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Grid-Connected Renewable Energy

Pam Baldinger Energy Team

Office of Infrastructure and EngineeringU.S. Agency for International Development

Infrastructure Training Course December 2009

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 RenewableEnergy 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

ESTIMATED CAPITAL COST OF NEW GENERATION

Trends: cost of all generation is increasingwind is the most competitive of the renewableslarge range in costs for many technologies

LEVELIZED ENERGY COSTS OF VARIOUS POWER GENERATION TECHNOLOGIES

Source: Lazard (June 2008)

Results: Energy efficiency is the most cost-effective investmentRenewable 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

LEVELIZED COST ($/MWh)

GREENHOUSE GAS MITIGATION COSTS

Chart data based on McKinsey, Global Greenhouse Gas Abatement Cost Curve v.2, Jan 2009.

small hydrogeothermal

nuclear

Wind (low

penetration)

Solar CSPSolar PV Wind

(high penetration)

Biomass co-firing

Coal CCS (new build)

Coal CCS (retrofit)

Gas CCS (Retrofit)

-20

0

20

40

60

80

100

-5 0 5 10 15 20

Aba

tem

ent C

ost (

$/to

n)

Abatement Potential (GtCO2e/year)

Renewables and nuclear have the lowest estimated carbon mitigation costs

RENEWABLE RESOURCELOAD 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)

STRATEGIES TO ENCOURAGE DEPLOYMENT

• 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

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

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2,000

4,000

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12,000 19

90

1991

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Meg

awat

tsPOLICY EXPERIENCE

CASE STUDY: INDIA

• Currently 3rd largest wind market in the world

• State-level feed-in tariffs are supporting rapid development

• Strong domestic market led to leading global turbine manufacturer, Suzlon

Cumulative capacity →

Annual installations ↓

2008: 9,645 MW

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

100%

85%92%

75%

96%

0%

20%

40%

60%

80%

100%

120%

Base: 10%ITC, 5-yrMACRS

30% ITC, 5-yrMACRS

Base + PropTax Exclusion

Base + SalesTax Exclusion

All

Impact of Incentives (IPP Financing)

Source: NREL – Sargent & Lundy Report

IMPACT OF FINANCIAL VARIABLES

Private-Taxable BondUtility Purchase70:30 Debt-to-Equity

Private-Commercial DebtPublic-Private Partnership65:35 Debt-to-Equity

Private-Dev Bank DebtPrivate-Tax Exempt Bond75:25 Debt-to-Equity

PPA Price (cents/kWh)

Mod

ified

Inte

rnal

Rat

e of

Ret

urn

(MIR

R)

Source: Black & Veatch

Financial details can have an 8 - 12 cent effect on the ultimate cost of energy from any given plant

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