit, etc.) in order to invest in PV energy • PV-generated electricity is cheaper than electricity from wholesale markets - Wholesale prices are such that the IPP would achieve at least the minimum profitability sought in order to build the PV plant 12 Source: ECLAREON
- 13. The required tariff is calculated as the theoretical rate with which the PV investor would achieve at least the minimum profitability sought in order to build the PV plant Economics (cash flows) of a utility-scale PV plant • As real market data for the initial investment, operating expenses and debt costs of the PV plant are available, the only remaining data necessary to complete the economics of the project is income - Actual electricity production of the PV plant can be accurately modeled, so the Years Equity cash flow (ECF) CLP DEFINITIONS & METHODOLOGYUTILITY-SCALE Platinum sponsors: 13 plant can be accurately modeled, so the only “X” of our equation is the required tariff (Eur/kWh) which will be applied to electricity production • When investing in a merchant plant, PV investors will ask for an IRR at least equal to the specific cost of equity of that kind of project and country - The required tariff will be the one that gives the minimum IRR required by the investor Income1 Equity Debt service O&M costs IRR ECF = Cost of equity Taxes Notes: 1 Only considering energy sales Source: CREARA analysis
- 14. It is necessary to determine a reference price that will serve as a benchmark of the potential income that a PV IPP could obtain from the market in each considered country • In order to determine if the analyzed market presents generation parity, the following market prices can be considered as a good reference: - Marginal prices of the day-ahead market in a power exchange - Price of PPA contracts that are negotiated freely in a liberalized market CAGR 2009 – 2014 100.000 120.000 140.000 7.2% Evolution of average nodal prices per semester in Diego de Almagro node (CDEC-SIC, Chile) 6.4% DEFINITIONS & METHODOLOGYUTILITY-SCALE Platinum sponsors: 14 • As PPA prices are not always easy to obtain (no public information is available), the GPM report selects between these two alternatives as a practical simplification: - A marginal price, where possible - A regulated tariff for large consumers - In countries where no spot market exists, it has been selected this option as a theoretical upper boundary of a PPA contract (working hypothesis) Source: ECLAREON CLP/ MWh 0 20.000 40.000 60.000 80.000 2009S1 2009S2 2010S1 2010S2 2011S1 2011S2 2012S1 2012S2 2013S1 2013S2 2014S1 6.4% Average price Average price for dayligh hours
- 15. PV Grid Parity has already been reached in the residential segment, albeit to different extents in different locations of Chile CLP/ kWh Standard Tariff Surcharge tariff (Winter) Grid tariffs PV LCOE (avg.) -19.3% -9.3% -8.1% Past evolution of grid electricity price and PV LCOE (SANTIAGO) • Full Grid Parity has been reached in Northern Chile, while in other locations with lower irradiation only partial grid parity has been reached - In Santiago, Grid Parity is only partial since PV LCOE is only competitive with the rate CAGR* S1'09-S1'14 0 50 100 150 200 250 300 RESULTSRESIDENTIAL Platinum sponsors: CLP/ kWh Standard Tariff Surcharge tariff (Winter) Grid tariffs PV LCOE (avg.) -19.3% -6.7% -5.5% Past evolution of grid electricity price and PV LCOE (COPIAPÓ) competitive with the rate applicable to excess consumption in winter • As the small-scale PV market is relatively immature in Chile, it is possible to find a margin for price reduction. This fact might help to move this segment toward full grid parity Note: * Compound Annual Growth Rate Source: CREARA analysis 15 CAGR* S1'09-S1'14 2009S1 2010S1 2011S1 2012S1 2013S1 2014S1 0 50 100 150 200 250 300 2009S1 2010S1 2011S1 2012S1 2013S1 2014S1
- 16. Despite high irradiation levels in Copiapó, a relatively low variable component of the electricity tariff impedes Grid Parity Past evolution of grid electricity price and PV LCOE (COPIAPÓ) • Even with existing high irradiation levels, the PV technology is not competitive against electricity prices for commercial consumers • The main factors impeding Grid Parity are the following: CAGR S2'12-S1'14 CLP/ RESULTSCOMMERCIAL 100 120 140 160 Platinum sponsors: Parity are the following: - Low variable electricity prices for the commercial segment - High PV installation prices - A relatively high discount rate, which reflects the return required by equity and debt holders Source: ECLAREON analysis 16 PV LCOE (avg.) -17.2% -13.0%Standard tariff CLP/ kWh 0 20 40 60 80 2012S2 2013S1 2013S2 2014S1
- 17. Reference prices are clearly above the required tariff for a PV investor, which implies that full generation parity exists in Chile for a large PV producer Comparison of hourly marginal cost of spot market and the required tariff for a PV investor in Chile under a project finance structure (Diego de Almagro) • Both high electricity rates and extraordinary irradiation levels contribute to the full generation parity in this Chilean region • Although SIC market has presented high volatility rates 100.000 120.000 Reference price CAGR S2'12-S1'14 1.0% RESULTSUTILITY-SCALE Platinum sponsors: presented high volatility rates in the past decade, PV tariff offers a wide margin to absorb potential decreases in the spot market - It represents less than 50% of current spot market prices - It is necessary to go back to 2009 to find spot prices below the current required tariff 17 0 20.000 40.000 60.000 80.000 2012S2 2013S1 2013S2 2014S1 CLP/ MWh 1.6%Required tariff Source: ECLAREON analysis
- 18. CONCLUSIONS Main conclusions • According to the study, in the first semester of 2014 the cost of PV generation as expressed by the LCOE (Levelized Cost of Electricity) decreased in both residential and commercial segments - Residential LCOE decreased 19% annually from 2009 to 2014, reaching complete grid parity in Copiapó and partial parity in Santiago - Despite an annual decline of 17% in the commercial LCOE, grid parity does not exist in the commercial segment mainly due to a relatively low variable component of the electricity tariff • The results of the GPM analysis also show that full generation parity exists in Chile for a large PV producer Platinum sponsors: producer - However, given the volatility in wholesale markets, the fast decline of PV prices (much higher in the utility segment than in residential or commercial segment), and ongoing regulatory reforms, PV utility-scale competitiveness should be recurrently monitored over time • Despite the fact that PV competitiveness has not been reached in some segments, this is not an impediment for a future PV market development in Chile - The motivation of PV developers can vary from many factors, including environmental needs, green certificate requirements or long-term energy security, could contribute to a major technology development Source: CREARA 18
- 19. The GPM is a Series of analyses that show the evolution of PV competitiveness in different consumer segments: residential, commercial, and utility-scale Do you want more information about the GPM? Send us an email OVERVIEW of GPM reports October‘12 May‘13 Feb’ 2015 March’14 May’15 Aug ’14 July’15 1ST ISSUE 2ND ISSUE 3RD ISSUE RESIDENTIAL COMMERCIAL UTILITY SCALE Platinum sponsors: 19 Available @ http://www.leonardo-energy.org/ BE THE NEXT SPONSOR OF THE GPM Contact us: Davide Sabatino dsa@creara.es +34 913 950 154 April’15CHILE May’15MEXICO