Renewables Integration: The Value of

Concentrating Solar Power (CSP) and the Net

System Cost Methodology

Addressing the Economic Challenges of Comparing

Among Renewable Resource Options

Joseph Desmond, Sr. VP, Government Affairs and Communications

BrightSource Energy

June 14, 2012

2

Different Resources Serve Different Needs

Source: California’s Electricity System Supply and Demand Overview, presentation by Jeffrey Byron, Commissioner, State Energy Resources Conservation and

Development Commission (energy commission), to the California State Assembly Utilities and Commerce Committee, Informational Hearing, March 29, 2007.

* According to the energy commission, 1 megawatt will provide electricity for approximately 750 homes.

3

Forecast Uncertainty Day-to-Day Non-Coincidence with Peak Demand

Variable resources require changes in grid system operation resulting in integration costs

Short-term variability increases the need for frequency regulation

Increased variability requires greater flexibility and operating reserves, with more ramping capability

to meet output changes

Wind Example

Tehachapi Source: Electric Power Research Institute, presented at REFF-West, September 2009

Ercot Load Chart Source: The Wind-Energy Myth by Robert Bryce, August 12, 2011, National Review

Output Variability Impacts Grid Operations and Increases Costs …

4

Tehachapi Source: Electric Power Research Institute, presented at REFF-West, September 2009

Chart Source: NERC – Accommodating High Levels of Variable Generation

PV Output Variability

… Requiring Dispatchable Generation to Maintain Reliability

Output Variability Impacts Grid Operations and Increases Costs …

5

Wind and PV: Poor Alignment with System Peak Demand Results in Lower Capacity Values

Additional resources are needed to meet reliability requirements

Load shape source: California’s Electricity System Supply and Demand Overview, presentation by Jeffrey Byron, Commissioner, State Energy Resources Conservation and

Development Commission (energy commission), to the California State Assembly Utilities and Commerce Committee, Informational Hearing, March 29, 2007.

Production output of wind and PV are illustrative. Not drawn to scale with load shape curve.

6 Note: CA utility time-of-use factors based on PG&E and SCE data.

Solar Thermal with Storage: Superior Alignment and More Energy Sold at Premium Prices

Energy storage increases asset utilization and transforms

solar thermal into a high-value, flexible resource

7

Net System Cost is a Metric Used to Evaluate Cost Competitiveness Between Resource Alternatives

Number of panels /

mirrors / equipment

Cost to make it

Installed cost adds labor

and materials

LCOE

Integration costs

Market value of energy

(and ancillary services)

Availability at peak

demand

Capital costs

Capacity factor

Degradation

Operating costs

Basic financing

Energy Cost

Levelized Cost of Energy

(LCOE)

Net System Cost

Least-Cost, Best-Fit

(LCBF)

What it takes to

generate electricity

What it takes to

keep the lights on

Considers only

hardware Considers

utility value

Considers additional

costs and energy

produced

Capital Cost

$ / W

What it takes to

make the hardware

Unlike other methodologies, Net System Cost

accounts for both costs and benefits

8

Increasing capacity factor is a key driver of LCOE reductions over time

Levelized Cost of Energy (LCOE)

LCOE compares the cost per unit of energy (in $/MWh) across different

technology types. Accounts for:

Capital costs

Capacity factor

Fuel costs (if any)

O&M costs

Taxes

LCOE is essentially the total costs of a project over its lifetime divided by the total

megawatt hours of power it produces

LCOE = PV (Lifecycle costs)

PV (MWh Energy Production)

LCOE Amortizes Plant Costs Across Production

9

Integration costs are additional services, such as ancillary services, a grid operator

must purchase to account for increased forecast uncertainty and variability

associated with wind and solar resources in order to meet grid reliability standards.

Reliable

power

Backup Power

Gas Plant PV/Wind

Renewable technologies which avoid integration costs are

competitively advantaged in a resource selection process

“It [is] important for Edison to keep its customers’ total costs in mind going forward,

which include the integration costs of solar panels. We know those costs are

real, and we’re trying to mitigate those by having a balanced portfolio.”

- - Marc Ulrich, Southern California Edison, VP of Alternative and Renewable Power (Bloomberg, November 2011)

Intermittent Resources, such as Wind and PV, Impose Integration Costs on Power Grids

10

Integration costs are increasingly being assigned by utilities

to intermittent resources within the selection process

Chart Source: Wiser, Ryan and Bolinger, Mark, Lawrence Berkeley National Laboratory, “2009 Wind Technologies Market Report”, pg 65; and, Navigant Consulting et

al; Large Scale PV Integration Study, Prepared for NV Energy; July 2011 1"Competitive Market Analysis Prepared for BrightSource Energy" (E3, March 2012).

The California Public Utilities Commission Long Term Planning Process methodology applies $7.50/MWh, as a “penalty” for all wind and solar resources in resource ranking and selection.1

According to Energy and

Environmental Economic (E3),

while integration cost estimates

vary by study, there is a

clear upward trend in

integration costs,

per megawatt hour,

as renewables penetration

increases.1

CSP Avoids Real Integration Costs Imposed by Intermittent Resources

11

The average price received for wholesale energy market products produced by a

resource, including ancillary services.

Resource production during peak hours receives a higher average price.

Resources with storage can further increase average revenues by better matching

production to market prices.

Energy value is highest during peak demand hours

Production output of PV and CSP are illustrative. Not drawn to scale with load shape curve.

Energy Value Varies According to a Resource’s Time of Delivery

12

Energy storage enables production during peak

price and demand hours after the sun sets

Storage is charged when excess steam generation is directed to a molten salt tank

Production output of PV and CSP are illustrative. Market Price / System Value are representative, not actual, prices.

Integrating Thermal Storage Extends Production to Capture Maximum Energy Value

13

Storage is discharged when most economic to dispatch the power plant

Energy storage enables optimization of

production profile against market prices Production output of PV and CSP are illustrative. Market Price / System Value are representative, not actual, prices.

Integrating Thermal Storage Transforms a Solar Thermal Plant into a High-value, Flexible Resource

14

Capacity value refers to a power plant’s expected available production during peak demand

hours multiplied by forward capacity prices.

Capacity Value = On-Peak Availability Factor % × Plant Capacity (MW) × Capacity Price

Reliable resources, such as solar thermal and natural gas,

have higher capacity value

1On-peak availability factors used for planning from California’s 2010 Long Term Planning Process (LTPP), except Solar Thermal with Storage from Western Wind

and Solar Integration Study, Prepared for NREL by GE Energy, May 2010 and Simple Cycle Natural Gas is a BrightSource management estimate.

Capacity Value Varies According to the Availability of a Resource at System Peak

15

CSP technology with storage can be optimized

to match the net system peak and maximize capacity value 1 Denholm, Paul and Mark Mehos, Enabling Greater Penetration of Solar Power via the Use of CSP with Thermal Energy Storage, National Renewable Energy

Laboratory, Technical Report, NREL/TP-6A20-52978, November 2011, available at http://www.nrel.gov/csp/pdfs/52978.pdf. 2 On-peak availability factors used for planning from California’s 2010 Long Term Planning Process (LTPP), except Solar Thermal with Storage from Western

Wind and Solar Integration Study, Prepared for NREL by GE Energy, May 2010.

Resources Available During Peak Demand Hours Receive Higher Capacity Values

16

NREL Estimates of System Cost and Benefit Variances

between CSP with Storage and PV1

Solar Thermal Provides Superior System Value Compared to PV

1 Denholm, Paul, (solar thermal forecasting & modeling analyst at NREL) “Tradeoffs and Synergies between CSP and PV at High Grid Penetration.” PowerPoint

presentation on July 5, 2011. Estimates are preliminary and are based on gas prices between $4.50 and $9.00 per mm BTU.

Range of Value ($ / MWh)

Low High

Energy Shifting & Ancillary Services $5 $10

Capacity Value $7 $20

Reduced Curtailment $3 $3

Avoided Integration Costs $1 $7

Total $16 $40

NREL estimates are consistent with growing number of third-party studies

on the system benefits associated with dispatchable solar thermal power

17

Evaluation based on Net System Cost is designed

to achieve the lowest overall cost to ratepayers

The method by which utilities procure resources to minimize the total cost of system operations.

Calculated by comparing total costs associated with a resource minus its benefits.

The comparison of Net System Cost above is for illustrative purposes only and is not based on actual values.

Net System Cost is a Metric Used to Compare Cost Competitiveness Between Resource Alternatives

18

brightsourceenergy.com