Is CSP an expensive or a viable investment?

This article is the second of The Expert Column Series, a space where two experts present their opinions on a topic proposed by CSP Today. This time, Simon Stevens (Bracewell & Guiliani) and Kevin Smith (SolarReserve) discuss the present sentiment toward the costs of CSP.

Aerial picture of the 110 MW Crescent Dunes CSP project in Tonopah, Nevada. Photo courtesy of SolarReserve.

Why governments and banks currently view CSP as an expensive investment

Simon Stevens, Bracewell & Guiliani

Simon Stevens is a senior counsel at the international law firm Bracewell & Giuliani and legal counsel at the Middle East Solar Industry Association. He has for 10 years advised developers and lenders in renewable and conventional energy as well as infrastructure projects, including utility-scale and distributed solar energy. Based on his extensive experience in solar project financing, Stevens explains why governments and banks still perceive CSP as an expensive investment.

“The short answer is that currently CSP is relatively expensive. But that is not necessarily the end of the story.

The two key words in the above statement are of course “relatively” and “currently”. For the sake of brevity, let’s assume that a government as procurer or a bank as lender has decided upon solar power. At that point, you have a basic fork in the road between two rival technologies – concentrating solar, or photovoltaic solar.

The first and most obvious reason why CSP is perceived as being the relatively expensive choice is that when price comparisons are done on a levelised cost of electricity basis, the numbers support that perception. PV currently prices at around US$0.08 per kWh on average according to the International Renewable Energy Agency. The winning tender in the recent Dubai Solar Park II project demonstrated that even US$0.06 is possible. By comparison, the LCOE for CSP is higher. It is generally around US$0.20 and US$0.25 with parabolic trough systems ranging between $0.17 and $0.35 and solar tower plants between $0.17 to $0.29.

For a government then, on purely price terms, PV has the edge for now.

For a bank, the question is slightly different, but the conclusion is the same. Banks weigh the fundamental economics of a project when deciding whether to finance it on a limited or non-recourse basis. Even if there is a power purchase agreement signed, the ultimate concern is that if a project is uneconomic, the off taker (often a government) might walk away and exercise what amounts to efficient breach. Enforceable contracts and guarantees provide some comfort but the process to enforce them is not completely certain and will usually take years. In the meantime, the bank has to worry about being repaid.

A second reason why both governments and banks see CSP as relatively expensive is that PV (with its much larger installed base) is a more proven bankable technology. In contrast, CSP and particularly more complex tower and heliostat designs, still tends to be regarded as being somewhat experimental. The higher financing cost of a demonstration project is a factor in LCOE analysis.

More practically, governments and banks know that projects that aren’t fully commercialized also tend to be more prone to overruns and delays. Even if the risk is theoretically on the sponsor and its contractors, governments worry about this because of the risks of delay and even worse, abandonment. A government procures a project because it needs the power.

Banks also worry that a project could stall before reaching commercial operation and therefore debt repayment. Almost every power purchase agreement will have a longstop date that gives the off taker the right to walk away if a project is delayed beyond a certain point. At that point, whatever debt has been advanced is effectively lost.

Beyond just cost at any given time, PV has undoubtedly gained momentum because of the dramatic price reductions in recent years. The price of PV projects as a whole fell by approximately 50% in just four years between 2010 and 2014. The price of panels, the main component of a project, fell even further. These cost reductions have tended to feed on themselves as the benefits of scale have become apparent. It can be reasonably assumed that CSP technologies could also become cheaper as they become more commercialized, but at this point in time, this remains more speculative than is the case for PV.

While these are some of the reasons why governments and lenders currently view CSP as a relatively expensive technology, these ignore one of the most significant factor in CSP’s favour – the relative ease in which CSP projects can be built to incorporate storage. The importance in the long run of solar becoming a dispatchable power producer shouldn’t be underestimated. PV may be viewed as being a lower cost, relatively simple and proven technology right now, but that all tends to become a lot less clear cut once the question of storage is brought into the discussion. That is why I continue to believe that both governments and banks will continue to back CSP projects in the short and medium term as well as PV. Nobody wants this debate to end prematurely.”

Simon Stevens,
Senior Counsel
Bracewell & Giuliani



Why CSP is a financially viable investment

Kevin Smith, SolarReserve

As the chief executive officer of SolarReserve, Kevin Smith drives the company’s efforts to develop and build large-scale solar energy projects, which comprise $1.8 billion of projects in construction and operation in the US and internationally. These include Crescent Dunes, the world’s largest molten salt CSP tower, currently in commissioning. With 30 years of energy industry experience, Smith shares his perspective on why CSP is a financially viable investment.

“The global demand for both renewable energy and energy storage is growing.

Global demand for renewable energy generation is expected to grow by 45% by 2020, which would require over $1.1 trillion of investment; after global investments topped $270 billion in 2014. As renewable energy penetration grows, the need for utility-scale renewable generation with storage technology is increasingly important to mitigate intermittency problems, deliver power into peak demand periods, and support transmission system reliability.

Forward thinking policymakers with the hefty responsibility of ensuring that consumers have reliable and clean electric service, and at a reasonable rate, have begun to mandate cost effective grid-scale energy storage. The California Public Utilities Commission has required utilities in the state to procure 1.3 gigawatts of new energy storage by 2024, with a stipulation that all storage procured must be cost effective.

On the other side of the world, South Africa’s Renewable Energy Independent Power Producer Procurement Program is driving cost-reduction and innovation that is having a global impact. Under this progressive program, the South Africa Department of Energy (DOE) has included bidding rounds for CSP plants with energy storage that can reliably meet peak demand, which extends until 10 PM, well after sunset.

The industry is realizing that CSP with integrated molten salt is the leading solution for bulk grid scale energy storage.

CSP power tower technology with integrated molten salt energy storage is emerging as the leader in terms of efficiency, reliability, and cost among all CSP options. Independent studies have shown that CSP with molten salt storage is as reliable as fossil fuel generation for meeting the grid’s demands at peak times. As intermittent renewables such as wind power and photovoltaics (PV) become more widespread globally, they will contribute less and less to meeting peak demands, but CSP with storage will maintain its value over the long term, even as demand profiles change.

While battery technology continues to improve, progress is incremental, and costs are prohibitive for large-scale installations – with these high costs further complicated by battery performance, degradation, replacement and end of life environmental considerations. Analyzed battery costs are typically ‘upfront’ and do not include expected battery replacement costs which are anticipated every 6-10 years.

SolarReserve’s flagship 110 MW Crescent Dunes Solar Energy Plant in Nevada, with 10 hours of full-load energy storage, is the world’s first utility-scale facility to feature advanced molten salt power tower energy storage capabilities. The project’s 1.1 GW-hour storage capability is almost 40 times the size of the largest battery storage project in construction or built to date.

Crescent Dune's 1.1 GW-hour storage capability is almost 40 times the size of the largest battery storage project in construction or built to date

The Crescent Dunes project, now complete with construction and currently in the commissioning phase, is scheduled to commence full operations in mid-2015, and will be the only operating utility scale molten salt power tower on the planet. Crescent Dunes will deliver more than 500,000 megawatt-hours of electricity per year – twice the output of a similar sized PV solar project without storage. SolarReserve’s US developed proprietary storage technology is a fraction of the cost of utility scale battery storage with virtually no performance degradations over time. And the molten salt never needs replacement for the entire 30+ year life of the plant.

To deliver reliable and cost-effective 24/7 baseload power, we are developing CSP projects that integrate substantial PV into the design. These ‘hybrid’ CSP + PV projects can compete with traditional generation while providing emission-free and low water use generation. Balancing CSP with PV ‘inside the fence’ eliminates the intermittency issues associated with PV, and combining the two technologies reduces overall delivered power cost. These baseload solar power plants can operate at a high capacity factor and availability to fully utilize transmission infrastructure.

In Chile, SolarReserve was the first company in the country, and worldwide, to start development of a fully integrated CSP and PV hybrid project to supply power to the mining sector, an industry that requires 24/7 power supply. This hybrid concept will maximize the output of the facility, delivering over 1,700 gigawatt hours annually, at a highly competitive and unsubsidized price of power that competes with coal and natural gas plants to provide round the clock supply. The project’s more than 3.6 GW-hours of energy storage is the key to meeting the market demands.

CSP is still a relatively young technology, with a strong roadmap for performance improvements, optimization and cost reduction.

We are already realizing substantial cost optimizations in the technology, including cost and efficiency improvements for SolarReserve’s next generation project in South Africa. In December 2014, the South Africa DOE awarded preferred bidder status for a 100 MW CSP project to a consortium led by SolarReserve and ACWA Power. The Redstone Solar Thermal Power project, featuring SolarReserve’s proprietary technology including 14 hours of energy storage, has the lowest delivered electricity price of any CSP project in the country to date.

The pace of implementation and cost reductions for PV has been dramatic, but the energy storage issue has not been resolved and will increasingly challenge electrical distribution systems. With increased CSP implementation, I anticipate similar efficiency and cost improvements for CSP, but a cost-effective storage solution with CSP has already been achieved.”

Kevin Smith,
Chief Executive Officer

This was the second article in CSP Today’s Expert Column Series. In the first article, Juan Barragán (NEST AS) and Mark Schmitz (TSK Flagsol Engineering GmbH) discussed the advantages of Heatcrete and molten salt as thermal energy storage options for CSP.

If you would like to propose an idea for our next Expert Column, please get in touch with Angela Castillo, Content Editor, CSP Today.