Feed-in tariff determination Best practice and cross-country coordination

Transcription

1 Feed-in tariff determination Best practice and cross-country coordination Dr. Corinna Klessmann, Ecofys 26 January th Workshop of the International Feed-in Cooperation (IFIC)

2 Content I. Best practice for defining feed-in tariff (FIT) levels Basic concept: understanding costs of RES electricity generation Example: Calculating the levelized cost of electricity for a PV installation in Germany II. Options for cross-country coordination of feed-in tariff design III. Conclusions 2 ECOFYS 27/02/2012

3 I. Best practice for defining feed-in tariff (FIT) levels Basic concept: understanding costs of RES electricity generation 3 ECOFYS 27/02/2012

4 Levelized Cost of Energy (LCOE) Definition (e.g. IEA 2010): Economic assessment of the cost of the energygenerating system including all the costs over its lifetime Including investment costs operation and maintenance costs fuel costs cost of capital with a rate of return equal to the discount rate 4 ECOFYS 27/02/2012

5 Costs and revenues of RES electricity (RES-E) producers Source: Rathmann et al. 2011, RE-Shaping LEVELIZED COST OPERATING COST (OPEX) REVENUES INVESTMENT COST (CAPEX) POWER REVENUES - Engineering, technology & construction (In Feed-in tariff (FIT): power part) - Project development Investor profit included in return on equity. COST OF CAPITAL - WACC: Euribor + risks premiums (policy, technology, country, bank- & investor-specific) -Commitment period -Financing fees SUPPORT NEEDED - Premium (FIP) - Revenues certificate (TGC) - FIT: premium part - Other support Adjust suport payment to levelised cost! - Too high: Money wasted - Too low: No deployment 5 ECOFYS 27/02/2012

6 Role of support policies and regulatory framework Reduce via R&D & mass deployment (learning curve) LEVELIZED COST OPERATING COST (OPEX) INVESTMENT COST (CAPEX) REVENUES POWER REVENUES Increase via CO2 prices, emission standards, reduced subsidies for conventional technologies, etc Reduce via transparent permitting and grid access procedures - Engineering, technology & construction - Project development (In Feed-in tariff (FIT): power part) Reduce via risk mitigation policies COST OF CAPITAL - WACC: Euribor + risks premiums (policy, technology, country, bank- & investor-specific) -Commitment period -Financing fees SUPPORT NEEDED - Premium (FIP) - Revenues certificate (TGC) - FIT: premium part - Other support FOCUS: Minimizing cost gap and support cost for society while ensuring RES target achievement 6 ECOFYS 27/02/2012

7 I. Best practice for defining feed-in tariff (FIT) levels Example: Calculating the LCOE for a PV installation in Germany 7 ECOFYS 27/02/2012

8 Calculating the LCOE for PV (1) Basic approach (according to the technical guideline VDI 2067 ) Levelized Cost of Electricity (LCOE) on an annual basis LCOE = Annual Production Cost Annual Electricity Production Annual Production Cost = Annual capital costs + annual operational costs + annual miscellaneous costs Source: ZSW 2011

9 Capital costs of a PV plant Annual Production Cost = Annual capital costs + annual operational costs + annual miscellaneous costs Annual capital costs = Net Present Value of the Investment * Annuity factor Investment = Price of the installed photovoltaic system Module Installation Balance-of-System-Cost Mounting Wiring Racking Inverter Source: ZSW 2011

10 Net Present Value of the Investment Example for a PV investment in Germany in ,4 Total Investment /kw Data collected from installer surveys published technical reports published industry data screening of corresponding press releases and news scientific surveys and market reports the German PV Industry PV-System Price [ /W] 2,2 2,0 1,8 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0,2 /W 0,2 /W 0,195 /W 0,075 /W 0,12 /W 0,3 /W 1,15 /W Installer's Margin Installation, planning mounting wiring racking Inverter Module Association 0,2 expert estimates 0,0 Source: ZSW 2011

11 Decrease of average price for turnkey PV rooftop systems < 100 kwp Source: BSW 2011

12 Annuity factor Annual Production Cost = Annual capital costs + annual operational costs + annual miscellaneous costs Annual capital costs = Net Present Value of the Investment * Annuity factor ANF n,i = i ( )n * i i (1+ ) n i = weighted interest rate n = economic life time Calculated from the relation of equity to debt and the respective interest rates Example: equity : debt = 10 : 90, interest rate for debt capital = 4%, interest rate for equity capital = 14%, i = 0.1* *4 = 5%

13 Operating costs Annual Production Cost = Annual capital costs + annual operational costs + annual miscellaneous costs Annual operation costs = Operating costs * inflation adjusted annuity factor Costs for operations and maintenance (O&M) are calculated as a share of the initial systems costs (investment). The availability of long-term data on O&M cost is limited. O&M costs are estimated as 1,0 % of the total investment per year. Although the total investment for new PV systems is much lower than a few years ago, the share is still the same, as also less maintenance is required: e.g. it is no longer necessary to change the inverter after 10 years, they work properly over the 20 year remuneration period in Germany. For large scale systems > 1 MW labour costs are added to O&M costs (> 1 MW: per year; > 20 MW: per year). Source: ZSW 2011

14 Miscellaneous costs Annual Production Cost = Annual capital costs + annual operational costs + annual miscellaneous costs Annual miscellaneous costs = miscellaneous costs * inflation adj. annuity factor Costs for insurance are calculated as a share of the initial systems costs (investment). Insurance costs are estimated as 0,5 % of the total investment per year. For large scale systems > 1 MW sometimes spaces have to be leased, so there is an additional leasing cost Source: ZSW 2011

15 Annual production cost for PV example Annual Production Cost = Annual capital costs + annual operational costs + annual miscellaneous costs Total Investment Annuity Factor (i = 5%; t = 20 years) Annual Capital Cost O&M 1% of invest 2,240 /kw ,22 /kw /kw I.A. Annuity Factor (i = 5%; t = 20 years, r = 2%) Annual O&M Cost 26,38 /kw Miscellaneous 0.5% of invest /kw I.A. Annuity Factor (i = 5%; t = 20 years, r = 2%) Annual Miscellaneous Cost 13,90 /kw Annual Production Cost Source: ZSW ,79 /kw

16 Calculating the LCOE for PV (2) Basic approach Levelized Cost of Electricity (LCOE) on an annual basis LCOE = Annual Production Cost Annual Electricity Production Annual Electricity Production = Annual solar radiation (optimal angle) * Performance Ratio of the system (takes all losses within the System into account today about ) Example: Source: ZSW 2011 ECOFYS

17 Online-Tool for calculating the electricity output 17 ECOFYS 27/02/2012 Name

18 Online-Tool: output Example: Germany Annual PV Electricity Production = 930 kwh/kw (Stuttgart) For comparison Greece: = 1340 kwh/kw (Athens) ECOFYS

19 Calculating the LCOE for PV: result Example for PV in Germany Levelized Cost of Electricity (LCOE) on an annual basis LCOE = Annual Production Cost = 217,79 /kw Annual Electricity Production = 950 kwh/kw = 23,42 ct/kwh Resulting feed-in tariff level = 23,42 ct/kwh The feed-in tariff is set to cover all cost. The PV power production shall be feasible without any other subsidy! ECOFYS

20 II. Options for cross-country coordination of feed-in tariff design 20

21 Distinguish two tracks in coordination discussion Track 1: Coordination of support systems Bottom-up alignment of support systems by Member States Top-down by EC? (harmonisation currently not desirable, but possibly measures that facilitate coordination) Track 2: Cooperation mechanisms between Member States (and third countries) Statistical transfer Joint projects Joint support (links to track 1)

22 Cross-country coordination options (short term) Exchange and mutual learning on FIT design and regulatory framework avoid mistakes that others have made improve FIT design & reduce administrative/grid barriers Use the same methodology for calculating the LCOE increasing transparency less risk of over- or under-support Use the same methodology for defining the FITs Investor profits are harmonized across countries FIT systems become more stable (e.g. less influence by lobbies) Strong signal to RES investors (high transparency, economies of scale, etc.) 22

23 Cross-country coordination options (medium to long term) Align and integrate power markets Based on joint methodology, develop joint support framework (first for selected technologies, later for all?) Even stronger signal to investors; more integrated markets, lower transaction costs & more investments 23 ECOFYS 27/02/2012

24 Cross-country coordination options Not a good option for coordination: Applying the same tariffs everywhere windfalls profits for good sites or no development at medium sites market concentration & increased grid congestion challenge Instead: adjust feed-in systems to local conditions (resource, financing, regulatory conditions) & local targets/ambition level 24

25 III. Conclusion FIT levels should be based on LCOE with moderate investor profits, in order to avoid over- or under-support Proper LCOE calculations requires detailed market data Regular monitoring/adjustments of tariffs necessary; predictable tariff degression mechanism preserves investor confidence Cross-country coordination of FIT/FIP methodologies is likely to save costs and stabilize investments 25

26 Thank you for your attention! Dr. Corinna Klessmann Ecofys Germany GmbH Am Karlsbad Berlin Germany T: +49 (0) E: I: 26