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Calculating the levelised cost of energy (LCOE)
Solar Energy UK Installer Roadshow
Simon Baggaley
2
LCOE is the average cost of producing a unit of electricity (kWh) over the lifetime of the generating source. It takes into account:
-The amount produced by the source (Energy yield)
-The costs that went into establishing the source over its lifetime, such as:
- Original capital expenditure (CapEx)
- Ongoing maintenance costs (O&M) including equipment replacements, monitoring and reporting
- Financing costs
Definition of Levelised Cost Of Energy
Note: Assume residual value of 40% of initial price. Service package for 50,000miles on both cars. No road tax on Tesla3
Why lifetime cost matter:A simplified example from the world of cars
BMW 5 series Tesla Model S
£ 37,000 £ 53,000Initial cost
50,000 miles over 4 years
(commuting into London)
43.5 mpg
£1.10/litre
3 years
Usage
Fuel
assumptions
Warranty
50,000 miles over 4 years
(commuting into London)
295 Wh/mile
£0.09-0.14/kWh (work-home)
8 years (drive unit + battery)
£ 0,80 £ 0,70Cost per mile
Note: Top-10 installers per year not the same over timeSource: GTM PV Leaderboard4
In USA, installers providing financing facilitated focus shift from lowest system cost to lowest LCOE
Over 2/3 of residential installs are third-party owned systems…
…and the top-10 installers are growing share
5
Comparisons of a fictitious solar system
A more expensive system… …can be cheaper over time.
Initial Capital Expenditure Lifetime LCOE
In the US, the prevalence of third party owners takes the focus off initial capital expenditures and cost and shifts it toward the system that generates the greatest long-term value.
6
Summarizing the need for using LCOE
• Installed cost-per-watt accounts only for initial capital expenditure (CapEx) and is not an accurate measure of the long-term value delivered by a solar facility
• Focusing on CapEx alone ignores two critical elements: OpEx and Performance (Output)
• Solar installers and solar customers need to take all costs and system performance into account to represent the true value of a solar facility
• The levelised cost of energy (LCOE) accounts for all costs associated with the working life of a solar facility
• LCOE (cost / energy) = Net Present Value (NPV) of the Lifetime Cost of Ownership (£) / Lifetime Energy Output (kWh)
7
Key drivers of LCOE for a solar system
Total upfront cost to install the systemInitial Capital Expenditure
Initial Capital Expenditure
Equipment Replacement
Equipment Replacement
Operations &
Maintenance
Operations &
Maintenance
OutputOutput
Cost of replacing equipment, especially inverter, over the lifetime of the system
Cost of on-going operations and maintenance, including panel washing and inverter maintenance
Production over the lifetime of the system (impacted by efficiency, availability, shading)
8
Initial capital cost is only one input into determining cost of energy over lifetime of the system
• Modules• Racking• Inverter
• Labor & Installation• Engineering & Design• Wiring
As a system, choices about individual pieces of the system have impacts on the rest of the system design
Inverters will need to be replaced over the life of the system, and represent a large potential cost
| © 2013 Enphase Energy, Inc. | Confidential9
…faces a significant capital expenditure item approximately 10 years after each system is put into service, when the inverter needs to be replaced*…
Representative String Inverter Failure Profile by Year
*Source: Presale: SolarCity LMC Series III LLC (Series 2014-2), S&P
10
Investors require setting aside savings every year to pay for the eventual expense
£0
£200
£400
£600
£800
£1,000
£1,200
£0
£100
£200
£300
£400
£500
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Annual Set-Aside Cumulative Set-Aside
…has a reserve built-up leading up to this expected expense*
Set aside the expected cost of the replacement in equal annual installments,
such that money is available for a £1,000 investment in year 11
*Source: Presale: SolarCity LMC Series III LLC (Series 2014-2), S&P
Prospective Replacement Year
11
Different technology has a different reserve needs
Technology 1
£1,000 set aside over 10 years
Technology 2
£500 set aside over 20 years
Equipment with extended warranties or different replacement requirements can reduce the impact of the inverter reserve
4kW system in the UK, production factor of 950kWh/kWP/yr
£0
£200
£400
£600
£800
£1,000
£1,200
£0
£100
£200
£300
£400
£500
1 2 3 4 5 6 7 8 9 1011 12 13 14 1516 17 1819 20
Annual Set-Aside Cumulative Set-Aside
£0
£200
£400
£600
£800
£1,000
£0
£100
£200
£300
£400
£500
1 2 3 4 5 6 7 8 9 10 1112 13 14 15 1617 18 1920
Annual Set-Aside Cumulative Set-Aside
LCOE: £0.179 LCOE: £0.193
Wide variance of operations and maintenance needs depending on the technology choice
| © 2014 Enphase Energy, Inc. | Confidential12
“While micro-inverters are not shown here, the available evidence shows a ticket/inverter-year ratio which is 3-4 times lower than that for the string inverters” - SunEdison
PV System Reliability: An Operator’s Perspective
Preventative maintenance is increasingly being required, either by installer or third party
Preventative maintenance is typically only 70% of the total maintenance costs
| © 2013 Enphase Energy, Inc. | Confidential13
• Clean and change air filters & heat sinks
• Ensure fans & moving parts performingInverter /
AC Wiring
Inverter / AC Wiring
Combiner Boxes
Combiner Boxes
Modules /
Mounting
Modules /
Mounting
Module
Cleaning
Module
Cleaning
OtherOther
• Verify string operation and VOC / IMP testing
• Visually inspect enclosure and make repairs
• Visually inspect for damaged modules
• Perform thermographic scan to identify
defects
• Perform periodic module cleaning
• Perform additional tests in order to provide
insight into system operations
Shifting from on-
site requirement to
remote capability
14
Small differences in annual maintenance costs create real value for system owners
LCOE – Cheaper Annual O&M
System 1: £0.015/Watt / year
System 2: £0.020/Watt / year
Removing unplanned maintenance results in significant savings over the life of the system
15
Energy production key to LCOE calculation
Energy production varies by project factors as well as by technology choice. Each % increase in production is magnified over the lifetime of the system.
LCOE – Increased Production
System 1: 936 kWh/kWp/yr
System 2: 900 kWh/kWp/yr
16
Conclusion
• For a true, apples-to-apples comparison of PV systems, one needs to look not at the cost per watt, but the cost per kilowatthour
• Third-party financiers in the United States have led the way in embracing the concept of PV LCOE
• LCOE is driven by CapEx, Output, and OpEx including O&M and inverter replacement
• Small changes to any of these drivers can have a substantial impact on the LCOE and hence the value to the owner
• The system that provides the lowest LCOE creates the highest long-term value for the system owner
17
Product Training from the Leaders in Microinverter Technology
Enphase, as part of its commitment to improving the knowledge and profitability of its customers offers PV installers a wide range of Product Training courses covering all aspects of the Enphase solution.
What the training covers?
- Technology overview of microinverters
- Study design and installation of single and three phase applications
- Installation and best practices
-System activation and registration within Enlighten
- Using Enlighten system monitoring
18
Enphase Product Training Venues – Feb/March
Tuesday 17 2015 1000-1400
Sheraton Hotel
Athlone, Ireland
Friday 20 February 1000-1400
Dunston Hall
Norwich
Wednesday 4 March 1400-1700
Sunborn Yacht, Excel Centre
London
Thursday 12 March 1000-1400
Oxford Thames Hotel
Oxford
Thursday 19 March 1000-1400
Village Urban Resort Nottingham
Nottingham
Find a venue near you and reserve your spot.
Register now and learn what the Enphase solution can do for your business
Tel: 01908 828928enphase.com/uk/training