Thursday, July 28, 2016

Cost of solar power (64)


Today we’ll analyse a proposed PV installation alongside the Gullen Range Wind Farm near Australia’s capital city, Canberra.  The Australian Renewable Energy Agency, ARENA, is providing AUD 9.9 million in support for the installation and describes the project thus – “Australia’s first large-scale solar farm to be located with wind turbines … in a development that promises more reliable, cheaper renewable energy”.

The logic here is that solar and wind are complementary renewable energy sources that produce power at different times throughout the year.  Co-location has the virtue of lowering various costs for the project, such as design, approvals, financing, grid connection and maintenance.  So it certainly seems like a meritorious idea, and I congratulate ARENA for contributing to this first-of-kind joint installation in Australia.

In the case of the existing Gullen Range Wind Farm, ARENA anticipates these co-location benefits might reduce the cost of the PV facility by AUD 6 million, representing nearly 20% of the potential cost.  With co-location, the cost of the 10 MW PV installation is AUD 26 million.

I’m grateful to ARENA’s media office for providing this link to the developers, Goldwind, and other information about the project.  The annual output of the PV facility is stated to be approximately 22,000 MWh per year.  That gives a Capacity Factor of 22,000 / (10 × 365 ×24) = 0.251, which is rather higher than I expected for a  fixed-panel system near Canberra.  The project is due to be completed in July 2017.

Let me now estimate the Levelised Cost of Electricity (LCOE) for the Gullen Range proposal using my standard assumptions: 

  • there is no inflation,
  • taxation implications are neglected,
  • projects are funded entirely by debt,
  • all projects have the same interest rate (8%) and payback period (25 years), which means that the required rate of capital return is 9.4%,
  • all projects have the same annual maintenance and operating costs (2% of the total project cost), and
  • government subsidies are neglected.
For further commentary on my LCOE methodology, see posts on Real cost of coal-fired power, LEC – the accountant’s view, Cost of solar power (10) and (especially) Yet more on LEC. 

Note that I am now using annual maintenance costs of 2% of capital cost.

The results are as follows:

Cost per peak Watt              AUD 2.60/Wp
LCOE                                     AUD 135/MWh

The components of the LCOE are:

Capital           {0.094 × 26 × 106}/{22,000 MWh} = AUD 111/MWh
O&M              {0.020 × 26 × 106}/{22,000 MWh} = AUD 24/MWh

Conclusion

The LCOE of AUD 135/MWh translates to USD 98/MWh at today’s currency conversion rates.  As mentioned, the project is due to be completed in mid-2017, so you can compare the LCOE with the other solar projects I have analysed via this graphic.  This project has a similar LCOE to other recent PV installations.

With reference to costs, it’s of interest to read Giles Parkinson in RenewEconomy.  He points out that the ARENA contribution in this case amounts to AUD 1.00 per peak Watt of capital cost, which is generous in comparison to ARENA’s anticipated contributions in a subsequent funding round.  For details, see the RenewEconomy article here.

My takeaway message is that the cost of renewable energy continues to fall.  I think smart money is investing heavily in new energy technologies, with stunning results to be realised in the near future.  For my personal investments, I divested all holdings in fossil fuel companies long ago.

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