Technical analysis by Marco Poliafico

CSP lobbyists are quick to highlight how the unique selling points of CSP (such as storage and large commercial scale) give it a competitive edge over wind and PV, but the fact remains that without a significantly lower LCOE (Levelized Cost Of Energy), CSP will risk losing the battle for a place in the global energy market.
With CSP fighting the cost barrier, competing against cheaper fossil fuel supplies and other renewable energy sources, what chance does it have in lowering costs and achieving grid parity?

The CSP industry is buzzing with cost-reducing strategies as developers, EPCs and other players seek to consolidate CSP’s position in the already well-established and highly competitive energy market. With fossil fuel plants averaging a LCOE of about EUR 0.06/kWh, CSP on a good day only averages EUR 0.15/kWh. It won’t take an analyst to tell you that if the LCOE of a CSP plant doesn’t show downward trends in the near future the industry will find itself in a renewable energy wasteland.

However, what an analyst can tell you is just how and where the LCOE of CSP can be brought down. Putting aside the known environmental and technical advantages of CSP (such as storage and low carbon emissions), how can the technology hope to compete when the opposition is so strong? This article, the first in a series, illustrates the relative impact cost reduction in different areas can have on the overall LCOE of a CSP plant. To achieve this, varying changes in cost parameters have been applied to a 110 MW CSP reference plant with the outcome that increased performance (assuming CAPEX is stable) has a marginally better impact on the LCOE than a decreased CAPEX.

The LCOE (Levelised Cost of Energy) refers to the overall costs involved in producing a unit of electricity over the estimated life time of a CSP plant. In its most basic form the LCOE of a plant can be summarised in the below equation:

Where:
n = Project Lifetime
r = Discount Rate
CAPEX = Capital expenditure (total initial investment)
OPEX= Operation and maintenance costs

As such there are a few main areas where the costs can be brought down. Most obviously, reducing the CAPEX of a CSP plant will lead to a lower LCOE. Representing almost 50% of the lifetime costs of a CSP plant, it is not surprising that CAPEX is a primary focus for cost reduction (financing represents around 31% and OPEX 13% whilst tax makes up the rest of the cost for the duration of a CSP plant’s lifespan – CSP Today Parabolic Trough Report, 2013).

Whilst the effects of decreased CAPEX and OPEX are pretty self-explanatory, what impact does increased electricity generation (or performance) have in the overall equation?
Factoring in CAPEX, OPEX and performance influences on the LCOE, CSP Today investigates the proportional impact relative adjustments of the above have on the LCOE.
Using the data in Table 1 (taken from the CSP Today Parabolic Trough Report 2013), CSP Today has recalculated the LCOE plant in order to measure:

• The impact of reducing CAPEX by 5% will have on the LCOE of a CSP plant
• The impact reducing OPEX by 5% will have on the LCOE of a CSP plant
• The Impact of improving electricity generation by 5% will have on the LCOE of a CSP plant

The findings of the sensitivity analyses are shown in Figure 1:

(Please note: For the sake of clarity, it is necessary to comment on the meaning of the x axis. The three parameters are displayed alongside the same axis ranging between 0% and 5% to facilitate the comparison. However (as commented in the legend) for CAPEX and OPEX that percentage represents a reduction in costs, whereas for the performance it means an increased generation of electricity).

The original reference plant has a LCOE of EUR 0.1562 €cent/kWh. Place a reduction of 5% on the OPEX of a CSP plant and your new LCOE is 0.1551: a reduction of 0.7%. A more competitive benefit can be achieved by reducing the CAPEX by 5%, creating a new LCOE of EUR 0.1495/kWh, equivalent to a reduction of 4.29% when compared to the base scenario. However, an even better LCOE can be achieved by increasing the generation of electricity as a result of better performance of the plant. In this scenario LCOE is the lowest (EUR 0.1488 €cent/kWh) allowing for a 4.74% reduction.

However, it has to be acknowledged that the argument is not quite as straightforward as above. For example improving the performance of a CSP plant by introducing a new technology may result in a number of unknowns, such as a potential CAPEX increase that would need to be factored into the equation to make sure that the LCOE is not negatively impacted. The list of unknowns goes on.

What the above study does show, regardless of the number of unknowns, is the importance of keeping in mind that lowering the LCOE of a CSP plant will be best done from an inclusive approach, rather than focusing on a single parameter. Halving the CAPEX of a CSP plant will do serious damage to the LCOE of plant if this means that performance is halved due to factors such as breaking components and parasitic losses. Similarly, improved performance – whilst great for the operational input – will make little economic sense if the CAPEX increases significantly.

The optimal solution for CSP cost reduction is to find a balance where performance can be increased without an increase in CAPEX. This is a view backed Svante Bundgaard, CEO of Aalborg CSP: “It seems like everyone is looking solely at the investment costs - and they should, but we need to broaden our perspective as an industry. Our product innovation with Steam Generation Systems place equally focus on performance increase as on price reductions as both factors are required for increasing competitiveness of CSP as a whole. If CSP has to survive another decade the real challenge is reducing the LCOE and here performance improvements cannot be neglected”.

Is increased performance without significant increase in CAPEX a solution limited to an ideal world? With a number of cost-reducing research and development programmes now in place (such as the SunShot initiative) we are soon to find out.

In upcoming CSP Today premium content articles we investigate which technologies are set to help CSP break the cost barrier – finding the optimum balance between performance, CAPEX and OPEX to maximise LCOE reduction.