An enhanced techno-economic analysis of LCOE: public incentives vs private investment
Abstract
This paper offers a new approach for the estimation of levelized cost of energy (LCOE) by considering the shareholder internal rate of return (IRR) as an unexplored measure in this kind of analysis. The study relies on a comprehensive techno-economic evaluation based on interactions among a set of factors. This mathematical model is then empirically tested for a CSP power plant in Extremadura (Spain) due to their dominant market position and also for being the most developed renewable system at the present. A sensitivity analysis is also performed to establish the influence that market conditions have on the determination of LCOE for different scenarios under the maintenance of a given shareholder IRR for investors. This last assumption makes investment decisions indifferent among several projects in order to focus solely on the minimization of the LCOE. Results reveal that while the annual net electricity production contributes to the reduction of LCOE, total investments, equity percentage and operation and maintenance (O&M) costs help to increase their value by a high percentage. This study gives important scientific basis for investment decision making and also becomes a standpoint to design suitable public incentives that may enhance future technological developments in the CSP generation industry.
First published online 27 February 2020
Keyword : renewable energy, levelized cost of energy, CSP energy, shareholder returns, public policy, Spain
How to Cite
Peón Menéndez, R., Parra Martín, A., Varela-Candamio, L., & García-Álvarez, M.-T. (2021). An enhanced techno-economic analysis of LCOE: public incentives vs private investment. Technological and Economic Development of Economy, 27(1), 1-23. https://doi.org/10.3846/tede.2020.11259
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Darling, S. B., You, F., Veselka, T., & Velosa, A. (2011). Assumptions and the levelized cost of energy for photovoltaics. Energy & Environmental Science, 4(9), 3133-3139. https://doi.org/10.1039/c0ee00698j
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Hernández-Moro, J., & Martínez-Duart, J. M. (2013). Analytical model for solar PV and CSP electricity costs: Present LCOE values and their future evolution. Renewable and Sustainable Energy Reviews, 20(4), 119-132. https://doi.org/10.1016/j.rser.2012.11.082
Guédez, R., Spelling, J., Laumert, B., & Fransson, T. (2014). Optimization of thermal energy storage integration strategies for peak power production by concentrating solar power plants. Energy Procedia, 49, 1642-1651. https://doi.org/10.1016/j.egypro.2014.03.173
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Li, Y. Q., Liao, S. M., Rao, Z. H., & Liu, G. (2014). A dynamic assessment based feasibility study of concentrating solar power in China. Renewable Energy, 69(3), 34-42. https://doi.org/10.1016/j.renene.2014.03.024
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Lund, P. D. (2011). Boosting new renewable technologies towards grid parity-Economic and policy aspects. Renewable Energy, 36(11), 2776-2784. https://doi.org/10.1016/j.renene.2011.04.025
Martínez Alonso, P., Hewitt, R., Díaz Pacheco, J., Román Bermejo, J., Román Bermejo, L., Hernández Jiménez, V., Vicente Guillén, J., Bressers, H., & de Boer, C. (2016). Losing the roadmap: renewable energy paralysis in Spain and its implications for the EU low carbon economy. Renewable Energy, 89, 680-694. https://doi.org/10.1016/j.renene.2015.12.004
Nemet, G. F., & Kammen, D. M. (2007). U.S. energy research and development: declining investment, increasing need, and the feasibility of expansion. Energy Policy, 35(1), 746-755. https://doi.org/10.1016/j.enpol.2005.12.012
National Research Council. (2010). Hidden costs of energy: unpriced consequences of energy production and use. National Academies Press, Washington, DC. Retrieved from www.ourenergypolicy.org/wp-content/uploads/2012/06/hidden.pdf
IDAE. (2010). Plan de Acción Nacional de Energías Renovables de España – PANER: 2011–2020. National Renewable Action Plan. IDAE. Ministry of Industry, Tourism and Commerce, Spain. Retrieved from www.idae.es/file/9712/download?token=6MoeBdCb (in Spanish).
Ondraczek, J., Komendantova, N., & Patt, A. (2015). WACC the dog: The effect of financing cost on the levelized cost of solar PV power. Renewable Energy, 75, 888-898. https://doi.org/10.1016/j.renene.2014.10.053
Ouyang, X. L., & Lin, B. Q. (2014). Levelized cost of electricity (LCOE) of renewable energies and required subsidies in China. Energy Policy, 70(7), 64-73. https://doi.org/10.1016/j.enpol.2014.03.030
Parrado, C., Girard, A., Simon, F., & Fuentealba, E. (2016). 2050 LCOE (Levelized Cost of Energy) projection for a hybrid PV (photovoltaic)-CSP (concentrated solar power) plant in the Atacama
Desert, Chile. Energy, 94(1), 422-430. https://doi.org/10.1016/j.energy.2015.11.015
Pawel, I. (2014). The cost of storage – how to calculate the levelized cost of storedenergy (LCOE) and applications to renewable energy generation. Energy Procedia, 46, 68-77. https://doi.org/10.1016/j.egypro.2014.01.159
Polzin, F., Migendt, M., Täubec, A., & von Flotow, P. (2015). Public policy influence on renewable energy investments – A panel data study across OECD countries. Energy Policy, 80, 98-111. https://doi.org/10.1016/j.enpol.2015.01.026
Purohit, I., & Purohit, P. (2010). Techno-economic evaluation of concentrating solar power generation in India. Energy Policy, 38, 3015-3029 https://doi.org/10.1016/j.enpol.2010.01.041
Red Eléctrica Española. (2017). The Spanish Electricity System. Preliminary Report 2017. Red Eléctrica Española. Retrieved from www.ree.es/sites/default/files/downloadable/avance_informe_sistema_electrico_2017_eng.pdf
Reichling, J. P., & Kulacki, F. A. (2008). Utility scale hybrid wind-solar thermal electrical generation: A case study for Minnesota. Energy, 33(4), 626-638. h https://doi.org/10.1016/j.energy.2007.11.001
Ruiz Romero, S., Colmenar Santos, A., & Castro Gil, M. A. (2012). EU plans for renewable energy. An application to the Spanish case. Renewable Energy, 43, 322-330. https://doi.org/10.1016/j.renene.2011.11.033
Schleicher-Tappeser, R. (2012). How renewables will change electricity markets in the next five years. Energy Policy, 48, 64-75. https://doi.org/10.1016/j.enpol.2012.04.042
Silinga, C., & Gauché, P. (2014). Scenarios for a South African CSP peaking system in the short term. Energy Procedia, 49, 1543-1552. https://doi.org/10.1016/j.egypro.2014.03.163
Silinga, C., Gauché, P., Rudman, J., & Cebecauer, T. (2015). The South African REIPPP two-tier CSP tariff: Implications for a proposed hybrid CSP peaking system. Energy Procedia, 69, 1431-1440. https://doi.org/10.1016/j.egypro.2015.03.119
Spelling, J., & Laumert, B. (2015). Thermo-economic evaluation of solar thermal and photovoltaic hybridization options for combined-cycle power plants. Journal of Engineering for Gas Turbines and Power, 137(3), 031801. https://doi.org/10.1115/1.4028396
Stekli, J., Irwin, L., & Pitchumani, R. (2013). Technical challenges and opportunities for concentrating solar power with thermal energy storage. Journal of Thermal Science and Engineering Applications, 5(2), 021011. https://doi.org/10.1115/1.4024143
Tian, Y., & Zhao, C. Y. (2013). A review of solar collectors and thermal energy storage in solar thermal applications. Applied Energy, 104, 538-553. https://doi.org/10.1016/j.apenergy.2012.11.051
Timilsina, G. R., Kurdgelashvili, L., & Narbel, P. A. (2012). Solar energy: Markets, economics and policies. Renewable and Sustainable Energy Reviews, 16(1), 449-465. https://doi.org/10.1016/j.rser.2011.08.009
Wagner, S. J., & Rubin, E. S. (2014). Economic implications of thermal energy storage for concentrated solar thermal power. Renewable Energy, 61, 81-95. https://doi.org/10.1016/j.renene.2012.08.013
Yang, S., Zhu, X., & Guo, W. (2018). Cost-Benefit analysis for the concentrating solar power in China. Journal of Electrical and Computer Engineering, 2018, 4063691. https://doi.org/10.1155/2018/4063691
Yuan, J. H., Sun, S. H., Zhang, W. H., & Xiong, M. P. (2014). The economy of distributed PV in China. Energy, 78, 939-944. https://doi.org/10.1016/j.energy.2014.10.091
Zhang, H. L., Baeyens, J., Degrève, J., Cacères, G. (2013). Concentrated solar power plants: review and design methodology. Renewable and Sustainable Energy Reviews, 22, 466-481. https://doi.org/10.1016/j.rser.2013.01.032
Zhao, Z. Y., Chen, Y. L., & Thomson, J. D. (2017). Levelized cost of energy modeling for concentrated solar power projects: a China study. Energy, 120(1), 117-127. https://doi.org/10.1016/j.energy.2016.12.122
Boukelia, T. E., Arslan, O., & Mecibah, M. S. (2017). Potential assessment of a parabolic through solar thermal power plant considering hourly analysis: ANN-based approach. Renewable Energy, 105, 324-333. https://doi.org/10.1016/j.renene.2016.12.081
Caldés, N., Varela, M., Santamaría, M., & Sáez, R. (2009). Economic impact of solar thermal electricity deployment in Spain. Energy Policy, 37, 1628-1636. https://doi.org/10.1016/j.enpol.2008.12.022
Darling, S. B., You, F., Veselka, T., & Velosa, A. (2011). Assumptions and the levelized cost of energy for photovoltaics. Energy & Environmental Science, 4(9), 3133-3139. https://doi.org/10.1039/c0ee00698j
Dieter, F., & González, D. M. (2014). Operability, reliability and economic benefits of CSP with thermal energy storage: First year of operation of ANDASOL3. Energy Procedia, 49, 2472-2481. https://doi.org/10.1016/j.egypro.2014.03.262
Hernández-Moro, J., & Martínez-Duart, J. M. (2013). Analytical model for solar PV and CSP electricity costs: Present LCOE values and their future evolution. Renewable and Sustainable Energy Reviews, 20(4), 119-132. https://doi.org/10.1016/j.rser.2012.11.082
Guédez, R., Spelling, J., Laumert, B., & Fransson, T. (2014). Optimization of thermal energy storage integration strategies for peak power production by concentrating solar power plants. Energy Procedia, 49, 1642-1651. https://doi.org/10.1016/j.egypro.2014.03.173
Guédez, R., Topel, M., Conde, I., Ferragut, F., Callaba, I., Spelling, J., Hassar, Z., Pérez Segarra, C. D., & Laumert, B. (2016). A methodology for determining optimum solar tower plant configuration and operating strategies to maximize profits based on hourly electricity market prices and tariffs. Journal of Solar Energy Engineering, 138(2), 021006. https://doi.org/10.1115/1.4032244
International Energy Agency. (2017). Renewables 2017. Analysis and Forecasts to 2022. Market report series. Retrieved from www.iea.org/Textbase/npsum/renew2017MRSsum.pdf
International Energy Agency. (2014). Technology Roadmap: solar thermal electricity. Retrieved from www.iea.org/publications/freepublications/publication/technologyroadmapsolarthermalelectricity _2014edition.pdf
Izquierdo, S., Montanes, C., Dopazo, C., & Fueyo, N. (2016). Analysis of CSP plants for the definition of energy policies: the influence on electricity cost of solar multiples, capacity factors and energy storage. Energy Policy, 38(10), 6215-6221. https://doi.org/10.1016/j.enpol.2010.06.009
Kovacic, D., & Bogataj, M. (2017). Net present value evaluation of energy production and consumption in repeated reverse logistics. Technological and Economic Development of Economy, 23(6), 877-894. https://doi.org/10.3846/20294913.2015.1065455
Lee, M., Hong, T., Koo, C., & Kim, C.-J. (2018). A break-even analysis and impact analysis of residential solar photovoltaic systems considering state solar incentives. Technological and Economic Development of Economy, 24(2), 358-382. https://doi.org/10.3846/20294913.2016.1212745
Li, Y. Q., Liao, S. M., Rao, Z. H., & Liu, G. (2014). A dynamic assessment based feasibility study of concentrating solar power in China. Renewable Energy, 69(3), 34-42. https://doi.org/10.1016/j.renene.2014.03.024
Liu, M., Steven Tay, N. H., Bell, S., Belusko, M., Jacob, R., Will, G., Saman, W., & Bruno, F. (2016). Review on concentrating solar power plants and new developments in high temperature thermal energy storage technologies. Renewable and Sustainable Energy Reviews, 53, 1411-1432. https://doi.org/10.1016/j.rser.2015.09.026
Lund, P. D. (2011). Boosting new renewable technologies towards grid parity-Economic and policy aspects. Renewable Energy, 36(11), 2776-2784. https://doi.org/10.1016/j.renene.2011.04.025
Martínez Alonso, P., Hewitt, R., Díaz Pacheco, J., Román Bermejo, J., Román Bermejo, L., Hernández Jiménez, V., Vicente Guillén, J., Bressers, H., & de Boer, C. (2016). Losing the roadmap: renewable energy paralysis in Spain and its implications for the EU low carbon economy. Renewable Energy, 89, 680-694. https://doi.org/10.1016/j.renene.2015.12.004
Nemet, G. F., & Kammen, D. M. (2007). U.S. energy research and development: declining investment, increasing need, and the feasibility of expansion. Energy Policy, 35(1), 746-755. https://doi.org/10.1016/j.enpol.2005.12.012
National Research Council. (2010). Hidden costs of energy: unpriced consequences of energy production and use. National Academies Press, Washington, DC. Retrieved from www.ourenergypolicy.org/wp-content/uploads/2012/06/hidden.pdf
IDAE. (2010). Plan de Acción Nacional de Energías Renovables de España – PANER: 2011–2020. National Renewable Action Plan. IDAE. Ministry of Industry, Tourism and Commerce, Spain. Retrieved from www.idae.es/file/9712/download?token=6MoeBdCb (in Spanish).
Ondraczek, J., Komendantova, N., & Patt, A. (2015). WACC the dog: The effect of financing cost on the levelized cost of solar PV power. Renewable Energy, 75, 888-898. https://doi.org/10.1016/j.renene.2014.10.053
Ouyang, X. L., & Lin, B. Q. (2014). Levelized cost of electricity (LCOE) of renewable energies and required subsidies in China. Energy Policy, 70(7), 64-73. https://doi.org/10.1016/j.enpol.2014.03.030
Parrado, C., Girard, A., Simon, F., & Fuentealba, E. (2016). 2050 LCOE (Levelized Cost of Energy) projection for a hybrid PV (photovoltaic)-CSP (concentrated solar power) plant in the Atacama
Desert, Chile. Energy, 94(1), 422-430. https://doi.org/10.1016/j.energy.2015.11.015
Pawel, I. (2014). The cost of storage – how to calculate the levelized cost of storedenergy (LCOE) and applications to renewable energy generation. Energy Procedia, 46, 68-77. https://doi.org/10.1016/j.egypro.2014.01.159
Polzin, F., Migendt, M., Täubec, A., & von Flotow, P. (2015). Public policy influence on renewable energy investments – A panel data study across OECD countries. Energy Policy, 80, 98-111. https://doi.org/10.1016/j.enpol.2015.01.026
Purohit, I., & Purohit, P. (2010). Techno-economic evaluation of concentrating solar power generation in India. Energy Policy, 38, 3015-3029 https://doi.org/10.1016/j.enpol.2010.01.041
Red Eléctrica Española. (2017). The Spanish Electricity System. Preliminary Report 2017. Red Eléctrica Española. Retrieved from www.ree.es/sites/default/files/downloadable/avance_informe_sistema_electrico_2017_eng.pdf
Reichling, J. P., & Kulacki, F. A. (2008). Utility scale hybrid wind-solar thermal electrical generation: A case study for Minnesota. Energy, 33(4), 626-638. h https://doi.org/10.1016/j.energy.2007.11.001
Ruiz Romero, S., Colmenar Santos, A., & Castro Gil, M. A. (2012). EU plans for renewable energy. An application to the Spanish case. Renewable Energy, 43, 322-330. https://doi.org/10.1016/j.renene.2011.11.033
Schleicher-Tappeser, R. (2012). How renewables will change electricity markets in the next five years. Energy Policy, 48, 64-75. https://doi.org/10.1016/j.enpol.2012.04.042
Silinga, C., & Gauché, P. (2014). Scenarios for a South African CSP peaking system in the short term. Energy Procedia, 49, 1543-1552. https://doi.org/10.1016/j.egypro.2014.03.163
Silinga, C., Gauché, P., Rudman, J., & Cebecauer, T. (2015). The South African REIPPP two-tier CSP tariff: Implications for a proposed hybrid CSP peaking system. Energy Procedia, 69, 1431-1440. https://doi.org/10.1016/j.egypro.2015.03.119
Spelling, J., & Laumert, B. (2015). Thermo-economic evaluation of solar thermal and photovoltaic hybridization options for combined-cycle power plants. Journal of Engineering for Gas Turbines and Power, 137(3), 031801. https://doi.org/10.1115/1.4028396
Stekli, J., Irwin, L., & Pitchumani, R. (2013). Technical challenges and opportunities for concentrating solar power with thermal energy storage. Journal of Thermal Science and Engineering Applications, 5(2), 021011. https://doi.org/10.1115/1.4024143
Tian, Y., & Zhao, C. Y. (2013). A review of solar collectors and thermal energy storage in solar thermal applications. Applied Energy, 104, 538-553. https://doi.org/10.1016/j.apenergy.2012.11.051
Timilsina, G. R., Kurdgelashvili, L., & Narbel, P. A. (2012). Solar energy: Markets, economics and policies. Renewable and Sustainable Energy Reviews, 16(1), 449-465. https://doi.org/10.1016/j.rser.2011.08.009
Wagner, S. J., & Rubin, E. S. (2014). Economic implications of thermal energy storage for concentrated solar thermal power. Renewable Energy, 61, 81-95. https://doi.org/10.1016/j.renene.2012.08.013
Yang, S., Zhu, X., & Guo, W. (2018). Cost-Benefit analysis for the concentrating solar power in China. Journal of Electrical and Computer Engineering, 2018, 4063691. https://doi.org/10.1155/2018/4063691
Yuan, J. H., Sun, S. H., Zhang, W. H., & Xiong, M. P. (2014). The economy of distributed PV in China. Energy, 78, 939-944. https://doi.org/10.1016/j.energy.2014.10.091
Zhang, H. L., Baeyens, J., Degrève, J., Cacères, G. (2013). Concentrated solar power plants: review and design methodology. Renewable and Sustainable Energy Reviews, 22, 466-481. https://doi.org/10.1016/j.rser.2013.01.032
Zhao, Z. Y., Chen, Y. L., & Thomson, J. D. (2017). Levelized cost of energy modeling for concentrated solar power projects: a China study. Energy, 120(1), 117-127. https://doi.org/10.1016/j.energy.2016.12.122