63670 ENERGY AND MINING SECTOR BOARD DISCUSSION PAPER PAPER NO.24 JUNE 2011 Regulatory and Financial Incentives for Scaling Up Concentrating Solar Power in Developing Countries Natalia Kulichenko Jens Wirth THE WORLD BANK GROUP The Energy and Mining Sector Board ENERGY AND MINING SECTOR BOARD DISCUSSION PAPER PAPER NO. 24 JUNE 2011 Regulatory and Financial Incentives for Scaling up Concentrating Solar Power in Developing Countries Natalia Kulichenko Jens Wirth The World Bank, Washington, DC THE WORLD BANK GROUP The Energy and Mining Sector Board Copyright © 2011 The International Bank for Reconstruction and Development/The World Bank. All rights reserved CONTENTS ACRONYMS AND ABBREVIATIONS ...............................................................................................................vii FOREWORD ..................................................................................................................................................... viii ACKNOWLEDGMENTS......................................................................................................................................ix EXECUTIVE SUMMARY......................................................................................................................................xi Regulatory Frameworks .................................................................................................................................xi Cost Reduction Potential and Sustainability Assessment ............................................................................. xiv Potential for Cost Reduction through Local Manufacturing ......................................................................... xvi Assessment of Procurement Practices .........................................................................................................xviii PART I. INTRODUCTION AND TECHNOLOGY BRIEF ....................................................................................1 1. CONTEXT, RELEVANCE, AND AUDIENCE................................................................................................... 3 2. OVERVIEW OF CONCENTRATING SOLAR THERMAL TECHNOLOGIES .................................................. 5 PART II. FINANCIAL AND REGULATORY SCHEMES – THE CURRENT SITUATION .....................................7 3. POLICY INSTRUMENTS USED TO PROMOTE CST IN DEVELOPED COUNTRIES..................................... 9 3.1 Regulatory Framework and Financial Incentive Options ...................................................................... 10 iii 3.1.1. The Spanish Feed-in Tariffs.......................................................................................................... 11 3.1.2. Renewable Portfolio Standards and CST in the United States........................................................13 3.2. Investment Trajectories in Spain and the United States ....................................................................... 14 3.3. Analysis and Conclusions ..................................................................................................................... 15 4. RENEWABLE ENERGY SCHEMES SUPPORTING CST IN DEVELOPING COUNTRIES ............................ 19 4.1. MENA Incentive Schemes .................................................................................................................... 19 4.1.1. Algeria........................................................................................................................................19 4.1.2. Egypt ..........................................................................................................................................19 4.1.3. Morocco .....................................................................................................................................19 4.1.4. Issues Related to Regulatory Frameworks in the MENA Region ..................................................... 20 4.1.5. MENA Incentive Conclusions ....................................................................................................... 21 4.2. India’s Incentive Schemes .................................................................................................................... 21 4.2.1. State-Level Incentives .................................................................................................................. 21 4.2.2. Central Government Level Incentives—Jawaharlal Nehru National Solar Mission ......................... 22 4.2.3. Issues Related to India’s Incentive Schemes..................................................................................24 4.2.4. India Incentive Conclusions ......................................................................................................... 25 4.3. South Africa’s Incentive Schemes ........................................................................................................ 25 4.3.1. Feed-in Tariff...............................................................................................................................26 4.3.2. South Africa Incentive Issues ........................................................................................................ 27 4.3.3. South Africa Incentive Conclusions ..............................................................................................27 PART III. FINANCING CST – HOW TO BRING TECHNOLOGY COSTS DOWN.......................................... 29 5. COST DRIVERS AND COST REDUCTION POTENTIAL ..............................................................................31 5.1. LCOEs for CST in Specific Developing Country Markets .....................................................................31 5.2. Overview of the Cost Structure ........................................................................................................... 32 5.3. Assessment of the Cost Drivers for CST ..............................................................................................32 5.3.1. Local Inputs: Changes in Land and Labor Prices .......................................................................... 32 5.3.2. Changes in Underlying Commodity Prices ...................................................................................33 5.3.3. Economies of Scale and Volume Production ................................................................................ 33 5.3.4. Monopoly Rents and Supply Chain Bottlenecks for CST Components ........................................... 34 5.3.5. Financing Conditions Available ................................................................................................... 36 5.4. Technical and Scale-Related Cost Reduction Potential ........................................................................ 37 5.4.1. Component-Specific Cost Reduction Potential ..............................................................................37 5.4.2. Technology-Specific LCOE Cost Reduction Potential ..................................................................... 37 5.4.3. Overall LCOE Cost Reduction Potential .......................................................................................38 5.5. Financial Sustainability Assessment of Financial and Regulatory Incentives ....................................... 38 5.5.1. Impact Assessment of Different Regulatory Approaches to Lower LCOEs ...................................... 39 5.5.2. Cost-Effectiveness of Different Regulatory Approaches to Lower LCOEs ........................................ 41 5.5.3. Balance Sheet vs. Off-Balance-Sheet Financing ........................................................................... 44 5.5.4. Conclusions ................................................................................................................................44 5.6. Economic Analysis of Reference CST Plants.........................................................................................45 6. ASSESSMENT OF LOCAL MANUFACTURING CAPABILITIES FOR CST ...................................................49 6.1. Local Manufacturing Capabilities in MENA .......................................................................................49 6.1.1. The CST Value Chain in MENA ................................................................................................... 49 6.1.2. Potential for Local Manufacturing ................................................................................................ 51 6.1.3. Scenarios for Local Manufacturing in MENA Countries ................................................................ 52 6.1.4. Roadmaps for the Development of Local Manufacturing of CST Components in the MENA Region ........................................................................................................................ 53 6.1.5. Potential Economic Benefits of Developing a CST Industry in North Africa .................................... 55 6.2. Local Manufacturing Capabilities in South Africa ................................................................................55 6.2.1. The Potential CST Value Chain in South Africa ............................................................................. 55 6.2.2. Potential for Local Manufacturing ................................................................................................ 57 6.2.3. Roadmaps for the Development of Local Manufacturing of CST Components in South Africa....... 58 6.2.4. Potential Economic Benefits of Developing a CST Industry in RSA ................................................. 58 iv 7. ASSESSMENT OF PROCUREMENT PRACTICES.........................................................................................63 7.1. Tendering Models and Practices .......................................................................................................... 63 7.2. Bid Selection Criteria ........................................................................................................................... 65 7.2.1. Cost-Based .................................................................................................................................65 7.2.2. Feasibility-Based .........................................................................................................................66 7.2.3. Policy-Based ................................................................................................................................ 67 7.2.4. Value-Based................................................................................................................................67 7.2.5. Additional Considerations ........................................................................................................... 67 7.3. PPA Structuring ....................................................................................................................................68 7.3.1. Dispatch Agreement .................................................................................................................... 68 7.3.2. Energy Payment .......................................................................................................................... 69 7.3.3. Capacity Payment ....................................................................................................................... 69 7.3.4. Renewable Energy Credits ........................................................................................................... 69 7.3.5. Non-performance and Default .................................................................................................... 70 7.3.6. Substitution Rights ....................................................................................................................... 70 7.3.7. Force Majeure ............................................................................................................................. 71 7.3.8. Purchase Obligation ................................................................................................................... 71 A. OVERVIEW OF CONCENTRATING SOLAR THERMAL TECHNOLOGIES ................................................ 75 1. Parabolic Trough .....................................................................................................................................76 1.1. Overview .......................................................................................................................................76 1.2. Technological Maturity.................................................................................................................... 78 2. Linear Fresnel .........................................................................................................................................78 2.1 Overview ........................................................................................................................................78 2.2. Technological Maturity.................................................................................................................... 80 3. Power Tower............................................................................................................................................81 3.1 Overview ........................................................................................................................................81 3.2. Technological Maturity.................................................................................................................... 83 4. Dish-Engine ............................................................................................................................................ 84 4.1 Overview ........................................................................................................................................84 4.2. Technological Maturity.................................................................................................................... 85 5. Power Blocks ...........................................................................................................................................86 6. Thermal Storage Options ....................................................................................................................... 86 6.1. Buffering ........................................................................................................................................86 6.2. Delivery Period Displacement ......................................................................................................... 87 6.3 Delivery Period Extension .................................................................................................................87 7. Hybridization........................................................................................................................................... 87 7.1. Hybridization Options .................................................................................................................... 88 7.2. Hybridization and Regulatory Framework .......................................................................................89 B. TABLES AND FIGURES ..............................................................................................................................91 BIBLIOGRAPHIES..........................................................................................................................................123 Chapter 2 Bibliography ............................................................................................................................. 124 Chapter 3 Bibliography ............................................................................................................................. 126 Chapter 4 Bibliography ............................................................................................................................. 127 Chapter 5 Bibliography ............................................................................................................................. 131 Chapter 6 Bibliography ............................................................................................................................. 133 Chapter 7 Bibliography ............................................................................................................................. 139 REFERENCES ..................................................................................................................................................141 BOXES Box 3.1: Germany’s Recent FiT Reform ......................................................................................................... 12 Box 3.2: The Renewable Energy Reverse Auction Mechanism ..........................................................................13 Box 5.1: LCOE Structure ..............................................................................................................................31 Box 6.1: Estimating Employment Generation of CST Development ..................................................................56 Box 6.2: Illustrative Industrial Development in RSA: Automotive Industry...........................................................57 FIGURES v Figure 2.1: Markets and Applications for Solar Power.....................................................................................5 Figure 5.1: LCOEs for Parabolic Trough and Power Tower in India, Morocco, and South Africa .......................32 Figure 5.2: CAPEX Breakdown—Parabolic Trough (100 MW – 13.4h TES – US$914m) ..................................32 Figure 5.3: CAPEX Breakdown—Power Tower (100 MW – 15 h TES – US$978 m) .........................................32 Figure 5.4: Cost Reduction Potential for CST Technologies ...........................................................................38 Figure 5.5: LCOE Reduction Potential for CST .............................................................................................38 Figure 5.6: Impact Assessment of Different Regulatory Approaches on LCOE in India .....................................40 Figure 5.7: Impact Assessment of Different Regulatory Approaches on LCOE in Morocco ...............................41 Figure 5.8: Impact Assessment of Different Regulatory Approaches on LCOE in South Africa ..........................42 Figure 5.9: Balance Sheet vs. Off-Balance-Sheet Financing Effects on LCOE in India .....................................44 Figure 6.1: Components and Services for CST .............................................................................................49 Figure 6.2: Interrelations between MENA Home Market Size, Possible Export Volume and Focus of Support for Local Industries ....................................................................................................... 52 Figure 6.3: Potential Roadmap for EPC and Services in MENA CST Projects...................................................54 Figure 6.4: Potential Roadmap for the Production of Glass Mirrors in RSA .....................................................59 Figure 7.1: Contract Type Characteristics .................................................................................................... 64 Figure 7.2: Recommended Bid Selection Criteria for CST in Developing Countries .........................................65 Figure 7.3: Recommended PPA Elements for CST Projects in Developing Countries ........................................68 Figure A.1: Markets and Applications for Solar Power...................................................................................75 Figure A.2: Illustration of Parabolic Trough Collectors and Sun Tracking ........................................................76 Figure A.3: Basic Scheme of a Parabolic Trough Power Plant ........................................................................77 Figure A.4: Linear Fresnel System Diagram ..................................................................................................79 Figure A.5: Views of Linear Fresnel Reflector Arrays ......................................................................................79 Figure A.6: Example of a CFLR System Source .............................................................................................80 Figure A.7: Schematic of Open Volumetric Receiver Power Tower Plant with Steam Turbine Cycle ....................81 Figure A.8: North Field Layout Mills ............................................................................................................82 Figure A.9: Surround Field Layout Mills .......................................................................................................82 Figure A.10: Dish-Engine Photo with Major Component Identification .............................................................84 Figure A.11: Storage Concepts for CST.........................................................................................................87 Figure A.12: Saturated Steam Hybrid Plant Configuration ...............................................................................88 Figure A.13: Basic Scheme of an ISCCS .......................................................................................................88 Figure B.1: Possible Evolutions of Local CST Industries for Key Components in MENA ..................................108 Figure B.2: Potential Roadmap for the Production of CST Mirrors in the MENA Region .................................110 Figure B.3: Potential Roadmap for the Production of Metal Structures for CST in RSA....................................119 TABLES Table ES.1: Recommended Bid Selection Criteria for CST in Developing Countries .......................................... xvii Table ES.2: Recommended PPA Elements for CST Projects in Developing Countries.......................................... xvii Table 3.1: Policy Instruments, Characteristics, Advantages, and Disadvantages in Implementation ......................9 Table 3.2: FiTs vs. RPS Schemes................................................................................................................... 10 Table 3.3: Currently Installed CST Capacity (MW) .........................................................................................11 Table 4.1: Gujarat Tariff Rates for Solar Projects ...........................................................................................22 Table 5.1: Estimate of Capital Expenditures – Parabolic Trough......................................................................33 Table 5.2: Estimate of Capital Expenditures – Reference Power Tower .............................................................34 Table 5.3: Estimate of Operational Expenditures – Reference Parabolic Trough ...............................................35 Table 5.4: Estimate of Operational Expenditures – Reference Power Tower ......................................................36 Table 5.5: Overview of Cost Elements and Cost Drivers ................................................................................37 Table 5.6: Local Content Sensitivities – MENA Case Study .............................................................................37 Table 5.7: Cost Reduction Potential of Economies of Scale/Volume Production ...............................................37 Table 5.8: Definitions Used .........................................................................................................................39 Table 5.9: Sensitivity Analysis India – Cost-Effectiveness of Regulatory Approaches ..........................................42 Table 5.10: Sensitivity Analysis Morocco – Cost-Effectiveness of Regulatory Approaches ....................................43 Table 5.11: Sensitivity Analysis South Africa – Cost-Effectiveness of Regulatory Approaches ................................43 Table 5.12: Economic Analysis for CST Reference Plants in India .....................................................................45 vi Table 5.13: Economic Analysis for CST Reference Plants in Morocco ...............................................................46 Table 5.14: Economic Analysis for CST Reference Plants in South Africa ...........................................................47 Table 5.15: Performance and Cost Penalties ................................................................................................... 47 Table 5.16: Impacts of Dry vs. Wet Cooling Technologies................................................................................47 Table 6.1: SWOT Analysis of MENA Industries Suitable for CST .....................................................................50 Table 6.2: Possible Local Content by Component of CST Power Plants ...........................................................51 Table 6.3: Direct and Indirect Local Economic Impact in Scenarios A, B, and C ..............................................55 Table 6.4: SWOT Analysis CST Value Chain in South Africa ..........................................................................56 Table 6.5: Estimated Economic Impacts for Different CST Technologies ..........................................................61 Table 6.6: Estimated Job Creation up to 2020 for Different CST Plant Technologies ........................................61 Table 7.1: Solicitation Types Summary .......................................................................................................... 63 Table 7.2: Procurement Methods Summary................................................................................................... 64 Table 7.3: Pricing Structure Summary ........................................................................................................... 64 Table B.1: Overview of the Main Technical Characteristics of CST Technologies ..............................................91 Table B.2: Overview of the Main Commercial Characteristics of CST Technologies .........................................93 Table B.3: Parabolic Trough Power Plant Projects ..........................................................................................94 Table B.4: Demonstration Central Receiver Projects .......................................................................................95 Table B.5: Commercial Central Receiver Projects ..........................................................................................96 Table B.6: Demonstration Parabolic Dish Collector Projects ...........................................................................96 Table B.7: Component-Specific Cost Reduction Potential – Parabolic Trough ...................................................97 Table B.8: Component-Specific Cost Reduction Potential – Power Tower .........................................................97 Table B.9: Component-Specific Cost Reduction Potential – Linear Fresnel .......................................................98 TableB.10: Component-Specific Cost Reduction Potential – Dish Engine ..........................................................98 Table B.11: Main Financial and Regulatory Assumptions for LCOE Analysis ......................................................99 Table B.12: Impact Assessment of Different Regulatory Incentives in India .......................................................100 Table B.13: Impact Assessment of Different Regulatory Incentives in Morocco .................................................101 Table B.14: Impact Assessment of Different Regulatory Incentives in South Africa.............................................102 Table B.15: Economic Analysis – Main Cost Assumptions ..............................................................................103 Table B.16: Global CST Value Chain Analysis .................................................................................................. 104 Table B.17: Technical and Economic Barriers to Manufacturing CST Components ........................................... 106 Table B.18: Action Plan for Stimulation of Production of CST Products in MENA ..................................................112 Table B.19: Component-specific Local Manufacturing Prospects in South Africa ...................................................116 Table B.20: Capacity to Manufacture CST Components and Provide CST related Services in South Africa.........118 Table B.21: G20 and Select Nonmembers’ Producer Price Inflation ...............................................................121 Table B.22: Select MENA Wholesale Price Inflation .......................................................................................122 ACRONYMS AND ABBREVIATIONS AET Average Electricity Tariff JNNSM Jawaharlal Nehru National Solar Mission AfDB African Development Bank KfW Kreditanstalt für Wiederaufbau BUB Back-up Boiler kW Kilowatt CAPEX Capital Expenditure kWh Kilowatt-hour CCGT Combined Cycle Gas Turbine LCOE Levelized Cost of Electricity CDM Clean Development Mechanism MASEN Moroccan Agency for Solar Energy CERC Central Electricity Regulatory Commission MAT Minimum Alternative Tax CHP Combined Heat and Power MDB Multilateral Development Bank CIF Climate Investment Funds MENA Middle East and North Africa CLFR Compact Linear Fresnel Reflector MW Megawatt CoC Cost of Capital MWh Megawatt-hour CPV Concentrating Photovoltaic (subset of CSP) NERSA National Energy Regulator of South Africa CREB Clean Renewable Energy Bond NREL National Renewable Energy Laboratory CSP Concentrating Solar Power (includes CST and NTPC National Thermal Power Corporation Ltd. CPV) O&M Operation and Maintenance CST Concentrating Solar Thermal (subset of CSP) OBA Output-based Approach vii CTF Clean Technology Fund OPEX Operational Expenditure DISCO Distribution Company PCU Power Conversion Unit DNI Direct Normal Irradiation PPA Power Purchase Agreement DSCR Debt Service Coverage Ratio PPP Public-private Partnership DSG Direct Steam Generation PSA Plataforma Solar de Almería EBIT Earnings Before Interest and Taxes R&D Research and Development ENPV Economic Net Present Value RAM Reverse Auction Mechanism EPC Engineering, Procurement, and Construction REC Renewable Energy Certificate ERR Economic Rate of Return REFIT Renewable Energy Feed-in Tariff ESTELA European Solar Thermal Electricity RFI Request for Information Association RFP Request for Proposal EIB European Investment Bank RPO Renewable Purchase Obligation FiT Feed-in Tariff RPS Renewable Purchase Standard GDP Gross Domestic Product RSA Republic of South Africa GEF Global Environment Facility SEGS Solar Energy Generating System GW Gigawatt SWOT Strengths, Weaknesses, Opportunities, and GWh Gigawatt-hour Threats HTF Heat Transfer Fluid TES Thermal Electric Storage IBRD International Bank for Reconstruction and TSP Tunisian Solar Plan Development USDA United States Department of Agriculture IEA International Energy Agency WACC Weighted Average Cost of Capital IPP Independent Power Producer WTP Willingness-to-pay ISCC Integrated Solar Combined Cycle ZAR South African Rand ISCCS Integrated Solar Combined Cycle System FOREWORD Concentrating solar thermal (CST) technologies have a clear potential for scaling up renewable energy at the utility level, thereby diversifying the generation portfolio mix, powering development, and mitigating climate change. A recent surge in demand for solar thermal power generation projects in several World Bank Group (WBG) partner countries shows that CST could indeed become an important renewable energy technology that would be able to provide an alternative to conventional thermal power generation based on the central utility model. The WBG is supporting the development of the technology in several partner countries. In the Middle East and North Africa, the World Bank, the International viii Finance Corporation (IFC), and Clean Technology Fund (CTF) are working with Algeria, Egypt, Jordan, Morocco, and Tunisia to assist them on the financing of the construction of a series of CST facilities. South Africa’s government has sought funding support from the CTF and technical advice from the World Bank for a 100 MW power tower CST plant in the Kalahari Desert. In addition the WBG is assisting India on a CST program that supports the Jawaharlal Nehru National Solar Mission (JNNSM). In order to assist our partner countries better, there is a need to analyze the experience of developed and developing countries in designing and implementing regulatory frameworks supporting the deployment of this technology and to draw relevant lessons for emerging markets. We expect that this report will provide insights for policy makers, stakeholders, private financiers, and donors in meeting the challenges of scaling up the deployment of renewable energy—and CST in particular. Lucio Monari Manager, Energy Anchor Unit (SEGEN) Sustainable Energy Department June 2011 ACKNOWLEDGMENTS The broad scope of this report was drawn extensively from more than 300 documents related to past and ongoing projects and from analytical experience in the field of concentrating thermal solar (CST) power. Natalia Kulichenko (Task Team Leader) and Jens Wirth of the Sustainable Energy Department led the preparation of this report under the guidance of Lucio Monari, Sector Manager, Energy, Sustainable Energy Department. Eleanor Ereira, Brian Klein, and Victor Loksha provided valuable contributions to the chapter addressing CST regulatory frameworks in India, South Africa, and countries of the Middle East and Northern Africa region, as did Silvia Martinez Romero for the overview of CST technologies chapter. This report also benefited from advice, suggestions, ix and corrections about the numerous technical, financial, economic, and regulatory issues involved in the development and deployment of concentrating solar thermal (CST) power. The authors would like to express their gratitude to the following colleagues inside and outside the World Bank Group (WBG): Suman Babbar, Roger Coma Cunill, Gabriela Elizondo Azuela, Chandrasekar Govindarajalu, Rohit Khanna, Tobias Maerz, Silvia Pariente-David, Michael Toman, Philippe Roos, Gevorg Sargsyan, and Chandrasekeren Subramaniam at the World Bank; Dana Younger at the International Finance Corporation (IFC); David Kearney, IFC consultant; Charles Kutscher, Michael Mendelsohn, and Paul Gilman at the National Renewable Energy Laboratory (NREL), U.S. Department of Energy; and Luiz Crespo at Protermosolar, Spain. Several chapters are partly based on the work of external consultants, including Ynfiniti/Nexus/CENER (Chapters 2 and 5); Fichtner (Chapters 2 and 6); Anil Markandya at Metroeconomica (economic analysis in Chapter 5); and Ernst & Young and Fraunhofer (Chapter 6); and NOVI Energy (Chapter 7). The authors bear sole responsibility for any errors and omissions. The co-financing by the Africa Renewable Energy Access Program (AFREA) is gratefully acknowledged. AFREA—a Trust Fund Grant Program funded by the Kingdom of the Netherlands through the Clean Energy Investment Framework (CEIF) Multi Donor Trust Fund (MDTF) recipient-executed and technical assistance window established by the Energy Sector Management Assistance Program (ESMAP). These funds are earmarked to support analytical and advisory activities executed by the Africa Energy Unit (AFTEG) and also countries increase the know-how and institutional to provide recipient-executed technical assistance capacity to achieve environmentally sustainable energy and pre-investment grants that would help accelerate solutions for poverty reduction and economic growth. deployment of renewable energy systems. ESMAP is governed and funded by a Consultative Group comprised of official bilateral donors The financial support of ESMAP is also gratefully and multilateral institutions, representing Austria, acknowledged. ESMAP is a global knowledge and Australia, Denmark, Finland, Germany, Iceland, the technical assistance trust fund program administered Netherlands, Norway, Sweden, the United Kingdom, by the World Bank that helps low- and middle-income and the WBG. x EXECUTIVE SUMMARY Concentrating solar thermal power (CST) has a tremendous potential for scaling up renewable energy at the utility level, diversifying the generation portfolio mix, powering development, and mitigating climate change. A recent surge in demand for solar thermal power generation projects using different CST technologies in various countries shows that CST could become an important renewable energy technology that would provide an alternative to conventional thermal power generation based on the central utility model. At present, different CST technologies have reached varying degrees of commercial availability. This emerging nature of CST means that there are market and technical impediments to accelerating its acceptance, including cost competitiveness, an xi understanding of technology capability and limitations, intermittency, and benefits of electricity storage. Many developed and some developing countries are currently working to address these barriers in order to scale up CST-based power generation. Given the considerable growth of CST development in several World Bank Group (WBG) partner countries, there is a need to assess the recent experience of developed countries in designing and implementing regulatory frameworks and draw lesson that could facilitate the deployment of CST technologies in developing countries. Merely replicating developed countries’ schemes in the context of a developing country may not generate the desired outcomes. Against this background, this report (a) analyzes and draws lessons from the efforts of some developed countries and adapts them to the characteristics of developing economies; (b) assesses the cost reduction potential and economic and financial affordability of various technologies in emerging markets; (c) evaluates the potential for cost reduction and associated economic benefits derived from local manufacturing; and (d) suggests ways to tailor bidding models and practices, bid selection criteria, and structures for power purchase agreements (PPAs) for CST projects in developing market conditions. Regulatory Frameworks Based on an assessment of the experiences of regulatory frameworks that are in place in developed markets and an assessment of regulatory incentives bids. While offering similar benefits as a FiT for proposed and employed in developing markets to developers, this approach could lower societal costs. , incentivize the development of CSP the following 6. A Renewable Portfolio Standard (RPS) scheme that general conclusions can be drawn: combines a variety of other regulatory and financial incentives could also be a viable option. An RPS 1. In nearly all cases analyzed in this report, including in scheme could be successful in triggering investments India, Morocco, and South Africa, the levelized cost in CST if it is combined with (a) sovereign guarantees of electricity (LCOE) for parabolic trough and power for PPAs signed with utilities or a single buyer to tower projects is still too high in relation to the tariffs ensure bankable sources of revenue; and available for CST-generated electricity to allow for full (b) significant amounts of concessional financing, cost recovery and to meet financing constraints. which tend to be the most cost-efficient way of 2. Further modifications of regulatory frameworks that incentivizing CST investments. are currently in place in emerging markets should be 7. The recent experience on RPS schemes and/or considered to at least partly mitigate these constraints FiT frameworks shows that both developers and and thereby ensure large-scale CST deployment commercial banks assign a higher overall risk profile and the creation of local manufacturing and service to projects with cash flows based on a typical PPA capacities. arrangement under an RPS scheme instead of a FiT. xii 3. A feed-in tariff (FiT) seems to be the most This might be different if PPAs reflect competitive appropriate instrument if large-scale CST tariffs and are signed with single buyers or utilities deployment and the maximization of local inputs under explicit or implicit sovereign backing. RPS are the main drivers behind the establishment of schemes currently seem to be preferable to FiTs only the incentive framework and if cost considerations if (a) societal cost considerations are the prevailing are not pivotal. This is because of the demonstrated issue for policy makers; (b) there are no fixed targets ability of FiTs to trigger large-scale investments in a for CST capacity to be installed; and (c) building relatively short timeframe. If properly designed, FiTs local capacity for component manufacturing and are the most straightforward way to provide investors service delivery is somewhat less of a priority. with the security necessary to overcome otherwise 8. Incentive frameworks should be tailored to the prohibitive development risks and ensure adequate specific circumstances to allow developers to use financial returns. the respective CST capacity in the most efficient way 4. Any FiT scheme could benefit from several recent possible. This could includes avoiding capacity limits lessons learned regarding its design to reduce high on individual plants, because of the considerable societal costs. A FiT scheme should entail at the economies of scale for individual plants that can be minimum (a) an annual and overall capacity cap achieved, and limits on the use of storage. The latter based on a realistic and affordable policy goal, and is particularly important, since an optimal amount (b) predetermined tariff revisions for new capacities of storage decreases the LCOEs of individual plants and ultimately a phase-out schedule to keep tariffs and therefore the cost of CST-generated electricity on in line with decreasing capital and investment costs. a per-kilowatt-hour basis. While preserving the main benefits of a FiT for developers—its simplicity and predictability—these In addition to these general conclusions, the report measures can help keep societal costs under control provides a review and detailed analyses and and minimize them. recommendations on the incentive schemes for CST 5. An alternative scheme involves a combination of currently in place in some of the major emerging a FiT with a reverse auctioning mechanism. Such markets as described below. mechanisms could have the following minimal features: (a) an annual and overall capacity cap Middle East and North Africa Region based on a realistic and affordable policy goal, (b) the possibility for developers to bid on the eligible In the context of MENA, the current support schemes capacity within a given timeframe and offer the are centered on either public sector projects or delivery of the electricity at a fixed tariff level below public-private partnership (PPP) models. Experience the original FiT, and (c) a mechanism assuring the to date shows that (a) the region is not quite ready to technical and financial feasibility of the submitted embrace FiTs or RPSs, although efforts to champion the introduction of such schemes are ongoing; procurement of specified amounts of CST capacity (b) independent power producer and power purchase may be a good choice. A combined RPS/FiT scheme agreement (IPP/PPA) schemes have not worked well with a built-in reverse auction mechanism may not be in the past, as illustrated in projects supported by the as aggressive a strategy as a pure FiT in securing a Global Environment Facility (GEF), which had to be massive expansion of solar power capacity. However, it restructured into public projects; and (c) a new PPP facilitates the price discovery process better than a pure scheme is being tried out for an individual, large-scale FiT system. This may result in substantial cost savings projects (Morocco), and it seems to have a better both for the public sector and for the rate payer. By chance of success than the earlier attempts to engage contrast, doubts remain as to whether the tariffs offered the private sector through a pure IPP concept. by winning bidders are not undervalued. The overall effectiveness of the incentives framework for solar power The approach currently taken to scale up CST development is still to be demonstrated by financial deployment in MENA with the support of the Clean closures for the concluded PPAs. Technology Fund (CTF) assumes that guaranteed source of subsidies will help address, to a certain South Africa degree, issues related to both high capital costs and uncertainties regarding the policy and regulatory The proposed framework of the renewable energy frameworks. The expectation is that, with more clarity in feed-in tariff (REFIT) is not yet operational in South xiii the policy framework for CST development in the MENA Africa. One can only speculate as to how successful countries in the midterm, the need for subsidies will be it will be in encouraging investments in both CST reduced. Over the longer term, and in order to achieve and other renewable energy technologies. There are transformational effects and replicability goals, these concerns over the lack of a defined structure of the investments need to be accompanied by appropriate REFIT, uncertainty over what the final tariffs will be, national policies, such as FiTs and/or RPS quotas and how they could attract or deter potential IPPs. combined with other regulatory and financial incentives However, many of these concerns could be addressed in the respective jurisdictions. once the National Energy Regulator of South Africa (NERSA) and the national utility (Eskom), as a single India buyer, finalize the process for arranging the PPAs. This will happen once tariff levels are decided and the role The Government of India has made a strategic of the single buyer (Eskom or an independent party) is choice to promote grid-connected solar power and better defined. put in place the needed incentive packages. The Government of India’s policy on CST is designed to It is conceivable that the REFIT may encourage more be largely private sector-driven, with the government investment for certain technologies than for others. In creating an enabling environment for investors. the same way that an RPS scheme induces investments Despite criticisms on the FiT guidelines, private predominantly in the cheapest technology, the REFIT developers are active participants in the early may only promote significant investments in more bidding stages to strategically position themselves established and less risky technologies, such as wind in India’s emerging CST market. This could explain power, rather than CST. The fact that the vast majority the oversubscription of the first bidding round for of applications received by Eskom so far have been for CST projects under Phase 1 of the JNNSM. Over the wind projects indicates the disparity of the effectiveness long term, the regulatory framework could benefit of the policy across different technologies. from improving the consistency among instruments (the current process mixes RPS and FiT elements), The combination of a CTF-funded, large-scale and the coordination between state-level and central CST project, a planned solar park project, and the government-level incentives. introduction of a FiT system may well succeed in mobilizing private sector investments in CST technology Given the great degree of uncertainty about the in South Africa. However, the process is still ongoing required (or justified) level of capital costs for CST and various steps need to be completed before projects in developing countries in general, and in electricity generated from renewable technologies will India in particular, an approach involving competitive be sold at the prescribed tariff. Cost Reduction Potential and Sustainability The overall cost reduction potential for each CST Assessment technology was derived by modeling reference plants based on the assumed component specific cost Different CST technologies have, at present, reached reduction potentials. For these reference plants, the varying degrees of commercial availability. While individual cost reduction potentials of components parabolic trough and, to a slightly lesser degree, power were deducted from the component specific cost tower are basically close to full commercial state, clear data available from developed markets for CST. The commercial cost data have yet to be established for the latter were chosen, since they were seen to be more Linear Fresnel and Dish Stirling technologies. A detailed established than the component specific cost data LCOE analysis based on the existing incentive schemes available from emerging markets for CST. and various assumptions regarding country specific natural and economic characteristics was conducted for Sustainability Analysis of Financial and Regulatory some of the major emerging markets for CST—India, Incentives Morocco, and South Africa—comparing parabolic trough and power tower technologies (as the most mature A basic sustainability analysis was conducted for a technologies). variety of regulatory and financial incentives granted in three of the major emerging markets for CST—India, xiv The report also presents a review of typical cost structures Morocco, and South Africa—based on the incentives’ for parabolic trough and power tower plants, which was impact on the LCOEs of 100 MW reference plants in derived from projects developed or under preparation in these markets. The primary aim was to estimate the Spain and the United States specifically for this report, impacts of specific regulatory and financial incentives and an in-depth assessment of the respective cost drivers. on CST generation cost and the societal cost expressed Based on these analyses, the report provides in financial terms. The analysis was carried out to (a) technology-specific LCOE reduction potentials and (b) an assessment of effects on public sector resources from different regulatory and financial incentives used to lower the LCOEs in various emerging market conditions. impact on LCOEs per dollar spent. Component-, Technical-, and Scale-Related Cost Reduction Potential The tested incentives ranged from tax holidays to favorable depreciation schemes and the use of Detailed analyses of potential for component-specific concessional financing schemes, such as through the cost reductions are given in the report. This was based International Bank for Reconstruction and Development on a detailed assessment of the respective cost drivers (IBRD), CTF, and GEF. The following observations can for each component and the underlying development in be derived: the respective industries producing these components. Among parabolic trough components, the most potential 1. The accuracy of solar resource assessment in for cost reduction in the timeframe until 2020 is measuring site-specific levels of direct normal demonstrated for reflectors (18–22 percent), reflector irradiation (DNI) is essential as the robustness of mounting structures (25–30 percent), receivers (15–20 the financial analysis for a CST plant is heavily percent), heat transfer systems (15–25 percent), and dependent on the quality of the DNI data. Given molten salt systems (20 percent). Power tower system the inverse relationship between the DNI and LCOE components showing the most cost reduction potential for CST plants, data measured on the ground at the are reflector mounting structures (17–20 percent), heat actual site of the project over the course of at least a transfer systems (15–25 percent), and molten salts as full year are required to provide sufficient grounding heat transfer fluids (20 percent). Components for Linear for a solid financial model. Fresnel systems showing the most cost reduction potential 2. For all technologies in all three scenarios considered, include reflector mounting structures (25–35 percent) the LCOEs for stand-alone projects are most likely and receivers (15–25 percent), while for the Stirling Dish currently too high to allow for cost recovery and engine system, it is the reflectors (35–40 percent) and meeting financing constraints. This is especially the reflector mounting structures (25–28 percent). case when the LCOEs are compared to the FiTs available for CST-generated electricity in Phase 1 from –0.65 percent to 4.8 percent for the power of the JNNSM in India and the FiTs that have been tower and from –2.55 percent to 3.8 percent for the proposed for Phase 2 of the REFIT scheme in South parabolic trough. Including the economic benefit of Africa. reducing carbon emissions, the ERR ranges from 2.1 3. LCOE calculations based on balance sheet financing percent to 8.8 percent for the power tower and from might be considerably lower than estimates based 1.1 percent to 7.4 percent for the parabolic trough on nonrecourse (off-balance sheet) financing reference plants. assumptions, such as the ones made for this analysis. 2. The carbon values that are needed to make projects However, balance sheet financing increases the achieve an ERR are implausibly large in India and risk profile of a company’s investments and might Morocco. In South Africa they are also quite high, require cross-subsidization among projects within the but one could argue that carbon reduction projects company’s portfolio, since the financial viability of a with costs in that range (US$80–100/ton CO2) have stand-alone project is no longer guaranteed. been undertaken in other sectors. 4. Financial and regulatory incentives, as well as concessional financing schemes, can significantly The sensitivity analysis shows approximately a 1 percent lower LCOEs. Within the range of considered financial reduction in the ERR for a 10 percent higher project and regulatory incentives, simple tax reductions cost and a further 1 percent reduction for an additional and exemptions tend to have the lowest impact and 10 percent higher project cost. A reduction in the load xv are likely to be the least cost-effective incentives in factor by 20 percent has a bigger impact—reducing the financial terms (not considering economic opportunity ERR by 2.5 percent to 3 percent. cost). By contrast, concessional financing schemes tend to have the highest impact and are likely to be In the case of India, the results show that parabolic the most cost-effective incentives in terms of their trough has a higher return than power tower, and that impact on LCOE on a per-dollar-spent basis. a five-year delay increases the ERR by nearly 3 percent. In the case of Morocco, the delay is not as effective in With regard to the other incentives considered, increasing the ERR (possible because the increases in accelerated depreciation, especially when compared power value are more modest). Even with carbon and to simple tax reductions or exemptions, seems to be local pollutant benefits, the ERR is well below a test rate. the superior option. Although far from cheap, it might In Morocco, power tower appears to exhibit slightly be worth considering in cases where—as seen in the better economics than parabolic trough. For the South case of South Africa—the existing regulatory incentive African case, because of the higher value of power and framework just needs to be moderately adjusted to carbon benefits, a 12 percent ERR can be exceeded lower LCOEs to the threshold where stand-alone with both technologies, although the power tower has projects become financially viable. a higher return by 1–2 percent. Including the benefits of reduced local pollutants would increase the ERR Economic Analysis of Reference CST Plants further—potentially by up to 1 percent. The report provides an economic analysis based on The analysis indicates that while power tower investment costs for reference 100 MW CST technology has a slightly higher return than parabolic plants—both parabolic trough and power tower— trough, and the use of wet cooling can slightly improve in the three respective countries considered in the the ERR, CST projects at current investment costs have report—India, Morocco, and South Africa. Sensitivity low ERRs that would be unable to meet commercial analyses are provided for higher investment costs, infrastructure investment requirements. However, project delays, lower load factors, and a higher value investment costs are projected to decrease considerably of the power generated. The following important over the coming years—a development that is expected observations can be made across all three countries: to largely alter the economics of CST technologies. Therefore, the decision to uptake CST technology might 1. In none of the countries does the economic rate of not necessarily be based on economic considerations return (ERR) achieve a rate required for infrastructure alone, but might include other aspirations, such as projects of more than 10 percent. Excluding carbon gaining market leadership and experience through and other environmental benefits, the ERR ranges technology development or targeting the building- up of a local manufacturing industry. Potential ways renewable energy components might help local also exist for improving the economics of CST, even companies raise funds for R&D to support product under current investment cost assumptions through, for innovation or provide risk capital for new start-up example, hybridization and the large-scale application companies. of storage—areas that, however, are outside the scope 5. The buildup of local industries could further be of this report. facilitated by introducing local content clauses within CST bids and other support instruments. Local Potential for Cost Reduction through Local content requirements, however, need to be set at Manufacturing realistic levels while being allowed to increase over time, according to the speed at which local industries To realize the cost reduction trajectories projected in can be developed. this report, a major scale-up of CST developments 6. Business models should build on the comparative would be necessary, both in the already-established advantages of particular sectors in the respective markets, as well as in emerging markets in the MENA country and should involve international region, India, and South Africa. A major increase in cooperation agreements, for example, in the CST capacity in emerging markets, however, is likely form of joint ventures and licensing. In the case only when the countries concerned benefit from the of receivers, for example, subsidiaries of foreign xvi technology for their economic development in general. companies will most likely be relevant business One of the primary means to foster development models in the beginning. Furthermore, obvious could be the establishment of local manufacturing and areas for local manufacturing capacity development assembly capacities. Local manufacturing might have include investments in new, highly automated the added benefit of reducing the cost of local projects production lines for the mounting structure and in the near term and bringing down the cost for a glass production, as well as the adaptation of variety of components and CST-related services in the techniques for coating and bending mirrors. With mid- to long term. By looking at local manufacturing regard to CST-related services, the local assembly of capabilities in several emerging markets for CST, plants and involvement of local EPC contractors are including the MENA region and South Africa, several important initial steps to maximize the local value general conclusions on incentivizing and supporting the contribution. buildup of local capacities to manufacture components 7. Establishing local manufacturing capacity will have and provide CST-related services can be made: to involve comprehensive education and training programs for the industrial workforce in relevant 1. The implementation of a stable and sustainable sectors. Universities and technical schools should be regulatory framework is the key precondition for encouraged to teach CST technology-based courses the development of a market for CST projects that to educate the potential workforce, particularly is needed to create investment conditions for local engineers and other technical graduates. manufacturing and service capacities in emerging 8. Ultimately, to ensure regional and international markets. quality requirements and to strengthen the 2. In the medium to long term, the annually installed competitiveness of future local CST industries, capacity should be on the highest scale possible in implementing quality assurance standards for CST order to incentivize the development of production components should be considered. lines, particularly in the case of mirrors and receivers. 3. Regulatory incentive frameworks must be in line Specific assessments of the local capabilities were with general national strategies for industrial conducted for two of the major emerging markets for development, and national energy policies should CST—the MENA region and South Africa. Based on be well coordinated and involve clear targets for the an in-depth assessment of the local CST value chain, market diffusion of CST, substantial research and the report provides component-specific projections development (R&D) efforts, strategy funds for industrial for local manufacturing, draws roadmaps and action development of CST industry sectors, and—in most plans in order to maximize local content generation in cases—a stronger regional integration of policies. the industry, and estimates the immediate economic 4. The provision of low-interest loans and grants benefits of local manufacturing, especially with regard specifically designed for local manufacturing of to employment generation. For the MENA region, an important finding concerning an activation of CST component manufacturing in the the status quo and future perspectives of local respective jurisdictions. manufacturing is that, while several parts of the piping system in the solar field—for the interconnection of Potential Economic Benefits of Developing a CST collectors and power block—can already be produced Industry in MENA and South Africa locally by regional suppliers, a further scale-up of local manufacturing capabilities in certain sectors— The economic and employment benefits of developing especially mirrors—has significant potential. For this a CST industry estimated in the report are gross potential to be reached, however, the countries would estimates and therefore do not consider the potential have to aggressively build on the know-how gained cost of scaling down or not strengthening other from the successful construction of the integrated solar industries providing other technologies that could combined cycle (ISCC) projects, while at the same time supply the same amount of energy. In general, the encouraging the involvement of international companies economic benefits are strongly related to the market to build up local production facilities. A certain size of CST. For the MENA region, an accelerated specialization in each country would be beneficial scenario—assuming 5 GW of installed capacity by because local demand will probably be relatively low in 2025—would create a local economic impact of the short to medium term. US$14.3 billion, roughly half of which would be from indirect impacts of the CST value chain (excluding xvii In South Africa the currently possible proportion of component exports), compared to only US$2.2 local manufacturing for CST power plant projects is billion in a business-as-usual scenario, assuming no expected to be up to 60 percent, depending on whether replication effects from the uptake of 1 GW of capacity specific CST components, such as receiver tubes, heat as envisaged by the CTF Investment Plan for region. transfer fluid (HTF) pumps, and swivel joints, can be The impact on labor generation would be a permanent developed and manufactured locally. Depending on the workforce of 4,500–6,000 local employees regionally uptake of the CST industry, however, this share can be by 2020 under a business-as-usual scenario based on considerably lower for construction and components the CTF Investment Plan. In contrast, in the accelerated or can increase further. Local mirror and receiver scenario in 2025, the number of permanent local production are seen as starting as early as 2015 in jobs could rise to between 65,000 and 79,000 the accelerated scenario, which also projects the local (46,000–60,000 jobs in the construction and production of other specialized, high-precision steel manufacturing sector plus 19,000 jobs in operation accessories for CST applications. Beyond 2020, the and maintenance). Additional impacts on job creation share of local manufacturing would increase even more and growth of gross domestic product (GDP) could as a result of further technology transfer and knowledge come from export opportunities for CST components. sharing through the realization of more CST plants in Exporting the same components that are manufactured South Africa, since the learning effect is expected to for local markets to the European Union, United States, play out fully around this time. This would also lead or MENA (2 GW by 2020, 5 GW by 2025) could lead to a drop in the cost of locally manufactured CST to additional revenues of more than US$3 billion by components because of technological advancements, 2020 and up to US$10 billion by 2025 for local CST economies of scale, and competition in the CST industries. component manufacturing sector. For South Africa the accelerated scenario creates a Roadmaps for the Development of Local local economic impact of US$25.9 billion compared Manufacturing of CST Components with US$4.1 billion in the same business-as-usual scenario as described for the MENA region. In terms The report identifies potential routes for the of employment generation, the impact would be development of local manufacturing capacities for 66,800–83,100 permanent jobs for local employees different components for both MENA countries and by 2020 under the accelerated scenario and 11,000– South Africa, and sets out the main milestones required 14,800 permanent jobs under the business-as-usual for the establishment of both local and export markets. scenario based on the CTF Investment Plan. Exporting The approach is to define a set of actions to be components could lead to additional revenues of more implemented among stakeholders who may bring about than US$3.6 billion by 2030. Assessment of Procurement Practices Elements of Power Purchase Agreements The report concludes by describing and analyzing various Ultimately, the report provides recommendations on bidding models, practices, and the bid selection criteria components that should be included in an optimally typically used for CST projects based on information balanced PPA for CST projects to adequately reflect the available from the developers and utilities in developed interests of both the developer and the utility (or a single markets. The report then provides recommendations on buyer). When selecting the recommended PPA elements, tailoring these practices, criteria, and PPA structuring for considerations should include characteristics of solar developing country markets to help facilitate business technologies, as well as aspects that may be applicable transactions for CST projects. Recommendations are to projects in emerging markets for CST, such as provided for primary elements of each subtopic. perceived risks over the reliability of transmission and distribution systems, off taker credit strength, Bidding Criteria and the sustainability of a respective government policy, particular in regard the executed contracts and The report provides guidance on the best-practice promised government incentives. The recommended structuring of bidding criteria—from both a regulator’s elements were selected to help reduce the risk point of view under, for example, a FiT scheme, and perception and thus to improve the attractiveness of xviii a utility’s or single buyer’s point of view under an RPS PPAs for investors and financiers, while meeting the scheme. In addition, it provides recommendations needs of buyers (see Table ES.2). on how to design PPAs under an RPS scheme. With regard to bidding selection criteria, the report suggests a weighted bid matrix for CST projects, as shown in Table ES.1. The weighted bid matrix provides a set of recommended bid selection criteria. The weights associated with each criterion should be assessed by individual respective entities responsible for bid criteria design based on the relative importance placed on each factor. Table ES.1: Recommended Bid Selection Criteria for CST in Developing Countries Cost-Based Level of concessional financing necessary Feasibility-Based Table ES.2: Recommended PPA Elements for CST Projects in Developing Countries Company and team experience Fixed dispatch with sharing of curtailment risk Company financial stability Energy payment using PPI/CPI/exchange rate/LIBOR Technology maturity Time of delivery factors for energy payments Interconnection feasibility Renewable energy credits bundled with energy (if Site control applicable) Environmental approvals Seller development security (refunded at commercial Ability to raise financing operations) Levelized cost of electricity (LCOE) Seller performance security (throughout the term of the PPA) Policy-Based Buyer payment security (throughout the term of the PPA) Speed of implementation (schedule) Opportunities to rectify default before contract termination Value-Based (Optional) Seller re-pricing and exit on incentive cancellation “Political” force majeure provisions Source: NOVI Energy (2011). Source: NOVI Energy (2011). PART I INTRODUCTION AND TECHNOLOGY BRIEF 1. CONTEXT, RELEVANCE, AND AUDIENCE certain aspects of the implementation of the Jawaharlal Nehru National Solar Mission (JNNSM). Concentrating solar power (CSP) refers to several different technologies that use mirrors to focus, or At present, the different CST technologies have reached concentrate, the sun’s rays to generate electricity. varying degrees of commercial maturity. This emerging The two subcategories of CSP are (a) concentrating nature of CST means that there are market impediments photovoltaic (CPV), which focuses the sun’s rays onto that need to be overcome to accelerate its acceptance, photovoltaic panels to generate electricity directly and including cost competitiveness, awareness of technology (b) different CST technologies, all of which—with the capabilities and limitations, intermittency, and the need exception of Dish Stirling—work on the same principle of for electricity storage. focusing solar radiation to generate heat, which is then used to drive an engine or turbine to generate electricity. Given the considerable pace of CST development in several WBG partner countries, there is a need to CST technologies have tremendous potential for scaling review the recent experience in developed countries up renewable energy at the utility level, diversifying the in designing and implementing regulatory frameworks generation portfolio mix, powering development, and to draw relevant lessons for emerging markets. mitigating climate change. A recent surge in demand Adaption of these lessons to specific developing for solar thermal power generation projects using country circumstances will be necessary, since the mere 3 different CST technologies in Spain, the United States, replication of developed countries’ schemes may not and a handful of other countries shows that CST could generate the desired outcomes. become a key renewable energy technology that is able to provide an alternative to conventional thermal power After providing a brief overview of the current state of generation based on the central utility model. CST technologies (Chapter 2), the report evaluates recent experiences with regard to regulatory frameworks With respect to WBG partner countries, several in some of the developed countries, as well as those countries in the Middle East and North Africa developing countries that have started establishing (MENA)—Algeria, Egypt, Jordan, Morocco, and regulatory frameworks targeted at CST deployment Tunisia—are pursuing regional CST investment projects (Chapters 3 and 4); assesses the cost reduction to be financed by the World Bank, IFC, and Clean potential and economic and financial affordability of Technology Fund (CTF). The plan for these installations various technologies in emerging markets (Chapter 5); is to supply power across the region and potentially evaluates the potential for cost reduction resulting from to Europe. The South African government has sought local manufacturing and associated economic benefits funding support from the CTF and technical advice (Chapter 6); and ultimately suggests ways of tailoring from the World Bank for a 100 MW power tower CST bidding models and practices, bid selection criteria, and plant in the Kalahari Desert. The WBG is also providing power purchase agreement (PPA) structuring to specifics technical assistance to the Government of India on of CST projects (Chapter 7). 2. OVERVIEW OF CONCENTRATING SOLAR potentially be economically viable only in regions that THERMAL TECHNOLOGIES possess high DNI to ensure high energy yields. Applications of solar thermal technologies are best The main advantages of CST applications include less suited for regions that experience high levels of direct intermittency because of the system thermal inertia, and normal irradiation (DNI). These regions are typically the option to integrate thermal storage, thus making located in dry areas such as deserts, which also power generation possible during extended hours (when have the advantage of plentiful land unsuitable for the sun doesn’t shine) and to use CST in utility scale agricultural or industrial purposes. operations. According to a recent report,1 among the various solar The following factors are typically cited as drawbacks of technologies, the CST is primarily suited for larger scale the current application of CST technologies: installations, while PV-based technologies are better matched for smaller-scale or distributed generation CST-based plants are presently characterized by high applications (Figure 2.1). Photovoltaic panel theoretically upfront investment resulting in increased electricity has wider geographical applications, even if a certain generation costs, which could be decreased by level of diffuse radiation is needed in order to make the further technological innovations and economies of electricity generation economically viable. Solar thermal scale, including volume production and larger-sized 5 technologies have geographical limitations, and can units. Figure 2.1: Markets and Applications for Solar Power Category Small Medium Large Installation SIze < 10kW 10 to 100 KW to 1 to 10mW 10 to > 100 mW 100kW 1mW 100mW Technology mix in each market 100 % PV 99% PV, 1% CSP 20% PV, 80% CSP 2007 share of worldwide solar market 7 GW (84%) 0.7 GW (9%) 0.5 GW (7%) (installed capacity and % of installed capacity) Installation type Distributed Generation Central Generation Markets served Residential Commercial Utility Base (50%). Intermediate (40%), Peak (10%) PV based Non Non-tracking PV dispatchable Tracking PV CPV Thermal Dispatchable Dish-Engine based (with storage) Trough Tower LFR Legend: Best suited Suitable Source: Adapted from Grama, Wayman, and Bradford 2008. 1 Grama, Wayman, and Bradford 2008: A guide to the impact CSP technologies will have on the solar and broader renewable energy markets through 2020. Locations with irradiations of more than 2,000 of the technologies, as per literature and operational kWh/m2/year are suitable to make solar thermal experience reviews, are summarized in Tables B.1 and performance economically justifiable (Viebahn and B.2 in Appendix B. others 2008). Regarding operational experience and technological The primary CST technologies include maturity, parabolic trough and, to a lesser extent, Parabolic trough power tower are closest to commercial maturity Power tower (central receiver) state. Fresnel and Dish Stirling technologies are Linear Fresnel still at earlier development levels. Therefore, the Parabolic Dish (Dish Stirling) technological risk is considered to be the lowest for parabolic through and again to a slightly lesser The Parabolic Dish technology differs significantly degree for power tower plants. Investment and O&M from the other three in both technical and economic costs are also better known for these two technologies terms. The parabolic trough, power tower, and thus reducing the related financing risks. Tables B.3– Linear Fresnel technologies, although based on the B.6 in Appendix B include lists of projects developed same technical principals, vary with regard to their for each technology. reliability, maturity and operational experience in utility 6 scale conditions. Relevant design features of each Storage has allowed CTS technologies to considerably technology are discussed in more detail in Appendix increase their capacity factors and meet the A, along with a summary of the maturity status of each dispatchability requirements demanded by utilities and technology. Every technology has advantages and regulators. Hybridization, independent of whether it is disadvantages, and the suitability of each one should combined with storage or fuels (such as natural gas, be assessed carefully depending on the needs and diesel, and biomass), can increase the reliability and the requirements of every site and project. The summary capacity factor of CST plants in general at a potentially results of the technical and commercial assessments lower capital investment cost than storage. PART II FINANCIAL AND REGULATORY SCHEMES: THE CURRENT SITUATION 3. POLICY INSTRUMENTS USED TO Renewable Portfolio Standards (RPSs) with a variety of PROMOTE CST IN DEVELOPED COUNTRIES other instruments, which are in use in the southwestern United States, were hence evaluated against a set of Several countries—principally in the OECD area— four indicators: (a) the overall investment trends in the have established dedicated regulatory frameworks and renewable energy sector; (b) the total CST capacity incentives to encourage CST deployment. There are installed as a consequence of the introduction of a a wide range of regulatory measures and financial particular framework or combination of incentives; (c) a incentives that can be used to encourage development share of CST generation in the overall electricity supply in the renewable energy sector (Table 3.1). This chapter mix; and (d) a structure of financial arrangements and reviews the experience of the prevailing regulatory the amount of private sector investments leveraged into and financial approaches for CST in the two largest the respective projects by the applied framework or a markets—Spain and the southwestern United States. combination of incentives. Both the Spanish FiT regime and the regimes combining 9 Table 3.1: Policy Instruments, Characteristics, Advantages, and Disadvantages in Implementation Policy Objectives and instruments characteristics Advantages Disadvantages Subsidy/tax Fiscal instrument to reduce Easy to understand and High administrative costs. May not be incentive costs for renewable energy implement. Use of government cost effective. consumers or producers funds to meet particular policy Needs effective monitoring mechanisms objectives to minimize risks. No guarantee of meeting quantitative targets. Renewable Financial instrument Increase efficiency and Lack of experiences in fund energy fund to support renewable reduce management cost management. How to combine public energy, either in R&D, fund through professional fund and private interest/benefit through transfer, or in market- management. effective management. based applications. Voluntary Mobilize consumers’ Generate additional funds Effectiveness depends on electricity green electricity interest and support. from consumers, less use prices and consumers’ access to scheme Provide flexibility. of government resources, a information and awareness. Not cost- tool for engaging public and effective. No guarantee for meeting private sector participation. quantitative target. High administrative costs. RPS/Green Combines obligation for Encourages competition and May not do much for high-cost certificate producers/consumers cost effectiveness. Relies technologies. Transaction costs can be scheme to use green electricity on market mechanism for high. Transparency and verification with certification of green resource utilization and (within systems needed. production. green) technology choice. Sovereign Loan Government shares some Can substantially lower High administrative costs. Amount of Guarantees of financial risk of projects financing costs for a particular guarantees provided might be limited. that otherwise would not project and tip the bankability yet be supported in the of a stand-alone project. commercial marketplace. Feed-in tariffs Financial scheme ensuring a premium payment to eligible electricity production. Can ensure long-term return for investors, and is relatively simple to implement and flexible (for example, different technologies can be provided with different tariffs and contract lengths) May not ensure a long-term target. Requires good monitoring mechanism. Transparency needed. Not necessarily cost- effective. Source: Adapted from Gan and others 2007. 3.1 Regulatory Framework and Financial expansion. Meanwhile, quota systems applied in other Incentive Options European countries (such as Belgium, Italy, Sweden, and the United Kingdom) are largely considered by The two principal options for the promotion of experts to have failed to bring about the desired levels renewable energy are schemes centered on the FiT of capacity growth in the renewable energy sector. and RPS. An RPS is typically combined with several other incentives listed in Table 3.2. The actual design, This might lead to an assumption that FiTs are the however, usually varies from jurisdiction to jurisdiction. best policy option available to date. However, recent modifications of FiTs available for solar photovoltaics A review2 of the literature suggests that the ability of in Europe suggest that this might not always be the a particular regulatory regime or instrument to trigger case. Different regulatory experiences in the United investments into the particular technology at the States where the RPS scheme prevails as the framework lowest possible societal cost depends on the set policy of choice also support this argument. FiT schemes objectives. If the stated policy objective is to increase the generally are not favorites of U.S. policy makers, who share of energy generated from renewable sources and have instead often opted for RPSs coupled with various to facilitate the development of respective industries, investment and production tax incentives, grants, and FiT schemes have been the most successful instrument loan guarantees. Indeed, 36 U.S. states and the District 10 employed by policy makers so far. In Europe in of Columbia now have RPSs enacted, while only a particular, the FiT regimes of Denmark, Germany, and handful of U.S. state jurisdictions are implementing Spain (see Box 3.1) have won high praise, especially FiTs—with none of them currently considering a FiT with regard to wind and solar photovoltaic power tailored for CST (U.S. DOE 2011). Table 3.2: FiTs vs. RPS Schemes FiTs FiT regimes usually guarantee a payment to suppliers for energy generated from a specified source (such as renewable energy) at a defined rate over an extended period. Quite often the FiT regime also provides preferential access to the grid. Tariff levels are usually set at a predefined level or as a premium above the market price. FiT can further be tailored to the cost specifics of a particular technology, as well as to different sites and characteristics of the energy resource (such as reflecting the level of intermittency or seasonal resource availability). Ideally, tariff levels are sufficiently high to mitigate the risk of high up-front investment cost and potential regulatory changes. The period, for which FiT payments are guaranteed, is also long enough to provide developers with adequate incentives to overcome otherwise prohibitive development risks—such as the cost of research, land leases, permitting, construction, guarantees, and warrantees. In most cases, utilities are required to off take all output generated at the respective technology-specific tariff level, but are also usually allowed to pass the cost difference on to final consumers. FiTs can theoretically lead to societal gains in terms of reduced market prices, reduced levels of GHG emissions, and a decrease in fossil fuel consumption and/or imports. By contrast, FiTs also come at a societal cost, since they usually lead to an increase in the overall price of electricity per customer or to an increase in government’s subsidies. RPSs The prevailing regulatory framework in the United States and several other OECD countries (Belgium, Sweden, and the United Kingdom) is based on a quota system, generally referred to as an RPS combined with a variety of investment and production tax incentives, loan guarantees, financing from renewable energy funds, and voluntary purchases of renewable power by utilities. RPSs are designed to maintain or increase the contribution of renewables to the overall supply mix by obliging retail suppliers to reserve a specified amount or percentage of renewable energy to their individual supply mix. These obligations generally increase over time with suppliers being required to demonstrate compliance on a year-to-year basis. To fulfill their obligations, utilities usually have to rely, at least partly, on generation from their own facilities while being able to make up for shortfalls by purchasing renewable power from independent power producers (IPPs). In some jurisdictions, utilities are also allowed to meet at least a part of their obligations by trading in so-called Green Certificates (GCs), which are created when a unit of energy is generated from a renewable source and which work much like tradable emission permits. 2 The literature review included the following sources: Durrschmidt 2008; Rowlands 2004; Astrad 2006; Fouquet and Johansson 2008; del Rio and Gual 2007; Nilsson and Sundqvist 2006; Lorenzoni 2003; Nielsen and Jeppesen 2003. Table 3.3: Currently Installed CST Capacity (MW) Regulatory Total Total under Total scheme Main features operating construction planned FiT—Spain EUR 26.9375 cents/kWh over whole life cycle or 382.48 1,540 497 premium over market wholesale price up to EUR 34.3976 cents/kWh Guaranteed grid access/off take RPS—U.S. total Federal incentives: 432.46 1,077 9,912 Accelerated depreciation Investment tax credit or renewable energy grants Federal loan guarantees Rural energy grants Clean renewable energy bonds Manufacturing investment tax credits Production incentive payments California RPS 33% by 2020 + 363.8 718 6,896.8 Federal incentives + Property tax exemption 11 Nevada RPS 25% by 2025 + 64 0 2,184 Federal incentives + Property tax abatement Arizona RPS 15% by 2025 + 2.6 280 1,010 Federal incentives + Corporate tax credit Property tax reductions Business tax incentives Florida Federal incentives + 10 75 0 Corporate tax credit Renewable energy technology grants Source: Adapted from CSP Today 2010. Database of State Incentive for Renewables & Efficiency. Regarding the specific incentives for CST, the European ( ) (del Rio and Gual 2007). The amended and the U.S. experience are both very relevant and Royal Decree 436/2004 allowed renewable energy must be taken into account. This chapter will review the producers to sell their electricity to distributors or regulatory incentive frameworks of Spain and several directly to the market. In both cases, support was tied western and southwestern U.S. states (see Table 3.3), in to the AET.3 The 2007 modification, reflected in Royal which CST penetration has been most significant (see Decree 661/2007, ultimately decoupled renewable Tables B3.3–B.6 in Appendix B). energy support from the AET, tied it to the Consumer Price Index (CPI), and instituted a cap-and-floor system 3.1.1. The Spanish Feed-in Tariffs for the premium on top of the electricity market price. The Spanish FiT for renewable energy is widely Solar thermal electricity was first identified for the FiT considered the most successful—at least until support in the RD 436/2004 with the stated aim of recently—and as such is certainly the most studied developing a local CST industry. The 2007 reform example. In 1998, the Royal Decree on the Special increased the fixed FiT rate to EUR 26.9375 cents/ Regime (RD 2818/1998) gave renewable energy kWh, and set a price range for the premium above generators two options: (a) on top the AET between 25.4038 and EUR 34.3976 cents/ of the electricity market price or (b) kWh for electricity generated by plants with up to 50 3 Meaning the average between different electricity tariffs that tend to vary for residential, business, and industrial customers, and for any single class depending on time-of-day or by the capacity or nature of the supply circuit even within a single region or power district. MW capacity. Either the fixed rate or the premium is capital and investment costs. A reverse auctioning guaranteed for 25 years for all electricity supplied to the mechanism (as outlined in Box 3.2) for a set amount grid under the scheme until 2013, adjusted annually of capacity eligible for the FiT in a given year could according to the changed CPI minus 1 percent, and be a potential solution in this regard. The experience dropping uniformly to EUR 21.5 cents/kWh after 25 years of operation. Renewable energy projects including CST are also granted priority access to the grid. In theory, the consumer pays the incremental price Box 3.1: Germany’s Recent FiT Reform increase, since utilities are allowed to pass on the cost Germany introduced FiTs for a variety of renewable difference to final consumers. However, this mechanism energies through its Erneuerbare-Energien-Gesetz has not been applied. Only part of the cost difference (Renewable Energy Sources Act) in 2000. The law is passed through, resulting in a situation when the guaranteed renewable power generators priority government must partially reimburse utilities for the access to the grid and required utilities to off take additional cost related to the FiT. any electricity produced by renewable sources at predefined tariffs. The latter, and the period they were guaranteed for, were tailored to the respective The first Spanish CST installation—Solucar PS-10, a capital and investment costs of each individual tower system of 11 MW capacity—was connected to technology, with actual tariff levels decreasing at a 12 the grid in 2006. Ten more installations have since certain percentage rate per year to set an incentive come online, bringing the total CST generation capacity for cost reduction. Utilities were allowed to pass the additional cost above the nonrenewable AET in Spain close to 383 MW. Fifty-one installations are through to final consumers. In addition, FiTs were now under construction or planned. When completed, combined with a variety of incentives like subsidized they will add more than 2,037 MW of CST generation investment loans and tax credits to aggressively capacity to the grid (CSP Today 2010).This tremendous increase the share of renewable energy in the increase in capacity and the need to reimburse utilities overall power portfolio to 30 percent by 2020. The law jump-started markets for renewable for the cost difference prompted the government to energies—especially for wind and solar PV—causing implement some modifications of the FiT scheme starting the share of renewable energies in final electricity in 2009. The primary motivation behind these changes— consumption to increase from 6.3 percent in 2000 besides the need to deflate the investment bubble—was to 15.1 percent in 2008, with wind supplying more most likely to limit the societal cost of the FiT, especially than 40,000 GWh and PV supplying around 4,000 GWh in 2008. According to Germany’s government, in terms of restricting fiscal reimbursements to utilities. the FiT-based approach reaped considerable societal The government’s Royal Decree 6/2009 established benefits of approximately EUR 9.3 billion in 2006 a pre-assignment register, for which developers need from decreased spot-market prices because of the to sign up to be granted approval for their individual merit-order effect (del Rio and Gual 2007), avoided projects. A 500 MW annual cap for capacity eligible GHG emissions, and decreased fossil fuel imports, as well as adding around 280,000 new “green” for the FiT was introduced. This translated into a 2.5 jobs (BMU 2009). By contrast, the overall cost for GW cap until 2013 based on the first-come-first-served final consumers rose to EUR 4.5 billion in 2008 principle (Boletín Oficial del Estado 283/2009). No plant (equivalent to EUR 1.1cent/kWh, or 5 percent of is subsequently allowed to choose the fixed premium the average retail price), and is projected to have variant of the FiT during its first year of operation. peaked at EUR 8.5 billion in 2010 and to decrease after until reaching zero by 2020. The recent spike in consumers’ cost has partly been caused by a While these steps will contribute to controlling societal larger-than-expected number of installations using costs, they most likely will not be sufficient to deflate the renewable technologies, namely rooftop solar PV. investment bubble, since FiTs remain relatively generous According to the Association of Consumer Protection Agencies, rooftop PV capacity installed in 2009 for capacity coming online until 2013. At the same time, will most likely cost final consumers EUR 10 billion there is a considerable degree of insecurity in the market over the course of their lifetime as opposed to the since the current framework only extends to 2013. planned EUR 2.4 billion(VZB 2010). As a reaction to this development, the government recently decided Some modifications, such as annual capacity caps, to decrease FiTs for new PV-based capacity by up to 16 percent, with the stated aim of bringing tariffs in could further help deflate the investment bubble and line with decreased investment and production costs avoid unnecessarily high societal costs. The most crucial and limiting the impact on consumers. modification could be to align the FiTs with actual shows that caps on individual plants’ capacity are to improve the bankability of an individual project. The likely to lead to inefficiencies. The latter is linked to U.S. Department of Energy (U.S. DOE) is authorized considerable gains to be realized from increasing the to issue loan guarantees up to the total amount of scale of individual CST plants, which can be foregone US$10 billion to projects in the field of renewable by limiting the maximum amount of capacity of a single energy, energy efficiency, and advanced transmission plant eligible for the FiT scheme. and distribution. CST is one of the eligible technologies under the current U.S. DOE loan guarantee program. 3.1.2. Renewable Portfolio Standards and CST in The amount of the provided guarantees varies among the United States individual projects, but the total project value is usually higher than US$25 million. The full repayment is Of the 36 U.S. states that enacted the RPS scheme required over a period not exceeding 30 years or 90 by 2010, 16 have provisions requiring a specific percent of the projected useful life of the physical asset. level of solar power in the supply mix. These states include Nevada (1.5 percent by 2025), Arizona (4.5 BrightSource, a California-based company, was one percent by 2025), and New Mexico (4 percent by of the first awardees of the federal loan guarantee 2020). Usually the RPSs are combined with a variety program that secured a US$1.6 billion loan guarantee of other incentives, such as federal loan guarantees, for its 383 MW Ivanpah power tower project in investment and production tax credits, renewable California. The Spanish developer Abengoa secured 13 energy grants, property and sales tax breaks, and Clean another US$1.45 billion in guarantees for its 250 MW Renewable Energy Bonds coming from federal and state Solana plant in Arizona. In both cases, the respective governments (see also Table 3.3 above). guarantees covered around 75 percent of the total expected project cost. Currently there are apparently The major downside of the RPS scheme with regard another 5–6 CST projects in the pipeline being to CST seems to be its inability to attract nonresource evaluated for receiving a loan guarantee. financing terms for project development without the availability of loan guarantees at scale. In most cases, Though loan guarantees are apparently crucial for small and mid-scale developers are unable to secure improving the bankability of projects, for smaller and nonrecourse financing. For this very reason, until recently, mid-size developers, such an incentive comes at a most plants that received construction permits in the certain administrative and compliance cost, including United States were based on balance-sheet financing. obligations on the use of local manufacturing and This is rather different from the Spanish case where nearly services and labor and environmental requirements. In every project was financed on a nonrecourse basis. addition, as already mentioned, the processes to secure the guarantee can be fairly slow, with no assurance that This situation has, however, changed with the the current scheme will be extended once the US$10 availability of relative large-scale federal loan billion has been allocated (which at the current pace of guarantees starting in 2009, providing the opportunity awarding could happen relatively soon). Box 3.2: The Renewable Energy Reverse Auction Mechanism A potential way to assure maximum cost efficiency of the CST capacity installed under a RPS scheme could be in the application of so called Renewable Energy Reverse Auction Mechanisms (RAMs). Already being used for wind power under RPS schemes in New England and proposed for solar PV by the California Public Utilities Commission under the Californian RPS (CPUC 2009), RAM would require developers to bid the lowest possible price per kilowatt-hour, under which they would still be willing to develop a CST project, with utilities accepting the lowest- cost projects up to the total capacity cap. While setting a long-term investment signal, this approach has the benefit of securing the most cost-efficient investment while avoiding any potential windfalls to developers at the expense of ratepayers. However, RAMs would require setting up a standardized procurement system under which utilities would be able to rank individual bids, including their cost-efficiency characteristics. The least-cost projects would then be offered to sign PPAs with utilities for up to the general capacity cap or the target established under the RPS. RAMs would thereby secure preapproved utility cost recovery, cost certainty, and a minimum cost impact for consumers while still presenting regulatory certainty for developers (Kubert and Sinclair 2010). By contrast, proponents usually indicate the hands-off US$4.1 billion), and solar (17.4 percent or US$3.2 character of the loan guarantee program, allowing the billion, both PV and CST). Total investments have market to make decisions as opposed to governments grown by over 100 percent over the previous five actively picking winners. Another discussed advantage years with the total installed renewable capacity is that fees charged for the guarantees can technically having grown by 24.3 percent in the same period, be set at a sufficiently high level to cover expected reaching 53.4 GW or 4 percent of total power losses from the guarantee program (depending on the capacity (PEW Charitable Trusts 2010). expected rate of default). 2. 3.2. Investment Trajectories in Spain and the United States With regard to Spain, most of the installed CST generation capacity came online after the landmark To assess both regulatory approaches in terms of their Royal Decree 661/2007, even though projects were ability to provide sufficient incentives for developers to previously developed because of the tailoring of the deploy CST, the following trends were analyzed: FiT to CST applications in 2004. The overall capacity added since the introduction of the FiT has since 1. reached nearly 383 MW with a further 1,540 MW 14 under construction. Regarding the United States, one Spain is a significant player in the renewable would have to subtract the nine SEG plants, which energy sector with overall investments of US$10.4 came online in the late 1980s and early 1990s from billion in 2009, down by approximately 50 percent current installed capacity. New capacity coming from 2008 because of the financial crisis. The online since 2006—the year in which the first of the largest chunk of these investments went to wind cited RPS frameworks was introduced—has added (34.2 percent or US$3.5 billion) and solar (60.6 up to 78.7 MW, with 1,077 MW currently under percent or US$6.3 billion) power generation. Total construction (CSP Today 2010). However, the United investments have grown at about 80 percent over States has announced a considerably higher amount the last five years with total installed renewable of capacity to be developed—9,912 MW compared capacity having grown by 9.1 percent in the same to 497 MW in Spain. period, reaching 22.4 GW or 30.1 percent of total installed electricity capacity (PEW Charitable 3. Trusts 2010). In 2010, wind and solar (both PV and CST) accounted for 23 percent of the total Despite the recent considerable increase in plants installed capacity and 18 percent of total electricity in operation, the overall share of CST in the generation. Total renewable capacity installed was electricity supply mix of both the United States and 23 GW. This impressive investment trend is probably Spain is still relatively small. The most recent yearly the result of the relatively generous terms of the FiT overall electricity generation data available from framework. the International Energy Agency (IEA) for Spain and the United States, for 2008, shows total Spanish The United States recently dropped to the second electricity supply at 311,130 GWh and total U.S. rank globally in terms of overall investments in electricity supply at 4,343,820 GWh (IEA 2010). renewables, losing their leading position to China. Assuming a capacity factor for installed generation The same happened with regard to the technology of around 22–24 percent, the overall CST-based in review, CST, in which the United States just lost its output would be equal to 761.1 GWh in Spain and top rank to Spain. Overall renewable investments in 860.5 GWh in the United States in 2010. Even the United States stood at US$18.6 billion in 2009, compared to the 2008 supply data, this would down by 42 percent from 2008, also because of mean that the share of CST generation in the overall the financial crisis, but were set to have increased electricity supply mix amounts to approximately 0.25 considerably in 2010 when roughly one-third of the percent for Spain and 0.02 percent for the United clean energy stimulus funding was spent. The largest States. Assuming that all capacity currently under chunk of the overall investments went to wind (43.1 construction or in development would come online, percent or US$8.0 billion), biofuels (22.1 percent or the overall share, relative to the 2008 supply data, would increase to 1.6 percent for Spain and 0.52 2. FiTs have encouraged large, integrated percent for the United States. infrastructure companies to enter the CST market, providing better opportunities for large- 4. scale project development. The large, integrated infrastructure companies of Spain were motivated to pursue CST because of With regard to Spain, the tailoring of the FiT to CST the secure cash flow revenue streams guaranteed in 2004 already triggered the first development by the FiT scheme. In the United States, start-up proposals, but it was not until modification of the companies, not large developers, have first brought FiT by Royal Decree 661/2007—which considerably the technology to construction. However, as the increased tariff rates and premiums and decoupled technology matures, it seems that large companies them from market reference prices—that a large would become involved. The Spanish giant Abengoa, number of projects became bankable. Although for example, has made its way into the U.S. market actual data with regard to financial structures are by securing a US$1.45 billion in guarantees for hard to come by—developers are fairly secretive its 280 MW Nevada-based Solana project. This in this regard in both countries—most, if not all incentive scheme is likely to benefit large companies, Spanish projects, seem to have triggered limited which are generally in a better position to finance recourse or nonrecourse financing. Currently, more larger installations, and to take advantage of 15 than 1.5 GW of capacity has received either limited economies of scale—one of the primary assumed recourse or nonrecourse financing from domestic or drivers for cost reduction for CST technologies. international commercial banks. This contrasts with plant developments in the United States, where, until 3. When coupled with well-designed power the recent large-scale provision of loan guarantees, purchasing agreements, tax incentives, grants apparently only very few projects were based on and especially loan guarantees, RPSs can also be limited recourse or nonrecourse financing. an adequate incentive for CST industry growth. The success of RPSs seems to be associated with the 3.3. Analysis and Conclusions provision of simultaneous schemes, such as well- designed PPAs, tax incentives, grants, and especially Both the United States and Spain have seen a rapid loan guarantees that make CST projects attractive uptake of CST technology over the past several for developers and commercial banks. More than years, and the trend is likely to continue, despite 80 percent of the cost of a CST installation lies in minor modifications of the Spanish FiT. Based on initial construction and connection costs, making the investment trends analyzed above, the following it important for developers to receive assistance in conclusions can be drawn: financing the upfront costs associated with large- scale CST development until the technology can reap 1. FiTs have been the most successful incentive for its high, cost-reduction potential. Loan guarantees jump-starting renewables’ market penetration can be a powerful complementary instrument under and encouraging rapid development of domestic an RPS scheme, as evidenced in the United States. CST companies. However, this set of policy instruments imposes Spain is regarded as the leader in the CST field, high administrative costs on developers and on the and it is likely to continue in this role because of governments. the continuing success of the FiT scheme. The Spanish FiT has triggered a considerable number 4. The details of any incentive scheme—whether of projects in a relatively short time and enabled FiT or RPS—are critical to its success, perhaps rather favorable financing terms compared to the more critical than the choice of a particular RPS schemes in the United States. Although coming incentive scheme to apply. at a considerable fiscal cost, the overall net societal For example, FiTs that deviate too much from the benefits in the form of reduced spot market prices for “market clearing” price are either likely to fail to electricity, lower GHG emissions, a reduced need for attract sufficient private sector investment if they are fuel imports and net contributions to GDP seem to set too low or set for too short a timeframe, or to substantial (APPA 2009). grant a potential windfall to developers and investors at the expense of consumers and/or taxpayers if they deteriorate conditions for this type of financing and are set too high or guaranteed for too long. hence for CST development under the respective framework. This can present a problem, since even Potential solutions for these problems include, for when periodic tariff reviews or a scheduled phase- example, a reverse auction mechanism, which in out are enshrined in the FiT framework, a sudden theory could result in a tariff reflecting the confidence change in government priorities or a reassessment of a developer to implement the project at the bid of the respective policy goals might well trigger price that should be close to the actual technology a modification of the tariff framework. Such a cost. An additional advantage of a reverse auction modification—regardless of whether or not it is would be that FiTs would not necessarily have to be justified from an economic point of view—might have reviewed regularly to align them to investors’ a negative effect on the overall investment trends in interest and the public interest. If technology-specific the market. tariffs are set by the regulator, periodic tariff reviews would undermine the main advantage of FiTs—their In the case of RPS schemes, best-practice PPAs predictability for investment decisions. Under a classic should provide for a comparable long-term FiT regime, a scheduled phase-out of the granted predictability of cash flows. However, the experience FiT by a certain amount every year could also be a of the developers in the United States suggests that, 16 potential solution. However, if a scheduled phase so far, PPAs alone have not been able to trigger out is applied; it might be problematic to find a large-scale investment in the technology, let alone reduction rate for the FiT that brings it in line with the nonrecourse financing for CST plants. This highlights actual technology cost reduction rate. The Spanish the need to ensure predictability for both developers experience also shows the importance of introducing and investors. This could be obtained by establishing a capacity ceiling to control societal costs. off take arrangements that allow for a viable and predictable income stream, which in turn would As with stand-alone RPS schemes, concerns are make these projects bankable (see section 7.3 on raised with respect the high administrative cost on PPA Structuring in Chapter 7). However, unless the developers and that it may not provide sufficient public sector provides additional reliable incentives incentives to overcome the high investment costs. It to cope with the large upfront investments, PPAs is therefore of utmost importance that RPS schemes alone are unlikely to provide the necessary cash-flow not be overly burdensome in terms of administrative security. compliance cost and that incentives be tailored toward the characteristics of CST. Even if the RPS 6. Particular conditions of a country will determine scheme is appropriately tailored, there might still the best approach. be the need to provide loan guarantees on a large Both FiTs and RPS schemes are ultimately funded by scale to buy down the real and perceived technology consumers—be it in their capacity as taxpayers or risk. The fact that investments in the technology in rate payers—and, as such, will only be appropriate the United States only took off after the introduction in jurisdictions with well-established governance of a comprehensive and generous loan guarantee and electricity regulatory frameworks. Based on the program seems to support this conclusion. material reviewed in this evaluation, it seems likely that, given the potentially higher administrative 5. Continuity is essential for the success of any costs associated with a complex array of incentives, policy instrument. such as tax incentives and grants, which usually Developers and investors are more likely to assume go along with RPS schemes, a FiT combined with the financial risk of a CST project if the support concessional and nonconcessional loans might, scheme in place is credibly guaranteed for a certain in theory, be a preferable option for jump-starting period. This is especially important with regard industry development, because of its simplicity and to the timeframe for FiTs, since they were usually predictability. The relative flexibility of FiTs in targeting able to trigger nonrecourse, project financing. different technologies might well prove superior to As the latter are obviously based on consistent RPS schemes. By contrast, one must keep in mind cash flow projections, any insecurity with regard that the methodology for designing and structuring to the level or timeframe of a FiT will most likely technology-specific FiTs is rather a “try and adjust” approach, requiring keeping track of technology conducting periodical tariff reviews to adjust FiTs to developments and evolvement of manufacturing changes in the investment and production costs or markets to produce CST components locally (see simply schedule the phase-out of the tariff over a Chapter 6). certain timeframe. Nevertheless, in situations where the political economy rules out the use of a FiT, or The tremendous downside of a FiT from a public where it is politically inacceptable to pass the full cost policy maker’s point of view is certainly its increase on to the end user, a strong RPS combined considerable societal cost. Incentives should be with a variety of incentives might also be effective in aligned with the overall affordability of consumers promoting CST development, although potentially at and taxpayers. This holds true for both developed a slower pace. In any case, one can assume that a and developing countries, although in the former comprehensive sovereign loan guarantee program the impact is less immediate because of higher would have to be launched in order to trigger income levels of the population. There are potential desired investments under an RPS scheme, especially options to minimize the societal cost in the form of in emerging markets where investors still perceive a cap on the overall capacity eligible for a FiT, and project risk as higher than in the developed markets. 17 4. RENEWABLE ENERGY SCHEMES such as the CTF and large European Union-sponsored SUPPORTING CST IN DEVELOPING initiatives, such as Desertec (Fenwick 2011)—the only COUNTRIES plant currently under construction is an integrated solar combined cycle (ISCC) plant at Hassi R’Mel with a 25 A variety of approaches have been taken in developing MW parabolic trough CST component in combination countries to incentivize investment in renewable energy with a 125 MW combined cycle gas turbine, which was in general and CST in particular. This chapter will financed by Kreditanstalt für Wiederaufbau (KfW)—the review and analyze those currently under planning or German bilateral development bank, and the European implementation in the Middle East and North Africa Investment Bank (EIB). Part of the reluctance of the (MENA) region, India, and South Africa. private sector to embrace the Algerian FiT scheme may be caused by the lack of protection from the wholesale 4.1. MENA Incentive Schemes market price volatility and the influence of domestic fuel subsidies on the whole sale electricity pricing. 4.1.1. Algeria 4.1.2. Egypt Algeria stands out as a notable example of a country within the region that has taken steps to introduce Egypt has no specific price support mechanism yet price incentives for renewable energy. In 2004, the in place for renewable energy. However, the need to 19 Algerian government issued a decree instituting FiTs. cover additional costs for renewable energy projects Under the decree, premiums are to be granted for through tariffs has been recognized by the country’s electricity produced from renewable energy resources. Supreme Energy Council, and some other policy The premiums are expressed on the percentage of the measures have been initiated to promote renewables average wholesale price set by the market operator and especially CST. These include (a) an exemption based on bids from generators and buyers of electricity, from customs duties on wind and CST equipment; as defined in the law on gas and electricity (GOA (b) the finalization of the land use policy for wind 2002). The tariffs are differentiated by technology and and CST developers; (c) the acceptance of foreign do include a tariff for CST. currency denominated PPAs; (d) the confirmation of central bank guarantees for all build-own-operate For plants producing electricity exclusively from solar (BOO) projects; and (e) the support for developers energy (including both CST and CPV), the premium is with respect to environmental, social, and defense 300 percent of the average wholesale price. For hybrid permits and clearances (CIF 2010). Despite the lack solar-gas power plants with solar energy contributing at of specific price support mechanisms, an ISCC plant least 25 percent of the plant’s output, the premium is with a 20 MW CST component is already operating at 200 percent. For smaller proportions of solar energy in El-Kureimat, located roughly 100 kilometers south of the plant output, the premium is set at lower levels—for Cairo. The construction of this plant was financed by example, 180 percent if solar generation is between 20 JBIC and again supported by a grant from the Global and 25 percent (JORADP 2004). Even though the tariff Environment Facility (GEF), for which the World Bank level can vary over time (because of the connection was the executing agency. to the price set by the market operator), the size of the premium in relation to the average system price is 4.1.3. Morocco guaranteed for the full lifetime of a project (FuturePolicy. org 2010). Morocco does not have price incentives yet in place for renewable energy. Nevertheless, the country is While the introduction of a feed-in-tariff (FiT) scheme in aiming to have 2,000 MW of solar power generation Algeria is an encouraging example that holds promise capacity installed by 2020, starting with the ambitious for the future, the price incentives along with the entire Ouarzazate 500 MW CST project. The project is structure of the scheme do not seem to be attractive expected to utilize parabolic trough technology enough for investors in solar energy. The proponents of equipped with storage. The legal, regulatory, and the Algerian renewable energy projects currently in the institutional framework is being set up with several laws pipeline (including CST projects) appear to put more enacted in early 2010, including the renewable energy faith into leveraging concessional capital from sources law, the law creating the dedicated Moroccan Solar Agency (MASEN) to implement the Morocco Solar Plan conventions were signed between MASEN and the and the law setting up the Energy Efficiency Agency. government on the one hand, to stipulate state support for the Moroccan Solar Plan, and MASEN and ONE on Morocco’s recently issued Renewable Energy Law (REL) the other hand, to cover the conditions for connection (Dahir 2010) and the Moroccan Agency for Solar and operation of solar power plants and for sales of Energy (MASEN) Law (Dahir 2010) are intended to electricity. According to the convention, the state will scale up the development of renewable energy with compensate MASEN for the “gap” between the two special focus on solar technologies. MASEN is entrusted PPAs. ONE is already operating an ISCC plant with by the government to develop at least 2,000 MW of a 30 MW solar-assisted combined cycle gas turbine grid-connected solar power by 2020, and in particular (CCGT) at Ain Beni Mathar (northeastern Morocco), to conduct technical, economic, and financial studies, which is financed by the African Development Bank as well as to support relevant research and fundraising, (AfDB) and supported by a grant from the Global to seek utilization of local industrial inputs in each Environment Facility executed by the World Bank. solar project and to establish associated infrastructure. While the generated electricity must be sold in priority 4.1.4. Issues Related to Regulatory Frameworks in to the national electric utility ONE (Office National de the MENA Region l’Electricité) for the domestic market, the law allows 20 MASEN, under conditions specified in the convention Information on the enabling policies for CST in MENA signed with the government (described below), to countries remains scarce. Morocco’s commitment sell electricity to other public or private operators on to attracting private sector participation in CST national or export markets. development on a project-specific PPP basis, and Algeria’s decree of 2004 introducing technology-specific An obvious export market would be the European Union. premiums for renewable energy are notable exceptions. EU Directive 2009/28/EC allows EU member states However, the lack of implementation mechanisms in the to import renewable energy-generated electricity from case of Algeria and Morocco and the lack of defined projects in third countries using their respective incentive incentive policies in the case of other countries to mechanisms in order to fulfill the respective national support CST (and other renewables) generate regulatory targets by 2020 if a variety of conditions are fulfilled. uncertainty that, if not rectified, may become a serious This could be the framework for the establishment of deterrent to future private investments in the sector. The major export markets, which could ensure a viable individual bilateral and multilateral projects to build up income stream for a major scale-up of CST in Morocco. solar power capacity in MENA may expedite, but cannot In reality, the export option, especially at the desired substitute the development of such national policies. This FiT level, is rather difficult to realize for a variety of is especially true since the first CST projects in MENA reasons, including the following: (a) the directive needs are expected to come on line in 2014–15, and even to be transferred into national laws, which has so far then export opportunities could be limited, and thus experienced delays in most cases; (b) approvals in each generation would essentially focus on domestic markets. respective jurisdiction are required to use the electricity generated in nonmember countries against the country Given the circumstances, while there is a strong compliance with the RE targets; and (c) the EU Directive rationale for strengthening mechanisms and institutions itself, which in Article 9 sets up certain time limitations to enable investments, certain large-scale investment on when renewable energy generated in nonmember projects may be justified on a stand-alone basis. Support countries can count toward domestic renewable energy schemes for these projects are highly customized, but targets. usually involve such common features as (a) a long- term PPA between the power utility, or another form Notwithstanding these potential limitations with regard of a single buyer, and the generator; (b) a competitive to export markets, the US$9 billion Morocco Solar bidding process for the generators; and (c) commitments Plan, launched in November 2009, calls for the from the government and financiers, sometimes commissioning of five solar power generation plants including international donors, to support the project. between 2015 and 2020, for a total capacity of 2,000 MW. With this plan, 4,500 GWh annually will be Under the CTF-supported program to scale up CST produced from solar energy alone. In October 2010, in MENA, the PPA model is being utilized for the Ouarzazate project in Morocco, among others. For a Combined PPA/PPP schemes are being tried out for large donor-supported project, the project model is some individual large projects (Morocco), and they innovative, since it relies on the private sector—not as have a better chance of success than the earlier just a supplier of equipment, but as an integral partner attempts to engage the private sector that used a in the implementation scheme under a public-private pure IPP concept. partnership. The CST investments planned in MENA for the next The rationale for stand-alone projects (as opposed to decade and beyond are, to a large extent, driven by policies driving investments in projects) needs to pass a individual projects supported by the European Union, reasonable test of sustainability and replicability. A large and by multilateral and bilateral sponsors. The policies stand-alone project may enjoy a high-profile status that initiated domestically to attract investment that would allows it to receive an unprecedented level of support serve the domestic markets are few, although Morocco’s from the government and the donors. As a result, the commitment to test the PPP model and Algeria’s FiT project may create attractive incentives for private sector scheme launched in 2004 are encouraging examples. participation, but such conditions may not be easy to replicate. At the same time, large-scale demonstration The approach currently taken under the CTF-supported projects can be essential for reaching the critical mass CST scale-up program in MENA assumes that of investment in new technology, such as CST. concessional financing will help address the issues 21 of both high capital costs and the existing uncertain The success of the Ouarzazate project in Morocco policy and regulatory framework. The expectation is in attracting private sector investor participation in that, with more clarity in the policy framework for CST the project on a PPA basis could be a considerable development in the MENA countries by 2015 or so, breakthrough, since the PPP model for CST deployment the need for concessional financing will be reduced Most of the previous attempts to attract private sector (CIF 2010). However, these investments will require investment in CST have failed not only in MENA, but in to be followed by appropriate national policies, such India and Mexico as well. In MENA, the ISCC projects as FiTs or RPS/quotas combined with other supporting in El-Kureimat (Egypt) and Ain Beni Mathar (Morocco) instruments to achieve a transformational impact in the were either designed as public sector projects from the long term. beginning, as in the case of El-Kureimat, or had to be restructured because the original project design based 4.2. India’s Incentive Schemes on the IPP concept did not work, as in the case of Ain Beni Mathar. Over the last few years, India has introduced incentive schemes for solar power, both at the central and 4.1.5. MENA Incentive Conclusions state level. Among the states, the most advanced are Gujarat and to a lesser degree Rajasthan, where project There are four or five models (depending on classification developers had concluded PPAs and are preparing to details) to be considered for supporting CST in the MENA close the deals with financiers. region. The models given most attention in the developed country markets are the FiT and RPS models. In the 4.2.1. State-Level Incentives MENA context, however, the currently relevant choices are largely between the pure public project model (supported At the state level, Gujarat has emerged as the by concessional financing) and the PPP model. frontrunner in attracting private investment in solar power. The Gujarat government has laid out the norms The MENA experience to date shows that of the Renewable Purchase Obligation (RPO) policy and has set the ambitious target of installing 1,000 MW of The region is not quite ready to embrace FiTs or RPS, solar power capacity by the end of 2012 and 3,000 although efforts to champion the introduction of such MW in the following five years. According to the Solar schemes are ongoing. Power Policy issued by Gujarat’s government in January IPP/PPA schemes have not worked well in the past, 2009, each PPA shall include a specific levelized fixed as illustrated by the GEF projects that had to be tariff per kilowatt-hour and is concluded for a period of restructured into public sector projects. 25 years as shows in Table 4.1. Table 4.1: Gujarat Tariff Rates for Solar Projects Tariff for photovoltaic projects Tariff for solar thermal Sr. no. Date of commissioning (INR/kWh) projects (INR/kWh) I Before December 31, 2010 13.00 for the first 12 years and 10.00 for the first 12 years and 3.00 during years 13–25 3.00 during years 13–25 II Other projects commissioned 12.00 for the first 12 years and 9.00 for the first 12 years and before March 31, 2014 3.00 during years 13–25 3.00 during years 13–25 Source: Adapted from Government of Gujarat 2009. Recent reports indicate that the state-owned utility 4.2.2.1. Renewable Purchase Obligation GUVNL has signed PPAs with as many as 54 solar power generation companies for 537 MW. The total Under the JNNSM, investment in the grid-connected solar power installation commitments signed via solar power will be supported “through the mandatory Memoranda for Understanding with the Government use of the renewable purchase obligation by utilities of Gujarat have been reported at 933.5 MW, which is backed with a preferential tariff.” The key driver for 22 close to the installation target of 1,000 MW by 2012 promoting solar power will be a renewable purchase (Panchabuta 2010a). obligation (RPO) mandated for power utilities (distribution companies, or DISCOMs) with a specific 4.2.2. Central Government Level Incentives— solar component. This is expected to drive utility scale Jawaharlal Nehru National Solar Mission power generation, both solar PV and solar thermal. The solar-specific RPO will be gradually increased, while the The Government of India (GOI) announced the JNNSM tariff fixed for solar power purchase will decline over in January 2010, which set a target of 20,000 MW of time (MNRE 2009). The MNRE guidelines mention a solar power installed by 2022. The target for the first national level solar RPO of 0.25 percent of the total phase (by 2013) is 1,000 MW of grid-connected solar annual electricity purchased by the utilities by the end power capacity, of which 500 MW should be solar of the first phase and 3 percent by 2022. The state thermal projects and 500 MW solar PV.4 An additional governments are responsible for setting solar RPOs in 3,000 MW is targeted by the end of the second phase their respective states. in 2017. It is understood that the ambitious target of 20,000 MW or more by the end of the third phase in Related to the RPO targets are the government 2022 will be dependent on the learning success of the procurement quotas used under the NNSM. For the first first two phases (MNRE 2009). round of competitive bidding, implemented through the reverse auction mechanism and conducted in 2010 to Since the central government issued guidelines for advance the progress toward the 0.25 percent target, switching from state supported schemes to JNNSM the government solicited bids for 150 MW of PV and (CERC 2009), most of the discussion about incentives 470 MW of CST projects. In conjunction with the RPO for solar energy in India has focused on this new targets, the government mandate to procure the solar initiative by the central government. The available power capacity is the first and foremost element of the information on the projects whose developers have Indian incentive scheme for solar power. chosen to switch (“migrate”) from the state-level schemes in both Gujarat and Rajasthan to JNNSM 4.2.2.2. Preferential Tariff shows that 16 projects with a total capacity of 84 MW have officially “migrated.” Of these, only three The preferential tariff is the second element in the projects with a total capacity of 30 MW were CST scheme. The Central Electricity Regulatory Commission projects. (CERC) guidelines published in July 2010 (CERC 2010b) specify INR 15.31/kWh (or about US$0.34/ 4 The capacity of CST projects supported under NSM is specified as between 5 MW and 100 MW. kWh, converting at 45 INR/US$) as the levelized total short-listed (Panchabuta 2010b). In the bidding scheme (single-part) wholesale tariff for CST in the first phase to procure the first 470 MW of CST capacity, the of the JNNSM. Provided the capital costs of CST plant preferential tariff of INR 15.31/kWh was used as a construction in India will be consistent with the capital ceiling price with many bidders have offering prices expenditure (CAPEX) norm set by CERC 2010a at below that level. The seven winning bids were between INR 153 million per MW (US$3400/kW),5 the target INR 10.49 and 12.24/kWh. (pretax) return on an equity basis on this levelized tariff is calculated to be 19 percent per year for the first 10 years 4.2.2.3. Other Incentives and 24 percent per year from the 11th year onward. Besides the RPO, the competitive procurement scheme Solar energy priced at INR 15.31/kWh stands out as and the preferential tariff, another element of the much more expensive than conventional power, which incentive scheme included in the guidelines is the tends to cost on average about INR 2.5/kWh or less Renewable Energy Certificate (REC) mechanism. The in India. Power from grid-connected PV is even more certificates will be specific to solar energy and will be expensive, with the levelized CERC approved tariff bought and sold by utilities and solar power generation for Phase 1 at INR 17.91/kWh. To sell this energy companies to meet their solar power purchase to distribution utilities, the nodal agency—NTPC obligations (MNRE 2008). Vidyut Vyapar Nigam Ltd. (NVVN), the trading arm 23 of the national power utility National Thermal Power In addition to the core elements of the incentive scheme Corporation Ltd. (NTPC)—will be bundling solar power already mentioned, other incentives available to CST with electricity from coal and possibly nuclear plants. developers in India include (a) accelerated depreciation In one useful illustration (IDFC 2009), the proportions and (b) generation-based incentives (MNRE 2008).8 In between solar and conventional energy bundled by both cases, the CERC position is that such incentives NVVN for sale to state distribution utilities could be and subsidies should be taken into account when 1:4,6 with the electricity from the unallocated quota calculating the applicable tariff. In other words, these costing INR 2.5/kWh. This would result in an overall incentives should not be additional to the preferential (weighted average) price of about INR 5–6/kWh. tariffs offered under the JNNSM. It should be noted, however, that the levelized tariff of Finally, a peculiar feature in India is the Clean INR 15.31/kWh for CST (as well as the respective tariff Development Mechanism (CDM) benefit-sharing for PV) is not intended to be used as a guaranteed, provision, under which CDM credits earned by European-style FiT. The price eventually included in renewable energy projects must be shared between the the PPA between the solar power producer and NVVN project developer and the buyer of renewable energy. is reduced by the competitive procurement procedure In Tamil Nadu, for example, the regulator issued mentioned earlier. The bidding round completed in guidelines under which CDM credits would accrue to November 2010 for the first 470 MW of CST capacity the developer in the first year, but then the developer’s saw investors offering discounts in the range of 20–31 share would decrease by 10 percent every year in percent from the ceiling price of INR 15.31/kWh. As favor of the power purchaser until it reaches a 50:50 many as 66 bids for CST projects were received by the ratio (TNERC 2010). The concept of CDM sharing has government by the closing date (in addition to 363 for been criticized by those who believe that CDM benefits solar PV),7 while only 7 CST companies were eventually should belong only to the developers, who deserve 5 The methodology for arriving at the tariff level of INR 15.31/kWh involves assumptions, such as the normative CAPEX of INR 153 million/MW (about US$3.4 million/MW), a project life of 25 years, a debt-to-equity ratio of 70:30 with debt of 10-year maturity available at 12 percent, and a capacity utilization factor of 23 percent. No thermal storage is assumed. 6 NSM documents stipulate that for each megawatt of solar capacity signed by NVVN, an equivalent megawatt of capacity from the unallocated quota of NTPC stations shall be allocated. Hence, during the first phase, 1 GW of solar capacity will be coupled with 1 GW of NTPC coal plants. However, the amounts of electricity produced by coal plants may be four times as much as that coming from solar plants, because of a much higher plant load factor. 7 According to EVI 2011, 66 bids were received. 8 Generation-based incentives (GBIs) have been introduced by MNRE, in a scheme separate from the JNNSM, first for wind and then in January 2008 for grid- connected solar power, including CST. Under this scheme, the ministry would provide an incentive of a maximum of INR 12/kWh for PV and INR 10/kWh for CST. The maximum amount of incentive applicable for a project would be determined after deducting the power purchase rate for which a PPA has been signed by the utility with a project developer from a notional amount of Rs. 13/kWh. This incentive would be provided to project developers at a fixed rate for a period of 10 years, but the maximum amount of GBI offered for new plants would be decreasing over time. The scheme was designed mainly to support smaller entrepreneurs with a total proposed plant capacity of 5 MW or less. them by virtue of going through the cumbersome system’s drawbacks, however, is that if competition process of CDM, including required additional tests for is too strong, the prices offered are sometimes their projects (Sarangi and Mishra 2009). very low and thus pose a risk of projects not being implemented. By contrast, it has the advantage of 4.2.3. Issues Related to India’s Incentive Schemes fast deployment in order to kick-start the market in a specific technology sector. However, it is not well suited As described in the previous chapter, the regulatory for a large and rapidly growing market because of its environment for deployment of solar energy in India high administrative costs, the risk of unrealistic bids and is rapidly evolving and can be characterized as both the potential for creating administrative barriers (World relatively advanced and rather complex. In fact, the Bank/ESMAP 2010). multiplicity of the incentive instruments introduced under the JNNSM can be a source of confusion about the It is too early to evaluate the effectiveness of the incentive nature and role of each instrument. Under the NNSM, scheme in terms of its ability to attract the investment as long as a sufficient number of suppliers are willing capital to the most promising locations, and select to bid below the ceiling price (which so far has been projects and companies most likely to deliver results. In the case), the incentive scheme operates as a quantity- both the PV and CST tenders, new entrants dominated based scheme that is closer to an RPS than a FiT the list of successful candidates. Many established players 24 scheme.9 have been unable to win. This may be a good result if the new entrants can deliver, thus becoming established A tendering scheme or auction could be a more players themselves and making the solar thermal industry accurate description of the Indian incentive framework more competitive. By contrast, if the new entrants fail for CST. Like RPO/RPS, tenders and auctions are to fulfill their contractual obligations, the effectiveness quantity-based instruments—that is, the required of the process will be questioned for its failure to quantity is specified in advance and the price is set by accommodate the established players at a higher off the market. The process of an RPO/RPS, however, is take price. It is clear that some new entrants may not somewhat different from that of a tender—for example, even be able to secure the needed loans, whereas an RPO/RPS does not usually involve sealed financial established players would have an advantage because bids. Instead, the price is agreed on between the of their balance-sheet strength. A survey of 25 potential supplier and off taker through negotiation. CST project developers in a World Bank-commissioned study showed that many of the interviewed developers felt In the international practice, auctions have often been that in the PPAs concluded with NVVN, the buyer would used as the basis for long-term PPAs. Bidders are not be “bankable”—(that is, financial closure would be usually asked to compete on the basis of price per unlikely)—unless the PPAs are guaranteed by the GOI, kilowatt-hour, with the starting (ceiling) price announced or backed by some other dedicated source of funds. In in advance. The capacity to be built by each supplier, their view, the banks might not be convinced that the as specified in the bid, becomes part of the contract for PPA alone is a bankable source of revenue (World Bank/ the winning bidders. Each winning bidder gets the off ESMAP 2010). take price at the level that was bid.10 The procurement procedure used in India for CST is essentially the The comparison of the incentives under the JNNSM in same—that is, an auction for a certain aggregate CST regard to those available at the state level may require plant capacity to be built by several winning bidders. further analysis. As noted earlier, the GOI has offered the state-level developers the option of switching Tendering procedures and auctions have worked (“migrating”) to the JNNSM. However, relatively few well in many cases in developed markets (such as in developers have taken this opportunity, and only 16 Europe), at least to kick-start the market. One of the projects with a total capacity of 84 MW (of which 30 9 By adopting RECs as a mechanism supplementary to RPOs, the Indian system adopts another feature typical of the schemes in the United States and United Kingdom. 10 A recent report on auctions (World Bank/ESMAP 2011a) classifies such auctions as “pay-as-bid” or “discriminatory” auctions. This is a form of a sealed-bid auction in which each bidder submits a schedule of prices and quantities (that is, a supply function). The auctioneer gathers together all the bids, creating an aggregate supply curve, and matches it with the quantity to be procured. The clearing price is determined when supply equals demand. The winners are all bidders whose bids, or sections of their bids, offered lower prices than the clearing price. The winners receive different prices based on their financial offers. The auctions for electricity contracts carried out in Panama and Peru have used a pay-as-bid design. Mexico also uses a pay-as-bid design for its auctions for PPAs. MW is CST) have migrated. It is important to note that Given a great degree of uncertainty about the required the state-level schemes, such as the one in Gujarat, do (or “justified”) level of capital costs for CST projects not involve competitive bidding. Thus, developers and in India, the quantity-based approach may be a good investors might have felt that the competitive bidding choice. An RPO scheme may not be as aggressive (the reverse auction) under the JNNSM might eliminate a strategy as a FiT in securing a massive expansion the initial price advantage while at the state level, of solar power capacity, but it facilitates the price procurement is of the type “what you see is what you discovery process better than a FiT system. This may get.” Secondly, the process of switching to the JNNSM result in substantial cost savings both for the public was competitive as well, and the time window for such sector and for the final consumer. At the same time, the migration was rather short. support schemes available at the state level (notably, in Gujarat) have demonstrated the effectiveness of Concerns have also been expressed on the bundling fixed FiTs (rather than tariff-setting schemes involving scheme introduced under the JNNSM. First of all, competitive bidding) in attracting private investors into this is fundamentally a cross-subsidy scheme with PPAs. Overall, the effectiveness of the incentives for its inherent economic distortions. Secondly, the cost solar power development is still to be demonstrated by of bundled (solar plus coal or nuclear) power is still financial closures for concluded PPAs. above the average system cost. At INR 5–6/kWh, while much more affordable than “pure” CST power 4.3. South Africa’s Incentive Schemes 25 costing three times as much as an average whole sale rate, as such this cost may still be a challenge for The 2003 White Paper on Renewable Energy the distribution utilities. Many of the state distribution (Departments of Minerals and Energy Republic of utilities are in a poor financial state to begin with South Africa 2003) set a target of 10,000 GWh, to (World Bank/ESMAP 2010). The difference between be produced from biomass, wind, solar, and small- this cost and the average cost of conventional power scale hydro by 2013. The South African Department (about INR 2.5/kWh) must be covered either by the of Energy, in consultation with the National Energy rate payers, or through an incremental cost recovery Regulator of South Africa (NERSA) and Eskom, the mechanism, which, however, does not seem to be national utility, developed a plan for capacity additions explicitly funded. called the Integrated Resource Plan 1 (IRP1), which was signed by the Department of Energy on December 16, 4.2.4. India Incentive Conclusions 2009. IRP1 laid out additional capacity that is required to reach the objective of 10,000 GWh of renewable by The GOI has made a strategic choice to promote grid- 2013 (Department of Energy 2009). connected solar power, and the introduced incentive package is impressive. India has a vibrant economy, A draft version of the new Integrated Resource Plan, and has a good chance to emerge as a major player in named IRP2010, was published in October 2010. It the CST industry. details the plan for capacity additions for the next 20 years in South Africa (Integrated Resource Plan for India’s policy on CST is designed to be largely Electricity 2010). The plan included 1,025 MW from private sector-driven, with the government creating wind, CST, landfill, and small hydro, supported by an enabling environment for investors. For all the the renewable energy feed-in-tariff (REFIT). In March concerns on the guidelines, developers still see 2011, the final version of IRP2010 was approved by success in the early bidding stages as important for the cabinet, specifying that over the next 20 years, 17.8 strategic positioning in the market. This may explain GW should come from renewable sources (Engineering why the first round of bidding for CST under Phase News 2011). Specifically, 1 GW of CST, 8.4 GW of 1 of the JNNSM was oversubscribed. However, it solar PV, and 8.4 GW of wind are expected to be remains to be seen how effective the whole package added between 2010 and 2030 (Integrated Resource of incentives will be. Over the longer term, it needs Plan for Electricity 2010–2030, 2011). The contribution to be well integrated and coherent—in terms of the of renewables supported by the REFIT was similar to instruments (the current process mixes RPO and FiT the draft, although an additional requirement of a solar elements), as well as coordination between state and program of 100 MW each year from 2016 to 2019 central governments. was added. 4.3.1. Feed-in Tariff documentation is finalized and released, a “ministerial determination” regarding the buyer under the REFIT, In March 2009, NERSA announced Phase I of the REFIT. as given in the Electricity Regulation Act, would be Similar to standard FiTs, the REFIT requires Eskom, the undertaken first (Aphane 2010). national utility, to buy electricity from eligible generating units at a tariff set by NERSA that can be passed on to The RFI received 384 responses, identifying a total of the rate payers. As part of the REFIT phase I, on March approximately 20 GW of REFIT technologies, although 31, 2009, NERSA set the REFIT tariff for parabolic less than 30 had received an indicative quote and a trough plants with 6 hours’ storage per day at ZAR 2.1/ preliminary timeframe for connection (Department of kWh, which is equivalent to approximately US30¢/ Energy 2010a). In March 2011, the cabinet approved kWh, assuming an exchange rate of ZAR 7 to the the Independent System and Market Operator Bill for U.S. dollar (NERSA 2009b). On November 2, 2009, tabling in parliament, which is intended to ensure that NERSA announced Phase II of the REFIT, expanding IPPs are included in the addition of new generation eligibility for more technologies under the policy. The capacity in South Africa, rather than just from Eskom. announcement added two further tariffs for CST at ZAR Although this is not a bill exclusively for IPPs under the 3.14/kWh (US45¢/kWh) for parabolic trough without REFIT, its purpose is to promote the role of IPPs that are storage, and ZAR 2.31/kWh (US33¢/kWh) for power the entities that will benefit from the REFIT once it gets 26 tower with 6 hours’ worth of storage per day (NERSA under way. 2009a). Fossil backup for CST is permitted, but must be limited to 15 percent of the total primary energy input. The IRP2010 resolves the uncertainties around long- term capacity addition targets, and includes the Eskom’s Single Buyer Office acts as the Renewable recommendation to finalize the REFIT process as Energy Power Purchase Agency (REPA) and, as such, quickly as possible. Although the PPA process is still is obliged to buy power through PPAs regulated by being finalized, Eskom claims to have received 156 NERSA. The tariff was based on LCOE calculations, and applications from IPPs already, representing a combined will be reviewed annually for the first five years after total capacity of 15,154 MW, 13,252MW of which is implementation, which will begin once all conditions of wind (Van de Merwe 2010). This leaves 1,902 MW of the REFIT and the final regulatory structure are finalized, different technologies under the REFIT, which include and then every three years thereafter. the three CST technologies, namely trough, power tower, and power tower with storage, and also solar PV, At the time of writing, NERSA was still in discussions solid biomass, biogas, land-fill gas, and small hydro, with the Department of Energy, the National Treasury, among which the distribution of applications is as yet the Department of Public Enterprises, the Department unannounced. The RFI shed light on the breakdown of of Environmental Affairs, and Eskom to finalize the PPA potential IPP projects, to be supported by the REFIT and rules that will govern the operation of the REFIT. NERSA broken down by technology. Of the 384 RFI responses, has already published Regulatory Guidelines, a draft one-third were wind projects, one-third were solar PV PPA, and rules on selection criteria for projects under projects, and 5 percent of responses with 10 percent the REFIT. On September 30, 2010, the Department of capacity came from CST projects. The remainder of Energy announced the start of the procurement consisted of biomass, hydro, landfill gas and biogas, process and the government’s intentions to ensure an and cogeneration. investor-friendly enabling environment by developing a set of standardized procurement documentation for Aside from the REFIT, US$350 million of the US$500 the PPA. The Department of Energy also announced an million CTF investment plan for South Africa has been official Request for Information (RFI) aimed at potential awarded to Eskom to develop wind and CST projects. private power developers to gain understanding on the The IBRD and AfDB are also proposing loans each progress of their projects under the REFIT. The RFI was of US$260 million to further co-finance the projects. intended as a “market sounding” to obtain information Combining the CTF, IBRD, AfDB contributions with on projects that will be ready and able to add capacity those from other bilateral and commercial lenders, the (MW) and energy to the system before March 2016 project’s total budget is US$1.228 billion. The CST (Department of Energy 2010b). The Department component is estimated to require US$783 million, of Energy stated that before the procurement while the wind component will cost US$445 million. The CST project will be located in Upington in the Northern wait for the final announcement and plan investments Cape Province, where Direct Normal Insolation (DNI) accordingly. is approximately 2,800kWh/m2 per year, one of the highest levels of solar potential in the world. Eskom has One goal of the Upington CST project, funded with indicated that the preferable technology is power tower support of the MDBs, is to resolve some uncertainties with storage, although the decision on the technology to over cost and risk, thereby encouraging IPPs to enter be used has yet to be finalized. into PPAs under the REFIT. It is believed that the general visibility of CST will rise with the national utility 4.3.2. South Africa Incentive Issues running a large-scale CST project, signaling that the government is committed to a future with renewable The REFIT program is not yet fully established as the energy technologies. Without Eskom’s participation procurement process remains under discussion. As a and a visibly successful large-scale project, the private result, concerns have been raised concerning REFIT’s sector is unlikely to make significant investments to effectiveness in encouraging investments in CST and allow for rapid diffusion of CST technology in South other renewables. The issues raised include whether the Africa. targeted goal of 10,000 GWh from renewable sources in 2013 acts as a capacity “cap” of PPAs eligible for the 4.3.3. South Africa Incentive Conclusions REFIT, whether NERSA will assess the eligibility criteria 27 for projects, and whether Eskom’s Single Buyer Office Since the REFIT is not yet operational in South Africa, can process all applications efficiently. In addition, the it is premature to predict how successful it will be in question remains whether NERSA’s proposed tariffs are encouraging investments in CST, and the other energy high enough to induce investment (Bukala 2009). technologies it covers. There are concerns over the lack of a defined structure of the REFIT, and uncertainty In March 2011, one week after the government passed over what the final tariffs will be. However, many of IRP2010, which specified that 17,000 MW should come these concerns could be addressed once NERSA and from renewable energy, NERSA announced a review of Eskom finalize the process for arranging the PPAs, tariff the REFIT tariffs and proposed that they should be cut. levels are decided, and the role of the single buyer as The announcement of high renewable energy targets, Eskom or an independent third party is determined. combined with the cut in tariffs that are in place to reach During the consultation processes of setting the tariffs, this target, could be interpreted as somewhat conflicting, NERSA received a significant number of comments, since lower tariffs could attract fewer renewable project demonstrating the sensitivity of the process and the developers. Parabolic trough with storage faces a cut importance of the outcomes for stakeholders. It is of 41.5 percent, which is one of the largest cuts of all conceivable that the REFIT may encourage more REFIT tariffs. The paper also specifies that the tariff for investment for certain technologies than for others. In power tower technology should be reduced by 39.4 the same way that an RPS scheme induces investments percent, and CST trough without storage should fall by predominantly in the cheapest technology, the REFIT 7.3 percent (NERSA 2009b). NERSA predicts that the may only promote significant investments in more tariff review procedure will be completed by the end of established and less risky technologies, such as wind May 2011, when the final approved tariffs will replace power, rather than CST. The fact that the vast majority the original figures developed in Phases I and II. The of applications, which Eskom has received so far, have discussion over changing the tariffs is likely to further been for wind projects could indicate the disparity in delay the awarding of PPAs as IPPs as project developers effectiveness of the policy across different technologies. PART III FINANCING CST: HOW TO BRING TECHNOLOGY COST DOWN 5. COST DRIVERS AND COST REDUCTION POTENTIAL Box 5.1: LCOE Structure Different CST technologies have, at present, reached LCOE generally represents the cost of generating electricity for a particular plant or system. The varying degrees of commercial availability. While concept is basically a financial assessment of all commercial cost data exist for parabolic trough, and the accumulated costs of the plant over its life cycle to a slightly lesser degree for power tower, such cost relative to the total energy produced over its life data has yet to be established for the Fresnel and Dish cycle. More specifically, LCOE is a financial annuity Stirling technologies. Under these circumstances, a for the capital amortization expenses, including fixed capital costs (for example, equipment, real thorough assessment of the main cost drivers and the estate purchase, and lease) and variable O&M cost reduction potential will be key when considering expenses (for thermal plants mostly consisting of the economic viability of CST in general and different fuel expenses and O&M expenses, for CST plants CST technologies in particular. Based on an assessment mostly of O&M expenses), taking into account the of LCOEs for different CST technologies in some of the depreciation and the interest rate over the plant’s life cycle, divided by the annual output of the main emerging markets for CST—India, Morocco, and plant adjusted by the discount rate. If the discount South Africa—and a review of typical cost structures for rate is assumed to be equal to the rate of return parabolic trough and power tower plants derived from LCOEs reflect the price that would have to be paid projects developed or under preparation in developed to investors to cover all expenses incurred (for 31 markets, this chapter provides (a) an assessment of example, capital and O&M) and hence the minimum cost recovery rate at which output would have to be the main cost drivers, (b) an affordability assessment sold to break even (Kearney 2010): of different regulatory and financial incentives used to lower LCOEs in various emerging market conditions, ∑ N I + Mt t−1 t and (c) an economic analysis of reference CST plants in (1+ r ) t the main emerging markets for CST that are considered. LCOE = Et ∑ N 5.1. LCOEs for CST in Specific Developing I (1+ r ) t−1 t t Country Markets A common way to assess the financial cost of a where: r = discount rate | N = the life cycle of the particular power technology and/or compare the plant | t = year | It= Investment costs in year t | Mt = financial cost of alternative technologies is to express O&M costs in year t | Et = Electricity generation in year t the cost of producing electricity for a certain plant as the LCOE (see Box 5.1). The latter allows setting all the costs incurred by a particular plant over its The analysis was based on a set of assumptions lifetime (fixed capital cost elements, as well as variable regarding the economic parameters (for example, O&M cost elements) in relation to the value of total interest rate and inflation), and the technical conditions electricity produced over its lifetime. LCOE is usually prevalent in each country. Although LCOEs for CST highly sensitive to changes in the underlying variables. are highly sensitive to the site-specific solar resource, Therefore, future variations of any of the cost elements DNI, there is no clear pattern of the sensitivity to the for CST might well have an impact on the actual CST DNI resources available for analysis11 because of technology-specific LCOEs. widely differing financial conditions in each scenario considered. Generally however—under the assumption A detailed financial LCOE analysis was conducted for that the optimal amount of storage (the amount of some of the major emerging markets for CST—India, storage which minimizes LCOE for each plant) is Morocco, and South Africa—comparing parabolic available—power tower technology offers lower LCOEs trough and power tower technologies. The assumptions compared to parabolic trough in all three scenarios. used in the analysis are listed in Table B.11 in Appendix Notwithstanding the lack of comprehensive data B. The results of the analysis are shown in Figure 5.1. for power tower plants with the amount of storage 11 The necessary physical weather data with regard to Direct Normal Irradiation (DNI) were taken from the U.S. Department of Energy‘s EnergyPlus Energy Simulation Software weather database. and different amounts of Thermal Electricity Storage Figure 5.1: LCOEs for Parabolic Trough and Power Tower in India, Morocco, and South (TES), could be presented as in Tables 5.2–5.4 and Africa Figures 5.2 and 5.3. 60 5.3. Assessment of the Cost Drivers for CST US$ Cents/kWh 40 The cost elements listed in Table 5.5, which comprise 20 the typical cost structure of a CST project, are influenced by a variety of cost drivers, including the production 0 India Morocco South Africa and competition related issues, available financing conditions, changes in the underlying prices for key Parabolic Trough (Air-Cooled) Power Tower (Air-Cooled) input commodities, and for land and labor inputs. Their Parabolic Trough (Wet-Cooled) Power Tower (Wet-Cooled) respective impact has been assessed accordingly. 5.3.1. Local Inputs: Changes in Land and Labor Prices assumed here (because of a limited number of these 32 plants having been constructed so far—see Chapter 2), Land-related expenses for a plant can account for a the lower LCOEs for power tower are mainly because considerable share of the overall investment costs for of certain technical advantages, like for example, most CST technologies. The actual share, however, will the ability to reach higher operating temperatures depend on land availability, ownership, and taxation and higher operating rates (for more information see issues. The second major issue will be the actual amount Chapter 2). and price of local labor, relative to the total labor inputs needed to build and maintain the plant. The actual price 5.2. Overview of the Cost Structure of labor will obviously depend on local labor market conditions, but in nearly all cases and for nearly all parts Internal cost structures of CST projects are often not of the value chain (project development; components; readily available. However, examples for potential cost engineering, procurement, and construction (EPC); and breakdowns with regard to total CAPEX and operational O&M), will be lower in emerging market conditions. The expenditures (OPEX) for reference parabolic trough and share of local labor inputs partly depends on the chosen power tower plants with 100MW and 50 MW capacity, technology, the degree to which local services can be Figure 5.2: CAPEX Breakdown—Parabolic Figure 5.3: CAPEX Breakdown—Power Tower Trough (100 MW – 13.4h TES – US$914m) (100 MW – 15 h TES – US$978m) Owner's Cost Owner's Cost 5% Contingencies Site Preparation 5% Contingencies 8% 4% 8% EPC Engineering Heliostat Field Contractors 7% 33% Engineering Balance 6% Solar Field of Plant Balance 35% 6% of Plant 6% Power Block 17% Power Block 11% HTF System Thermal Energy Thermal Energy Storage Receiver System Tower Storage 7% 15% 15% 2% 10% Source: Fichtner 2010. Source: Fichtner 2010. Table 5.1: Estimate of Capital Expenditures – Parabolic Trough Option Parabolic Trough 100 MWe 50 MWe Item Unit TES 4.5 h TES 9.0 h TES 13.4 h TES 9.0 h Nominal plant size Exchange rate Euro/US$ 1.40 1.40 1.40 1.40 Rated electric power, gross MWe 100 100 100 50 EPC Contract Costs mln US$ 704.2 721.1 872.7 388.8 Solar Field mln US$ 323.6 284.4 334.2 142.5 HTF System mln US$ 68.1 59.9 70.3 30.0 Thermal Energy Storage mln US$ 62.7 123.6 184.4 62.7 Power Block mln US$ 107.7 107.7 107.7 67.3 Balance of Plant mln US$ 45.0 46.0 55.7 24.2 33 Engineering mln US$ 36.4 37.3 45.1 29.4 Contingencies mln US$ 60.7 62.2 75.2 32.7 Owners Costs mln US$ 33.4 34.2 41.4 21.6 CAPEX Grand Total ± 20% mln US$ 737.6 755.3 914.1 410.4 Specific CAPEX US$/kW 7,376 7,553 9,141 8,207 Source: Fichtner 2010. employed in different stages of the project value chain for all Spanish plants and for El-Kureimat plant in Egypt and on the degree of local manufacturing of the CST were, for example, supplied locally, resulting in lower component. A detailed assessment of the potential of investment costs. Commodities used for CST components local manufacturing potential to reduce CST investment include steel, concrete, sand, glass, plastic, and a variety costs in several emerging markets is provided in Chapter of different metals, such as silver, brass, copper, or 6. Current local content sensitivities and local staffing aluminum, as well as nitrates or molten salts for storage demand for a reference 100 MW parabolic trough systems and a variety of other chemicals. Several input plants in the Middle East and North Africa region commodities—such as steel or concrete—are difficult (MENA) are given in Table 5.6. to substitute for. Sharp price movements for these commodities can lead to potential fluctuations in the final 5.3.2. Changes in Underlying Commodity Prices costs of plant components and/or O&M expenses. As in most energy industries, CST’s cost structure 5.3.3. Economies of Scale and Volume Production depends, to a certain degree, on price fluctuations of the underlying nonfuel commodity inputs. The impact of Mass production of components would most likely price fluctuations of these commodities on the actual cost make CST technologies more economically viable structure is partly determined by both the respective CST because of the high standardization potential of several technology’s commodity needs and the degree to which components, including most of the reflecting devices.12 commodities can be supplied locally. Concrete and steel However, different cost reduction mechanisms will most 12 An often-cited example of the lack of economies of scale in production is that the relatively high estimated LCOE for Dish Stirling at US$0.28–0.35/kWh will only be feasible with production levels above 500 Dish Stirling per year, which is unlikely in the short term. This leaves an increased interest in Dish Stirling as a source of distributed, off-grid generation in areas where fuel costs and fuel supply costs would make Dish Stirling competitive relative to fossil-based capacity. Table 5.2: Estimate of Capital Expenditures – Reference Power Tower Option Central Receiver 100 MWe 50 MWe Item Unit TES 9.0 h TES 12.0 h TES 15.0 h TES 15.0 h Nominal plant size Exchange rate Euro/US$ 1.40 1.40 1.40 1.40 Rated electric power, gross MWe 100 100 100 50 EPC Contract Costs mln US$ 679.7 798.0 926.7 501.0 Site Preparation mln US$ 27.0 33.0 42.4 19.9 Heliostat Field mln US$ 218.3 267.6 323.3 165.4 Receiver System mln US$ 106.4 125.8 144.3 85.8 Tower mln US$ 15.0 15.0 15.0 8.8 Thermal Energy Storage mln US$ 58.7 77.1 95.3 49.3 34 Power Block mln US$ 110.0 110.0 110.0 65.4 Balance of Plant mln US$ 40.7 47.6 55.0 30.0 EPC Contractors Engineering mln US$ 46.1 54.1 62.8 34.0 Contingencies mln US$ 57.6 67.6 78.5 42.5 Owners Costs mln US$ 37.4 43.9 51.0 27.6 CAPEX Grand Total ± 20% mln US$ 717.1 841.9 977.7 528.6 Specific CAPEX US$/ kW 7,171 8,419 9,777 10,572 Source: Fichtner 2010. likely apply to each component. In the case of parabolic skilled labor for assembly, and hence open the trough and Fresnel, receiver costs will depend largely opportunity for local manufacturing in several emerging on the size scale-up, production volume, and increased markets, providing an opportunity for further potential competition, which could result in a 45 percent cost cost decreases (Shinnar and Citro 2007). While the reduction by 2025 (Kearney 2010). The cost reduction basic values are provided in Table 5.7, a more detailed of reflectors will largely depend on alternative or new discussion on cost reduction potential in several material compositions and production methods for emerging markets is provided in Chapter 6. mirrors, with overall prices expected to come down by 20 percent until 2020 for parabolic trough and 5.3.4. Monopoly Rents and Supply Chain 25 percent until 2025 for power tower and Fresnel Bottlenecks for CST Components (Kearney 2010). Considering general experience curve concepts and progress ratios quantifying the effect of Monopolistic or oligopolistic market situations, cost decrease for increased production and experience, especially in terms of the supply of critical, CST-specific a range of the cost scale-down from 5 percent to 40 components, might cause the respective components percent can potentially be expected, according to to be overpriced, thereby negatively affecting the different estimates (Kearney 2010). overall investment costs and hence the CST-specific LCOEs. Such an inflated cost profile might seriously A potentially important side effect would be that, unlike slow the development of the technology in general most components for fossil fuel plants that require and in particular in an emerging market setting. skilled labor, mass-manufactured CST components This is because the more specialized and technically could be designed to minimize the need for highly challenging the respective component is, the fewer the Table 5.3: Estimate of Operational Expenditures – Reference Parabolic Trough Option Parabolic Trough 100 MWe 50MWe Item Unit TES 4.5 h TES 9.0 h TES 13.4 h TES 9.0 h Technical-financial constraints Exchange rate EURO/US$ 1.4 1.4 1.4 1.4 Power generation GWh/a 441.1 492.4 583.8 237.2 Number of operating staff — 60 60 75 45 Manpower cost (average) 1000 $/a 58.8 58.8 58.8 58.8 Price diesel fuel $/liter 1.1 1.1 1.1 1.1 Fuel consumption 1000 Liter/a 200 200 200 120 Raw water US$/m3 0.70 0.70 0.70 0.70 Annual raw water consumption 1000* m3/a 132,330 147,720 175,140 71,160 35 HTF Consumption t/a 61 54 64 26 HTF price US$/t 3,000 3,000 3,000 3,000 Annual OPEX (costs as 2009) Fixed O&M Costs: mln US$ 13.4 13.6 16.5 8.0 Solar field & storage system mln US$ 4.5 4.7 5.9 2.4 Power block mln US$ 2.3 2.3 2.5 1.4 Personnel mln US$ 3.5 3.5 4.4 2.6 Insurance mln US$3.0 3.1 3.8 1.6 Variable O&M Costs: mln US$ 1.2 1.2 1.4 0.6 (Consumables) Fuel mln US$ 0.2 0.2 0.2 0.1 Water mln US$ 0.1 0.1 0.1 0.0 HTF mln US$ 0.2 0.2 0.2 0.1 Other consumables & residues) mln US$ 0.7 0.7 0.9 0.4 Total OPEX mln US$ 14.6 14.9 17.9 8.6 In percent of CAPEX % 1.97% 1.97% 1.96% 2.10% Source: Fichtner 2010. number of qualified competitors. For example, there central control systems. Also, as CST technologies are are very few companies specializing in production of reaching a higher degree of commercialization, market receiver tubes for parabolic trough and Fresnel (Schott consolidation has already taken place and is expected Solar and Siemens—formerly Solel—basically share to progress. This would reduce the number of players the market and have relatively high earnings before in each segment of the value chain even further. With interest and taxes (EBIT) margins of around 20–25 regard to developers, the first consolidation round has percent (Ernst & Young and Fraunhofer Institute 2010) already taken place as large integrated infrastructure or in supplying heat storage systems, thermal oils and companies started buying up smaller start-ups to get Table 5.4: Estimate of Operational Expenditures – Reference Power Tower Option Central Receiver 100 MWe 50 MWe Item Unit TES 9.0 h TES 12.0 h TES 15.0 h TES 15.0 h Technical-financial constraints Exchange rate EURO/US$ 1.4 1.4 1.4 1.4 Power generation (net) GWh/a 430.8 538.3 629.6 315.5 Number of operating staff — 60 68 77 52 Manpower cost (average) 1000$/a 59 59 59 59 Price diesel fuel$/liter 1.1 1.1 1.1 1.1 Fuel consumption 1000 Liter/a 300 300 300 150 Raw water US$/m3 0.7 0.7 0.7 0.7 Annual raw water consumption 1000*m3/a 116,323 145,340 169,982 85,183 36 Annual OPEX (costs as 2009) Fixed O&M Costs: mln US$ 12.29 14.19 16.24 9.47 Solar field & storage system mln US$ 3.83 4.71 5.63 3.00 Power block mln US$ 2.26 2.37 2.48 1.43 Personnel mln US$ 3.53 3.98 4.50 3.06 Insurance mln US$ 2.67 3.14 3.64 1.98 Variable O&M Costs mln US$ 1.32 1.57 1.78 0.89 (Consumables): Fuel mln US$ 0.34 0.34 0.34 0.17 Water mln US$ 0.08 0.10 0.12 0.06 Other consumables & residues*) mln US$ 0.90 1.13 1.32 0.66 Total OPEX mln US$ 13.6 15.8 18.0 10.4 In percent of CAPEX % 1.90% 1.87% 1.84% 1.96% Source: Fichtner 2010. * Electricity import, HTF, nitrogen, chemicals. access to their respective technologies. For example, investors and lenders, which in turn will depend on Areva had bought Ausra (now Areva Solar), Siemens available performance data, the financial position of had acquired Solel Solar, Acciona had secured a developers and the provision of performance assurance majority share in Solargenix, and Alstom has a strategic by developers; (c) the creditworthiness of the off taker; relationship with BrightSource Energy. and (d) the regulatory and financial framework of the respective jurisdiction. The latter will not only determine 5.3.5. Financing Conditions Available the applicable taxation rates, but also the availability, viability, and predictability of any financial incentive The availability and type of financing for CST as for provided, whether in the form of a FiT or the different any other major energy installment will depend on the incentives provided under an RPS regime. How these following: (a) the technology-specific overall capital incentives are designed will have a considerable requirements; (b) the perceived performance risk by influence on the availability of financing as a properly Table 5.5: Overview of Cost Elements and Table 5.6: Local Content Sensitivities – MENA Cost Drivers Case Study Cost elements Cost drivers Local staffing demand Cost of land Space availability and cost Local Foreign (person Taxation issues content share years/1,760 Financing conditions available (%) (%) hrs/yr) Cost of solar field Cost of commodities Project 0–10% 90–100% 6–20 Monopoly/oligopoly rents development Economies of scale in production Financing conditions available Engineering 30–50% 50–70% 75–95 Market demand planning Cost of power block Cost of commodities Technology 30–60% 40–70% 145–220 Financing conditions available (procurement) Market demand Construction 100% 0% 320 Transmission Regulation and site connection cost Distance from load centers improvement Technology Financing conditions available Operations and 90–100% 0–10% 40–45 37 maintenance Storage Cost of commodities Monopoly/oligopoly rents Source: Kearney (2010). Economies of scale in production Financing conditions available O&M costs Local content sensitivities Table 5.7: Cost Reduction Potential of Local labor costs Economies of Scale/Volume Production Water availability and cost Reduction Component potential Cost drivers Receivers 45% by 2025 Size scale-up designed regulatory framework can help mitigate risks (for parabolic trough Production and increase considerably investment for developers. and Fresnel) volume Increased competition 5.4. Technical and Scale-Related Cost Reduction Potential Reflectors 20% until 2020 (for New material parabolic trough) compositions 25% until 2025 (for Production 5.4.1. Component-Specific Cost Reduction power tower and methods Potential Fresnel) Source: Kearney (2010). Detailed component-specific cost reduction potentials for each CST technology are given in Tables A.7–A.10 in Appendix A. These estimates are based on a detailed assessment of the respective cost drivers for and molten salts (20 percent). Linear Fresnel system each component and the underlying situation in the components showing the most cost reduction potential respective industries producing these components are the reflector mounting structures (25–35 percent) (YES/Nixus/CENER 2010). In summary, parabolic and receivers (15–25 percent), while for the Dish Stirling trough components showing the most potential for engine, it is the reflectors (35–40 percent) and reflector cost reduction include the reflectors (18–22 percent), mounting structures (25–28 percent). reflector mounting structures (25–30 percent), receivers (15–20 percent), the heat transfer system (15–25 5.4.2. Technology-Specific LCOE Cost Reduction percent), and molten salt system (20 percent). Power Potential tower system components showing the most cost reduction potential are the reflector mounting structures Based on these cost reduction potentials for individual (17–20 percent), heat transfer system (15–25 percent) components, the overall cost reduction potential for each CST technology is described in Figure 5.4. The Figure 5.5: LCOE Reduction Potential for CST respective reduction potential was assessed through the modeling of reference plants, whereby calculations 0.35 LCOE in $/kWH were performed without accounting for any costs related 0.30 to the connection to the transmission system, costs 0.25 0.20 related to the purchase of land or the use of water. 0.15 A comprehensive picture of the actual cost reduction 0.10 potential in each case emerges through the assessment 0.05 of the cost reduction potential of all components for 0.00 2012 2015 2020 2025 a specific technology provided in Table B.7–B.10 in Appendix B. Upper Limit Average Lower Limit Source: Kearney 2010. 5.4.3. Overall LCOE Cost Reduction Potential A. T. Kearney (2010) performed a slightly different cost reduction potential evaluation on the basis of initial substitute CCGT and potentially other fossil fuel-based investment cost and performance data for a series plants as a peak to mid-load provider, depending on 38 of seven different reference plants spanning all CST future fossil fuel prices. The hybridization of CST and technologies available, with the aim of calculating the introduction of a carbon price could increase the LCOE as the minimum required tariff necessary to likelihood of such a replacement. ensure coverage of project financing, based on a 25 year plant runtime. This calculation took financing 5.5. Financial Sustainability Assessment of prerequisites (such as a typical debt service coverage Financial and Regulatory Incentives ratio (DSCR) of 1.4) into account to derive cost reduction potentials for respective minimum required In the near to midterm, well-tailored and appropriately tariff CST-based output needed to repay debt, earn designed regulatory and financial incentives will not only an adequate return on invested capital, and secure be necessary to ensure a particular project’s financial long-term financing. Figure 5.5 shows upper and viability, but most likely remain crucial in order to lower estimates for LCOE reductions until 2025. The realize the projected cost reduction trajectories outlined respective cost reduction projections can also be used above. Without such incentives, a major rollout of the to evaluate CST’s future position within the overall technology seems uncertain or would most likely be supply mix (Figure 5.5). In the best case scenario, delayed, which could alter the cost reduction trajectories CST might, for example, in the long term be able to considerably. By contrast, regulatory and financial incentives always entail a societal cost, either in terms of a fiscal expenditure or lost fiscal revenues, or in terms of increased electricity tariffs for consumers, if the cost of Figure 5.4: Cost Reduction Potential for CST incentives is directly passed through to final consumers. Technologies 30 Even though these societal costs can be limited by LCOE in $/kWH applying recent lessons learned when designing the 25 respective incentive framework—especially with regard 20 to the design of FiTs (see Chapters 3 and 4)—most 15 incentives granted to stimulate investment will still cause 10 a more or less considerable societal cost burden which, 2010 2015 2020 depending on the respective jurisdiction, is ultimately to Parabolic Trough Power Tower be borne by either the taxpayer or the final consumer, Fresnel Dish Stirling or both. Limiting the societal cost of incentives is therefore central to ensuring the sustainability of the Source: YES/Nixus/CENER 2010. incentives granted. This is even more crucial under Note: Numbers converted at EX US$1.35/Euro, based on developing country conditions where the overall fiscal averages of LCOE percentage cost reduction by 2015 and 2020. position and individual income levels in most cases limit the overall resources that can be allocated to scaling up of sources: (a) information regarding the actual capital renewable energies. and O&M costs and the financial and regulatory conditions faced in a particular jurisdiction, provided The following pages entail a basic affordability and by developers;16 (b) respective applicable regulatory sustainability analysis for a variety of regulatory documents in the cases of India and South Africa (CERC and financial incentives granted in three major 2009a); (c) financial assumptions made for an internal emerging markets for CST—India, Morocco, and analysis for an IBRD co-financed CST development in the South Africa13—based on their impact on the LCOEs MENA region, for the Moroccan case; and (d) informed of 100MW reference plants in these markets. The assumptions by World Bank staff. The analysis generally main aim of this analysis is to find ways of optimizing assumes nonrecourse financing. regulatory and financial incentives in order to minimize both CST generation cost and the societal cost in 5.5.1. Impact Assessment of Different Regulatory purely financial terms. The tested incentives range from Approaches to Lower LCOEs tax holidays to more favorable depreciation schemes and the use of concessional financing schemes (such To determine the impact of different regulatory as the IBRD, CTF GEF donor-supported output-based , , incentives and approaches in terms of their ability approach (OBA), and others). The analysis therefore to lower LCOEs, and thereby facilitate investments, generally aims to (see also Table 5.8): sensitivity analyses were run for the following incentives 39 under the outlined assumptions: Tax holidays/reductions lowering the applicable impact on LCOEs corporate income tax rate by 50 percent. per dollar spent. VAT exemptions lowering the amount of direct cost to which VAT applies from 100 percent to 70 Assessments were made for parabolic trough and power percent. tower technologies, as well as both wet- and air-cooling Accelerated depreciation schemes allowing for methods, although, with the scaling up of CST in most straight line depreciation over seven years. emerging markets, the authors expect the majority of future plants in emerging markets to be air-cooled. All scenarios are based on the optimal amount of thermal electrical storage (TES)14 for each reference plant,15 Table 5.8: Definitions Used which is determined by the combination of storage Impact of Impact of a regulatory incentive or and solar multiple that minimizes LCOEs for parabolic a policy approach on lowering LCOEs and hence trough and the optimal combination of storage and instrument facilitating investments tower height and receiver dimensions for the power Cost- Impact of a regulatory incentive or tower systems. effectiveness approach on lowering LCOEs and hence of a policy facilitating investments per dollar spent. Assumptions regarding prevailing capital and O&M instrument costs, as well as macroeconomic, financial, and Societal cost Total additional expenses caused by a regulatory conditions in both markets, are outlined in particular policy instrument to either the taxpayer and/or the final rate payer. Table B.11 in Appendix B and were based on a variety 13 In order to perform the affordability and sustainability analyses, this report relied on the Solar Advisory Model (SAM)—Version 2010.11.9—provided by the U.S. National Renewable Energy Laboratory (NREL) in cooperation with Sandia National Laboratories and the U.S. Department of Energy Solar Energy Technologies Program (SETP). The model is widely used for planning and evaluating research, and developing cost projections and performance estimates, and it relies on NREL’s and Sandia’s long-standing experience with CSP. The necessary physical weather data with regard to DNI were taken from the U.S. Department of Energy’s EnergyPlus Energy Simulation Software weather database. When no site-specific DNI data were available, mock DNI data for comparable sites and DNI resources were chosen. 14 The respective combination of storage and solar multiple/tower height and receiver dimensions was identified by running parametric simulations for a range of solar multiple, tower height, and receiver dimensions values. 15 The optimal amount of storage for each parabolic trough plant was based on the parametric simulation for a range of solar multiple values are the following: India, 6 hours with a solar multiple of 2.5; Morocco, 3 hours with a solar multiple of 1.75; and South Africa, 3 hours with a solar multiple of 1.75. For power tower plants, optimal storage is 15 hours in all three cases with a solar multiple of 3. 16 This information was provided by developers active in the respective country on a nondisclosure basis to bank staff. It reflects the assumed actual financial and regulatory conditions independent developers would be facing when considering the construction of a reference 100 MW CSP plant in their respective jurisdiction. Concessional loan terms allowing for loan terms of recently concluded Phase I of the JNNSM). At this level, 25 years. a modification of the current financial and regulatory Concessional loan rates lowering the applicable incentive framework would be needed to allow LCOEs debt interest rate by 3 percent, by blending to drop under the threshold of the effective FiT level. concessional and commercial financing.17 A combination of concessional loan terms and rates is the single most effective incentive in ensuring that 5.5.1.1. India LCOEs—at least for power tower—would drop below the threshold. In the Indian case, the concessional financing terms— especially the concessional loan terms—have a by far 5.5.1.2. Morocco larger impact on LCOEs than simple tax reductions or exemptions. While relatively substantial tax cuts and Under the Moroccan scenario, results are similar (see exemptions only lower LCOEs by less than a percentage also Figure 5.7), as concessional schemes again have a point, more favorable depreciation schemes can lower larger impact in terms of lowering LCOEs than simple tax LCOEs by several percentage points. Concessional reductions or exemptions. A combination of concessional schemes, however, have the highest impact, with loan terms and rates would lower LCOEs in all four a 3 percent lower debt interest rate resulting in an cases by around 19 percent, whereas tax reductions 40 approximately 7.3 percent lower LCOE in all four or exemptions only lower LCOEs by 1–2 percent (see cases. The specific impact of each incentive for each numerical presentation in Table B.13 in Appendix B). technology in terms of their ability to lower LCOEs and The important difference, however, is that, opposed to facilitate investments is shown graphically in Figure 5.6 the Indian case, accelerated depreciation proves to have and numerically in Table B.12 in Appendix B. a higher impact on lowering LCOEs in this scenario because of the much higher assumed corporate income Given the current nominal CERC FiT, only power tower tax rate in Morocco (accelerated depreciation creates technology would currently pose a financially viable a large tax shield in the first years of operation, which option. However, because of the program’s reverse lowers the NPV of the total amount of taxes paid over the auction mechanism, the lowest bidding criteria lower the project’s lifetime). Under our assumption of straight-line effective FiT available to a minimum of Rs. 10.49, or depreciation over seven years, LCOEs drop by around US$23.3 cents (which was the lowest winning bid in the 14.5 percent in all four cases. Figure 5.6: Impact Assessment of Different Regulatory Approaches on LCOE in India 38 36 34 Ceiling Tariff 32 Effective Tariff 30 28 26 24 22 20 Current Tax VAT Accelerated Longer Loan Concessional Concessional Accelerated Scenario Reduction Exemption Depreciation Term Financing Loan Term Depreciation + Rates + Concessional Loan Term + Rates Parabolic Trough (Air-Cooled) Parabolic Trough (Wet-Cooled) Power Tower (Air-Cooled) Power Tower (Wet-Cooled) 17 This assumes that concessional financing can be blended with commercial financing up to the amount of concessional financing necessary to lower the overall interest rate of the debt share of an individual plant by 3 percent, whereby the actual amount of concessional financing needed to reach a 3 percent reduction of the average debt interest rate depends on the commercial rate available. The assumption for concessional financing was a LIBOR + 1.5% interest rate. 5.5.1.3. South Africa In order to provide more illustrative Regarding South Africa, the same picture as in Morocco numbers, cost effectiveness was calculated in terms of was observed (see also Figure 5.8). In all four cases, the dollar amount that would have to be spent or the tax the effect of the accelerated depreciation is a 12.5 revenue that would have to be foregone in order to lower percent lower LCOE, slightly larger than the one of LCOE by 1 percent. By assessing cost-effectiveness, the combined concessional loan terms and rates, whereas report aims to provide policy makers with the information again tax reductions or exemptions only have a minor they need to choose a set of regulatory incentives impact on levelized cost (Table B.14 in Appendix B). that can both (a) maximize the impact on LCOEs and This would be even more important, given the slightly therefore facilitate investments; and (b) limit the overall higher capital costs and less favorable financial societal cost in financial terms by maximizing impact conditions assumed for South Africa. per dollar spent. To represent the financial burden of an incentive program better, costs were extrapolated for 500 To allow power tower plants to become financially viable, MW capacity, which was expected to come in the form of a tariff of around ZAR 2.5 would be sufficient under the five individual 100 MW plants. assumptions taken for this analysis. The tariff of ZAR 2.31 that would theoretically be available for power tower The actual composition of the societal cost mainly under phase two of the REFIT is already relatively close comes in the form of lower tax revenues (when tax 41 to this level, but is only guaranteed for 20 years—shorter reductions, VAT exemptions, and/or accelerated than the expected lifetime of the plant. In addition, the depreciation are granted) or in the form of additional REFIT tariff would only allow for power tower plants with expenditures (when concessional loan terms and/ up to six hours of storage which, based on this analysis, or rates are provided—in our example by blending would not allow for the use of the optimal amount of concessional and commercial financing so as to lower storage to minimize LCOE for a particular power tower the applicable debt interest rate for the debt share of plant in South Africa. The tariff offered for parabolic each individual plant by 3 percent). The final value was trough under phase two of the REFIT at ZAR 3.14 seems calculated as the NPV of the difference in cash flows for unlikely to ensure the financial viability of any parabolic income tax payments (for tax reduction and accelerated trough plant under the assumed circumstances. depreciation), the difference in upfront VAT payments on total direct costs (VAT exemptions) and the indicative 5.5.2. Cost-Effectiveness of Different Regulatory cost of upfront fees and guarantees (in the case of Approaches to Lower LCOEs concessional loan terms and rates). Ultimately the financial cost-effectiveness of each In the latter case, it was assumed that concessional incentive has to be determined in terms of its financing would be channeled to developers through Figure 5.7: Impact Assessment of Different Regulatory Approaches on LCOE in Morocco 40 35 US$ cents/kWh 30 25 20 15 10 5 0 Current Tax VAT Accelerated Longer Loan Concessional Concessional AD + Scenario Reduction Exemption Depreciation Term Financing Loan Term Concessional + Rates Loan Term + Rates Parabolic Trough (Air-Cooled) Parabolic Trough (Wet-Cooled) Power Tower (Air-Cooled) Power Tower (Wet-Cooled) Figure 5.8: Impact Assessment of Different Regulatory Approaches on LCOE in South Africa 45 REFIT for power tower w/ 6hrs TES 40 35 US$ cents/kWh 30 25 20 15 10 5 0 Current Tax VAT Accelerated Longer Loan Concessional Concessional AD + Scenario Reduction Exemption Depreciation Term Financing Loan Term Concessional + Rates Loan Term + Rates Parabolic Trough (Air-Cooled) Parabolic Trough (Wet-Cooled) Power Tower (Air-Cooled) Power Tower (Wet-Cooled) 42 a government intermediary that would cover expenses a relatively low societal cost in financial terms.18 The related to upfront fees and the purely administrative analysis, however, quantifies the amount of guarantees cost of providing the necessary guarantees. Under the that would have to be granted to allow for an easy assumption of a zero percent probability of default calculation of societal cost if a higher probability of and not accounting for their economic opportunity default is to be assumed. The overview of the results for cost, guarantees would under this framework have India, Morocco, and South Africa are provided in Tables Table 5.9: Sensitivity Analysis India – Cost-Effectiveness of Regulatory Approaches Incentive Reduction in Cost impact for 500 MW US$ per 1% Technology granted LCOE (%) Cost effect (US$) LCOE Parabolic Tax reduction –0.96 Lower tax revenues 81.7 million 85.1 million trough (Air-cooled— VAT exemption –0.96 Lower tax revenues 47.2 million 49.1 million with storage) Accelerated –4.16 Lower tax revenues 149.2 million 35.9 million depreciation Concessional –16.12 Upfront fees and 2.2 milliona 0.14 million loan terms guarantees (877 million in guarantees) Power tower Tax reduction –0.97 Lower tax revenues 88.1 million 90.8 million (Air-cooled— with storage) VAT exemption –0.97 Lower tax revenues 50.9 million 52.5 million Accelerated –4.17 Lower tax revenues 160.8 million 38.6 million depreciation Concessional –16.19 Upfront fees and 2.4 milliona 0.15 million loan terms guarantees (945 million in guarantees) a. These numbers were calculated assuming that the societal cost of guarantees, in financial terms and not accounting for economic opportunity cost, would consist of the front-end fee of 0.25% of the total loan amount. The actual loan amounts were calculated to cause a 3% drop in the cost of debt for the total debt capital share, based on a concessional fixed LIBOR + 1.5% rate. 18 In economic terms, guarantees indeed have an opportunity cost, since the money could have been used for activities with a higher economic rate of return. However, given that the use of available concessional financing is often limited to the financing of renewables, this opportunity cost can be regarded as relatively negligible. Likewise, the effect of guarantees on a respective country’s balance sheet—potentially affecting a country’s general interest rate—might not be sizeable in the case study countries considered for this analysis. Table 5.10: Sensitivity Analysis Morocco – Cost-Effectiveness of Regulatory Approaches Reduction Cost impact for US$ per 1% Technology Incentive granted in LCOE (%) Cost effect 500 MW (US$) LCOE Parabolic Tax reduction –1.21 Lower tax revenues 156.3 million 129.2 million trough (Air-cooled— VAT exemption –1.93 Lower tax revenues 117.9 million 61.1 million with storage) Accelerated depreciation –14.31 Lower tax revenues 296.1 million 20.7 million Concessional loan terms –18.77 Upfront fees and 3.0 milliona 0.16 million guarantees (1,189 million in guarantees) Power tower Tax reduction –1.20 Lower tax revenues 188.4 million 157.0 million (Air-cooled— with storage) VAT exemption –1.98 Lower tax revenues 142.3 million 71.9 million Accelerated depreciation –14.48 Lower tax revenues 357.0 million 24.7 million a Concessional loan terms –19.04 Upfront fees and 3.6 million 0.19 million guarantees (1,434 million in guarantees) 43 5.9–5.11. Since the differences between wet- and air- LCOEs for both technologies in financial terms, as cooled assumptions are negligible, we omitted the wet- long as the assumed probability of default is less than cooled cases to allow for a better overview. 25 percent. The amount of concessional financing necessary to lower applicable loan rates would, All three concessional schemes—with longer loan however, be considerable—from around US$877 terms (25 years in all three scenarios) combined with million for parabolic trough plants in India to more lower loan rates (3 percent, lower applicable debt than US$1.4 billion for power tower plants in the case interest by blending concessional and commercial of Morocco, assuming a total capacity of 500 MW. financing)—are the most cost-effective ways of lowering Compared to simple tax reductions or exemptions that Table 5.11: Sensitivity Analysis South Africa – Cost-Effectiveness of Regulatory Approaches Incentive Reduction in Cost impact for US$ per 1% Technology granted LCOE (%) Cost effect 500 MW (US$) LCOE Parabolic trough Tax reduction –1.75 Lower tax revenues 144.0 million 82.3 million (Air-cooled—with storage) VAT exemption –2.01 Lower tax revenues 126.2 million 62.8 million Accelerated –12.41 Lower tax revenues 262.0 million 21.1 million depreciation Concessional –12.03 Upfront fees and 2.4 milliona 0.2 million loan terms guarantees (967 million in guarantees) Concessional Upfront fees and loan rates guarantees Power tower Tax reduction –1.77 Lower tax revenues 168.1 million 95.0 million (Air-cooled—with storage) VAT exemption –2.05 Lower tax revenues 146.6 million 71.2 million Accelerated –12.60 Lower tax revenues 306.0 million 24.3 million depreciation Concessional –12.24 Upfront fees and 2.8 milliona 0.23 million loan terms guarantees (1,124 million in guarantees) proved to be by far the least cost-effective incentive Figure 5.9: Balance Sheet vs. Off-Balance- across all scenarios and technologies, requiring up to Sheet Financing Effects on LCOE in India US$90 million in order to reduce LCOEs by 1 percent, accelerated depreciation seems by far a superior 40 35 Normal CERC FIT option. Although at US$21 to US$38 million per 1 30 percent reduction in LCOE is not that inexpensive, they 25 Effective CERC FIT might be worth considering in cases where—as seen 20 in the case of South Africa—the existing regulatory 15 10 incentive framework just needs to be moderately 5 adjusted to lower LCOEs to the threshold where stand- 0 alone projects become financially viable. Non-recourse On Balance Sheet Financing Scenario Financing Scenario 5.5.3. Balance Sheet vs. Off-Balance-Sheet Parabolic Trough (Air-Cooled) Power Tower (Air-Cooled) Financing Parabolic Trough (Wet-Cooled) Power Tower (Wet-Cooled) All LCOE calculations in this chapter assumed largely nonrecourse or off-balance-sheet financing under the 44 applicable financial and regulatory conditions in the 5.5.4. Conclusions respective jurisdiction, albeit complete nonrecourse project financing may be unrealistic for the first Based on the above results, the following observations generation of such projects, since lenders may seek some can be made: limited recourse to the assets of the sponsor, particularly until the construction phase is completed and any cost DNI accuracy matters—any underlying financial overruns have been fully accounted for and paid by the analysis for a CST plant is only as good as the sponsor. LCOE estimates, however, can in theory drop quality of the DNI data the plant is modeled on. considerably if plants are financed on balance sheet, Given the inverse relationship between DNI and depending on the financial standing of the respective LCOE for CST plants, any analysis not based on data company. If a plant is to be financed on balance sheet, measured on the ground at the actual site of the the assumption would be that the weighted average project over the course of at least a full year will not cost of capital (WACC) for the project would equal the provide sufficient grounding for a diligent financial general cost of capital of the respective company, which model. might be lower than the commercial loan rate a stand- For all technologies in all three scenarios considered, alone project could receive. In addition, balance sheet the LCOEs for stand-alone projects are most likely financing might also avoid the need to cope with other too high to allow for cost recovery and meeting constraints that nonrecourse financing entails, including financing constraints at present. This is specifically the need to fulfill a minimum debt service coverage the case when the LCOEs are compared to the ratio (DSCR) and requirements for positive cash flows. FiTs available for CST-generated electricity in Phase By contrast, balance sheet financing increases the risk 1 of the JNNSM in India and the FiTs that have profile of a company’s investments and might require been proposed for Phase 2 of the REFIT scheme in cross-subsidization between projects, since the financial South Africa. LCOE calculations based on balance- viability of a project on a stand-alone basis is no longer sheet financing might be considerably lower than guaranteed. In the case of India (see Figure 5.9), LCOEs calculations based on nonrecourse (off-balance- would drop considerably by around 33 percent for each sheet) financing assumptions, such as the ones made technology under the assumption of a WACC based, for for this analysis. However, balance-sheet financing example, on a cost of capital of 8 percent for a large increases the risk profile of a company’s investments integrated infrastructure company, a repayment period and might require cross-subsidization between that would stretch over the plant’s economic lifetime (25 projects, since the financial viability of a stand-alone years), and no minimum DSCR requirements. This would project is no longer guaranteed. bring LCOEs under the threshold of the effective CERC Financial and regulatory incentives, as well as FiT (based on lowest bid), but would not necessarily concessional financing schemes, can significantly make projects financially viable on a stand-alone basis. lower LCOEs. Within the range of considered financial and regulatory incentives, simple tax reductions present value (ENPV) at a 10 percent discount rate and and exemptions tend to have the lowest impact and the internal economic rate of return (ERR). In addition, are most likely the least cost-effective incentives in a sensitivity analysis was performed for the following financial terms (not considering economic opportunity scenarios: (a) 10 percent and 20 percent higher total cost). By contrast, concessional financing schemes project cost; (b) a 20 percent lower load factor; and tend to have the highest impact and are likely to be (c) a 60 percent higher value of power. The main cost the most cost-effective incentives in terms of their assumptions are provided in Table B.15 in Appendix impact on LCOE on a per-dollar spent basis. B, which in general summarizes the assumptions used With regard to the other incentives considered, in the analysis. The main results for the three countries accelerated depreciation, especially when compared are given in Tables 5.10–5.12, respectively, for India, to simple tax reductions or exemptions, seems to Morocco, and South Africa. The following general be the superior option. Although far from cheap, it observations can be made across all three countries: might be worth considering in cases where—as seen in the case of South Africa—the existing regulatory 1. In none of the countries does the ERR achieve a incentive framework just needs to be moderately rate required for infrastructure projects of over 10 adjusted to lower LCOEs to the threshold where percent. Without the carbon and other environmental stand-alone projects become financially viable. benefits the ERR ranges from –0.65 percent to 4.8 percent for the power tower and from –2.55 percent 45 5.6. Economic Analysis of Reference CST Plants to 3.8 percent for the parabolic trough. With carbon (and local pollutant benefits for Morocco), the ERR This section presents an economic analysis, based on ranges from 2.1 percent to 8.8 percent for the power current investment costs, for reference 100 MW CST tower and from 1.1 percent to 7.4 percent for the plants—both parabolic trough and power tower—in the parabolic trough. respective three countries considered for the analysis— 2. Valuing carbon using the wider social costs of carbon India, Morocco, and South Africa. The economic analysis rather than a single value increases the ERR by 1–2 consists of estimating full economic costs and benefits percent (South Africa). If a single value is used the of individual projects, and calculating the economic net ERR goes up by about 0.5 percent. Table 5.12: Economic Analysis for CST Reference Plants in India Sensitivity Analysis for the Base Case India: Central Receiver Power Tower Cost Overrun Load Factor Value of Power Base Case 5Yr Delay 10% 20% 20% Lower 60% Higher No Carbon Benefits 0.00% 2.39% –0.74% –1.39% –2.64% 5.55% Revised Carbon Benefits 3.95% 6.88% 3.10% 2.34% 1.30% 8.38% Carbon Price for 12% IRR US$/ 153.3 97.0 174.7 196.0 215.4 97.0 Ton CO2 Sensitivity Analysis for the Base Case India: Central Receiver-Parabolic Trough Cost Overrun Load Factor Value of Power Base Case 5Yr Delay 10% 20% 20% Lower 60% Higher No Carbon Benefits 2.11% 3.83% 1.47% 0.90% –0.19% 7.00% Revised Carbon Benefits 5.57% 7.95% 4.81% 4.14% 3.23% 9.53% Carbon Price for 12% IRR US$/ 137.8 87.3 159.0 178.5 196.0 81.5 Ton CO2 Source: Macroeconomica 2011. Note: the carbon price is for 2012 or 2017 in the case of the 5 year delay. The central value for 2012 is US$38.8/ton and the central value for 2017 is US$43.1/ton. 3. The carbon values needed to achieve an ERR would 6. A delay in starting the project has two effects. First, be implausibly large in India and Morocco. In South there is a reduction in cost because of technology Africa they would also be quite high, but one could developments, and second there is an increase in argue that carbon emissions reduction projects with the value of power, as consumers’ willingness-to-pay costs in that range (US$80–100/ton CO2) have been increases. Decreases in the capital costs are assumed undertaken in other sectors. to be around 10 percent in the case of the parabolic 4. The sensitivity analysis shows approximately a 1 trough and around 8 percent in the case of the power percent reduction in the ERR for a 10 percent higher tower over the five years of delay assumed. The project cost and a further 1 percent reduction for a results of a five-year delay are to increase the ERR by 10 percent higher project cost. A reduction in the 1–3 percent, depending on how much future power load factor of 20 percent has a bigger impact— benefits rise. reducing the ERR by 2.5–3 percent. 5. The value of power is a critical factor in the ERR. Country-specific observations include the following: Ideally it should be measured as the willingness-to-pay for the additional power. Using the market price as a 1. In the case of India, the results show that a parabolic proxy would result in an underestimated willingness- trough has a higher return than power tower; a five- to-pay, since it ignores the consumer surplus, but the year delay increases the ERR by nearly 3 percent. 46 adjustment is small if the project adds only a small 2. In the Moroccan case study, the delay is not as amount to the total generation and does not supply effective in increasing the ERR (possible because the individuals who are currently without power or with increases in power value are more modest). Even limited access to electricity. In countries with power with carbon and local pollutant benefits, the ERR is shortages, some adjustment for this factor has to be well below a test rate. Power tower appears to exhibit warranted. In any event, if the power supplied has slightly better economics than parabolic trough. a higher value, the ERR goes up a lot and can even 3. For the South African case, because of the higher exceed 12 percent (see, for example, Table 5.12). value of power and the revised carbon benefits, a 12 Table 5.13: Economic Analysis for CST Reference Plants in Morocco Sensitivity Analysis for the Base Case Morocco: Central Receiver Power Tower Cost Overrun Load Factor Value of Power Base Case 5Yr Delay 10% 20% 20% Lower 60% Higher No Carbon Benefits –0.65% 1.46% –1.46% –2.18% –3.45% 5.27% Original Carbon Benefits 1.77% 3.94% 0.90% 0.13% –0.98% 6.93% Revised Carbon Benefits 2.07% 4.76% 1.19% 0.40% –0.70% 7.15% Carbon Price for 12% IRR 252.3 159.0 291.1 302.40 357.1 157.2 US$/Ton CO2 Sensitivity Analysis for the Base Case Morocco: Parabolic Trough Cost Overrun Load Factor Value of Power Base Case 5Yr Delay 10% 20% 20% Lower 60% Higher No Carbon Benefits –2.93% –0.02% –3.54% –4.07% –6.66% –2.93% Original Carbon Benefits 0.23% 2.14% –0.45% –1.06% –2.85% 0.23% Revised Carbon Benefits 0.87% 2.82% 12.04% –0.45% –2.12% 8.65% Carbon Price for 12% IRR 295.0 217.40 333.7 368.7 411.4 201.0 US$/Ton CO2 Source: Macroeconomica 2011. Note: the carbon price is for 2012 or 2017 in the case of the 5 year delay. The central value for 2012 is US$38.8/ton and the central value for 2017 is US$43.1/ton. Table 5.14: Economic Analysis for CST Reference Plants in South Africa Sensitivity Analysis for the Base Case South Africa: Central Receiver Power Tower Cost Overrun Load Factor Value of Power Base Case 5Yr Delay 10% 20% 20% Lower 60% Higher No Carbon Benefits 4.80% 5.55% 3.76% 2.85% 1.63% 12.00% Original Carbon Benefits 7.04% 7.88% 5.92% 4.94% 3.80% 13.65% Revised Carbon Benefits 8.81% 11.96% 7.65% 6.62% 5.55% 14.93% Carbon Price for 12% IRR 76.9 62.1 95.1 112.50 128.1 0.0 US$/Ton CO2 Sensitivity Analysis for the Base Case South Africa: Central Receiver-Parabolic Trough Cost Overrun Load Factor Value of Power Base Case 5Yr Delay 10% 20% 20% Lower 60% Higher No Carbon Benefits 3.80% 4.31% 2.97% 2.24% 1.04% 9.93% 47 Original Carbon Benefits 5.72% 6.39% 4.81% 4.02% 2.94% 11.33% Revised Carbon Benefits 7.41% 8.63% 6.47% 5.65% 4.76% 12.52% Carbon Price for 12% IRR 104.8 78.7 124.2 143.6 158.9 31.1 US$/Ton CO2 Source: Macroeconomica 2011. Note: the carbon price is for 2012 or 2017 in the case of the 5 year delay. The central value for 2012 is US$38.8/ton and the central value for 2017 is US$43.1/ton. percent ERR can be exceeded with both technologies, with the alternative technology. The results are given although the power tower has a higher return by in Table 5.16. Wet-cooling technology increases the 1–2 percent. Including benefits of reduced local ERR in the case of the parabolic trough by around 1.5 pollutants would increase the ERR further—by up to 1 percent and 0.2 percent in the case of the power tower. percent. The analysis presented here indicates that while When comparing air- and wet-cooling technologies, power tower technology has a slightly higher return it becomes evident that there are clear differences than parabolic trough, and the use of wet cooling between the technologies with respect to performance can slightly improve the ERR, CST plants in general, and cost, which are as summarized in Table 5.15. To indicate the impacts of the technologies on the Table 5.16: Impacts of Dry vs. Wet Cooling ERR, the base case for each country has been rerun Technologies South India Morocco Africa Table 5.15: Performance and Cost Penalties Parabolic trough Performance Cost Technology Process penalty Penalty Dry-Cooling 5.6% –0.5% 7.4% Wet-Cooling 6.7% 0.9% 8.9% Power tower Wet cooling None None Air cooling 1–3% 5% Power Tower Parabolic Wet cooling None None Dry-Cooling 4.0% 1.8% 8.8% trough Air cooling 4.5–5% 2–9% Wet-Cooling 4.2% 2.1% 9.1% Source: Macroeconomica 2011. Source: Macroeconomica 2011. assuming current prices, do not have an ERR that would other aspirations, such as gaining market leadership meet commercial infrastructure investment requirements. and experience through technology development or However, investment costs are projected to decrease targeting the building-up of a local manufacturing considerably over the coming years—a development industry. There are also potential ways of improving the that is expected to largely alter the economics of economics of CST even under current investment cost CST technologies. Further on, the decision to uptake assumptions through, for example, hybridization and the CST technology might not necessarily be based on large-scale application of storage—areas that, however, economic considerations alone, but might include remain outside the scope of this report. 48 6. ASSESSMENT OF LOCAL 6.1. Local Manufacturing Capabilities in MANUFACTURING CAPABILITIES FOR CST MENA19 To realize the cost reduction trends described in Chapter 6.1.1. The CST Value Chain in MENA 5, a major scale-up of CST developments would be necessary, both in the already established markets, as An evaluation of the MENA region‘s potential for well as in emerging markets in the MENA region, India, developing a home base for CST requires a detailed and South Africa. A major increase in CST capacity analysis of the CST value chain: the technologies in emerging markets is, however, only likely when and services, the production processes, and the main the countries concerned benefit from the technology industrial players. It is also important to review the cost for their economic development in general. One of of CST and contributions from individual components the primary means to foster development could be of the CST value chain. Based on the complexity level the establishment of local manufacturing capacities. and the potential for local manufacturing, as well as the Local manufacturing would have the added benefit of share of added value in the CST value chain, a number reducing the cost of local projects in the near term and of key components and services can be identified bringing down the cost for a variety of components that are most promising: key components include and CST-related services in the mid- to long term. This mounting structures, mirrors, and receivers, while key chapter assesses local manufacturing capabilities in services range from assembling and EPC to operation 49 several emerging markets for CST, including the MENA and maintenance (O&M). Single countries within the region and South Africa. It also provides some estimates MENA region have already developed some production on the economic benefits and potential employment capabilities of secondary components—including opportunities that could be generated. It should be electronics, cables, and piping—which might contribute noted that such estimates have been carried out on a to the local supply of future CST projects, although their gross basis, without considering the cost for reducing or share in the overall value chain might yet be of minor not expanding alternative technologies. importance. Figure 6.1 shows the different components and services linked to the production and use of CST. Figure 6.1: Components and Services for CST Low or medium Potential for Loacal Cost Share in Complexity Manufacturing Value Chain CSP Key Components Mounting Structure Mirrors Receivers Road Action CSP Key Services Assembling O&M EPC Map Plan CSP Secondary Components Electronics Cable Piping CSP other Components Trackers, HTF, Pumps, Storage, Power Block, Control System, etc. Source: Ernst & Young and Fraunhofer 2010. 19 This section is based on the report of Ernst & Young and Fraunhofer 2010. Based on a detailed analysis of these components, it High-technological know-how and advanced seems evident that there are a variety of opportunities manufacturing processes are necessary for some key for local manufacturing and the local provision of components, such as parabolic mirrors or receivers, services all along the value chain. which nevertheless offer the highest reward in terms of value added. Drawing on a detailed analysis of (a) the global CST Some sectors and companies, such as receiver value chain (an overview is provided in table B.16 suppliers, strongly depend on CST market demand in Appendix B) and (b) a detailed assessment of the and growth. Other firms have built their production opportunities for MENA industries to manufacture and manufacturing capacities to respond to the CST components in the value chain, including an demand of other markets (CST is a niche for them). analysis of technical and economic barriers for Some components (piping, HTF, electronics, power local manufacturing (see table B.17 in Appendix B), block) can be produced by companies without the following SWOT analysis of MENA industries extensive CST know-how or background because illustrating the respective strengths, weaknesses, this equipment is used for many other applications opportunities, and threats for the industries with (chemical, electronic, and electric industries). regard to participating in the CST value chain can be The potential of MENA CST may be achieved by the provided (see Table 6.1). manufacture of components by local, regional, and 50 international companies, and the construction of CST Aside from the SWAT analysis, the following general plants in MENA by local construction companies and conclusions can be drawn: A growing market has subsidiaries of international CST companies. been identified for all groups in the value chain (raw Production capabilities for some key components materials, components, engineering, engineering, (mirrors and receivers) moved to the current CST procurement and construction contractors, operator, markets in Spain and the United States as soon as owner, investors and research institutions). the market (or prospects for the market) had attained Table 6.1: SWOT Analysis of MENA Industries Suitable for CST Strengths Weaknesses Low labor cost (especially for low-skilled workers) Insufficient market size One of the highest solar potentials in the world Administrational and legal barriers Strong GDP growth over the past five years in all MENA Lack of financial markets for new financing countries Higher wages for international experts and engineers High growth in the electricity demand will require large Higher capital costs investments in new capacities Energy subsidized up to 75% in some countries Strong industrial sector in Egypt Weak or nonexistent fiscal, institutional, and legislative Particular proximity of Spain and Morocco frameworks for RE development Existing float glass sector in Algeria Despite regulations, implementation and enforcement of Large export industry in Tunisia and Morocco with long environmental regulations often deficient experience with Europe (for example, the automotive Need for network of business and political connections industry and, to a lesser extent, aeronautics) Lack of specialized training programs for renewables SCCS plants in three countries constructed by 2010 Partly insufficiently developed infrastructure Opportunities Threats Further cost reduction of all components Training of workforce and availability of skilled workers Attractive to external investors insufficient Solar energy: Moroccan Solar Plan (2 GW), Tunisian Technical capacities of local engineering firms Solar Plan, and premises of an Egyptian Solar Plan, for Low awareness of management of CST opportunities example Access to financing for new production capacities Possibility of technology transfer or spillover effects Competition with foreign stakeholders: German players from foreign stakeholders in MENA and strong interest of the United States in the Egyptian Political will to develop a local renewables industry market Export potential (priority given to export industries) Higher costs compared to international players High costs because of insufficient infrastructure Source: Ernst & Young and Fraunhofer 2010. a sufficient size. They could move to MENA when the cost for labor and energy (the latter in particular for CST market takes off in the region. Algeria and Egypt) and by the geographic proximity to Europe. To position themselves for the CST market, 6.1.2. Potential for Local Manufacturing MENA industries face several challenges, mainly in adapting their capacity to higher technology content. In the near- to midterm, international companies will The landscape is already changing; the situation of have an important role to play in the development of pure subcontracting is now shifting toward more local local industries. EPC companies and project developers R&D and the production of high-tech components. already active in the region have local offices in MENA MENA countries are aiming to be considered centers of countries close to the CST projects and their customers. excellence instead of low-cost and low-skilled workshops. The companies employ local and international workers Key findings on the status quo and future perspectives of and engineers for projects in the countries. Comparable local manufacturing include the following: with conventional power plants, CST companies also expect a large share of project development, Successfully constructed integrated solar combined management, and engineering from international cycle system (ISCCS) projects have increased CST companies with extensive technical expertise and experience and know-how in MENA. project experience. Table 6.2 provides an overview of Some components and parts for the collector the possible local content of different parts in the value steel structure were supplied by the local steel 51 chain as seen by international players. manufacturing industry (Algeria, Egypt, and Morocco). The workforce has been trained on the job; Several industrial sectors with the potential to engineering capacities have also seen progress. integrate the CST value chain in the MENA region Specialization of each country would be beneficial are dynamic and competitive on a regional, and because local demand will probably be relatively low sometimes international, scale. The glass industry, for in the short and medium terms. example, particularly in Egypt and Algeria, has been a Several parts of the piping system in the solar field— regional leader for a long time and is still increasing for the interconnection of collectors and power its production capacity. The cable, electrical, and block—can already be produced locally by regional electronic industry can also claim the same position, suppliers. especially in Egypt, Morocco, and Tunisia. The success The development of a CST mirror industry in MENA of these industries is facilitated by the development of countries has significant potential. joint ventures between large international companies Involvement of international companies will play an and local firms, as well as by the local implantation important role in the midterm development of the of subsidiaries of international players. In the past, the CST industry in MENA countries because it will build development of MENA industries was driven by the low up local production facilities. Table 6.2: Possible Local Content by Component of CST Power Plants Local manufacturing Services and power Local manufacturing Component possible? block possible? Mirrors Yes, large market Civil works Yes, up to 100% Receivers Yes, long-term Assembling Yes, up to 100% Metal structure Yes, today Installation works (solar Partly, up to 80% field) Pylons Yes, today Power block No Trackers Partly Grid connection Yes, up to 100% Swivel joints Partly Project development Partly, up to 25% HFT systems No, except pipes EPC Partly, up to 75% Source: Ernst & Young and Fraunhofer 2010. Minimum factory outputs have to be taken into for project engineering and project management. consideration for local manufacturing of special In particular, for the receiver (absorber) technology, components (glass, receivers, salt, thermal oil). the most promising option will be for international companies to move closer to the rapidly increasing The prospects for local manufacturing can be markets. summarized for each component: Possible evolutions of local CST industries for some of Construction and civil works: In the short term, the key components (mirrors, mounting structure, and all construction at the final plant site with the basic electrical and electronic equipment) in the MENA region infrastructure, installation of the solar field, and are provided in Figure B.1 in Appendix B, taking into construction of the power block and storage system account the market size for different components. could be accomplished by local companies (17 percent of total CST investment for a reference plant 6.1.3. Scenarios for Local Manufacturing in MENA or approximately US$1 million per megawatt). Countries Mounting structure: The mounting structure can be supplied locally if local companies can It is assumed that the volume of installed CST capacity adapt manufacturing processes to produce steel within the MENA region (the home market volume) 52 or aluminum components with the required high is a main precondition for the emergence of local accuracy. manufacturing. Thus, the scenarios represent critical CST-specific components with higher complexity: levels of market development for local manufacturing. In the short to medium term, local industry is The home market volume and the potential amount generally capable of adapting production capacities of export (external market volume) are regarded and creating the technological knowledge to as indicators for the development of a successful produce mirrors (glass bending, glass coating, and policy scheme. The scenarios chosen here therefore possibly float glass process) of high quality and to represent critical levels of market development for local a high technical standard, as required for parabolic manufacturing (for an overview, see Figure 6.2). mirrors in parabolic trough plants. This might require international cooperation for specific manufacturing Scenario A—Stagnation: The home market volume steps in the short term. Later, local provision of amounts to only 0.5 GW. Strong obstacles to local components could include high-quality mirrors, manufacturing of CST components remain in the receivers, electronic equipment, insulation, and skills country markets, and most components, particularly Figure 6.2: Interrelations between MENA Home Market Size, Possible Export Volume and Focus of Support for Local Industries MENA home market volume 0.5 GW 1 GW 5 GW Scenarios A B C Potential foreign trade 0 GW 2 GW Focus of support Enhancing the provision of Adaptation of internat. Production Strengthening the products and services with low and service standards for innovative capacity for CSP barriers by existing companies components with medium barriers components and services Source: Ernst & Young and Fraunhofer 2010. those whose production requires high investment costs, key precondition for the development of local are imported from more advanced markets. manufacturing in MENA countries. Long term, the annually installed capacity should be on a gigawatt Scenario B—No-replication: The home market scale for the development of production lines, volume amounts to 1 GW in 2020. In this scenario, the particularly in the case of mirrors and receivers. market offers some opportunities for the development National strategies for industrial development and of local manufacturing of CST components and energy policy should be well coordinated and provision of CST services. This scenario aims at an involve clear targets for the market diffusion of CST, adaptation of international production standards substantial R&D efforts, strategy funds for industrial and techniques in existing industries, and leads to development of CST industry sectors, and stronger a regionwide supply of suitable CST components regional integration of policies. produced locally in the MENA region. A provision of low-interest loans and grants specifically designed for local manufacturing of Scenario C—Transformation: The home market renewable energy components might help local volume of the five countries amounts to 5 GW, companies raise the funds for the innovation of and the export of components reaches a volume production lines or new company start-ups. corresponding to 2 GW installed CST capacity. National Another direct political measure to foster a long- CST promotion plans have been developed quickly, term demand for CST components would be the 53 international initiatives are strongly represented, and/ introduction of local (domestic) content clauses within or private investors are notably active in the region. CST tenders and other support instruments. Policy actions should support innovations and the To enhance the innovative capacity of the industrial development of intellectual property rights in the field of sectors, the creation of a larger number of CST components. technology parks or clusters and regional innovation platforms should be pursued. This would particularly 6.1.4. Roadmaps for the Development of Local help small and medium-size firms overcome Manufacturing of CST Components in the MENA innovation barriers and gain access to the latest Region technological advancements. Business models should build on the comparative Based on the assessment and identification carried out advantages of certain sectors in MENA countries and of existing and potential domestic and foreign players, also involve international cooperation agreements, potential routes to developing local manufacturing for example, in the form of joint ventures and capabilities were identified. The aim of the roadmap licensing. In the case of receivers, subsidiaries of is to show possible technological and entrepreneurial foreign companies will most likely be the relevant developments in the regional manufacturing of each business model in the beginning. Governments could component in the short, medium, and long term and assist the private sector in the matchmaking process to identify overall, long-term objectives in these fields. leading to such cooperation. Figure 6.3 provides a detailed roadmap for EPC The investment in new production lines based services in CST projects. A further roadmap for key on highly automated processes for the mounting mirrors is to be found under Figure B.3 in Appendix B. structure and glass production, as well as adaption of techniques for coating and bending mirrors, will A detailed action plan for stimulating CST be a crucial first step. manufacturing and service provision in the MENA Establishing local manufacturing will involve region was developed for all relevant actors (see also comprehensive education and training programs Table B.18 in Appendix B) summarizing the potential for the industrial workforce in relevant sectors. measures addressed to different actors to stimulate the Universities should be encouraged to teach CST production of CST components and provide CST-related technology-based courses to educate the potential services in the MENA region that most likely would have workforce, particularly engineers and other technical to include the following: graduates. Additionally, to ensure regional and international The creation of a stable policy framework quality requirements and to strengthen the and sustained domestic market for CST is a competitiveness of future MENA CST industries, 54 Figure 6.3: Potential Roadmap for EPC and Services in MENA CST Projects Status Quo Short-Term Mid-Term Overall Goal Business Large regional EPC development contractors with Few large EPC Subcontracts in CSP projects Project Engineering & comprehensive contractors are given to local companies by management is construction are know-how in the field active in MENA. international EPC contrac- carried out by completed by local of CSP are active in First experiences in tors MENA companies companies only MENA and supra- CSP projects have Local service regional. Other sectors already been providers gain benefit from their gained. Logistics are profound project Positive spill-over profound experience. organized locally experience & effects on other local workforce service sectors Civil works and receives All civil works, on-site on-site assembly Assembly is carried out extensive training Independent assembly, logistics and are partly locally (under supervision of jig-and field maintenance works are performed by local experienced EPC contrac- assembly by local accomplished by the workforce. tors) companies local workforce. Policy framework & market development Strong focus on A well trained Clearly formulated No national targets Coordinated national Long-term, stable education & training workforce for the CSP political targets. for development of strategies defined for policy framework related to CSP service sector is Extensive availability of CSP and related service sector is implemented & services widely available training centers, well service sector, no development and public funds trained workforce specific training energy targets made available Facilitated transport Extensive upgrade available of CSP components Well developed of transport & leads to more infra-structure assures communication efficiency of logistic transport services and Infrastructure partly infrastructure procedures communication underdeveloped Source: Ernst & Young and Fraunhofer 2010. implementing quality assurance standards for CST Box 6.1). In contrast, in scenario C in 2025, the number components should be considered in the medium to of permanent local jobs could rise to between 65,000 long term. and 79,000 (46,000 to 60,000 jobs in the construction For the service sector, local assembly of the plants and manufacturing sector plus 19,000 jobs in and involvement of local EPC contractors are operation and maintenance). Additional impacts for job important initial steps for increasing the local creation and growth of GDP could come from export component. opportunities for CST components. Exporting the same components that are manufactured for local markets to 6.1.5. Potential Economic Benefits of Developing a the European Union, United States, or MENA (2 GW CST Industry in North Africa by 2020, 5 GW by 2025) could lead to additional revenues of more than US$3 billion by 2020 and up to The economic benefits of developing a CST US$10 billion by 2025 for local CST industries. industry were evaluated for the three CST scenarios (stagnation, no replication, and transformation) for 6.2. Local Manufacturing Capabilities in northern Africa. South Africa The economic impact on GDP is depicted in 6.2.1. The Potential CST Value Chain in Table 6.3—economic impact is strongly related to the South Africa20 55 market size of CST in the MENA region. Scenario C creates a local economic impact of US$14.3 billion, Based on an in-depth analysis of the main CST related roughly half of which is from indirect impacts in the CST companies and sectors in South Africa—assessed were value chain (excluding component exports), compared the glass, steel and allied industries, electronics, and to only US$2.2 billion in scenario B. cable manufacturing industries, as well as engineering consulting and project management and EPC firms, in The impact in terms of labor generation would be order to determine the respective component-specific a permanent workforce of 4,500 to 6,000 local potential for local manufacturing (for details see employees by 2020 under scenario B (for more Table B.19 in Appendix B)—a SWOT analysis of RSA’s information on estimating employment generation, see potential CST value chain is shown in Table 6.4. Table 6.3: Direct and Indirect Local Economic Impact in Scenarios A, B, and C Local share by Cost reduction In US$ million (cumulated) 2012 2015 2020 2025 2025 by 2025 Scenario A 30 193 916 1,498 25.7 % ~ 16 % direct 20 125 571 946 indirect (supply value chain) 10 68 344 551 Scenario B 61 465 2,163 3,495 30.6 % ~ 36 % direct 39 251 1,167 1,959 indirect (supply value chain) 22 213 996 1,535 Scenario C 368 2,803 14,277 45,226 56.6 % ~ 40 % direct 206 1,403 6,999 21,675 indirect (supply value chain) 162 1,401 7,278 23,551 Source: Ernst & Young and Fraunhofer 2010. 20 This section is based on the Fichtner report 2011. Box 6.1: Estimating Employment Generation of CST Development One of the main justifications for providing financial incentives not only to CST, but to emerging energy technologies in general, is the employment generated by the specific energy sector. The actual amount of employment generated, however, can be estimated in different ways, making simple comparisons between studies of employment generated by a particular incentive framework potentially misleading. A recent World Bank paper by Robert Bacon and Masami Kojima (2011) describes the various measures of employment generation that are widely used and discusses the definitions and methodologies used. The paper compares for example approaches focusing on (a) estimating the incremental employment created by a specific project vs. (b) evaluating the total employment supported by an energy subsector at a moment in time; (c) evaluating the incremental employment effects of different forms of a stimulus program in which the energy sector is one possible recipient of government spending; or (d) comparing the employment creation of alternative energy technologies to achieve the same goal, whether it be the amount of power delivered or million dollars of expenditure. Generally the paper categorizes employment generated as either direct (those employed by the project itself), indirect (those employed in supplying the inputs to the project), or induced (those employed as a result of spending from the incomes of the direct and indirect employment), while a further distinction is made between employment for construction, installation, and manufacture (CIM), and employment for operation and maintenance (O&M). This report relies on studies that capture both the direct (project associated) as well as indirect (resulting from increased local manufacturing) employment. 56 Table 6.4: SWOT Analysis CST Value Chain in South Africa Strengths Weaknesses High growth in electricity demand resulting in substantial Sensitivity of local currency investments in the energy sector Deficient transport and energy infrastructure Low labor costs Administrative barriers and delays Diversified industry and strong financial institutions Shortage of skilled employees and insufficient Well-regulated public-sector finances training of workforce Comparably high DNI Scarcity of ground water resulting in cooling and High manufacturing capabilities for float and bend glass, as wash water limitations well as for glass coatings Strong presence of large power plant equipment manufacturers with significant manufacturing facilities South Africa hosts some of Africa’s largest steelworks and electrical cable manufacturers Well-established supply industry—three of Africa’s largest EPC companies Highly reputable R&D institutions and universities staffed by highly rated scientists and engineers Opportunities Threats Renewable Energy FiT encouraging CST activities Restrictive labor regulations CST project pipeline of up to 5 GW, indicating high potential Difficulties regarding access to financing of CST implementation Lack of CST track record Export potential to Sub-Saharan countries Lack of bankable PPAs for renewable energy South African leadership in CRS technologies in the long term projects in case of successful implementation Energy policy uncertainty regarding the role of IPPs High potential for cost-effective CST component in the renewable energy sector, as well as power manufacturing sector reform Attractiveness to external investors, developers, and Governmental support for potential CST component manufacturers by large market demand manufacturers unclear Improvement of energy security Competition with other emerging countries Source: Fichtner 2011. Box 6.2: Illustrative Industrial Development in RSA: Automotive Industry The potential of local industries in South Africa to develop CST activities is confirmed by the phenomenal success of the automotive industry in South Africa established in the 1920s, which manufactures 83 percent of Africa’s vehicle output (DTI, State of the Automotive Industry Report, September 2003), employs more than 200,000 people (NAAMSA Statistics), and has a local content ratio of at least 60 percent, meaning there are significant benefits to the local downstream industries, such as the fitting and turning factories within South Africa (NAAMSA statistics). Most importantly, the great majority of the more than 200 component manufacturers are South African companies. Several lessons learned are identifiable from the Automotive Sector experience that could be rather valuable for CST manufacturing in South Africa, including the following: 1. Lack of bank financing or fundraising might inhibit the industry’s growth: The understanding of the financing of CST projects is still low in South Africa. The raising of finance on the local market could be a challenge. 2. CST development might be more capital intensive than automotive sector investments. It would be difficult for the state to finance a CST project without adversely affecting its sovereign credit rating. 3. There is no clarity on the administrative requirements yet for CST projects from the Departments of Public Enterprises and Energy. 4. Despite the preliminary research that has been done on CST technologies, the CST industry is still in its 57 infancy in South Africa. It will take several years before the knowledge of CST technology is widespread and able to sustain CST plants locally. 5. Clarity on the contribution of CST to the power generation mix is required. The IRP2 has allocated a figure for renewable power generation that is being contested by most organizations. Finality of this issue is required so as to send a signal to potential CST power plant developers. 6. Clarity on the role of IPPs in the power sector is urgently needed. Most of the people interviewed as part of this research have indicated that IPPs are expected to drive investment in future power plants. The power sector regulatory framework needs to be clarified urgently by the Department of Energy in order to give investment signals to investors. Source: Fichtner 2011. 6.2.2. Potential for Local Manufacturing “stagnation scenario,” the local share is expected to be considerably lower for construction and components. As in the MENA region, the uptake of local manufacturing capabilities will be partly driven by Under scenario C—the accelerated scenario—the local major international CST industry players that have share in some projects could increase further. Local already established a presence in South Africa and are mirror and receiver production is seen as starting as assembling land, organizing permits, and developing early as 2015 for the acceleration scenario, which local partnerships, in order to prepare themselves to would also see the local production of other specialized, get involved on a significant scale in large-scale CST high-precision steel accessories for CST applications. projects in South Africa. Beyond 2020, the share of local manufacturing would increase even further because of more technology The report has analyzed the status quo of the transfers and knowledge sharing through the manufacturing capacity for CST components and the realization of more CST plants in South Africa, since capacity to provide CST-related professional services, the learning effect is expected to fully play out around including EPC services (an overview is provided this time. This would also lead to a drop in the cost in Table B.20 in Appendix B). The overall current of locally manufactured CST components because of proportion of local manufacturing for power plant technological advancements, economies of scale, and projects is expected to be up to 60 percent, depending competition in the CST component manufacturing sector. on whether specific CST components—for example, receiver tubes, HTF pumps, and swivel joints—can The modeling for the local share of manufacturing does be locally developed and manufactured. For the not include the modeling of local content requirements set out by the South African government, which would as well as country and project-related assumptions require foreign contractors to procure some material for local manufacturing of components and plant locally. A stable market and large market demand, construction.21 The model applied used a cost build-up as well as incentives for investors to venture into the approach, which considers the effect of cost, economic renewable energy sector, will influence many investment and job effects on a component by component basis. decisions on the local production of CST components. The approach considered the same three scenarios as for the MENA region including scenarios, stagnation, 6.2.3. Roadmaps for the Development of Local and acceleration. The numbers indicated below are Manufacturing of CST Components in South Africa modeled for individual 100 MW reference CST plants using different technologies. Figure 6.4 identifies potential routes for the development of local manufacturing capacities for glass 6.2.4.1. Direct and Indirect Economic Impacts mirrors in the short (up to 5 years), medium (between 5 and 10 years), and long term (beyond 10 years), setting Direct and induced economic impact values were out the main milestones required to provide both the calculated for each of the three scenarios using local and export market. A roadmap for metal structures NREL’s JEDI model22 and are depicted for a single can be found as Figure B.3 in Appendix B. 100 MW plant in Table 6.5. In addition to the local 58 manufacturing of components and the construction of 6.2.4. Potential Economic Benefits of Developing a CST plants, O&M services will also have a considerable CST Industry in RSA positive impact. Direct economic impacts are related to the design, construction, operation, and maintenance New CST projects in South Africa will add valuable of the CST power plants. Induced effects are economic economic benefits to the country’s economy and could impacts because of increased demand in the supply support significantly the industrialization of South value chain, as well as multiplier effects resulting from Africa and Sub-Saharan Africa, as well as the political increased disposable income. endeavor of creating jobs. The creation of jobs will enhance the number of people with disposable income, 6.2.4.2. Impact in Terms of Labor Generation which means an increased purchasing power of goods and services, which in turn increases the Foreign Direct O&M services for CST plants will add a considerable Investment (FDI) by foreign companies wanting to take number of jobs over a longer period once a particular advantage of the improved disposable income in South plant is constructed. Wages and the number of Africa. employees were adapted to South Africa’s lower wages and low mechanization of tasks, leading to The socioeconomic and foreign trade impacts from more workers being employed over the lifetime of the CST plant development and component manufacturing plant. The increasing use of automated plant condition in South Africa were analyzed based on a multistage monitoring systems in power plants over time could, modeling approach incorporating component however, lower the number of jobs created during the specifications, based on technology requirements, O&M phase. The results of the job impact 21 Further assumptions included the following: The job creation impact assessment has been done on an economy-wide basis. The Jobs and Economic Development Impact (JEDI) model developed by the National Renewable Energy Laboratory (NREL) of the United States has been used as reference for this study, but the input figures have been changed to suit South Africa. Effects of an internal CST market growth are considered to be linked with the export of CST components to the world market, such as to other Sub-Saharan African countries. Scenarios cover the different cases of market development that will have different implications on the economic benefit and implementation of local supply and component manufacturing in factories of South Africa. The JEDI model has been used to analyze the impacts for both the PTC and CRS technologies, with and without thermal storage. The capacity factors assumed are less than 30 percent without thermal storage and 56 percent with storage. The basis of the modeling is the impacts accruing from one CST plant, which is 100 MW. The level of job mechanization has been taken to be low. The DNI figures for the Northern Cape Province in South Africa have been used for modeling. The job market in South Africa is highly influenced by low labor costs, limited availability of skilled workers, and lower productivity of the workforce. As a result, twice as many workers as needed are used for construction. Low worker productivity is due to low mechanization of construction-related tasks in South Africa’s construction industry. The South African government has outlined its intention of creating jobs in its New Growth Path (NGP) economic policy. Labor Intensive Construction (LIC) methods are recommended for use by the South African Government on all large-scale projects. 22 Here a link to NREL’s JEDI website and some information would have to be provided. Figure 6.4: Potential Roadmap for the Production of Glass Mirrors in RSA Status Quo Short-Term Mid-Term Long-Term Overall Goal Technology One or two large Adaptation of Adaptation of Single float Single float Upgrading of Application of development suppliers of white float production the produc- glass glass additional alternative High availability of raw lines of main tion line of factory(s) are factory(s) are production materials & glass and several mirror material and producer for main adapted to upgraded for line(s) for designs (e.g. manufacturers in RSA production of white CSP flat glass producer for produce CSP flat mirrors bending polymers, thin produce CSP quality float glass by one and coating CSP bent flat glass (coating) process gas, mirrors at competitive major provider to the for the mirrors aluminum) prices big local automotive required industry production Exporting capacity of all types of mirrors in RSA No current production Supply of white Provision of highly Supply of white Provision of highly of mirrors with CSP glass and flat precise bent glass and flat precise bent quality mirrors for CSP in mirrors for a mirrors for mirrors in RSA for RSA possible for a major part of RSA heliostats and demand and major part of RSA demand Fresnel in RSA for surplus demand demand and surplus Business development Foundation of Independent production One major producer of joint ventures of CSP mirrors in RSA. white float glass with Newly emerging mirror high capacities companies and strong Acquisition of Comprehen- Investments in High level of Positive increase of overall licenses sive training upgrade of sophistication spill-over sectoralpotential Automotive industry set of employees production lines is reached effects on track record of quick other glass industry creation sectors e.g. PV Strong focus Applied Techniques and Growing of intellectual on R&D in the research materials adapted Patented property with regards to Important R&D sector field of accompany- to specific needs innovations in CSP mirrors. Profit for with existing coopera- reflector ing ongoing and resources of reflector innovations tion for a CSP pilot design, projects & the countries designs & project coatings & testing plants maintenance maintenance equipment in RSA (continued on next page) 59 60 Figure 6.4: Potential Roadmap for the Production of Glass Mirrors in RSA (continued) Status Quo Short-Term Mid-Term Long-Term Overall Goal Policy framework & Establishment of Strategy funds Clear political goals market development institutions/ for industrial regarding industrial National targets for associations to upgrade are policy and exports CSP industry are still to define and provided be agreed upon support RSA Focused support for Consolidated R&D and national Large number industrial development of funding of R&D CSP mirror industry FiT have recently been strategies for framework competence adjusted, but are still to industrial be agreed upon developments clusters Continuous and stable and energy created Long-term, Intense trade Growing growth of CSP market in Ongoing discussion on targets defined stable policy of CSP export of RSA Favorable tax implementation of new framework is mirrors with CSP mirrors rates exist for single-buyer implemented RSA from RSA mirrors neighboring Substantial CSP project countries pipeline Definition of Growing CSP Growing level Minimum of Minimum long-term CSP pipeline of confidence 100 MW of installed objectives in CSP installed capacity of technology capacity per 2 GW year Source: Fichtner 2011. Table 6.5: Estimated Economic Impacts for Different CST Technologies Stagnation Base case Acceleration scenario scenario scenario Parameter CST technology (EUR million) (EUR million) (EUR million) Estimated PTC without storage 140 180 280 Direct and induced economic impacts over the project life PTC with storage 374 412 475 cycle (project development, CRS without storage 182 230 334 construction, O&M phase) CRS with storage 358 392 448 Source: Fichtner 2011. assessment per single 100 MW plant are given in exported to markets in the European Union, United Table 6.6. States, and MENA. If industry competition increases 61 and costs of components are reduced after 2020, 6.2.4.3. Trade Impact exports are expected to begin soon after 2020. In such a scenario, labor generation and direct economic With regard to the trade impact of CST component impacts would increase significantly. It is expected manufacturing in South Africa, the model is based that after extrapolating the CST capacity curve for on the assumption that exports will only take place the “acceleration scenario” beyond 2020, more than if local demand exists in the region. Respectively, the US$3.6 billion could be earned by exporting CST modeling for this aspect considered only scenario C, components to CST projects in Sub-Saharan Africa and under which components like mirrors or receivers are the global market by 2030. Table 6.6: Estimated Job Creation up to 2020 for Different CST Plant Technologies Stagnation Acceleration Parameter CST technology scenario Base case scenario scenario Estimated number PTC without storage 956 1,257 1,479 of Jobs created over the project life cycle PTC with storage 1,023 1,480 1,662 (project development, CRS without storage 867 1,107 1,337 manufacturing, construction, O&M) CRS with storage 945 1,330 1,592 Source: Fichtner 2011. 7. ASSESSMENT OF PROCUREMENT energy projects can be grouped into two broad PRACTICES categories: EPC Contracts and Multiple Contracts. The main characteristic of an EPC contract is that it offers This chapter describes and analyzes various tendering protection to the owner from performance and/or cost models, practices, and the bid selection criteria typically overrun risks by bundling multiple services into one used for CST projects based on current information contract with these risks taken on by the contractor. available from the developers and utilities in developed However, this comes at the price of a risk premium markets, and then provides recommendations on charged by the EPC contractor. The Multiple Contracts tailoring these practices, criteria, and PPA structuring for approach minimizes the risk premium, but requires developing country markets to help facilitate business the owner to have expertise in managing multiple transactions for CST projects. Recommendations are contractors to deliver the plant on time and within the provided for key elements of each subtopic.23 budget and requires the owner to bear most of the risk. 7.1. Tendering Models and Practices Pricing Structure (Table 7.3) also plays an important role in the procurement process. Pricing structures The procurement process should be examined in can be manipulated to shift risk from the owner to the the context of the type of solicitation that is desired. contractor or vice versa, depending on the needs of the Solicitations can be grouped into two main types: various players involved in the project. Pricing structures 63 Power Procurement and Project Development. Power used in the renewable energy industry (presented in Procurement involves the purchasing of power by a Figure 7.1) include Firm-Fixed-Pricing, Time-and- regulated or public sector utility. This is a hands-off Materials Pricing, and Hybrids of the two that are meant approach where the solicitor does not get deeply to reallocate risk between the parties to accomplish involved in the project details. Project Development, by certain objectives (such as incentive alignment). contrast, requires significant involvement and expertise from the solicitor. The characteristics, as well as the advantages and disadvantages of each, are highlighted Table 7.1: Solicitation Types Summary in Table 7.1. Solicitation Types Once the motivations for the procurement are Power Procurement established, the next step is to determine the Pros: Cons: procurement process that will be used to implement the project. Options include procuring by Sole Source Simplified role for solicitor— Potentially higher final no detailed engineering or cost because of mark-ups or by Competitive Bidding. Sole Source procurements construction requirements in value chain involve selecting one contractor to perform the scope generated of work without holding a competitive bid. This is Minimal expertise in project Little control over project prevalent in the industry in the form of conglomerate development needed companies taking on multiple roles in a project (owner/ developer/EPC). Competitive Bidding is the alternative Project Development to Sole Source where requests for proposals (RFPs) are Pros: Cons: circulated, and multiple bidders respond with proposals. Increased control over More time and effort Each of these methods has been used in the past for project structure and from solicitor necessary CST and other renewable energy projects, and each implementation to develop bid packages, has its advantages and disadvantages as summarized in evaluate bidders, and oversee construction and Table 7.2. implementation Potential for lower cost Significant expertise in The next step in the procurement process is to because of fewer steps in project development determine the contract structure that will be used for value chain required the procurement. Although there are numerous options Source: NOVI Energy 2011. for contract structuring, contracts used in renewable 23 This chapter is based on the NOVI Energy report 2011. Table 7.2: Procurement Methods Summary Figure 7.1: Contract Type Characteristics Procurement Methods Taller Bars = Better Sole Source Pros: Cons: Minimal time spent Lack of competitive on the selection pricing that may result Open Closed Open Book Open Multiple process in higher project cost Book Book Major Book Contracts EPC EPC Eqp., Conceptual, Repeated use may Closed Closed prevent new entrants Book Book EPC into the industry BOP Competitive Bidding Potential for Low Cost Low Risk of Cost Overrun Owner Control of Scope Sealed Pros: Cons: bidding Source: NOVI Energy 2011. Competitive pricing Potential to under- design systems to satisfy low price, which Table 7.3: Pricing Structure Summary 64 may affect performance and longevity Pricing Structure Transparency Inability to Firm-Fixed-Price discuss complex procurements to make Pros: Cons: sure bid offering Developer-owner Highest risk premium from covers solicitation completely protected contractor may lead to requirements from cost overrun risk highest overall project cost Less time consuming Fewer contractors may be than Open Bidding willing to bid with this type of Open Pros: Cons: pricing structure because of bidding unwillingness to take on risk Competitive bidding Bid clarifications and of the entire negotiations can be Quality of subcontractors and construction contract very time consuming products may be reduced provides the lowest in order to minimize cost cost for the design overruns requirements specified Time-and-Materials Provides the best Pros: Cons: assurance that bid content meets RFP No risk premium; Highest cost overrun risk, no requirements and therefore, potential for defined cap on the expenses is not over/under lowest project cost incurred by the contractor designed No incentive for the Source: NOVI Energy 2011. contractor to stay within a project budget Hybrid Pricing Renewable energy based incentives are usually designed Pros: Cons: to achieve certain key policy goals and are usually Allows optimal balancing Some level of risk premium developed in consideration with their setting. Renewable of cost overrun risk will be included in project energy incentives affect the procurement behavior between parties cost of utilities and in turn influence implementation of Maintains incentive for Quality of subcontractors and renewable energy projects. The schedule sensitivity contractor to stay within products may be reduced budget in order to minimize cost of expiring incentives and availability of financing, as overrun well as the mitigation of the numerous risks inherent in renewable energy projects, also influence the Source: NOVI Energy 2011. procurement and implementation of CST projects in an optimal balance of the solicitor’s needs. Minimum developing nations. recommended criteria from each subcategory that should be included in a weighted bid matrix for CST 7.2. Bid Selection Criteria projects in the case study of developing countries are provided in Figure 7.2. The weights should be selected The choice of bid selection criteria is critical to by each individual solicitor to best reflect the relative the success of the procurement process. Effectively importance they place on each factor, and therefore no designed criteria help convey the needs of the solicitor weight recommendations are provided in Figure 7.2. and allow bidders to make optimal tradeoffs when developing project proposals. Multiple categories of 7.2.1. Cost-Based bid selection criteria were considered for the planned and implemented CST projects, including Cost-Based, If a FiT is the primary incentive granted in a Feasibility-Based, Value-Based, and Policy-Based. Any particular jurisdiction, choosing the lowest level of one of these categories taken alone is insufficient concessional financing as the cost-based criterion can to ensure an optimal match between the proposed be recommended. Since the payment to the winning projects and the solicitor’s needs. Given the limited bidder under a FiT is set regardless of the cost of experience on bid selections in developing countries their project (“guaranteed payment rate”), using a analyzed in this report, solicitors should be allowed to cost-based criterion, such as lowest up-front CAPEX 65 consider a range of project attributes and select the or LCOE to choose the winning bidder would not be project that represents the best combination of tradeoffs effective. The result of using one of these criteria would for the solicitor’s needs, by varying the weight applied be that all bidders would understate their up-front to each factor. Thus, a recommended option for bid and/or O&M costs so that their bid would appear to selection criteria design for CST projects in developing be the lowest, knowing that they would receive the countries would be the Weighted Matrix Evaluation guaranteed payment rate regardless of the cost they approach. The weighted Matrix Evaluation method report. This incentive misalignment makes it difficult also allows the solicitor to more clearly convey their (if not impossible) to select the project with the lowest needs by way of published matrix weights as part of cost. Evaluating bids based on the lowest level of , the RFP thus increasing the likelihood that bidders will concessional financing provides an alternative that make appropriate tradeoffs. Without an advanced minimizes this issue. Bidders will want to use the highest notice of bid matrix weights, bidders with the capability level of concessional financing possible to maximize to provide an optimized proposal may fail to submit their project returns. However, they will want to use it because they would not know that it was, in fact, the lowest level in order to be selected as the winning bidder. This healthy competition will serve to minimize the likelihood that a bidder will understate the level of concessional financing required. Use of this criterion Figure 7.2: Recommended Bid Selection Criteria for CST in Developing Countries will help maximize the benefit from the concessional financing available through organizations offering such Cost-Based financing. The use of this criterion should not affect the Level of Concessional Financing Feasibility-Based attractiveness of the procurement to potential bidders. Company/Team Experience* Bidders will be attracted to the procurement if the FiT Company Financial Stability* is high enough to make a project profitable. Requiring Technology Maturity Interconnection Feasibility bidders to use the lowest level of concessional financing Site Control possible will just change the way they structure their Environmental Approvals project. Ability to Raise Financing Levelized Cost of Electricity (LCOE) Policy-Based It is worth noting that if the FiT were structured as a Speed of Implementation (Schedule) “cost-plus” payment, where it pays a set premium Value-Based (Optional) over the selected bidder’s LCOE, this would reduce the incentive for bidders to understate their costs and Source: NOVI Energy 2011. *These criteria are optional as separate requirements if make the LCOE measure more useful as a cost-based “Ability to Raise Financing” is an included criterion. bid selection criterion. This could be a consideration of incentive design. However, this solution is not While CST technology is constantly evolving and without its drawbacks. Structuring the FiT as “cost plus” improving, some consideration should be given to may make it less desirable for the more cost-efficient the maturity of the proposed technology to minimize bidders, since their lower costs will no longer result in risk. The weight applied to this factor can be small a greater profit. For example, the level of the FiT could if the solicitor feels that the benefits of improved be set based on the understanding by the tariff setter technology efficiency outweigh the risks of successful (for example, a regulator) of what an average plant of implementation. It is recommended that early phases the type considered should cost to set up and operate. of CST program implementation for a given country Since the FiT is fixed for all bidders, the regulating place a higher weight on technological maturity to body should pick this average value (or somewhere ensure that the program has a successful start. Once above the lowest value) because they do not want to several successful projects have been completed excessively limit the number of bidders who will find and the country has experience implementing CST the tariff attractive. In the case of a fixed, average-cost projects, they should consider reducing the weight of FiT, the lowest cost generator will realize a greater technological maturity. This will allow for newer, more profit from the FiT than an average cost generator, efficient technologies to be employed and reduce the incentivizing the low-cost generator to develop as average capital cost per MW and O&M expenses many projects as possible (good for the country). If a (and thus the LCOE) of the industry. A failure of a new 66 “cost plus” tariff were implemented, both the low cost technology would not be as damaging to the program and average cost generators would have a similar after it has already been implemented in other projects, incentive to participate. since it would be if one of the first projects had failed. This appears to be the approach taken by India in its Another potential option is that taken by India’s JNNSM JNNSM. The technical requirements state that during bid selection criteria. The JNNSM guidelines contain a Phase I only CST technologies “which have been in provision that requires bidders to propose a discount operation for a period of one year or […] for which to the offered FiT. Using these proposed discounts, financial closure of a commercial plant has already the solicitor chooses the projects equaling the desired been obtained” will be considered. While it is not capacity with the largest discount offered. While it explicitly stated in the documentation, the notice that is not a method of determining the underlying cost these requirements apply for Phase I, could infer that of the project or selecting the bidder with the lowest less mature technologies may be eligible for the Phase II cost structure, it results in lower-priced electricity for implementation. customers, as long as the winning bidders can actually deliver the bid capacity at the respective discount they Some consideration should be given to the ability to offer. This method would only work, however, if bidders raise financing. An assessment will have to be made are offering more capacity than desired, because regarding the project’s “bankability.” Factors, such as otherwise, the risk of nondelivery can undermine the the types of contracts and pricing used (for example, targeted policy goals regarding the total installed Full-Wrap EPC with Firm-Fixed-Price vs. Multiple capacity. Contracts with Time-and-Materials), the maturity of the technology, and the security of the off take agreement 7.2.2. Feasibility-Based (resulting from a stable legal and regulatory structure), will help determine the ability to secure project Consideration of feasibility-based criteria is critical to financing. The solicitor should also consider any existing ensure that time and money are not wasted by selecting commitments from debt or equity providers and their projects with a low likelihood of success. Company and terms and conditions. If a project proposal shows that team experience should be considered, since it has a it can raise financing (that is, the project already has direct effect on the likelihood of project success. If a firm debt and equity commitments), the above criteria similar project has been successfully completed by the regarding team experience and company financial team, the chances of their completing the next project stability can be considered optional. This is because successfully are increased. Financial stability of the bidder equity providers and lenders typically go through is also important to assure that the project won’t be substantial due diligence to examine team experience jeopardized by bankruptcy and/or other financial issues and company financial stability before agreeing to with the project developer. provide capital for a project. While LCOE is typically used as a cost-based measure, 7.2.4. Value-Based the previous discussion highlighted why it should not be used as one in the case of a procurement offering Value-based criteria are considered optional in the a guaranteed payment rate (FiT or generation-based minimum recommended bid matrix criteria for CST incentive), as is the case in Algeria and South Africa. projects in developing nations. Examples of value- However, it can effectively be used as a feasibility- based criteria include grid stabilization (for example, based criterion to understand if the project developer variability management, known as VAR management), will be able to implement the project at the cost dispatchability and ramp rates (fast start-up), black reported. By requiring bidders to submit their estimated start capability, and time of day of power supply. While LCOE, the solicitor will be able to use its previous this category can theoretically add value to the bid experience, an outside contractor (such as the owner’s selection process, if the solicitor does not see value engineer), or a comparison with other bidders’ in the characteristics presented or does not anticipate responses to make a judgment regarding the feasibility variation among bids, this category might add of achieving the cost presented. If costs appear to be unnecessary complexity to the bidding and evaluation unrealistically low, the score for this criterion can be process. For example, if the solicitor cannot easily lowered. quantify the benefit of VAR reduction or if the nature of the transmission and distribution system in the country 7.2.3. Policy-Based necessitates that all of the bids submitted have black 67 start capability (because of frequent blackouts), it would The only policy-based criterion called out in the not be necessary to include these characteristics. minimum recommended bid matrix is speed of implementation (“schedule”). However, more policy- 7.2.5. Additional Considerations based criteria should be included in the evaluation, depending on the specific policy goals of each 7.2.5.1. Fostering Competition individual solicitor. The project schedule should be considered by all solicitors, since it will directly affect the When choosing bid selection criteria, the solicitor achievement of their phased renewable energy policy should consider each criterion’s affect on increasing goals. It is important that the weight of the schedule or reducing the pool of eligible and willing bidders. criterion be chosen carefully by the solicitor. If too much Feasibility-based criteria are primarily employed to weight is given to the schedule, it can drive up the ensure that the probability is high that the project will be project cost. successful, enabling the policy goals of the solicitor to be met. If no feasibility-based criteria are employed, the It was not prudent to provide a minimum solicitor may end up choosing project proposals with recommendation for other policy-based criteria because little chance of success because of the immaturity of the of the variability and range of potential policy goals technologies proposed or to developer inexperience. that different solicitors may wish to factor into their However, if the feasibility-based criteria chosen are too evaluation. Examples include (but are not limited restrictive, they may eliminate many potential bidders to) local employment and content requirements, and leave the solicitor to choose from only a few preferences for certain technologies and preference for options. This would most likely result in higher project distributed generation over large centralized plants. In costs and suboptimal realization of policy goals. An considering other policy-based criteria, the solicitor must example of this would be if the solicitor required a be careful not to create overly restrictive policy-based high experience threshold for potential bidders, such requirements. To ensure that the maximum number of as experience with multiple projects that have been bidders respond to the RFP restrictive criteria, such as , in operation for several years, using the proposed minimum domestic content or required use of local technology in the proposed scale. labor, should be used sparingly and with caution. In many cases, the project economics will drive the 7.2.5.2. Reducing Project Cost developer to use domestic content and local labor; however, in other cases these restrictive criteria may As discussed above, it is difficult to control the cost of reduce the attractiveness of the RFP and discourage a project and ensure that the lowest-cost projects are qualified bidders from responding. selected when the incentive offered is a fixed FiT- or generation-based incentive that is not based on the Considerations when selecting the recommended PPA specific project’s cost of power (as is the case in Algeria elements included characteristics of solar technologies, and South Africa). With this incentive structure, the as well as aspects that may be applicable to projects IPP will receive a predetermined amount per kilowatt- in developing countries, such as concerns over hour regardless of the actual cost to produce power. transmission and distribution system reliability, off taker Therefore, there is no incentive for them to report credit strength and the stability of the government, accurate cost information as part of the bid process. which will determine whether the executed contracts If the FiT were structured as a “cost-plus” tariff as or promised government incentives are honored. The suggested above, this would allow the solicitor to use recommended elements were chosen to help alleviate the LCOE method to choose the lowest-cost project these concerns and ultimately make a PPA more because the bidder would have incentive not to attractive to sellers and financiers, while still meeting overestimate or underestimate their cost of generation. the needs of buyers. These recommended elements are So unless the incentive structures are revised in the case shown in Figure 7.3. study countries, it would be difficult for them to choose bid selection criteria that effectively reduce project costs 7.3.1. Dispatch Agreement and result in selection of the lowest cost bids. Based on the various PPAs reviewed, including both 68 7.3. PPA Structuring CST and other types of renewable energy generation, the best practice for solar PPAs is to include a fixed From the prospective of a project developer (seller), dispatch agreement that allows the project to deliver the primary purpose of a PPA is to provide revenue power whenever the solar resource is available (subject security to the project. A well-crafted PPA assures to transmission constraints and energy caps). The risks that if the project is built and operated properly, the associated with an intermittent resource with a variable electricity it generates will be purchased by an off taker dispatch agreement would make it particularly difficult at a predetermined price. Given the large capital cost to finance the project. As thermal storage systems required and the specificity of generation assets, such mature, allowing longer storage times and more a revenue guarantee is required to secure financing for control over when the power can be delivered, it is the project.24 This is especially the case with regard to recommended that any CST PPA be structured as a fixed projects structured with high levels of non- or limited- or “as-available” dispatch agreement to help minimize recourse debt. For balance sheet financing (owner or revenue risk. utility financed), the need for a PPA is dependent on specific circumstances.25 From a buyer’s prospective, the primary purpose of the Figure 7.3: Recommended PPA Elements for PPA is to provide power supply assurance at the lowest CST Projects in Developing Countries possible cost. Therefore, from a buyers’ point of view, Fixed Dispatch with Sharing of Curtailment Risk the PPA should warrant that the project is completed on Energy Payment Adjusted Using PPI/CPI/Exchange Rates/ LIBOR schedule and that it delivers the promised capacity and Time of Delivery Factors for Energy Payments energy generation. Renewable Energy Credits Bundled with Energy Seller Development Security (Refunded at Commercial With these primary purposes identified, PPAs were Operations) Seller Performance Security (Throughout Term of PPA) analyzed along with other industry feedback to Buyer Payment Security (Throughout Term of PPA) determine the different ways the goals of the seller and Opportunities to Rectify Default Before Contract Termination buyer could be met by the PPA, and recommendations Seller Repricing or Exit on Incentive Cancellation are provided for the components that should “Political” Force Majeure Provisions be included in an optimal PPA for CST projects. Source: NOVI Energy 2011. 24 Assets can be considered “specific” when they can only be used for one purpose (cannot make other products or products cannot easily be sold to other buyers). Solar generation assets are highly specific because they are often located in remote areas with limited off taker options, and are not easily moved. 25 There are many combinations of financing structures that will have different needs with regard to revenue security. If a utility is building its own self-financed plant and “selling” to them, a PPA may not be necessary. The key point is that the purpose of a PPA is to provide revenue security when necessary, given the specific financial and ownership structure of the project. The risk allocation of curtailment should be addressed PPA less attractive to the seller and potential sources of by the PPA as well. If the buyer has responsibility for financing. Algeria, India, Morocco, South Africa, and the transmission system, the buyer should bear at least Tunisia all have moderate PPI/Wholesale Price volatility some (if not all) of the risk that the project would be (see Table B.21 (Producer Prices) and Table B.22 (World curtailed because of transmission system constraints Bank) in Appendix B), which may allow for agreements or problems. This is especially important in developing on a negotiated fixed escalation percentage, while countries because of limitations with respect to Egypt and Jordan have relatively high volatility, making transmission and distribution systems, and the seller adjustments using an index more appropriate for these may not have control over those issues. markets. 7.3.2. Energy Payment The energy payment should also be structured to account for the time of day and time of year that the PPAs for projects in developing countries may need project supplies energy (time of delivery factors). This several forms of adjustment to protect both the allows the buyer to communicate to potential sellers the buyer and the seller from large operating costs, value of energy provided at different times of the day exchange rates, and interest rate changes. It can be and allows CST sellers to receive the justified premium recommended that adjustment clauses in CST PPAs for their power since it is typically generated during use indexes that track the cost of labor, if available, peak demand periods. 69 since it is typically the greatest component of CST operating costs. If a labor cost index is unavailable, 7.3.3. Capacity Payment an alternative would be to use a consumer price index (CPI) as a proxy for labor cost. Along with the labor None of the PPAs reviewed (including one project with cost index, a targeted PPI should also be used to thermal energy storage) contained capacity payment adjust a portion of the payment if operating costs other provisions, since capacity payments are typically than labor may vary significantly over the term of the designed to cover the fixed costs of the project. Solar agreement. generating facilities have high fixed costs with low variable costs (fuel is free) and therefore, if a capacity The buyer and seller should also consider currency payment covering the majority of the project’s fixed exchange rate adjustments if input costs or debt are in costs was included in a CST PPA, the seller would have a foreign currency to protect against appreciation of less incentive to produce any energy. However, having the input cost or debt currency relative to the revenue some portion of the fixed costs covered by a capacity currency. Additionally, LIBOR-based (or the locally payment guaranteed by a PPA would serve the purpose applicable interest rate benchmark) adjustments should of reducing project risk and increasing the likelihood of be considered if the debt interest rate is variable. If securing financing. As a result, the inclusion of capacity the renewable energy incentive present in the market payments that pay for a portion of the upfront fixed is a FiT (and therefore not subject to adjustment), the costs should be considered by both the seller and the seller can reduce its exposure to exchange rate risk by buyer. sourcing equipment from the local area and securing capital denominated in the local currency. Interest rate 7.3.4. Renewable Energy Credits risk can be mitigated by financing the debt with a fixed interest rate. Renewable energy credits can either be bundled with the energy sold to the buyer or can be retained by the seller A fixed escalation percentage based on historical to be sold through third-party contracts or in the spot price inflation can be used; however, the volatility market. Given the relatively unknown price volatility of (or standard deviation) of the historical inflation is green attributes, it is recommended that any renewable a key factor. If volatility is high,26 a fixed escalation energy credits be sold along with the energy from the percentage would leave the seller exposed to large project to lock in those revenues and help reduce the potential input cost increases, which would make the overall risk of the project. 26 The definition of “high” will depend on the risk tolerance of the seller and its financing sources. Developed nations typically have PPI volatility in the range of 1–4 percent (see Table B.23 in Appendix A). 7.3.5. Non-performance and Default puts debt service in serious jeopardy, while performance penalties (assuming they are not overly severe) will still 7.3.5.1. Development Security allow the project to recover and remain in operation. The existence of a development security in the PPA 7.3.5.3. Payment Security is a good incentive to help ensure that bidders don’t overpromise and underdeliver. It also prevents the In situations where the buyer’s credit quality is weak, it seller from being granted rights resembling a put is recommended that a payment security be included option where the seller could walk away from the PPA in the PPA, similar to the provisions in the JNNSM and sell its output to another off taker if electricity template PPA. These could include an irrevocable letter prices increased (abandon the option). In the event of of credit and/or an escrow account to provide security decreasing electricity prices, the seller could “exercise” that those payments will be made. The escrow account the put option and receive the “strike price” (also in this case could be funded by diverting some portion known as the PPA energy payment rate) by delivering of the buyer’s revenues (from other activities not part of under the PPA (Lund and others 2009). This would be this PPA) into the account, up to an agreed-upon cap. unacceptable to buyers since their long-term capacity This would help reduce the buyer’s default risk and planning would be affected if a seller were to walk would help secure project financing. 70 away from the PPA and would then have to procure the shortfall at now-higher market prices. Additionally, 7.3.5.4. Exit Clauses a development security helps to ensure that the project remains on schedule and becomes operational in time Exit clauses should not allow for too easy of an exit for for the buyer to meet customer obligations. either party. If the buyer could easily exit from the PPA, financing the project would be difficult. If the seller 7.3.5.2. Performance Security could easily exit, it would have rights resembling a put option. However, a specific exit clause related to the A performance security would help ensure that the uncertainty around any government incentives should buyer receives the energy promised by the seller be considered to allow the seller to reprice or terminate throughout the term of the PPA. This security could the contract if planned incentives are not implemented. be provided in the form of a letter of credit from the In general, it is better to use performance penalties to seller or an escrow account. The escrow account could provide assurance that the seller meets its obligations be funded by withholding a small portion of each than allowing the buyer to terminate the PPA at the first monthly payment due to the seller. Once an agreed- sign of default. upon escrow account cap is reached, there would be no more withholding unless an event occurred that 7.3.6. Substitution Rights required withdrawal from the account. A drawback of the proposed escrow account is that it builds over The need for substitution rights in a PPA can be time and a large amount would not be available at determined by the severity of the exit clauses and the start of commercial operations. However, smaller performance penalties mentioned above. If the buyer is developers may have difficulty securing a letter of unwilling to give sufficient time27 for the seller to rectify credit to provide this security, so alternatives such as an any issues that lead to a loss of generation or imposes escrow account should be considered. While it was not high penalties for non-performance, the contract should observed in any PPAs reviewed, a combination of an include some form of substitution rights to allow the escrow account and a letter of credit could also be used seller to fulfill its obligations through another means. to mitigate these issues. Penalties for non-performance If the seller is given reasonable time to prevent any can be viewed as a substitute for easy exit clauses, defaults prior to the buyer being able to terminate, since they both provide incentives to perform. However, contract substitution rights would not be necessary. This performance penalties are more palatable from the is the preferred method, since it avoids introducing perspective of potential lenders, since PPA termination operational, delivery and reliability concerns that may 27 The length of time that qualifies as “sufficient” will be different, depending on the cause of the default. The key point here is that if the buyer is unwilling to allow some flexibility regarding the curing of a default, the seller should negotiate for substitution rights to be included in the contract. result from substituted power coming from an uncertain countries (such as government failure to act, a change or changing source. in law, or a boycott or embargo of the country by others) should be captured as “political” force majeure 7.3.7. Force Majeure to protect both buyer and seller. A good force majeure clause should include separate 7.3.8. Purchase Obligation lists of events that are and force majeure to help reduce ambiguity that can be present in this While not mandatory, a purchase obligation requiring clause. Additionally, force majeure should only be used the buyer to purchase the project under certain when events are out of both parties’ control and should circumstances (for example, prolonged force majeure) not be used to remove the risk from a party that is would serve to improve the project’s chances of primarily responsible for the outcome (Lund and others obtaining financing, since it would give potential 2009). lenders the assurance that the debt service would still be covered if unexpected events occur. However, the value Force majeure typically includes acts of war and natural of this type of obligation is entirely dependent on the disasters. However, events that may occur in developing credit quality of the buyer. 71 APPENDIX A. OVERVIEW OF CONCENTRATING SOLAR year. The main advantages of CST applications include THERMAL TECHNOLOGIES less intermittency because of the system inertia; the possibility to use CST in a utility scale operations and Applications of solar thermal technologies (including CST) the option to integrate thermal storage, thus making are best suited for regions that experience high levels of power generation possible during extended hours when DNI. These regions are typically located in dry areas such the sun doesn’t shine. as deserts, which also have the advantage of plentiful land unused for agricultural or industrial purposes. The following factors are typically cited as drawbacks of the current application of CST technologies: The Prometheus Institute investigated the use of solar technologies and found that CST technologies are CST-based plants are presently characterized primarily suited for larger scale installations, while with high electricity generation costs, which can PV-based technologies are more suited for smaller be decreased by technological innovations, and scale or distributed generation applications (Grama, economies of scale, that is, volume production, and Wayman, and Bradford 2008). Photovoltaic panel larger-sized units. theoretically are applicable wider geographically, but a Only locations with irradiations of more than 2,000 certain level of diffused radiation is needed in order to kWh/m2/yr are suited to a reasonable economic solar make the electricity generation economically viable. thermal performance (Viebahn and others 2008). 75 Solar thermal technologies also have geographical The four primary CST technologies differ significantly limitations and work only in regions that possess a from one another, not only with regard to technical certain level of DNI, not lower than 2,000 kWh/m2/ and economic aspects, but also in relation to reliability, Figure A.1: Markets and Applications for Solar Power Category Small Medium Large Installation SIze < 10kW 10 to 100 KW to 1 to 10mW 10 to > 100 mW 100kW 1mW 100mW Technology mix in each market 100 % PV 99% PV, 1% CSP 20% PV, 80% CSP 2007 share of worldwide solar market 7 GW (84%) 0.7 GW (9%) 0.5 GW (7%) (installed capacity and % of installed capacity) Installation type Distributed Generation Central Generation Markets served Residential Commercial Utility Base (50%). Intermediate (40%), Peak (10%) PV based Non Non-tracking PV dispatchable Tracking PV CPV Thermal Dispatchable Dish-Engine based (with storage) Trough Tower LFR Legend: Best suited Suitable Source: Grama, Wayman, and Bradford 2008. maturity and operational experience in utility scale absorber pipe located at the focus of the parabola. The conditions. Given the different levels of technological collectors track the sun from east to west during the day maturity of the technologies, the biggest experience to ensure that the sun is continuously focused on the is accumulated through implementation of projects linear absorber (see Figure A.2). using the parabolic trough technology and, to a lesser extent, the central receiver application. The main results An HTF is heated up as it circulates through the of the technical assessment of the technologies are absorber and returns to a steam generator of a summarized in Table B.1 and Table B.2 in Appendix B conventional steam cycle. In the sections below, relevant design features of each The basic scheme of a parabolic trough power plant technology are briefly discussed and a review of the can be observed in Figure A.3. The system can be status of technological maturity is presented. divided into the following three parts: 1. Parabolic Trough The solar field (in yellow). The power block (in blue, with optional re-heater). 1.1. Overview28 The piping and heat exchangers (in red). 76 Parabolic trough power plants consist of many In this scheme, two optional elements of a CST plant are parabolic trough collectors, an HTF system, a steam also represented: the Thermal Energy Storage (TES) and generation system, a Rankine steam turbine/generator the back-up boiler (BUB), usually working with natural cycle and optional thermal storage and/or fossil-fired gas. Both of them increase the capacity factor of the backup systems. The collector field is made up of a system, allowing the plant to operate even when there large number of single-axis-tracking parabolic trough is not enough direct solar radiation, and sometimes to solar collectors. The solar field is modular in nature fit to a demand curve. Introducing one of these systems and comprises many parallel rows of solar collectors, allows solar thermal power plants to deliver reliable, normally aligned on a north-south horizontal axis. Each dispatchable, and stable electrical energy to the grid. solar collector has linear parabolic-shaped mirrors Moreover, it improves the use and amortization of the that focus the sun’s direct beam radiation on a linear power block (YES/Nixus/CENER 2010). Figure A.2: Illustration of Parabolic Trough Collectors and Sun Tracking from East Sunpath to West Parabolic mirror Heat collecting Direct normal element radiation Drive motor Source: Radiant & Hydronics 2006. 28 Based on Fichtner (2010). Figure A.3: Basic Scheme of a Parabolic Trough Power Plant Solar Field Solar Steam Turbine HTF Superheater Healer ( ) Boiler ( ) Condenser Fuel Thermal Energy Fuel Storage Steam ( ) Generator Steam Preheater Low Pressure Deaerator Preheater Solar Reheater Expansion Vessel 77 Source: Ecostar 2005. Parabolic trough solar fields are modular; they can be reflectivity are extremely important because they are the implemented at any capacity, which provides a great basic properties that make it possible to concentrate versatility. Even so, the optimal capacity for current the solar energy efficiently. For this reason the mirrors technology is estimated to be about 150–200 MW. usually have a support structure to give them the rigidity they require and on which a film of a highly reflective The key components of parabolic trough systems are the material is deposited. In general, the support structure receiver tubes, curved mirror assemblies (concentrators) that provides the rigidity to the parabolic-trough mirror and HTF. is a metal, glass or plastic plate, while the reflective material is usually silver or aluminum. The material most 1.1.1. Receiver Tubes commonly used to date for collector reflector mirrors is the glass substrate mirror with silver deposition, which The receiver is the component where solar energy is reaches maximum reflectivity of around 93.5 percent. converted to thermal energy in the form of sensible or latent heat of the fluid that circulates through it. It is 1.1.3. Heat Transfer Fluid a critical component for the performance of the solar power plant because it is where thermal losses are The purpose of the HTF is to absorb the energy produced. This makes it probably the most important provided by the absorber tube in the form of enthalpic component in the system. Currently, the vacuum gain by increasing in temperature as it goes through tube receiver is the only type of receiver available for the solar field collector loops. The hot HTF goes to a parabolic trough power plants. The main providers heat exchanger to heat water and generate steam at a are Schott and Siemens (Solel Solar Systems), but certain pressure and temperature. The solar field outlet new manufacturers like Archimede Solar (from the temperature is restricted by the HTF properties, and this Angelatoni Group) and China entrants have also means that the fluids that can perform these functions emerged lately. are also limited. 1.1.2. Curved Mirror Assemblies Experience over the years has shown that by increasing the solar field outlet temperature, the performance The purpose of the concentrator mirrors is to of the power block and thereby the whole plant also concentrate solar radiation on the receiver located in increases significantly. The commercially proven the line of focus. Their parabolic geometry and optical technology is limited to a temperature of around 400ºC, after which, in addition to degrading the fluid, a net electric output of 64 MW and is a solar-only thermal losses increase and the selective coatings also Rankine cycle power plant generating approximately may be degraded. Therefore, there are several lines of 130 GWh of peak power a year (equals a capacity R&D today directed at studying both working fluids and factor of about 23 percent). the rest of the components. In 2009, the first large European parabolic trough The fluid currently in use in commercial plants is power plant, Andasol-1, started operation. This was synthetic oil. Synthetic oil’s advantages include a much a milestone in the development of the parabolic lower vapor pressure than water at the same given trough system, since Andasol-1 is the first large-scale, temperature, so pressures required in the system are commercial parabolic trough power plant equipped much lower, which allows simpler facility and safety with thermal energy storage. Andasol-1 has a total net measures. Furthermore, current oils have responded electric output of 50 MW and is equipped with a two- very well to the current needs of commercial plants, as tank molten salt storage system with a thermal capacity their maximum temperature coincides with the optimum of 1,050 MWh in combination with an oversized solar collector operating temperature. Disadvantages include field, which enables storage charging during daytime a high price, and a maximum working temperature full-load operation, and additional night time operation below 400ºC, which limits the power cycle temperature of up to 7.5 hours. Because of the large storage and a 78 and, therefore, its electrical conversion efficiency. proportionally larger solar field, the 50 MW Andasol I power plant will generate approximately 170 GWh per Molten salt is another alternative HTF. The salt most year, significantly more than the larger Nevada Solar commonly used in solar applications is nitrate salt with One power plant without storage and with a smaller advantages including low corrosion effects on materials solar field. Therefore the capacity factor could be used for solar field piping, high thermal stability at high increased to above 39 percent. temperatures, low steam pressure making it possible to operate at relatively low pressures in its liquid state Andasol-1 was the first of around 50 CST plants under and its availability and low cost. The main disadvantage construction or development in Spain. Because of the is the high freezing point of the salt, which may range Spanish FiT for CST plants, there was a CST capacity from 120º to 200ºC depending on the type used. of more than 2,300 MW preregistered in Spain The freeze-protection strategy is very important in this before the end of 2009, with most of the power plants case, and several different techniques are necessary to using parabolic trough technology. At present there maintain the fluid above a certain temperature: constant is approximately 1.2 GW of CST plants in operation circulation of salt, auxiliary heating and heat tracing divided nearly equally between Spain and the United throughout the piping (Kearney and others 2004). States. Besides Spain and the United States, there are also several other parabolic trough power plants in 1.2. Technological Maturity29 advanced development stages throughout the world. An outline of parabolic trough power plants under Compared to all other CST technologies, parabolic operation and construction or development is given in trough is the most mature. Built between 1984 and Table B.3 in Appendix B. 1991, the largest operating group of solar plant systems in the world—with a total capacity of 354 MW—is the 2. Linear Fresnel Solar Energy Generating Systems (SEGS) I–IX parabolic trough plants, in the Mohave Desert in Southern 2.1 Overview30 California now owned by Next Era Energy (owned by Florida Power & Light). Linear Fresnel power plants consist of many Linear Fresnel reflectors, an HTF system, a steam generation In 2007, the first new large parabolic trough power system (if not direct steam generating), a Rankine steam plant, Acciona Solar’s Nevada Solar One, started turbine/generator cycle and optional thermal storage operation in the United States. Nevada Solar One has and/or fossil-fired backup systems. 29 Based on Fichtner (2010). 30 Based on Fichtner (2010). Figure A.4: Linear Fresnel System Diagram Steam condenser Electricity Receiver Generator Turbine Linear Fresnel Reflectors Source: U.S. Department of Energy n.d. 79 The main difference between the parabolic trough water/steam in the receiver serves as a heat transfer technology and the Fresnel technology is the reflector medium (HTF). Hence, a separate steam generation configuration. Similar to the parabolic trough, the Fresnel system is not required in the case of DSG. Those Fresnel collector is designed as single-axis tracking. Therefore, trough systems are currently operating with saturated the Linear Fresnel reflectors concentrate sunlight using steam parameters of up to 55 bar/ 270°C, but in the long flat-plane mirror strips that are grouped in a mirror medium and long term, superheated steam generation field close to the ground. The sunlight is focused onto is proposed. Similar to the parabolic trough system, the a linear fixed absorber located above this mirror field Linear Fresnel system can also be operated with HTFs and optionally equipped with an additional secondary based on molten salt or synthetic oil. reflector located above the absorber. The latest development is called the Compact Linear While the Linear Fresnel concept could use an oil HTF, Fresnel Reflector, which is a new configuration to the configurations in development are mainly based overcome the limited ground coverage of classical LFR on direct steam generation (DSG), that is, circulating systems. Figure A.5: Views of Linear Fresnel Reflector Arrays 1.1 m 10 m 3m 77.5 m 31 m Source: Morrison 2006. However, there is also a significant drawback related Figure A.6: Example of a CFLR System Source to the LFR technology. LFR systems suffer from a Linear absorber Linear absorber performance drawback because of higher intrinsic optical losses (fixed absorber) compared to parabolic trough systems. Different studies evaluated a reduction in optical efficiency of around 30–40 percent compared to parabolic trough technology, which then must be compensated for by lower total investment costs. Single axis tracking reflectors 2.2. Technological Maturity31 Fresnel technology is still at an early development level Source: YES/Nixus/CENER 2010. compared to other CST technologies like parabolic trough. That is why there are only a few examples of small scale pilot and demonstration projects employing The classical LFR system has only one raised linear the Fresnel technology. Some existing projects are absorber, and therefore there is no choice about the highlighted in the paragraphs below. 80 direction of orientation of a given reflector. However, for technology supplying electricity in the multi-megawatt The Liddell Power Station is located in New South range, there will be many linear absorbers in the system. Wales, Australia. This power plant is coal powered, with If the absorbers are close enough, then individual four 500 MW GEC (UK) steam driven turbo alternators reflectors can direct reflected solar radiation onto at for a combined capacity of 2,000 MW. In 2004, AUSRA least two adjacent absorbers. The additional variable in developed the world’s first solar thermal power collector reflector orientation allows much more densely packed system for coal-fired power augmentation, called the arrays with minimal shading and blocking. John Marcheff Solar Project. In a first phase, this solar module generated one megawatt equivalent (MW) of The Linear Fresnel technology may be a lower cost solar generated steam. This facility was expanded in alternative to parabolic trough technology for the 2008 with the construction of a second phase, which production of solar steam for power production. The has a power capacity of 3 MW. main advantages, compared to parabolic trough technology, are seen as: Another project, known as Fresdemo, is the first LF demonstration power plant built in Spain. It is located Inexpensive planar mirror and simple tracking system. in the PSA, Almería. The demonstration LF system, Fixed absorber tubes with no need for flexible high which has a 100-meter-long collector, generates 1 pressure joints. MWh (peak) and is designed as a modular system. No vacuum technology and no metal-to-glass The pilot plant was built by Ferrostaal in collaboration sealing and thermal expansion bellows for absorber with Solar Power Group and the aim of the plant is tubes for lower temperature configurations. to produce evidence that electricity can be generated Absorbers tubes similar to troughs likely for higher more competitively, proving that Fresnel technology is temperature designs. commercially viable for large-scale projects. It was put Because of the planarity of the reflector strips and into operation in July 2007 and the trial period lasted the low construction above ground, wind loads and two years. The results of the operation and testing material usage are substantially reduced. that took place at the PSA identified several key areas Because of direct steam generation (DSG) within where substantial improvements must be achieved the absorber tubes, no separate steam generator is before the technology can be considered ready for necessary. commercial deployment. It is unclear, at this stage of Efficient use of land. development, if the cost reduction of this technology in Lower maintenance requirements are postulated. relation to conventional parabolic trough technology 31 Based on YES/Nixus/CENER (2010). can compensate for its lower solar-to-electricity yearly capacity of 337 MW, consisting of several projects conversion efficiencies (Bernhard and others 2009). located in Australia, Chile, Jordan, and Portugal (Emerging Energy 2010). The 5 MW Kimberlina Solar Thermal Power Plant in Bakersfield, California, started operation in 2008 and is To some market observers Linear Fresnel technology the first commercial solar thermal power plant built by is increasingly being used for steam generation to Ausra. Kimberlina uses Ausra’s LF technology. It supplies meet niche market applications that may not depend steam to an existing thermal power plant located nearby. primarily on power generation ( , steam flooding for enhanced oil recovery and steam for Puerto Errado 1, promoted by Novatec Biosol (now industrial process use). Novatec Solar), is the most recent LF plant put into operation. It has an installed power capacity of 1.4 3. Power Tower MW, taking up 18,000 m2 of mirrored area. This plant will generate an estimated annual electric energy of 3.1 Overview32 2 GWh by using the DSG technology. Novatec has developed its own patented collector technology— In power tower (central receiver) power plants, a field the collector Fresnel NOVA-1—which has been of heliostats (large two-axis tracking individual mirrors) implemented for the first time in this power plant that is used to concentrate sunlight onto a central receiver 81 was connected to the grid in 2009. The Puerto Errado mounted at the top of a tower (see Figure A.7). 1 plant is, to our knowledge, the only commercial grid- connected plant using dry cooling in Spain. The field of heliostats, which all move independently of one another, can either surround the tower (Surround Besides projects already operating, there are very few Field) for larger systems or be spread out on the announced Linear Fresnel projects in the pipeline. shadow side of the tower (North Field) in the case of Novatec Solar has a project pipeline, including an smaller systems (see Figures A.8 and A.9). additional Linear Fresnel project, included in the register of the Spanish Ministry of Industry. This project, Puerto Because of the high concentration ratios, high Errado 2, which is the second phase of the already temperatures and hence higher efficiencies can be operating Puerto Errado 1, will have a total installed reached with power tower systems. Within the receiver, an power of 30 MW and will also be built in Murcia. HTF absorbs the highly concentrated radiation reflected The largest pipeline belongs to Areva (Ausra), which by the heliostats and converts it into thermal energy to has announced a project pipeline with a total power be used in a conventional power cycle. The power tower Figure A.7: Schematic of Open Volumetric Receiver Power Tower Plant with Steam Turbine Cycle Open Grid Volumetric Receiver Superheater Duct Burner (optional) Reheater Vaporizer Economizer Turbine Generator Blower Condenser Cooling Feedwater Tower Pump Sources: Fichtner 2010; Quaschning 2003. 32 Based on Fichtner (2010). Figure A.8: North Field Layout Mills Figure A.9: Surround Field Layout Mills Source: Mills and others 2002. Source: Mills and others 2002. concept can be incorporated with either a Rankine steam commercial water/steam receiver power plants are turbine cycle or a Brayton gas turbine cycle, depending producing only saturated steam. The first such plants on the applied HTF and the receiver concept, respectively. are the PS-10 and PS-20 power plants built by 82 Abengoa Solar, with 10 MW and 20 MW, respectively. Major investigations during the last 25 years have focused mainly on four plant configurations depending 3.1.2. Molten Salt Solar Tower on the applied technology and HTF system: Molten salt mixtures combine the benefits of being Water/steam solar tower (Rankine cycle) both an excellent heat transfer and a good high Molten salt solar tower (Rankine cycle) temperature energy storage fluid. Because of a very Atmospheric air solar tower (Rankine cycle) good heat transfer, the applied heat flux at the receiver Pressurized air solar tower (Brayton cycle) surface can be higher compared to other central receiver designs, yielding higher receiver efficiencies. Besides the four mentioned plant configurations, liquid As the molten salt can be stored directly at high metals (mainly sodium) were also investigated as a temperatures, the specific storage costs are the lowest possible HTF. However, because of different hazards under all CST technologies. This means that molten (especially fire) R&D efforts on liquid metals is currently salt power tower technology, when proven, will be the out of focus. Therefore, only the four main plant preferred choice for applications that require a storage configuration options are described below. component. 3.1.1. Water/Steam Solar Tower Depending on the specific composition, the molten salt liquefies at a temperature between 120°C and 240°C Water/steam offers the benefit that it can be directly (in the current state of the technology this is the upper used in a Rankine cycle without further heat exchange. end) and can be used in conjunction with metal tubes The production of superheated steam in a solar receiver for temperatures up to 600°C without imposing severe yields higher efficiencies and has been demonstrated in corrosion problems. As discussed earlier with regard several prototype projects like the Solar One or CESA-1 to parabolic trough systems, the challenge is to avoid projects. However, the operational experience showed freezing of the salt in any of the valves and piping of the some problems related to the control of zones with receiver, storage and steam generation system at any dissimilar heat transfer coefficients, like evaporators and time. The operating range of the state-of-the-art molten super-heaters. Difficult to handle were also the start-up nitrate salt, a mixture of 60 percent sodium nitrate and and transient operation of the system, leading to local 40 percent potassium nitrate, matches the operating changes of the cooling conditions in the receiver tubes, temperatures of modern Rankine cycles. in particular in the receiver’s superheating section. In a molten salt power tower plant, the cold salt Because of the abovementioned problems related (290°C) is pumped from the cold tank to the to superheating steam in central receivers, the first receiver, where the salt is heated up to 565°C by the concentrated sunlight. This hot salt is then pumped 3.1.4. Pressurized Air Solar Tower through a steam generator to generate superheated steam that powers a conventional Rankine cycle steam In this concept, pressurized air (around 15 bar) from turbine. The solar field is generally sized to collect the compressor stage of a gas turbine is heated up (to more power than demanded by the steam generator 1100°C) in a pressurized volumetric receiver (REFOS system and the excess energy can be accumulated in receiver) and then used to drive a gas turbine. At the the hot storage tank. With this type of storage system, moment, the concept needs additional fuel to increase solar tower power plants can be built with annual the temperature above the level of the receiver outlet capacity factors of up to 70 percent. Several molten temperature. In the future, a solar-only operation at salt development and demonstration experiments higher receiver outlet temperatures and the use of have been conducted over the past two-and-a-half thermal energy storage might be possible. The waste decades in the United States and Europe to test the heat of the gas turbine goes to a heat recovery steam entire system and develop components. The largest generator that generates steam to drive an additional demonstration of a molten salt power tower was steam-cycle process. This pressurized air solar tower/ the 10 MW Solar Two project located near Bartow, CCGT process can reach high efficiencies of over 50 California. percent. 3.1.3. Atmospheric Air Solar Tower These systems have the additional advantage of being 83 able to operate with natural gas during start-up and Air offers the benefit of being nontoxic, having no with a high fossil-to-electric efficiency when solar practical temperature constraints and is available for radiation is insufficient. Hence, no shadow capacities of free. However, air is a poor heat transfer medium fossil fuel plants are required and high-capacity factors because of its low density and low heat conductivity. are provided. In addition, the specific cooling water consumption is reduced in comparison with Rankine In a central receiver solar power plant with an cycle systems. atmospheric air heat transfer circuit, based on the so-called PHOEBUS scheme, a blower transports 3.2. Technological Maturity ambient air through the receiver, which is heated up by the concentrated sunlight. The receiver consists of wire Although power towers are commercially less mature mesh, ceramic or metallic materials in a honeycomb than parabolic trough systems, a number of component structure, and air is drawn through this and heated up to and experimental systems have been field tested temperatures between 650°C and 850°C. On the front around the world in the last few years, demonstrating side, cold, incoming air cools down the receiver surface. the technical feasibility and economic potential of Therefore, the volumetric structure produces the highest different power tower concepts. Furthermore, the temperatures inside the receiver material, reducing the already operating power tower plants have proven heat radiation losses on the receiver surface. their feasibility on an entry-commercial scale at small plant capacities The most experience has The hot air is used in a heat recovery steam generator been collected through several European projects, to produce steam at 480 to 540°C/35 to 140bar. The mainly in Spain at the Plataforma Solar de Almería PHOEBUS scheme also integrates several equivalent (PSA) and the Plataforma Solucar of Abengoa Solar hours of ceramic thermocline thermal storage, able to near Seville, as well as earlier in the United States work in charging and discharging modes by reversing (U.S. DOE’s Solar One and Solar Two that have air flow with two axial blowers. Current heat storage since been decommissioned). An outline of solar capacity restrictions lead to designs with a limited tower demonstration projects is given in Table B.4 in number of hours (between 3 and 6). Therefore, higher Appendix B. annual capacity factors can only be reached with backup from a duct burner between the receiver and In 2007, the first commercial power tower plant started steam generator. Another option is to use sand as a operation in Spain. The PS-10 power plant, built by storage media. However, the heat transfer from air to Abengoa Solar, uses saturated steam as the HTF and the sand is poor and the technology has not yet been has a net electrical output of 10 MW. Based on the demonstrated on a larger scale. same receiver concept, the PS-20 plant located in close vicinity to the PS-10 plant has been in commercial Figure A.10: Dish-Engine Photo with Major operation since 2009 with 20 MW electrical output. Component Identification Other plants already in operation are the Sierra Sun Tower in California of eSolar, with an electrical output Power Conversion Unit (PCU) of 5MWe and the Solar Tower Jülich with 1.5 MW. These plants represent demonstration/pilot plants for PCU Boom Azimuth Drive the latest developments on the basis of superheated steam (eSolar) and the volumetric air concept (Solar Tower Jülich). A 1.5 MW eSolar plant is currently also Elevation Drive Main Beam undergoing commissioning in India by Acme. The Solar Mirror Facet Tres plant (17 MW), with completion expected in 2011, Boxes Trusses will operate with molten salt as the HTF and storage medium (direct storage). Dish Controller Pedestal (inside pedestal) After an intermediate scale up to 10–20 MW of capacity, solar tower developers now feel confident that Source: Bill Brown Climate Solutions 2009. 84 grid-connected central receiver plants can be built up to a capacity of 200 MW solar only units. The largest new solar power tower project currently being constructed is The receiver is integrated into a high-efficiency engine the 392 MW Ivanpah project of BrightSource Energy, (the Stirling engine is the most commonly used heat Inc. in California. engines because of high efficiency). Solar Parabolic Dish-engine systems include two main parts: a large The two dominating solar tower systems being Parabolic Dish, and a power conversion unit (PCU). developed and commercialized by several companies are the ones using water/steam and molten salt as The PCU is held at the focal point of the concentrator HTFs. While the system using atmospheric air as HTF dish and includes a receiver, as well as a heat engine is expected to be commercially available in the near and generator assembly for converting the collected term, further R&D is required for the commercialization thermal energy to electricity. Typically, a high-efficiency of medium- and large-sized solar tower systems based Stirling engine is used. Individual units range in size on the pressurized air receiver concept. The main from 3 to 25 kW and are self-contained and air-cooled, disadvantage of the power tower system using the thus eliminating a cooling water requirement, which atmospheric air is that the storage option cannot be is a significant advantage of Dish Stirling systems. At easily integrated, and will most likely be inefficient the same time, an inherent issue with these systems because of high thermal losses in air-to-water heat is that electrical production ceases immediately exchangers. An overview of already realized and upon loss of sun. In that respect, they are similar to upcoming commercial-scale power tower projects is solar photovoltaic plants. Currently, no concept for given in Table B.5. commercial thermal storage has been demonstrated and implemented for dish engine systems. 4. Dish-Engine Compared to the other CST technologies, the main 4.1 Overview 33 advantages of dish-engine systems are as follows: The dish-engine is unique among CST systems in Water usage is limited to operational and directly heating the working fluid of the power unit maintenance activities (such as mirror washing). rather than an intermediate fluid to produce electricity. It has attained efficiencies as high as 30 percent in Dish-engine systems consist of a mirrored dish that the testing facility at the Sandia Laboratories. collects and concentrates sunlight onto a receiver Its modularity allows for a range of system sizes, from mounted at the focal point of the dish. several megawatts to hundreds of megawatts. 33 Based on YES/Nixus/CENER (2010). Central or decentralized operations are possible with typically 3 kWe to 30 kWe engine. These receivers the scale between 3 kW and several 100 MW. usually adopt the cavity geometric configuration, with High energy density, lower land use. a small aperture and its own isolation system. In order Short construction times. to carry out this energy transformation, it is necessary to reach a high temperature and high levels of incident The main disadvantages of dish-engine systems are radiation fluxes while minimizing every possible loss higher investment costs, lack of existing storage and (Gener). hybridization solutions, and a concern about higher O&M costs because of the large number of the Many different configurations of receivers have kW-scale engines in a multi-MW installation. been proposed, adapted to different HTFs. These configurations can be gathered in two main groups: The two major components of dish-engine systems are the reflective dish and the receiver, or the PCU. Fluid absorbs the radiation being directly applied to it. 4.1.1. Reflective Dish There is an additional element, which transforms solar radiation into heat The concentrator dish is made up of a parabolic shaped and then delivers it to the HTF through convection. reflector, which concentrates the incident solar irradiation 85 into a receiver located at the dish focal point. The ideal 4.2. Technological Maturity34 shape of the concentrator is a parabloid of revolution, although most designs approximate this shape by using At the moment, dish-engine systems for large scale multiple spherical mirrors. applications are considered commercially less mature than other solar power generation systems. A number Reflectors used in concentrators consist of a glass or of component and pilot systems have been field tested plastic substrate with a thin aluminum or silver layer around the world in the last 25 years, demonstrating deposited over it. The most durable material known to the technical feasibility and the economic potential of the present is the current silver/glass thick mirror, which the Parabolic Dish collector for small-scale applications reaches reflectivity values typically close to 94 percent and/or remote locations. (Solar Dish Engine n.d.). However, silvered polymer solar reflectors (thin mirror) are finding increasing use Dish Stirling systems are under development and in dish concentrator applications (Harrison 2001). An prototype testing in the United States and Europe (for innovative trend toward a new concept that would allow example, by such companies as Tessera Solar/SES, better optical efficiencies was introduced in the 1990s: EuroDish, and EnviroDish). In addition, the use of small the stretched membrane mirror, implemented in the SBP solar driven gas turbines at the focus of dishes (dish/ design. Brayton systems) has been investigated. This would offer the potential for high-efficiency operation, with lower The size of the Parabolic Dish is mainly determined by maintenance requirements than for the Dish Stirling two factors: cycle. An outline of Parabolic Dish collector plants realized and /or under operation, is given in Table B.6. Thermal power demand of the power block (Stirling engine) in nominal conditions. To date, there are no operating commercial plants Wind loads: restricting the economical viability of based on the Parabolic Dish technology. Tessera large installations. Solar—a developer, builder, operator and owner of large utility-scale solar power plants—deployed 4.1.2. Power Conversion Unit the SunCatcher™ solar Dish Stirling system, using the technology developed and manufactured by the The power conversion unit is the element that absorbs Tessera Solar affiliate Stirling Energy Systems Inc.(SES), concentrated solar energy and converts it to thermal headquartered in Scottsdale, Arizona. The company’s energy that heats the working fluid (gas) inside the first plant, Maricopa Solar, began operations in Arizona 34 Fichtner (2010). in January 2010. The other planned projects, such the turbine is the total mass of its components. as Calico (850 MW) reportedly had trouble securing Optimizing the mass of machine rotors and cladding financing and the PPA was lost. The project was in can shorten start-up time. part sold to PV developer, but reserved 100 MW of Another important factor, especially for plants that do the phase II implementation for SES’s Dish Stirling not include storage, is the turbine turn-down ratio, technology with the rest (750 MW) consisting of solar which will affect the number of plant operating hours. PV technology. By being able to operate the turbine at a lower part- load level power generation hours can be gained, 5. Power Blocks35 although the system is penalized by the reduced efficiency of the turbine at partial loads. All CST technologies discussed above, with the exception of the dish-engine type, use a power block 6. Thermal Storage Options36 to convert the heat generated to electricity. The components that make up the power block in a solar A distinct advantage of solar thermal power plants thermal power plant are generally equivalent to the compared with other renewable energies, such as PV components of conventional thermal power plants. and wind, is the possibility of using thermal energy However, certain characteristics of power blocks in CST storage systems that are substantially cheaper than 86 plants call for specific considerations. other current systems for storing electricity. Since there are new storage technologies under development to The incorporation of the Rankine cycle into a solar store electricity on a large scale (such as compressed thermal power plant introduces additional operational air and utility scale Na-S batteries), and smart-grids requirements as a consequence of the cyclical nature are emerging, the long-term success of CST technology of solar energy. While transients can be minimized will also depend on the availability of inexpensive and transients through the use of thermal storage and highly efficient thermal energy storage systems for solar use of an auxiliary boiler, daily stoppage is prevalent thermal power plants. because of legislative limitations on gas consumption or low demand needs at night. Therefore, it is important The basis, on which the use of thermal energy storage to keep in mind a series of additional considerations, systems is determined for solar thermal power plants, both in the design of the equipment and in operational depends strongly on the daily and annual variation of practices of the plant. These considerations include: irradiation and on the electricity demand profile. The main options for the use of TES are discussed below. Since the plant is not going to operate 24 hours a day, it is important to utilize high efficiency steam 6.1. Buffering turbine cycles to make the project economically feasible. This leads to larger turbines with optimized The goal of a buffer is to smooth out transients in feed water heating, in turn resulting in a reduced the solar input as a result of passing clouds, which solar field size, which translates into a reduction in can have a significant impact on the operation of a investment costs, and, therefore, of the cost of the solar thermal power plant. The efficiency of electrical power generated. production will degrade with intermittent insulation, The thermodynamic cycle can also include a reheat largely because the turbine-generator will frequently stage depending on the quality of the steam at operate at partial loads and in a transient mode. If which it is going to operate. This could improve the regular and substantial cloudiness occurs even over efficiency and reduce problems of erosion, corrosion a short period, turbine steam conditions and/or flow and humidity. can degrade enough to force turbine trips if there is The annual plant production is affected by turbine no supplementary thermal source to “ride through” the start-up time because of the daily starts. Both the disturbance. Buffer TES systems would typically require daily cyclicality and variations in temperature require small storage capacities (typically 1–2 equivalent full- special attention. One important characteristic of load hours depending on weather conditions). 35 Based on YES/Nixus/CENER (2010). 36 Fichtner (2010). 6.2. Delivery Period Displacement tradeoff analysis, are desirable in a feasibility study to select the storage capacity for a specific application. Thermal energy storage can also be used for delivery period displacement, which requires the use of a larger There are a number of storage concepts for CST power storage capacity. The storage shifts some or all of the plants, which have been either successfully tested and energy collected during periods with sunshine to a later are now commercially available, or which are still period with higher electricity demand or tariffs (electricity under development. An overview on the most promising tariffs can be a function of the hour of day, the day of storage concepts and their status is presented in below. the week and the season). This type of TES does not Current parabolic trough systems are “indirect,” in that necessarily increase either the capacity factor or the the oil HTF flowing through the solar field both charges required collection area, as only solar heat that would and discharges molten-salt-filled storage tanks via an have otherwise been used directly throughout the day is oil-to-salt heat exchanger. “Direct” systems are those stored for later use. The typical storage capacity ranges in which the HTF system and storage medium are the from three to six hours of the full operational load. same fluid, without an intermediate heat exchange process. Molten salt power towers and parabolic 6.3 Delivery Period Extension troughs with a molten salt HTF are examples of such systems. The size of a TES for delivery period extension will be 87 of similar size (3 to 12 hours at full load). However the 7. Hybridization purpose of the TES in this case is to extend the period during which the power plant operates using solar From an environmental point of view, solar-only energy. Such TES increases the capacity factor of the configurations are the best as only heat from the solar solar power plant and requires larger solar fields than a field is used to generate steam. However, as no mature system without storage. TES solutions are available for all the CST technologies, hybridization is an interesting alternative to increase The optimal storage capacity is site and system the capacity factor of the power plants, increasing dependent. Therefore, a detailed statistical analysis their commercial viability. Usually, this type of designs of system electrical demand and weather patterns at allow three operational modes (solar, fossil or hybrid) a given site, along with a comprehensive economic providing great levels of versatility and dispatchability. Figure A.11: Storage Concepts for CST Direct Storage Thermal oil storage tank (PT) Steam accumulator (FT,ST) Molten salt tank (ST) Sensible storage Indirect Storage (temperature change) Molten salt tank (PT) Sand or ceramics (ST) Latent storage (phase change) Ionic liquids PT – Fresnel trough FT – Fresnel trough Concrete Combination ST – Solar tower Chemical storage for DSG DSG – Direct steam generation Phase change material (PCM) Commercially available Source: Fichtner 2010. Figure A.12: Saturated Steam Hybrid Plant Figure A.13: Basic Scheme of an ISCCS Configuration Option B – Low Pressure Solar Steam Superheated Steam Solar Steam Generator Expansion Vessel Low Pressure Steam Turbine 2 Fuel Feedwater Steam 3 Flue Gas 4 Gas Turbine Condenser Waste Heat Recovery System Option A – High Pressure Solar Steam High Pressure 1 Condensate 40–70°C Steam Solar Steam 5 Expansion Vessel Generator Feedwater 140°C 6 Feedwater Deaerator Low Pressure Preheater 1 = Solar Field 3 = Turbine 5 = Dearator/Feedwater Tank 2 = Gas Furnace 4 = Air cooled 6 = Feedwater Pump Source: ECOSTAR. Condenser Source: Novosol. Linear Fresnel collectors (low cost, low temperature, 88 DSG) made them very relevant for ISCC systems. They can result very effective, in particular if stable 7.1. Hybridization Options and continuous power production is needed. Solar thermal energy is delivered to the Heat Recovery 7.1.1. Hybridization with a fossil fuel boiler placed in Steam Generator (HRSG) of the combined cycle, parallel to the solar field thus the steam turbine receives higher heat input than in classical combined cycles, resulting in higher This option can be used with parabolic trough and efficiencies. Lineal Fresnel power plants (see Figure A.2 and Figure A.8). ISCCS benefit from the high efficiencies of combined cycles: some studies assess annual fuel-to-power 7.1.2 Conventional Rankine cycle with solar efficiencies of about 60 percent. Besides, as the preheating investment cost for gas turbines is lower than for steam turbines, ISCCS are more cost-effective than hybrid This concept aims at adding a solar preheater to solar Rankine cycles. As in conventional Rankine cycle big fossil power plants in order to reduce their fuel with solar preheating, no solar energy is lost during consumption and gases emissions. It has been start-up and shut-down periods. demonstrated at Liddell coal power plant in New South Wales, Australia. The annual solar fraction (amount of The Martin Next Generation Solar Energy Center is a solar energy in the total thermal energy of the plant) hybrid 75 MW parabolic trough solar energy plant, is usually lower than 5 percent. However, solar energy built by Florida Power & Light Company (FPL). The solar is converted to power with high efficiencies and the plant is a component of the 3,705 MW Martin County investment cost is low, so it can be a relevant option Power Plant, which is currently the single largest fossil to retrofit existing fossil fuel plant already in operation fuel burning power plant in United States. The facility and introduce CST technologies to the market. No solar will also be the first hybrid facility in the world to connect energy is lost during start-up and shut-down periods. a solar facility to an existing combined cycle power plant. It is located in western Martin County, Florida. 7.1.3 Integrated solar combined cycle systems Construction began in 2008 and was completed by the (ISCCSs) end of 2010. ISCC plants are also being constructed in Algeria (Hassi R’Mel) and Morocco (Ain Beni Mathar) These systems consist in integrating solar energy in collaboration with Abengoa Solar. Abengoa Solar is into a combined cycle power plant, as shown in providing the design and will act as the technician of the Figure A.13. They have been primarily considered for solar field. The ISCC of El-Kureimat, in Egypt, is being parabolic trough collectors, but the characteristics of developed by New and Renewable Energy Authority (NREA), and is expected to start production at the end of sufficient, the system can operate on any alternative fuel 2012. Other projects are under development in Mexico source (fossil fuel, bio fuel). (Agua Prieta) and Iran (Iazd). 7.2. Hybridization and Regulatory Framework In addition to the options above, there are other lines of research in order to develop other hybrid options. As In Spain, the development of the solar thermal an example, the company AORA-Solar has developed technology has risen because of a favorable an advanced solar-hybrid power generation unit. A regulatory framework. In addition to a FiT policy, it pilot project was built in 2009 in Kibbutz Samar, in the was regulated the possibility of building hybrid plants. southern desert of Israel. The system offers a modular However, the range of hybridization was limited solution, comprising small Base Units of 100 kWe to 12–15 percent (fraction of fossil fuel energy in (comprised by heliostat and solar tower with a micro the total thermal energy of the plant) by the legal turbine) that can be strung together, building up into a framework. In the United States, this fraction can large power plant. When the available sunlight is not reach up to 25 percent. 89 Table B.1: Overview of the Main Technical Characteristics of CST Technologies (continued) Unit Parabolic Trough Fresnet Trough Molten Salt Solar Tower Water Steam Solar Team Parabolic Dish Item Plant Size, envisaged [MWe] 50–300* 30–200 10–200* 10–200 0.01–850 Plant Size, already [MWe] 50 (7.5 TES), 80 (no TES) 5 20 20 1.5 (60 units) realized B. TABLES AND FIGURES Collector/ [–] Parabolic trough (70–80 Fresnel trough/> 60 Heliostat field/> 1,000 Heliostat field/> 1,000 Single Dish/> 1,300 Concentration suns) suns, depends on suns suns suns secondary reflector Receiver/Absorber [–] Absorber fixed to tracked Absorber fixed to External tube receiver External or cavity tube Multi receiver system collector, complex design frame, no evacuation, receiver, multireceiver secondary reflector systems Storage System [–] Indirect two-tank molten Short-time pressurized Direct two-tank molten Short-time pressurized No storage for dish salt (380*C; dT=100K) steam storage (<10min) salt (550*C; dT=300K) steam storage Stirling, chemical for saturated storage under steam(<10min) development Hybridisation [–] Yes, indirect (HTF) Yes, direct (steam boiler) Yes Yes, direct (steam boiler) Not planned Grid Stability [–] Medium to high (TES or Medium (back-up firing High (large TES) Medium (back-up firing Low hybridisation) possible) possible) Cycle [–] Rankine steam cycle Rankine steam cycle Rankine steam cycle Rankine steam cycle Stirling cycle, Brayton cycle, Rankine cycle for distributed dish farms Steam conditions [*C/bar] 380*C/100 bar 260*C/50 bar 540*C/100–160 bar Up to 540*C/160 bar Up to 650*C/150 bar 2 Land requirements** [km ] 2.4–2.6 (no TES) 1.5–2 (no TES) 5–6 (10–12 h TES) 2.5–3.5 (DPT on the 25–3 4–4.2 (7h TES) lower site) Required slope of [%] < 1–2 <4 < 2–4 (depends on field < 2–4 (depends on field > 10% solar field design) design) Water requirements*** [m3/ 3 (wet cooling) 3 (wet cooling) 2.5–3 (wet cooling) 2.5–3 (wet cooling) 0.05–0.1 (mirror MWh] 0.3 (dry cooling) 0.2 (dry cooling) 0.25 (dry cooling) 0.25 (dry cooling) washing) Annual Capacity [%] 25–28% (no TES) 22–24% 55% (10h TES), larger 25–30% (solar only) 25–28% Factor 40–43% (7h TES) TES possible (continued on next page) 91 92 Table B.1: Overview of the Main Technical Characteristics of CST Technologies (continued) Unit Parabolic Trough Fresnet Trough Molten Salt Solar Tower Water Steam Solar Team Parabolic Dish Item Peak Efficiency [%] 22–25% 16–18% 18–22% 31% Annual Solar-to- [%] 14–16% 9–10% (saturated) 14–16% 15–17% 20–22% Electricity Efficiency (net) Source: Fichtner 2010. Table B.2: Overview of the Main Commercial Characteristics of CST Technologies Unit Parabolic Trough Fresnet Trough Molten Salt Solar Tower Water Steam Solar Team Parabolic Dish Item Maturity [–] Proven Technology on Demonstration Demonstration Saturated steam Demonstration large scale; projects, first projects, first projects in operation projects, first Commercially viable commercial projects commercial projects Superheated steam commercial projects today under construction under construction demonstration (first units) in 2011; Commercially viable Commercially viable projects, first Commercially viable 2011 onwards 2011 onwards commercial projects 2011 onwards under construction Commercially viable 2012 onwards Total installed [MWe] 1,000 7 10 10 (superheated/demo) 1.7 Capacity (in operation 30 (saturated steam) Q4 2010) Estimated total [MWe] 3,000–4,000 200–300 200–400 400–500 500–1,000 installed Capacity (in operation 2013) Number of Technology [–] High (>10), Abengoa Medium (3–4), Areva, Medium (2–5), Solar Medium (3–4), Abengoa Medium (4–5), Abengoa Provider Solar/Abener, Acciona, Novatec Biosol AG, Reserve and Torresol Solar, Bright Source Solar, Infinia, SES/ ASC Cobra/Sener, Sky Fuels, Solar Power others like Abengoa Energy, eSolar etc. Tessera Solar, SB&P , Albiasa Solar, Aries Group, etc. Solar and eSolar, Solar Wizard Power Ingeniera, Iberdrola, Millenium are planning MAN Solar Millenium, entry Samca, Solel/Siemens, Torresol etc. Technology [–] Low Medium Medium Medium Medium Development Risk Investment costs for [$/KW] 4,000–5,000 (no storage) 3,500–4,500 8,000–10,000 4,000–5,000 4,500–8,000 (depending 100MW 6,000–7,000 (no storage) (10th storage) (no storage) on volume production) (7–8h storage) O&M Costs [m$/a] 6–8 (no storage) 5.5–7.5 7–10 5–7 10–15 (molten salt with TES) (water steam, no TES) (water steam, no TES) * maximum/optimum depends on storage size ** 100 MWe plant size *** Depends on water quality Source: Fichtner 2010. 93 Table B.3: Parabolic Trough Power Plant Projects Thermal (Estimated) Energy Project Name/ First Year of Peak Output Storage/ Location Country Developer Operation [MWel] Dispatchibility Nevada Solar USA Acciona Solar Power 2007 74 None One,Boulder City Andasol I–III Spain ACS Cobra/SenerSolar 2008–2011 3 x 50 Molten Salt Millennium Thermal Storage Solnova I–V Spain Abengo Solar 2009–2014 5 x 50 Gas heater ExtreSol I–III Spain ACS Cobra/Sener 2009–2012 3 x 50 Gas heater Kurraymat Egypt Iberdrola/Orascom & 2010 20 (solar) ISCC Flagsol Ain Beni Mathar Morocco Abener 2010 20 (solar) ISCC Shams 1 UAE Abengoa Solar 2012 100 Gas fired 94 superheater Beacon Solar Energy USA Beacon Solar 2012 250 Gas heater Project,Kern County Blythe USA Solar Millennium 2013–2014 4 x 250 Gas heater Source: Fichtner 2010. Table B.4: Demonstration Central Receiver Projects Name/location/ First year of Electrical output country operation (mwel) HTF Thermal energy storage SSPS, Spain 1981 0.5 Liquid sodium Sodium EURELIOS, Italy 1981 1 Water/steam Salt/water SUNSHINE, Japan 1981 1 Water/steam Salt/water Solar One, USA 1982 10 Water/steam Synthetic oil/rock CESA-1, Spain 1983 1 Water/steam Molten salt MSEE/Cat B, USA 1983 1 Molten salt Molten salt THEMIS, France 1984 2.5 Molten salt Molten salt (hitec) SPP-5, Ukraine 1986 5 Water/steam Water/steam TSA, Spain 1993 1 Atmospheric air Ceramics Solar Two, USA 1996 10 Molten salt Molten salt 95 Consolar, Israel 2001 0.5* Pressurized air No (fossil hybrid) Solagte, Spain 2002 0.3 Pressurized air No (fossil hybrid) Solair, Spain 2004 3* Atmospheric air — CO-MINIT, Italy 2005 2 x 0.25 Pressurized air No (fossil hybrid) CSIRO Solar Tower 2006 1* Other (gas Chemical (solar gas) Australia reformation) DBT-550, Israel 2008 6* Water/steam — (superheated) STJ, Germany 2008 1.5 Atmospheric air Ceramics Eureka, Spain 2009 2* Water/steam — (superheated) Source: Fichtner 2010. Table B.5: Commercial Central Receiver Projects Initial operation Name/location Company Concept Size (MWe) year/status PS 10/Seville, Spain Abengoa Solar Water/Steam 10 2007 Solar Tower Jülich/Jülich, Germany Kraftanlagen Volumetric Air 1,5 2008 München PS 20/Seville, Spain Abengoa Solar Water/Steam 20 2009 Sierra SunTower/California, USA eSolar Water/Steam 5 2009 Solar Tres/Seville, Spain Sener Molten Salt 17 2011/Under Construction Ivanpah 1–3/California, USA Bright Source Energy Water/Steam 1 x 126/2 x 133 2013/Under Construction Geskell Sun Tower, Phase I–II/ eSolar Water/Steam 1 x 105/1 x 140 Planning California, USA Alpine Power SunTower/California, eSolar/NRG Energy Water/Steam 92 Planning 96 USA Cloncurry Solar Power Station/ Ergon Energy Water/Steam 10 2010/on hold Queensland, AUS Upington/Upington, South Africa Eskom Molten Salt 100 2014/Announced Rice Solar Energy Project/California, Solar Reserve Molten Salt 150 Planning USA Tonopah/Nevada, USA Solar Reserve Molten Salt 100 Planning Source: Fichtner 2010. Table B.6: Demonstration Parabolic Dish Collector Projects Name/location/ First year of Net output Heat transfer country operation (MWel) fluids/ PCU Remark Rancho Mirage, USA 1983 0.025 Stirling motor individual-facet VanguardLos Los Angeles, USA 1984 0.025 individual-facet, MDAC-25 Warner Springs, USA 1987 individual stretched membrane facets Osage City, USA 1987 Saudia Arabia 1984 2 x 0.05 Stirling motor , SBP stretched membrane Freiburg, Germany 1990 fixed focus, Bomin Solar Lampoltshausen, 1990 Stirling motor , SBP stretched membrane, 2nd Germany generation Almeria, Spain 1992–1996 6 x 0.01 Stirling motor , SBP stretched membrane Europe (Seville, Milano, 2002–2004 6 x 0.01 Stirling motor , SBP stretched membrane EuroDish/ etc.) EnvrioDish Johannesburg, South 2002 0.025 Stirling motor SES & Eskom, multi-facets Africa ALBUQUERQUE, New 2006–2008 8 x 0.025 Stirling motor SES & SNL, multi-facets Mexico, USA MARICOPA, Phoenix 2010 1.5 Stirling Motor SES, multi facets Source: Fichtner 2010. Table B.7: Component Specific Cost Reduction Potential – Parabolic Trough Midterm cost Long-term cost reduction potential reduction potential Subsystem Component Reduction factor (%) (%) Solar field Reflectors New mirror concept 8–10 18–22 Mounting structure Mass production and 12–20 25–30 material savings Standardization 6–12 — Tracking system Experience curve 13–15 Receiver Operational improvements 15–20 Size increases 15 — Heat transfer system Experience curve 15–25 Thermal Molten salts Thermocline concept 20 — storage Fluid handling system Thermocline concept 10 — 97 Power block Power block Experience curve 0–1 Balance of plant (bop) Experience curve 5–10 Source: YES/Nixus/CENER 2010. Table B.8: Component-Specific Cost Reduction Potential – Power Tower Midterm cost Long-term cost reduction potential reduction potential Subsystem Component Reduction factor (%) (%) Solar field Reflectors New mirror concept 4–5 6–8 Mounting structure Mass production and 15–18 17–20 material savings Standardization 6–12 — Tracking system Experience curve 13–15 Receiver Experience curve 5–10 Heat transfer system Experience curve 15–25 Thermal Molten salts Thermocline concept 20 — storage Fluid handling system Thermocline concept 10 — Power block Power block Experience curve 0–1 Balance of plant Experience curve 5–10 Source: YES/Nixus/CENER 2010. Table B.9: Component-Specific Cost Reduction Potential – Linear Fresnel Midterm cost Long-term cost reduction potential reduction potential Subsystem Component Reduction factor (%) (%) Solar field Reflectors Mass production 4–5 6–8 Mounting structure Mass production and material 20–25 25–35 savings Standardization 6–12 — Tracking system Experience curve 13–15 Receiver Wide operational improvement 15–25 Size increase 10 — Power block Power block Experience curve 0–1 Balance of plant Experience curve 5–10 Source: YES/Nixus/CENER 2010. 98 Table B.10: Component-Specific Cost Reduction Potential – Dish Engine Midterm cost Long-term cost reduction potential reduction potential Subsystem Component Reduction factor (%) (%) Solar field Reflectors Process automation 20–25 35–40 and mass production Mounting structure Mass production and 17–20 25–28 material savings Standardization 6–12 — Solar to energy Receiver/electric Experience curve 5–10 conversion motor and BOP Source: YES/Nixus/CENER 2010. Table B.11: Main Financial and Regulatory Assumptions for LCOE Analysis Main Financial and Regulatory Assumptions India India Morocco Morocco South Africa — — — — — South Africa Parabolic Power Parabolic Power Parabolic — trough tower trough tower trough Power tower Plant size 100 MW 100 MW 100 MW Analysis period 25 years 25 years 25 years Inflation rate* 5.5% 2.15% 6.0% Real discount rate 11.25% 8.25% 10.5% Applicable tax rate 19.93% (MAT) 30% with Tax Holiday 28% of 5 years, from year 1 of construction (3 years construction + 2 of operation) Property tax 0% 0% 0% 99 Vat 5% 14% 14% Depreciation 7% first 10 years—2% 25 years straight line 25 years straight line schedule thereafter Loan term 14 years 18 years 20 years (commercial) with 4 years grace period Loan rate 11.75% 9% 12% (commercial) Debt/equity ratio 70/30 80/20 70/30 Roe 19% 15% 17% Min required irr 15% 15% 15% Insurance 0.5% 0.5% 0.5% Exchange rate 45 Rs/US$ 8.2 Dhs/US$ ZAR 10/US$ Capital cost US$4,500/ US$5,000/ US$4,500/ US$5,000/ US$4,700/kW US$5,200/kW kW kW kW kW (excluding (excluding (excluding (excluding (excluding (excluding storage) storage) storage) storage) storage) storage) O&m cost US$32/kW-yr US$30/kW-yr US$35/kW-yr US$33/kW-yr US$70/kW-yr US$66/kW-yr (including (plus Dhs 15 (plus Dhs 15 Variable cost) million/year million/year rent) rent) Optimal storage 6 hours TES 15 hours TES 3 hours TES 15 hours TES 3 hours TES 15 hours TES Total installed cost US$7,707/ US$8,306/ US$7,385/ US$8,909/ US$7,900/kW US$9,171/kW kW kW kW kW Capacity factor 38.5% 52.7% 32.5% 62% 35% 67.9% (air-cooled) Annual mwh 337,341 461,592 284,891 543,348 306,269 MWh 595,008 MWh generated (air-cooled) MWh MWh MWh MWh Assumed dni 2,262 kWh/m2/year 2,578 kWh/m2/year 2,916 kWh/m2/year System degradation 0.25–0.5% 0.25–0.5% 0.25–0.5% (0.425% assumed) (0.425% assumed) (0.425% assumed) * Average CPI-Inflation from 2000 to 2009. Table B.12: Impact Assessment of Different Regulatory Incentives in India Current LCOE after % change in Technology LCOE Incentive applied incentive LCOE Parabolic trough 35.54 Tax reduction 35.20 –0.96 (Air-cooled—with storage) VAT exemption 35.20 –0.96 Accelerated depreciation 34.06 –4.16 Concessional loan terms 33.36 –6.13 Concessional loan rates 32.94 –7.32 Concessional loan terms + rates 29.81 –16.12 AD + concessional loan terms + rates 28.32 –20.32 Power tower 27.85 Tax reduction 27.58 –0.97 (Air-cooled—with storage) VAT exemption 27.58 –0.97 Accelerated depreciation 26.69 –4.17 100 Concessional loan terms 26.13 –6.18 Concessional loan rates 25.80 –7.36 Concessional loan terms + rates 23.34 –16.19 AD + concessional loan terms + rates 22.16 –20.43 Parabolic trough 33.27 Tax reduction 32.95 –0.96 (Wet-cooled—with storage) VAT exemption 32.95 –0.96 Accelerated depreciation 31.89 –4.16 Concessional loan terms 31.23 –6.13 Concessional loan rates 30.84 –7.32 Concessional loan terms + rates 27.91 –16.11 AD + concessional loan terms + rates 26.51 –20.32 Power tower 26.67 Tax reduction 26.41 –0.97 (Wet-cooled—with storage) VAT exemption 26.42 –0.94 Accelerated depreciation 25.56 –4.16 Concessional loan terms 25.03 –6.15 Concessional loan rates 24.71 –7.35 Concessional loan terms + rates 22.35 –16.20 AD + concessional loan terms + rates 21.23 –20.40 Table B.13: Impact Assessment of Different Regulatory Incentives in Morocco Current LCOE after % change in Technology LCOE Incentive applied incentive LCOE Parabolic trough 37.25 Tax reduction 36.80 –1.21 (Air-cooled—with storage) VAT exemption 36.53 –1.93 Accelerated depreciation 31.92 –14.31 Concessional loan terms 34.49 –7.41 Concessional loan rates 33.68 –9.58 Concessional loan terms + rates 30.26 –18.77 AD + concessional loan terms + rates 24.82 –33.37 Power tower 23.27 Tax reduction 22.99 –1.20 (Air-cooled—with storage) VAT exemption 22.81 –1.98 Accelerated depreciation 19.90 –14.48 Concessional loan terms 21.52 –7.52 101 Concessional loan rates 21.00 –9.76 Concessional loan terms + rates 18.84 –19.04 AD + concessional loan terms + rates 15.40 –33.82 Parabolic trough 34.52 Tax reduction 34.11 –1.19 (Wet-cooled—with storage) VAT exemption 33.85 –1.94 Accelerated depreciation 29.58 –14.31 Concessional loan terms 31.96 –7.42 Concessional loan rates 31.21 –9.59 Concessional loan terms + rates 28.04 –18.77 AD + concessional loan terms + rates 23.00 –33.37 Power tower 22.11 Tax reduction 21.85 –1.18 (Wet-cooled—with storage) VAT exemption 21.68 –1.94 Accelerated depreciation 18.91 –14.47 Concessional loan terms 20.45 –7.51 Concessional loan rates 19.96 –9.72 Concessional loan terms + rates 17.91 –19.00 AD + concessional loan terms + rates 14.64 –33.79 Table B.14: Impact Assessment of Different Regulatory Incentives in South Africa Current LCOE after % change in Technology LCOE Incentive applied incentive LCOE Parabolic trough 42.32 Tax reduction 41.58 –1.75 (Air-cooled—with storage) VAT exemption 41.47 –2.01 Accelerated depreciation 37.07 –12.41 Concessional loan terms 41.18 –2.69 Concessional loan rates 38.78 –8.36 Concessional loan terms + rates 37.23 –12.03 AD + concessional loan terms + rates 31.91 –24.60 Power tower 24.92 Tax reduction 24.48 –1.77 (Air-cooled—with storage) VAT exemption 24.41 –2.05 Accelerated depreciation 21.78 –12.60 102 Concessional loan terms 24.24 –2.73 Concessional loan rates 22.80 –8.51 Concessional loan terms + rates 21.87 –12.24 AD + concessional loan terms + rates 18.69 –25.00 Parabolic trough 38.90 Tax reduction 38.21 –1.77 (Wet-cooled—with storage) VAT exemption 38.11 –2.03 Accelerated depreciation 34.07 –12.42 Concessional loan terms 37.85 –2.70 Concessional loan rates 35.64 –8.38 Concessional loan terms + rates 34.22 –12.03 AD + concessional loan terms + rates 29.33 –24.60 Power tower 23.76 Tax reduction 23.34 –1.77 (Wet-cooled—with storage) VAT exemption 23.27 –2.06 Accelerated depreciation 20.77 –12.58 Concessional loan terms 23.11 –2.74 Concessional loan rates 21.73 –8.54 Concessional loan terms + rates 20.85 –12.25 AD + concessional loan terms + rates 17.82 –25.00 Table B.15: Economic Analysis – Main Cost Assumptions Parabolic trough Power tower Item Unit India Morocco S. Africa India Morocco S. Africa Capacity (gross) MW 100 100 100 100 100 100 Generation net gWh/a. 397 264 440 388 388 493 Degradation of generation % p.a. 0.0 0.5 0.0 0.0 0.5 0.0 Capacity factor % 50% 30% 56% 49% 31% 63% CAPEX US$Mn. 738 600 861 717 717 786 Cons. period Years 6 3 6 6 6 6 Lifetime of plant Years 25 25 25 20 20 20 Variable O&M costs Fuel US$Mn. 0.2 0.30 0.30 0.3 0.3 0.3 Water US$Mn. 0.12 0.12 0.12 0.11 0.08 0.08 103 Fixed O&M costs US$Mn. 14.2 15.1 16.6 14.5 12.3 16.3 Personnel US$Mn. 4.4 4.5 4.4 2.7 3.5 4.5 Non-personnel US$Mn. 9.8 10.6 12.2 11.8 8.8 11.8 CO2 Eq. saved Kg/kWh 1.03 0.64 1.03 1.03 0.64 1.03 Local pollutants SO2 Kg./kWh n.a. 0.011 n.a. n.a. 0.011 n.a. NOx Kg./kWh n.a. 0.003 n.a. n.a. 0.003 n.a. PM10 Kg./kWh n.a. 0.001 n.a. n.a. 0.001 n.a. Escalation factors Value of electricity % p.a. 3.64 2.15 0 3.64 2.15 0 O&M costs % p.a. 1.0/5.0 2.15 1.0/5.0 1.0/5.0 2.15 1.0/5.0 CO2 & other ext. values 0 2.15 0 0 2.15 0 Value of electricity US¢/kWh 8.0 11.1 17.5 8.0 11.1 17.5 Value of CO2 in 2014 Original US$/ton — 31.3 29.0 — 31.3 29.0 Modified US$/ton 40.5 40.5 40.5 40.5 40.5 40.5 Value local pollutants SO2 US$/ton n.a. 267 n.a. n.a. 267 n.a. NOx US$/ton n.a. 1,156 n.a. n.a. 1,156 n.a. PM10 US$/ton n.a. 711 n.a. n.a. 711 n.a. PM10 US$/ton n.a. 711 n.a. n.a. 711 n.a. Source: Macroeconomica 2011. Note: 1. Escalation of O&M costs was 1% for non personnel and 5% for personnel costs in S. Africa & India. 2. The escalation of the value of CO2 was only in the original case. Table B.16: Global CST Value Chain Analysis (continued) Industry structure Economics and costs Project development Small group of companies with technological Mainly labor-intensive know-how engineering activities and International actors have fully integrated activities to obtain permits. activities of concept engineering; often with project development, engineering, financing. EPC contractors Strong market position for construction, Large infrastructure companies energy, transport and infrastructure projects. (high turnover) Parabolic mirrors Few, large companies, often from the Large turnover for a variety of automotive sector mirror and glass products Large factory output Receivers Two large players Large investment in know-how Factories also in CST markets in Spain and the and machines required United States Metal support structure Steel supply can be provided locally High share of costs for raw Local and international suppliers can produce material, steel or aluminum 104 the parts Market structure and trends Key competiveness factor Project development Strongly depending on growth/expectations of Central role for CST projects individual markets Technology know-how Activities worldwide Access to finance EPC contractors Maximum 20 companies Existing supplier network · Most of the companies active on markets in Spain and the United States Parabolic mirrors A few companies share market, all have Bending glass increased capacities Manufacturing of long-term High mirror price might decline stable mirrors with high reflectance Inclusion of upstream float glass process Receivers Strongly depending on market growth High-tech component with Low competition today; new players about to specialized production and enter the market manufacturing process Metal support structure Increase on the international scale expected Price competition Subcontractors for assembling and materials Mass production/Automation Strengths Weaknesses Opportunities Threats Project Reference projects Dependency Projects in pipeline Price development Technology know-how on political competition support with other renewables EPC Reference projects High cost Projects in pipeline Price contractors Well-trained staff Achieve high cost reduction competition Network of suppliers with other renewables Parabolic Strong position of few Cost of New CST markets Unstable CST mirrors players factory Barriers for market entry market High margins (high cost Continuous Flat mirror reduction potential) demand technology required (Fresnel/tower) (continued on next page) Table B.16: Global CST Value Chain Analysis (continued) Strengths Weaknesses Opportunities Threats Receivers High margins (high cost Dependency High cost reduction potential Unstable CST reduction potential) on CST through competition market market Low market High entry demand barrier for Strong market new players position of (know-how/ few players; invest) hard for new players to become commercial Metal support Experience High cost Increase of efficiency and size Volatile CST structure New business opportunities competition market for structural steel Low entry barriers Source: Ernst & Young and Fraunhofer 2010. 105 Table B.17: Technical and Economic Barriers to Manufacturing CST Components (continued) Financial Level of Components Technical barriers barriers Quality Market Suppliers barriers Civil work Low technical skills Investment in Standard Successful Existing Low required large shovels quality of civil market players supplier and trucks works, exact will provide structure can works these tasks be used for materials EPC Very highly skilled — Quality Limited market Need to build Medium engineers professionals: management of experienced up their own and project engineers and project of total site engineers network managers managers with has to be university degrees done Assembly Logistic and Investment Accuracy Collector Steel parts Low management skills in assembly- of process, assembly has transported necessary building for low fault to be located over longer Lean manufacturing, each site, production close to site distance automation investment during Competitive 106 in training of continuous suppliers often work force large output also local firms Low skilled workers Receive Highly specialized High specific High process Low market Supplier High coating process with investment for know-how for opportunities network high accuracy manufacturing continuous to sell this not strongly Technology-intensive process high quality product to required sputtering step other industries and sectors Float glass Float glass process is Very capital- Purity Large demand Supplier High production the state-of-the-art intensive of white is required network (for flat technology but large glass (raw to build not strongly and curved quantities and highly products) production required mirrors) energy intensive lines Complex manufacturing line Highly skilled workforce to run a line Mirror Complex Capital- Long-term High quality Supplier High flat manufacturing line intensive stability flat mirrors network (float glass) Highly skilled of mirror have limited not strongly workforce to run a coatings further markets required line Large demand is required to build production lines Mirror See flat mirrors See flat See flat Large demand Supplier High parabolic Plus: mirrors mirrors is required network Bending highly + bending High to build not strongly automated production devices geometric production required precision lines of bending Parabolic process mirrors can only be used for CST market (continued on next page) Table B.17: Technical and Economic Barriers to Manufacturing CST Components (continued) Financial Level of Components Technical barriers barriers Quality Market Suppliers barriers Mounting Structure and Automation For tracking Markets with Raw steel Low structure assembly are usually is capital- and large and market proprietary know-how intensive mounting: cheap steel important of companies Cheap steel stiffness Transformation Standardization/ is competitive of system industries automation by robots advantage required are highly or stamping reduces competitive low skilled workers, but increases process know-how HTF Chemical industry Very capital- Standard Large chemical Not identified High with large production. intensive product, heat companies However, the oil is resistant produce not highly specific thermal oil Connection Large and intensive Capital- High Large Not identified Medium piping industrial steel intensive precision quantities 107 transformation production line and heat processes resistance Process know-how Storage Civil works and Not identified Not identified Low developed Not identified Medium system construction is done market, locally few project Design and developers in architecture Spain Salt is provided by large suppliers Electronic Standard cabling not Not identified Not identified Market Often supplier Low equipment difficult demand of networks Many electrical other industries because of components necessary division specialized, but not CST specific equipment; Equipment not produced for CST only Source: Ernst & Young and Fraunhofer 2010. Figure B.1: Possible Evolutions of Local CST Industries for Key Components in MENA Current situation 2015 2020 2030 MENA market 70 MW, 3 ISCC, ~ 0.5 300 MW, ~1 GW, ~ 2 GW, (capacity, nb 3–5 plants, ~2 10–20 plants, ~8 20–30 plants, ~15 of plants, size in billion $) Potential Flabeg Rioglass Egyptian Glass new solar ~ same Flabeg Company Dr Greiche entrants Saint-Gobain players Rioglass Sphinx Glass SIALA Sphinx Guardian Ind. solar Glass Dr Pilkington Mirrors Greiche EGC SIALA Flabeg Rioglass solar Saint-Gobain Guardian Saint-Gobain IndustriesPilkington Guardian Ind. PPG Marketsize (M$) 25 100 400–450 800–1000 Description and drivers supplied by companies getting size becoming local assets, international interested in significant increaseof local 108 companies MENA market producers market value chain by local share driven by size not large produced locally players call for tenders’ enough for (coating) by local local production local CSP glass glass transformers large internation clauses and mirror firm’s affiliate and production still too small for development or all «historical» full value chain reconversion of stakeholders’ integration assets by pure local position players NSF Abengoa Very limited nb of Engineer- Solar intl. companies ing Acciona DLM AOI NSF NSF Engineering Delattre Areva Engineering Ynna Mounting Holding El Levivier structures Maroc Fouladh + other Abengoa Solar new entrants NSF Engineering Ynna Holding DLM AOI Marketsize (M$) ~ 50 ~ 225 800–1000 1500–1700 Description and drivers supplied Aïn company with R&D local production of mounting Beni Mathar and capacity and (especially structure Hassi R’mel already producing through low construction complex metallic transport and low techniques designed and structures (roofs, labor costs) Previous economic produced the windtowers) aldrivers still Kuraymat local knowledge influent mounting developers and experience Only «pure» local structure preferring gained in first production as no «standard» MENA projects need for mounting structure know-how transfer design already needs of any more and implemented in international industrialisation of other CSP plants developers production (continued on next page) Figure B.1: Possible Evolutions of Local CST Industries for Key Components in MENA (continued) Current situation 2015 2020 2030 MENA market 70 MW, 3 ISCC, ~ 0.5 300 MW, ~1 GW, ~ 2 GW, (capacity, nb 3–5 plants, ~2 10–20 plants, ~8 20–30 plants, ~15 of plants, size in billion $) El ~ same players El Sewedy Developpers international Sewedy Cables Electric and suppliers Cables Groupe electronic Elloumi Elloumi TECI+ equipment Developper’s TECI new international suppliers entrants Leoni Câbles, Delphi, Yakazi, ~ same players Sumitomo, Nexans + new entrants Marketsize (M$) 2 5–10 ~30 ~50 Description and drivers components market shares by market between supplied by requirements from local players top local firms conventional international clients (competitive on international components international suppliers CSP components import becauseof markets) and 109 the combination international firms value compo- tech components of competitive nents (cables, (trackersfor example), local productsand local capacity etc.) supplied by as aeronautical or local production because of low local companies autmotive companies clauses in call for labor cost and tenders : Import in MENA : “pure” local production : local production (current local players) (implantation of international players) Source: Ernst & Young and Fraunhofer 2010. 110 Figure B.2: Potential Roadmap for the Production of CST Mirrors in the MENA Region Status Quo Short-Term Mid-Term Long-Term Overall Goal Technology One or two large development Single float glass Mirror companies Production facilities Application of suppliers of white glass High availability of raw factories in MENA in MENA possess and skills are alternative and several mirror materials but currently are upgraded for skills for production upgraded for bending materials & manufacturers in no production of high production of high of CSP mirrors process designs (e.g. MENA produce highly quality white glass or quality white glass (coating) polymers, thin precise CSP reflectors parabolic mirrors in glass, aluminum) at a competitive price. MENA. Mirrors for all types of Supply of white Provision of Provision of CSP projects in MENA glass for potential linear reflectors highly precise All reflectors for CSP region can be supplied (foreign) mirror for Fresnel parabolic mirrors plants in MENA are by regional companies factories in MENA plants or solar for solar trough imported from plus export of mirrors possible towers possible plants possible abroad Business development Subsidiary of Independent Predominantly medium foreign company Positive spill-over production of CSP sized mirror companies effects on other mirrors in MENA. with no activity in CSP Foundation of glass sectors Comprehensive Investments in High level of Newly emerging mirror technology so far joint ventures (other special training of upgrade of sophistication companies and strong purpose glasses, Acquisition of employees production is reached increase of overall solar glass, e.g. licenses lines sectoral potential. Photovoltaics) Poorly developed intellectual property Strong focus on Applied research Techniques and Patented Growing intellectual rights in MENA, high R&D in the field accompanying materials adapted innovations in property with regard to dependency on market of reflector ongoing projects to specific needs reflector designs CSP mirrors. Profit leaders design, coatings & testing plants and resources of & maintenance from innovative & maintenance the countries equipment in designs, materials and MENA e.g. cleaning methods. (continued on next page) Figure B.2: Potential Roadmap for the Production of CST Mirrors in the MENA Region (continued) Status Quo Short-Term Mid-Term Long-Term Overall Goal Policy framework & Strategy funds for Coordinated Superordinate High level market development industrial upgrade national institutions are of strategies for are provided regional Region-wide clear No national targets established for development of industrial integra- political goals regarding Large number of tion of the CSP mirror industry development Long-term, R&D competence industrial policy and energy stable policy CSP value Institutional clusters created Intense chain Focused support for targets defined framework is Growing responsibilities and implemented Favorable tax rates trade of realized in export of industrial development budgetary powers exist for CSP CSP MENA CSP of CSP mirror industry partly fragmented mirrors mirrors in mirrors the MENA from Definition of region Minimum MENA CSP market long-term of 4GW development in objectives for Growing level of added MENA uncertain, CSP Growing number Continuous & stable confidence in CSP CSP small number of development of CSP projects growth of CSP market technology capacity projects in pipeline in MENA in pipeline in MENA in MENA per year Source: Ernst & Young and Fraunhofer 2010. 111 112 Table B.18: Action Plan for Stimulation of Production of CST Products in MENA (continued) Actors/financers: = national authorities, ▲ = international donors, = national CST players, ♦ = international CST players Potential Implementation Goals Intermediate Steps Necessary processes/assistance Target groups actors timeframe Upgrade & Provision of information Implementation of national and regional Current and ▲♦ Short to medium term increase of on CSP market size and CSP associations that foster networking, potential future industrial and opportunities of production accelerate business contacts and provide producers of service capacities and service adjustment information intermediate products and CSP components, research organizations Establishment of superordinated national See above Short to medium term institutions responsible for CSP targets to enhance and coordinate policy development in the regional context and to provide assistance Creation of internet platforms, newsletters See above ▲ Short to medium term on technical issues and market development, information centers and other informational support Assessment of technical Foundation of consortia of technical experts Current producers ▲ Short to medium term feasibility for firms to that support companies which show interest of intermediate upgrade current production in CSP manufacture or provision of funds to products and CSP to CSP component consult external technical experts components production and service provision Implementation of Financial support of a certain share of the Current local ▲ Short to medium term investment support necessary investment for implementation producers of mechanisms for adaptation of upgrade of production facilities (e.g. intermediate of production lines “renewable energy innovation fund”) products Provision of long-term low-interest Current local ▲ Short to medium term loans for companies willing to invest in producers of innovation of production lines intermediate products and potential future producers Facilitation of foreign investments International Short to medium term by simplification of bureaucracy and players assistance (continued on next page) Table B.18: Action Plan for Stimulation of Production of CST Products in MENA (continued) Actors/financers: = national authorities, ▲ = international donors, = national CST players, ♦ = international CST players Potential Implementation Goals Intermediate Steps Necessary processes/assistance Target groups actors timeframe Price incentives Tax incentives for production/export of CSP Local producers, Medium term components (e.g. reduction or exemption national and on customs duties for raw materials, parts international or spare parts of CSP components, refund companies of customs duties with export) Tax credits or deductions for investments National and Medium term in production lines related to CSP and international investments in R&D companies Lowered trade barriers for RE/CSP See above Medium term components and intermediate products to accelerate the trade of components Tax credits on firm-level training measures See above Short to medium term Further incentives Local and regional content obligations for See above Medium term components and services in CSP projects Foster integration of secondary components See above Short term suppliers in region Activation of Strong focus in national Formulation of clear national targets National and Short to medium term further potential and regional industrial regarding the development of CSP international market players policy on CSP development industries industrial players in and service general providers Provision of administrative and legislative National and ▲ Short to medium term support for company start-ups and foreign international investments, and formation of relevant industrial players in institutions general Financial support mechanisms for national National players ▲ Short to medium term company start-ups in the sector of renewable energy manufacturing Introduction of regional quality assurance National and ▲♦ Medium to long term standards for CSP products to decrease international uncertainty companies (continued on next page) 113 114 Table B.18: Action Plan for Stimulation of Production of CST Products in MENA (continued) Actors/financers: = national authorities, ▲ = international donors, = national CST players, ♦ = international CST players Potential Implementation Goals Intermediate Steps Necessary processes/assistance Target groups actors timeframe Awareness raising Awareness-raising initiatives (e.g. National and ▲♦ Medium to long term conferences, workshops, other marketing international activities) and formation of relevant industrial players in institutions general Facilitation of Promote creation of Facilitation of networking and knowledge Regional and ♦ Short to medium term skill enhancement joint ventures between transfer by creating networking platforms international and knowledge existing manufacturers and organization of business fairs manufacturers transfer and potential regional newcomers Support of training Review of existing national training facilities, ▲ Short to medium term activities for local workforce upgrade/creation of specific institutions if needed Provision of short basic training courses Regional ▲ Short to medium term for civil workers (e.g. involved in assembly companies, activities) particularly low- skilled workforce Support the training of regional workforce Regional ▲ Short to medium term by financial support if external training companies, facilities are involved international companies Promotion of financial incentives for ‘train Regional ▲ Short to medium term the trainers’ programs companies, international companies Support of higher Establishment of study courses with regard Regional students ▲ Short to medium term education to solar energy techniques/CSP and other and engineers, required skills related to RE/CSP O&M workforce Creation of master programs at foreign Regional students ▲ Short to medium term universities and student exchange programs with regard to RE/CSP Review of management and project Students, potential ▲ Medium to long term planning capabilities and creation of CSP workforce training courses (e.g. existing EPC contractors) (continued on next page) Table B.18: Action Plan for Stimulation of Production of CST Products in MENA (continued) Actors/financers: = national authorities, ▲ = international donors, = national CST players, ♦ = international CST players Potential Implementation Goals Intermediate Steps Necessary processes/assistance Target groups actors timeframe Support of private and Improvement of renewable energy related Manufacturers, ▲ Short to medium term public R&D R&D legislation, and national legislation private and public exchange (e.g. through RCREE) research institutions (e.g. universities) Foundation of research institutions and See above ▲♦ Medium to long term technology clusters with regard to CSP technologies, to foster regional knowledge distribution and innovation Implementation of CSP testing plants and CSP-project ▲♦ Short to medium term project-parallel research activities at CSP developer, national sites and international CSP component producers, public and private research facilities Promotion of international science networks Scientists at ▲ Medium to long term and exchange of scientific experts in the national and field of CSP component design (particularly international important for collectors and receivers) institutions Enhancement of links between industry and Scientists at ▲♦ Medium to long term research facilities (universities) national and international institutions, regional companies, international companies Source: Ernst & Young and Fraunhofer 2010. 115 Table B.19: Component-specific Local Manufacturing Prospects in South Africa (continued) Potential for manufacture within South CST system /component Africa Remarks Structural steel High Up to 100% of steel required can be provided locally. Concrete High Up to 100% of concrete required can be provided locally. Steel piping High Up to 80% of all the steel piping can be provided locally. CST shaped glass Medium in the short to medium term High in the long term Electrical and Control cabling and High Up to 100% of all cabling can be manufactured locally. accessories Pressure vessels and storage tanks High All pressure vessels and storage tanks and vessels can be manufactured locally. 116 Shaped steel sections High All shaped steel sections can be provided locally. Medium Voltage and Low Voltage High All MV and LV motors can be manufactured locally. Electric motors DC motors High All DC motors can be manufactured locally. Valves and actuators High Valves and actuators can be manufactured locally. Distribution and power transformers High All transformers can be manufactured locally. (Oil-filled and dry type) Lead Acid and Nickel Cadmium High All batteries can be manufactured locally. batteries Battery chargers, UPSs and inverters High This equipment can be manufactured locally. Variable Speed Drives (Low Voltage) High VSDs for LV motors can be manufactured locally. Variable Speed Drives (Medium Low MV drives will be imported into the long term. Voltage) Steam turbines Low Heat Exchangers High All heat exchangers can be manufactured locally. Instruments High All instruments can be manufactured locally. Programmable Logic Controllers, Low Plant Information Systems and DCS equipment Nitrogen systems Low Most of the Nitrogen gas will need to be imported. Aluminum conductor for overhead High All Aluminum conductors for overhead lines can be lines manufactured locally. Molten salts Low Oil-based HTF Low Diesel generator sets Low Diesel generator sets can be assembled in South Africa, but alternators and diesel engines, as well as the controls, will be imported into the long term. (continued on next page) Table B.19: Component-specific Local Manufacturing Prospects in South Africa (continued) Potential for manufacture within South CST system /component Africa Remarks Pumps High Most of the pumps can be manufactured locally. It is very likely that HTF pumps can be supplied locally in the medium term since there are existing suppliers of large pumps for the petrochemical industry. Water treatment plants High All water treatment plants can be designed and assembled locally. Chemicals for water treatment High All chemicals can be manufactured locally. Heaters High Heating, ventilation and air Medium conditioning equipment (HVAC) Fencing material High All fencing material can be provided locally. 117 Firefighting equipment High CST steel structures Medium Low in the short term. High in the medium to long term. Tracking systems Medium Low in the short to medium term. High in the long term. Automotive component manufacturers have got the machining equipment to manufacture high-precision structures. The machining equipment can be used to manufacture tracking systems in the long term. Weather measurement equipment High Telecommunications and telecontrol Medium equipment MV and LV switchgear Medium Source: Fichtner 2011. Table B.20: Capacity to Manufacture CST Components and Provide CST related Services in South Africa Research & Potential of entry Financial development by international Sector strength potential firms into sector Remarks Steel High High Medium. The 2 firms have a dominant role manufacturing Large local Both Arcelor Mittal in the steel sector in South Africa. firms Arcelor and Evraz have South Africa’s Industrial Policy Action Mittal and got large R&D Plan (IPAP) is proposing incentives for Evraz Highveld divisions and also foreign investors into South Africa Steel dominate benefit from the this sector R&D capabilities of parent companies. Automotive High Low High Most firms have small R&D capabilities component and rely on industry bodies to manufacturers coordinate R&D efforts. Capacity to manufacture CST steel structures and components low in the short term, but there is potential for increase in the 118 long term. Glass High Medium High The capacity to manufacture CST glass manufacturing in the short to medium term is limited sector for PG Glass Industries. Electrical High High High This sector is dominated by the Big 5 equipment multinational firms: GE, ABB, Siemens, Alstom and Groupe Schneider. Potential exists for other international players to enter this market for specific electrical equipment, such as MV Variable Speed Drives, which are currently being imported, as well as for large transformers and DCS equipment for power plants. Electronics Medium Medium High Most of the local electronics equipment components manufacturing firms are small. This market is dominated by Siemens, Alstom and ABB. EPC firms High Medium High The local EPC firms do not have For the big 3 experience in doing EPC on CST firms (Murray & projects. There is scope for them Roberts, Group to work as subcontractors to 5 and Grinaker large international EPC CST plant LTA) developers such as Abengoa. Professional High Medium High Local engineering consulting and services project management firms do not have (engineering experience in executing CST projects. consulting There is scope for entry of international and project consulting firms in this area and management) subcontract work to local firms. Cement and High High Low This sector is dominated by a few concrete large companies with a large market share. The oligopolistic nature of the industry presents significant entry barriers to new entrants. Source: Fichtner 2011. Figure B.3: Potential Roadmap for the Production of Metal Structures for CST in RSA Status Quo Short-Term Mid-Term Long-Term Overall Goal Technology RSA companies are development Adaptation of metal able to manufacture Major production of processing metal structures of CSP Mass production Cost reduction quality at a competitive raw steel available production lines to CSP products and price Steel processing required quality techniques available in Exporting capacity to automotive industry. No meet neighboring experience with CSP demand components Provision of Enhancing of complete production RSA provide most of structures for CSP capacities to the metal structures for projects cover export coal power plants demands Business development Foundation of Independent Huge automotive joint ventures production of CSP industry with limited metal structures for experience in Acquisition of solar fields in RSA. Comprehensive High level of Positive spill-over cooperating with other licenses Emerging companies training of sophistication effects on other industrial players and overall increase of employees is reached sectors e.g. PV industrial potential for CSP Important R&D sector with existing coopera- Focus on R&D Techniques and Patented Use of innovative tion for a CSP pilot for design, materials adapted innovations in designs and materials project weight reduction to specific needs reflector designs with the aim of and accuracy of and resources of & maintenance enhanced intellectual tracking the countries equipment in properties RSA (continued on next page) 119 120 Figure B.3: Potential Roadmap for the Production of Metal Structures for CST in RSA (continued) Status Quo Short-Term Mid-Term Long-Term Overall Goal Policy framework & Clear political goals market development Establishment of Strategy funds regarding industrial institutions/ for industrial policy and exports National targets for associations to upgrade are CSP industry are still to define and provided be agreed upon Focused support for support RSA Consolidated R&D and industrial development national Large number of CSP mirror industry FiThave recently been funding strategies for of R&D adjusted, but are still framework industrial competence to be agreed upon Continuous and stable developments clusters created growth of CSP market Ongoing discussion on and energy Long-term, Long-term, Growing in RSA implementation of new targets defined stable policy stable policy export of Favorable tax single-buyer framework is rates exist for framework is CSP mirrors implemented mirrors implemented from RSA Substantial CSP project pipeline Definition of Growing CSP Growing level Minimum of Minimum long-term CSP pipeline of confidence 100 MW of installed objectives in CSP installed capacity of technology capacity per 2 GW year Source: Fichtner 2011. Table B.21: G20 and Select Nonmembers’ Producer Price Inflation (% over previous year) Country 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average Std Dev Argentina — — 0.4 4.3 2.9 –1.1 –3.4 –4.0 3.7 –2.0 78.3 19.6 7.7 8.4 11.0 11.8 14.5 4.8 16.5 10.2 18.9 Australia 1.5 2.0 0.8 4.2 0.3 1.2 –4.0 –0.9 7.1 3.1 0.2 0.5 4.0 6.0 7.9 2.3 8.3 –5.4 2.2 2.2 3.6 Brazil 987.8 2050.1 2311.6 57.5 6.3 10.1 3.5 16.6 18.1 12.6 16.7 27.6 10.5 5.6 0.8 5.6 13.7 –0.2 5.7 292.6 703.2 Canada 0.5 3.6 6.1 7.4 0.4 0.7 0.4 1.8 4.3 1.0 0.1 –1.2 3.2 1.6 2.3 1.5 4.3 –3.5 1.0 1.9 2.5 China, P.R.: — — — — — — — — 2.8 –4.0 0.4 3.0 7.1 3.2 3.1 3.1 6.9 –5.4 5.5 2.3 4.0 Mainland China, P.R.: 1.8 0.7 2.1 2.8 –0.1 –0.3 –1.8 –1.6 0.2 –1.6 –2.7 –0.3 2.3 –7.9 2.2 3.0 5.6 –1.7 6.0 0.5 3.2 Hong Kong Euro Area 1.5 1.5 2.0 4.1 0.3 1.0 –0.7 –0.5 5.1 2.2 –0.2 1.4 2.3 4.3 5.4 2.7 6.3 –5.2 2.8 1.9 2.6 France –1.5 –1.5 1.1 6.1 –2.6 –0.6 –0.9 —4 .4 1.2 –0.2 0.9 2.1 3.1 2.9 2.3 4.8 –5.6 3.0 1.0 2.9 Germany — 0.2 0.6 1.7 –1.2 1.2 –0.4 –1.0 3.3 3.0 –0.6 1.7 1.6 4.3 5.4 1.3 5.5 –4.2 1.6 1.3 2.4 India 11.9 7.5 10.5 9.3 4.5 4.5 5.9 3.5 6.6 4.8 2.5 5.4 6.6 4.7 4.7 4.8 8.7 2.1 9.4 6.2 2.7 Indonesia 5.2 3.7 5.4 11.4 7.9 9.0 101.8 10.5 12.5 13.0 .4 3.4 7.4 15.3 13.7 14.7 21.5 4.6 3.1 14.1 21.8 Italy 1.9 3.8 3.7 7.9 1.9 1.3 0.1 –0.3 6.0 1.9 –0.2 1.6 2.7 4.0 5.6 3.5 4.8 –4.7 3.0 2.6 2.8 Japan –0.9 –1.6 –1.6 –0.8 –1.7 0.7 –1.5 –1.5 0.0 –2.3 –2.1 –0.8 1.3 1.7 2.2 1.7 4.6 –5.3 –0.2 –0.4 2.1 Korea, 2.2 1.5 2.7 4.7 3.2 3.9 12.2 –2.1 2.0 –0.4 –0.3 2.2 6.1 2.1 0.9 1.4 8.6 –0.2 3.8 2.9 3.3 Republic of Mexico 12.3 7.4 6.1 38.6 33.9 17.5 16.0 14.2 7.8 5.0 5.1 7.5 9.3 4.2 6.6 3.6 6.5 5.9 3.3 11.1 9.8 Netherlands 1.8 0.1 0.5 1.5 2.0 1.8 –0.2 1.0 4.8 3.0 0.8 1.7 2.8 3.2 3.6 4.5 5.1 –3.8 2.6 1.9 2.1 Russian — 943.8 337.0 236.5 50.8 15.0 7.0 58.9 46.5 18.2 10.4 16.4 23.4 20.6 12.4 14.1 21.4 –7.2 12.2 102.1 228.0 Federation Saudi Arabia 1.3 0.6 1.8 7.3 –0.3 0.0 –1.9 0.4 0.4 –0.1 0.0 0.9 3.1 2.9 1.2 5.7 9.0 –3.0 4.3 1.8 3.0 Singapore –4.4 –4.4 –0.4 0.0 0.1 –1.2 –3.0 2.1 10.1 –1.6 –1.5 2.0 5.1 9.7 5.0 0.3 7.5 –13.9 4.8 0.9 5.6 South Africa 9.2 7.0 8.8 9.9 7.1 8.1 4.4 4.9 6.7 7.6 13.5 2.2 2.3 3.6 7.7 10.9 14.3 0.0 6.0 7.1 3.7 Spain 1.3 2.5 4.3 6.4 1.7 1.0 –0.7 0.7 5.4 1.7 0.6 1.4 3.4 4.7 5.4 3.6 6.5 –3.4 3.2 2.6 2.5 Switzerland 0.7 0.4 –0.5 –0.1 –1.8 –0.7 –1.2 –1.0 0.9 0.5 –0.5 0.0 1.2 0.8 2.1 2.4 3.4 –2.1 –0.1 0.2 1.4 Turkey 62.1 58.0 121.3 86.0 75.9 81.8 71.8 53.1 51.4 61.6 50.1 25.6 14.6 5.9 9.3 6.3 12.7 1.2 8.5 45.1 34.4 United 3.1 4.0 2.5 4.0 2.6 1.0 0.0 0.6 1.4 –0.3 –0.1 0.6 1.0 2.0 2.0 2.3 6.8 1.6 4.2 2.1 1.8 Kingdom United 0.6 1.5 1.3 3.6 2.3 –0.1 –2.5 0.8 5.8 1.1 –2.3 5.3 6.2 7.3 4.7 4.8 9.8 –8.8 6.8 2.5 4.3 States Source: Bureau of Labor Statistics 2010. 121 122 Table B.22: Select MENA Wholesale Price Inflation (% over previous year) Country 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average Std Dev DevAlgeria — — — — — — 3.9 2.5 2.5 4.8 2.3 4.5 4.3 3.1 2.0 3.9 8.5 3.5 — 3.8 1.7 Egypt, Arab — 6.4 6.0 5.7 8.9 3.3 1.6 1.6 1.5 1.5 6.0 14.1 17.3 5.3 7.0 10.3 21.2 (5.6) — 6.6 6.5 Rep. Jordan — — — — — — 0.0 (2.2) (3.3) (1.1) (3.4) 2.4 5.8 9.9 16.0 8.6 56.3 (16.8) — 6.0 17.9 Morocco — 4.9 2.4 5.7 5.4 (2.1) 3.2 (2.0) 4.2 0.0 2.0 (4.9) — — — — — — — 1.7 3.5 Tunisia — 6.1 2.9 5.6 3.9 2.5 2.5 1.2 2.4 2.3 3.4 2.2 3.2 4.2 7.0 3.7 11.7 2.4 — 4.0 2.5 Source: Bureau of Labor Statistics 2010. BIBLIOGRAPHIES Brost, R., Al Gray, F. Burkholder, T. Wendelin, and D. White. 2009. “Skytrough Optical Evaluations Using Chapter 2 Bibliography Vshot Measurement.” SolarPACES 2009, Berlin, Germany. The chapter was based on the following reports: Burbidge, D., Mills, D., and others. 2000. Stanwell YES/Nixus/CENER. 2010. “Activity 1.1. Review of CST Solar Thermal Power Project. 10th SolarPACES Technologies.” Final report prepared for the World Bank International Symposium of Solar Thermal under Project Number P119536. Concentrating Technologies, Sydney. Fichtner. 2010. “Technology Assessment of Burgaleta, J. 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