Solar Energy Investment Calculation - PowerPoint by iii97744

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									                   U.S. DOE brown bag lunch seminar
                   BONUS - Thursday, October 1, 2009
  A seminar presented by DOE/EERE’s Solar Energy Technologies Program and the
Office of Planning, Budget, and Analysis; and NREL’s Strategic Energy Analysis Center



   The Profitability Index Method (PIM) for
    calculating Levelized Cost of Energy and
   beyond: application to Feed-in Tariffs and
        Sustainable Investment Decisions
                            Bernard CHABOT
                 Renewable Energy Consulting and Training

                               bechabot@wanadoo.fr
                    Garbejaire B107, 06560, VALBONNE, France

                                                                                  1
                               Content
   Introduction : a sustainable energy policy proposal and related
    economic-based regulations

   The European Union shift towards renewable energy

 The rationale   and the basis of global economic analysis before tax
    on profit

 The Profitability Index Method, its added value and its
  competitive advantages
      Application to simple FITs calculation
      Application to Advanced Renewable Tariffs design
 Example of strategic analysis: assessing potential impact of carbon
  taxes and carbon credits from the PI Method

   Conclusion                                                        2
A sustainable energy policy
proposal and why to design
 related market regulations
   from economic analysis


                              3
     A proposal for a sustainable energy strategy: ES*EE*RE
   Energy Sufficiency
     To place on an ethic scale the individual and collective needs to satisfy and their
      associated energy services
     From a wise democratic dialogue, to define and to apply appropriate regulations :
      from mandatory to forbidden and economic regulations : « Sticks and Carrots »
   Energy Efficiency
     Choosing systematically high efficiency appliances, processes, infrastructures
     Systematic and accelerated deployment  from mandatory to forbidden and
      economic regulations : “sticks and carrots”
   Choosing primary energy sources which comply with strict
    sustainable development principles:
   Inexhaustible resources: RE against fossils and uranium
   No GHG emissions: RE against fossils
   Fit for all contexts, no dual application, no long term and dangerous waste and
     decommissioning burdens, no major risks: RE against nuclear energy
   Defining “Fair and efficient” economic incentives for RE: “carrots” better
     than “sticks” !
 See an example of a LT sustainable energy scenario based on those principles:
                              www.negawatt.org
                                                                                            4
ES: choosing & applying economic regulations adapted to priorities

             NEEDS                           REGULATIONS
                         Vital
                                         OBLIGATION
                      Essential
                                  PI
     NECESSAIRES      Necessary 0,4+ Priority programme
                                   0,3   Large scale deployement         "CAROTT"
                         Useful    0,2   Market opening
                                   0,1   Positive signal for investors
                       Comfort       0   Neutral
                                  -0,1   Negative signal for investors
                         Futile   -0,2   No-go signal for investors
                                  -0,3   Huge losses incurred
       SUPERFLUS     Luxurious    -0,4                                   "STICK"
                                  -0,5
                    Immoderate    -0,6   Blackjacking


                       Harmful
                                         FORBIDING
                      Criminal
                                                                                    5
 Choosing & applying economic regulations to EE and RE: is an
          “Universal Profitability Scale” possible ??
                                       Economic regulation            Mandatory,
                     Forbidden
                                    « Stick »      «Carrot»           Automatic
Energy Efficiency:
                                  -0.6 -0.3      0     0.3 0.6
                                  PI economic profitability scale




                                       Economic regulation
                                                      «Carrot»              Mandatory,
                       « Free market »: no development                      Automatic
  Renewables :                                           Fast development

                                                                 0.6
                                   -0.6   -0.3 0 0.1 0.3
                                    PI economic profitability scale

                                                                                     6
The shift to renewable energy:
 the European Union example




                                 7
The example of the European Union ongoing shift to renewables
   The European Union “3 times 20 % by 2020” in ten years
      - 20 % GHG emissions in 2020 compared to 1990 (binding target)
      + 20 % more energy efficiency compared to existing measures
      20 % of final energy demand (electricity, heat, fuels) covered by renewable
      energy sources in 2020 compared to present 7 %: 2009 EU law, binding
      global 20 % target)
                                         Projet directive ER 2020: % ER dans CEF en 2006 et objectifs 2020

                               UE27                     6,92                      20
                               Suède                                                             30,02                         49
                             Finlande                                                   22,84                  38
                             Autriche                                                  21,81              34
                             Portugal                                  16,53                         31
                            Danemark                                 15,01                       30
                                Italie                  6,82               17
                                                                                                                    % CEF en 2020
                             Espagne                    6,6                       20
                                                                                                                    % CEF en 2006
                              France                   6,33                              23
                            Allemagne                  5,94                  18
                              Pologne                4,86             15
                            Pays-Bas          2,31                  14
                             Belgique        2,11                  13
                                 UK          1,98                    15

                                         0                    10                20              30             40              50
                                                                                                                                8
  Renewable Electricity Roadmap for the « 3 * 20 % » Plan
   Source: European Renewable energy Council (European RE Industries Council), November 2008


 Up to33 – 40 % of electricity from RES, x by 2 in 10 years
 Wind energy will make the larger contribution in 2020
 Impressive Solar PV growth
 Favourable TWh/GW ratio from bioenergy based power



 Source: EREC, Nov 2008,              TWh from RE in EU27                    GW RE in EU27
  "RE Technology Roadmap"   2006        2010         2020       % in 2020   GW 2020   % in 2020
             Wind            82         176           477        35%          180       35%
             Hydro          357,2       360           384         28%         120        23%
          Bioenergy         89,9        135           250         18%          50        10%
         Photovoltaic        2,5         20           180         13%         150        29%
         Solar Thermal        0          2             43          3%          15       2,9%
          Geothermal         5,6         10            31          2%           4       0,8%
         Ocean Energy         0          1             5         0,4%         2,5       0,5%
           TOTAL                537        704          1 370    100%             522   100%
     % of EU Electricity    16%        19,7%     33 to 40 %


                                                                                               9
  Two main options for market regulation for RES
 Regulation    by quantities: “The Stick”
  Quotas + competitive calls for tenders (eg: UK, F in 90's, Ir)
  Quotas verified from RECs in % of consumption (or sales) +
   penalties in case of no compliance (UK, Be, It)
 Regulation    by “Fair and efficient tariffs”: “The carrot”
  "Fixed prices" (eg wind power in Dk & Germany in the 90's)
  "Environ. premiums" over the annual avoided cost (Spain)
  "ADVANCED RENEWABLE TARIFFS" (ARTs)
     o Defined for each technology and if relevant application: P, community…
     o Defined for each project, e. g. if variable average wind speed in diff. sites
     o Fixed tariff within a contract, e. g. defined first from the potential and
       then from the actual energy yield measured during the first 5/10 years
     o Tariffs for new projects are decreasing each to take into account costs
       decrease or are related to market development (Germany 2008)
     o Protected against inflation within a PPA as RE avoids imported inflation
                                                                                  10
FITs are now the preferred RES-E regulation in EU
 20 EU member States (on 27) with FITs, versus 7 with RO + TGC




                                                                  11
FITs are more efficient and less costly than Quotas + TGC
 Source: European Commission, 2008




                                                       12
Differences on Wind PI (= NPV/I) values in Europe
               Extrapolated nominal PI values from 2008 EC tariffs & costs data for wind

       2,5              2,381

                                   2,043
       2,0
              1,737
                                             1,574
       1,5

                                                                   1,071
       1,0


                                                                             0,539
                                                        0,468                              0,449
       0,5



       0,0
               BE         IT        UK        PL         DE         ES        FR            PT



 •   RES-E Quotas + TGC: BElgium, ITaly, UK, PoLand
 •   FITs: DEutschland, ESpana (market price + premium), France, PorTugal
 •   Note: actual projects PI values are lower due to simple hypothesis taken here on tariffs and costs
                                                                                                          13
The rationale and the basis of
global economic analysis before
          tax on profit




                              14
RE economic analysis: from projects to programmes
               (1): projects level

 Final Evaluation and
                                   Successful Projects: 3 pilars




                                                                                               Project Management in its natural l
  return of experience




                                                                       Eco. & Fin. Engineer.
 Dismantling




                                                                                                and socio-economic context
                         Technical Engineering




                                                  and balance sheets
                                                   Company results
Operation and
 maintenance



Start O
  Building                                       Financing Investment


Detailed Studies                                   Fin. An.+ bus. plan

Feasability Study                                  Economic analysis


                                                                                                                                     15
 Rationale for RE projects global economic analysis
 Analysis   before sharing project profitability between:
   Investors (providing equity)
   Banks (providing debt)
   State (from tax on profit)
 Analysis   before impact of fiscal measures
   Before tax on profit
   Before amortization and financial provisions
 Giving   the “Intrinsic profitability” of the future investment
   Not related to a specific fiscal status and context
   Selecting projects creating a global positive impact on economy

 Economic   analysis is more reliable, transparent and
 simple than financial analysis. But it must be of course
 « the one and then the other » and not «the one or the
 other»                                                          16
RE economic analysis: from projects to programmes
                 (2) policy level

                         Successful Programmes: 3 pilars




                                                                                                                   Programme Mngmnt in itsPolitical l
                                                                                           Eco. & Fin. Engineer.
 Final Evaluation and
  return of experience   Technical Engineering




                                                                                                                    and socio-economic context
                                                 Technical results: GW,
  Programme                                          TWh, Mt CO2




                                                                            cost/benefit
                                                                             monitoring
implementation



Start P
                                                                                  Financing
  Decisions                              Standards…
                                                                                 Instruments

Detailed Studies                            Atlas…                        Fin & fiscal analysis

Feasability Study        T&A analysis                                     Economic analysis


                                                                                                                                                        17
     Rationale for global economic analysis for
   sustainable market regulations in favour of RE
 Sustainable   development, mainly fighting climate change,
  requires to change > 1/3rd of the content of Gross National
  and World Products and Activities (energy, transport…)
 Sustainable policies must favour and select investments
  giving positive impacts both on sustainable development
  and on economy : creating global wealth, jobs, sustainable
  activities, new industries (“Third Industrial revolution”
  based on energy efficiency and renewables)

 Market regulation    for sustainable technologies must be
  defined first from global economic analysis in order to
  check if related global projects economic profitability is
  achieved, benifiting both to investors, financiers and states
 then, financial context and measures must be checked
  or changed if necessary                                     18
   Discount rate choice: t = real AWCC before tax
 Choice  to definite t: t = real AWCC = Averaged Weighted
  Cost of Capital before tax as we first want to calculate the
  kWh cost, and then its selling price, higher than the cost
 Capital to finance a project investment cost of comes from:
   Equity, typically 10 to 40 %, with an actual real return on
    equity before tax ROE from "3 % to 12 %" e.g. 10 % real
   Debt: the complement: 60 to 90 %, with a real interest rate
    from “4 to 7 %", e. g. 5 % real
 AWCC  = Equity Part * ROE + Debt part * Interest rate
 Example:
   Equity part = 20 % = 0.2 ; ROE before tax = 10 % real
   Debt part = 80 % = 0.8 ; Interest on debt = 5 % real
   AWCC before tax= 0.2*10 + 0.8*5 = 2 + 4 = 6 % real

 Avoiding to   choose t = targeted project IRR e.g. 10 to 13%! 19
         The economic and financial engineering
 Global project    economic analysis (during feasability study)
    Expenses: Capex (studies, total investment cost I), OPEX :
     O&M, fuel expenses (bioenergy), cost of capital (AWCC = t %)
    Turnover: energy sold to the grid * tariff
    Cash Flow = turnover – OPEX before tax on profit
    Calculation of the Net Present Value (NPV) before tax:
    NPV = -I + Sum of discounted CF = -I + S {CFj / (1+t)exp(j)}
                                                 1- n



    Project is Profitable if NPV > 0
   Financial analysis (during detailed studies)
    Taking into account fiscal context, actual financing,
     amortization, financial provisions, substracting tax on profit…
    Calculation of the Return On Equity after tax: ROE
    Comparing the project ROE and its risks with the ones of
     other options of investing equity
    Verifying Debt Service Coverage Ratio DSCR is > 1.2 to 1.3        20
         Economic Profitability criteria based on NPV > = 0 (1):
             The Discounted Pay-Back Time (DPBT)

              NPV ($)‫‏‬              (t = 0%)‫‏‬
                                                     (t = AWCC)‫‏‬


                      0      SPBP
                                                         N (years)‫‏‬
                                    DPBT         n


                      -I

 A project  is profitable if its Discounted Pay-Back Time
    (DPBT) is lower than the number of years of operation n

   Note: the simple pay-back time is calculated with t = 0 % (« free money »:
    ABSURD !), and its value is of course much more lower than the DPBT one
                                                                                 21
           Economic profitability criteria based on NPV > = 0 (2):
         The Project Internal Rate of Return (IRR)

           NPV ($)‫‏‬


             NPV1
                  0             IRR       t2
                                                     t (%)‫‏‬
                         t1

             NPV2

 A project is
            profitable if its IRR is higher than its
Averaged Weighted Cost of Capital (AWCC)
The IRR value cannot indicate by itself if the project is profitable
  or not! One must provide to investors both the project t = AWCC
  and the IRR values ! (and also the value of n)                 22
      The Profitability Index
    Method, its added value and
    its competitive advantages
• The universal linear PI model
• The universal profitability index scale
• From rational choice of targeted PI to the
  corresponding project IRR value


                                               23
Introducing the Profitability Index: definition and first use

        NPV ($)

  NPV2 = 1.3 M$                    PI = NPV / I
   NPV1= 1 M$
                           12%
                                    t (%)
               0   t 10%


 Example  1 : PI1 = NPV1 / I1 = 1 M$ / 3 M$ = 0.33
 Example 2 : PI2 = NPV2 / I2= 1.3 M$ / 5 M$ = 0.26
 Choice = project 1: gives 27 % more NPV per € invested
 Projects must be selected from decreasing PI
 And not from higher NPV (and not from the higher IRR !)
                                                           24
The universal linear profitability graph PI = a * TV - b

The “Life Cycle Cost of Energy” (LCCOE) is defined by the
 crossing of the PI line and the horizontal axis
Points M and S define the cost structure:
   o Ci created by investment cost I (€)
   o Com, created by fixed O&M costs Dom (€/year), with Dom = Kom * I
   o Cvu, variable fuel part ( = 0 for solar, wind, hydro, geothermal)
Targeted tariff TV defines the project profitability index PI
         PI = NPV / I


                 PI
                              Com   Ci
                        Cvu

                    0                     LCCOE    TV         Tariff TV
                  -1
                                    S
         -(1+Kom/CRF)
                               M

                                         Cost     Price                   25
The universal linear PI graph: power plants case

 PI = a.TV - b = (Nh / CRF.Iu)*(TV - Cvu) - (1 + Kom / CRF)
Iu = I / P ; Kom = Dom / I ; Cvu = DV / Ea : Nh = Ea / P
With Ea: kWh/y delivered to the grid; Dv = $/y of fuel costs
Cost structure of the kWh: LCCOE = Ci + Com + Cvu
Using only LCCOE is too limitative !                 Ci = CRF*Iu / Nh
                                                      Cem = Kom*Iu / Nh
                                                      Cvu = 0 (wind, hydro, solar)
       PI = NPV / I                                   or Cvu = Cc / (Re.LHV)


               PI
                            Com   Ci
                      Cvu

                  0                     LCCOE    TV            Selling Price TV
                -1
                                  S
       -(1+Kom/CRF)
                             M

                                       Cost     Price                             26
The direct link between PI and margin on cost (1)

  From the 2 triangles:
   o PI / 1 = (Price – Cost) / Ci
   o  PI = {(Price – Cost)/Cost / (Ci / ODC)
   o  PI = Margin on Cost / (Ci / ODC)
   o This link gives first clue for “minimum” PI values to enjoy a strong and

     sustainable growth in a competitive industrial activity :   PI > 0.3
          PI = NPV / I


     PI min = 0.3
                               Com   Ci
                         Cvu

                     0                     LCCOE    TV           Tariff TV
                   -1
                                     S
          -(1+Kom/CRF)
                                M

                                          Cost     Price                        27
         Summary of PI target values
       A “Universal Profitability Scale”:

   Targeted Profitability Index (PI) Values According to Risks and Growth Strategies

-0,1      0               0,1             0,2        0,3      0,4        0,5           0,6         0,7 +

                                                      Defensive Growth                 Crash
   Non        Towards                        No
                                           Growth                                      programme
 Profitable   failure
  Projects                                                    Offensive Growth
                              Surviving                                                Leadership
                   No Risks at all              Low Risks                High to very high risks




                           Targeted zone
                          For « Fair and
                         Efficient tariffs »
                                                                                                           28
  Why choosing profitability target from PI and not IRR ?
If t = AWCC = 5 %: if IRR vary only from 7 to 9 % 100 % PI variation from 0.15 to 0.3,
    and a related 100 % variation on NPV value ! And another n value would give other IRR values…
                                    IRR = f (PI, t = AWCC),15n = 15 years
                                            TRI = f(TEC, t) pour n = ans


                           30
                                                                                 t = 15 %

                           25
                                                                                 12 %

                                                                                 10 %
                           20
                 TRI (%)
                IRR (%)




                           15
                                                                                 5%


9 %?                       10
                                                                                 1%
                                                                                 0%

7% ?                        5


                            0
                                0     0,1   0,2   0,3     0,4   0,5   0,6      0,7
                                                  TEC = VAN/I    PI = NPV /I
                                                                                               29
First Strategic Application :
Designing “Fair and Efficient
   Tariffs” for renewables



                                30
             .




Application to simple FITs
        calculation



                             31
Tariff calculation from the linear profitability graph
 From PI = f(TV),     calculation of targeted tariff TV:

   TV = {(1 + PI)*CRF + Kom} (Iu / Nh) + Cvu (€/kWh)
  TV = Cost LCCOE + Ci * PI
    o CRF   = Capital recovery factor (based on actual discount rate = t =
      AWCC = Average Weighted Cost of Capital, and n): CRF(t,n) = t /
      (1-(1+t)^-n)
    o Kom = O&M ratio = yearly O&M expenses / Investment
    o Iu = investment cost ratio = I / P ($/kW)
    o Nh = Ey / P = kWh / kW = number of hours per year at rated power
    o Cvu : variable cost (fuel cost part: Cvu = Fuel Cost /
      (Efficiency.LHV)
    o Ci = ODC part created by investment cost I: Ci = CRF(t,n) * Iu / Nh



                                                                             32
                -




    Application to Advanced
    Renewable Tariffs: FITs
 adapted to different sites with
different potential energy yield:
       * (1) Wind Energy
         * (2) Solar PV
               ‫‏‬                33
      ARTs (1): Advanced Wind Tariffs Principle
                  TWh/y

Target:                60

                       9
                                                 V m/s at hub height
                             6.2   7.5   8.5
            Profitability
            PI = NPV/I
                                                      A
                                           0.3
                                                  « Win-Win
                                                  situation »

                            0.1
                       0                          V m/s
B. Chabot 11-08              6.2          8.5
                                                                       34
   The 2001 French advanced wind tariff system
 Two successive    tariffs levels :
  T1 fixed for all projects from years 1 to 5 (= German idea !)‫‏‬
  T2 variable for projects from years 6 to 15 (diff. from Germ.)‫‏‬
  T1 and T2 define a virtual constant “equivalent tariff”, Teq
 For a   specific project :
  Nh = averaged Ey / P from values years 1 to 5 (hours/year)‫‏‬
  T2: linear calculation from values at Nhr = 2000, 2600, 3600
  Teq from (T1, T2, t)‫‏‬

                    Tariffs

                          T1           Teq

                                       T2
                                                 Years
                               5             n                    35
                                                          2001 French Wind tariffs

                             Profitability Index - 2001, Mainland                                                     Internal Rate of Return - 2001, Mainland

                0,5                                                                                            13
                                                                                                               12                                                                         i=0 %
                0,4                                                                          i=0 %             11                                                                         i=2%
 PI = NPV / I




                                                                                                     IRR (%)
                0,3                                                                          i=2%              10
                                                                                                                9
                0,2                                                                                             8
                                                                                                                7
                0,1
                                                                                                                6
                0,0                                                                                             5




                                                                                                                    1800
                                                                                                                           2000

                                                                                                                                  2200
                                                                                                                                         2400
                                                                                                                                                2600

                                                                                                                                                       2800
                                                                                                                                                              3000
                                                                                                                                                                     3200

                                                                                                                                                                            3400
                                                                                                                                                                                   3600
                      1800
                              2000
                                     2200
                                            2400
                                                   2600
                                                          2800
                                                                 3000
                                                                        3200
                                                                               3400
                                                                                      3600


                                 Nh (hours/year at rated power)                                                               Nh (hours/year at rated power)


 Reference                                  case in 2001 (P < 12 MW per project):
                Iu=1067 EUR/kW. Value at year 16: 15% of initial invest.
                Yearly O&M expenses: Kom = 4 % of initial investment
 Thesystems works (4 GW mid 2009), changes in 2006
 (Period 1: from 5 to 10 years, unfortunately no changes for
 n  20 years and Nh (h/year)  Eas (kWh/m2.year)          36
2009 UNDP-Wind Energy Project Pakistan proposal

                                                                                                    Projects real IRR before tax (% real)
                 Profitability before (PIo) and after inflation (PIv)
                                                                                                             (WACC = 6 % real)

     0,7                                                                       15,0

                      PIo

     0,6
                      PIv                                                                                                            12,66
                                                            0,528

     0,5
                                                                               10,0                                10,51
                                            0,415
     0,4                                                    0,445


                                                                                            7,08
     0,3                                    0,337
                                                                                5,0

     0,2
                       0,151


     0,1

                       0,083                                                    0,0
     0,0                                                                              700          800     900     1 000    1 100    1 200   1 300
           600      700     800     900     1000    1100     1200       1300                         Eas (kWh / m2.year)
                            Eas (kWh / m2.year)


 From a PI seminar in February 2009; Decision pending
 Same design proposed in Ontario by OSEA in 2005 and
 GEA in 2009 (but simple FITs implemented)

                                                                                                                                                     37
                -




    Application to Advanced
    Renewable Tariffs: FITs
 adapted to different sites with
different potential energy yield:
       * (1) Wind Energy
         * (2) Solar PV
               ‫‏‬                38
         ARTs (2): Advanced PV Tariffs Principle
                  TWh/y
Target:                9

                       1
                                                   Eiy (kWh/m2.year)
                            1100    1400   1600
            Profitability
            PI = NPV/I
                                                        A
                                             0.3
                                                    « Win-Win
                                                    situation »

                            0.1
                       0                            Nh (h/y)
B. Chabot 11-08              1100           1600
                                                                       39
    Suggested design of an advanced PV tariff system (1)
   Inspired from the German EEG 2000 wind tariff system
   T1 on years 1 to j and T2 from year j+1 to year n: constant values for all projects in
    the tariff system
   j: variable from j = jmin to j = n
   Tce = constant equivalent tariff, giving the same profitability than T1 and then T2
   For a specific project: j = f (potential maximum energy yield at he project location)
   Potential energy yield in this study: from PVGIS for Eiy (kWh/m2 in the optimal
    plane of modules, without any shadow) and performance ratio Kp = 0.75
   In this study:
     t = real discount rate = AWCC (= 5 % real), tariffs 100% protected against inflation in a PPA
     T2 = 0.1 €/kWh to get no overcosts vs other RE tariffs and market/consumer electricity prices
              Tariff €(0)
                                  T1
                                                        Tce = f(T1,T2,t, j, n)




                                                                T2
                                                                                     Years
                        0     1                  j    j+1                        n
                                                                                                      40
 Suggested design of an advanced PV tariff system (2)
 Advantages:
   « Same tariffs for everybody »: no discrimination among citizens !
   No complicated calculation for j value determination: transparent public data
   Gives a very strong incentive to maximise actual production of PV projects
   Allows a minimum profitability on sites with the lowest solar irradiation
   Gives a signal to get a large scale market development first in the sunniest parts of the
    country where:
      Profitability is increasing but not to an undue level
      The very low T2 tariff is implemented faster, thus lowering the over-cost
       for electricity consumers
 At the end, in countries with large differences in solar
  irradiation (e.g. France, Italy, Spain, USA, China, India…) :
   PV deployment would be more evenly distributed in the country than with a
    fixed PV tariff
   The over-cost of the PV tariff system for electricity consumers would be lower
    than with an effective fixed PV tariff
   Ambitious PV market deployment strategies would be more
    easily accepted by governments and citizens
                                                                                                41
    Example of Case study: France: tariff parameters
       n = 20 years, Jmin = 11 years
       PVGIS: Eiy varying from 1140 (Lille) to 1900 (Draguignan). Choice: Eiymin = 1100; Eiymax: 1800 kWh/m2.year


                     France: lenght j of the tariff T1 (years)                                                                                             France: Tariffs T1, T2, Tce20years (€/kWh)
                25                                                                                                                                0,70
                                                                                                                                                                                                                              0,610
                                                                                                                                                  0,60
                                                                                                                                                                                                             0,540




                                                                                                           Tarifs T1, T2, TCE 20 years (€/kWh)
                20                                                                                                                                                                                0,490
                                                                                                                                                  0,50
                          20,0                                                                                                                                                           0,440
                                                                                                                                                                                0,395
                                   18,5                                                                                                                                0,365
                                                                                                                                                  0,40                                                                        0,440
    j (years)




                                             17,0                                                                                                              0,330
                15                                                                                                                                                                                           0,393
                                                        15,5                                                                                                                                      0,360
                                                                                                                                                  0,30
                                                                                                                                                                                         0,327                        T1
                                                                    14,0                                                                                                        0,297
                                                                                                                                                                       0,277
                                                                              12,5                                                                0,20         0,253                                                  T2
                10                                                                    11,0                                                                                                                            Tce 1800/20years
                                                                                                                                                  0,10
                                                                                                                                                                                                                      Linéaire (T1)
                                                                                                                                                               0,100
                 5                                                                                                                                0,00
                 1 000    1 100   1 200   1 300     1 400   1 500     1 600   1 700   1 800    1 900                                                     2,5            3               3,5         4           4,5             5        5,5

                         Eiy on optimal plane of modules, without shadows (kWh/m2.year)                                                                                                          Iu (€/Wp)




                                                                    Tariff €(0)               T1
                                                                                                                                                 Tce = f(T1,T2,t, j, n)


                                                                                                                                                               T2
                                                                                0     1                                                          j+1
                                                                                                                                                                            n           Years
                                                                                                       j
                                                                                                                                                                                                                                         42
               Case study: France: profitability results
   n = 20 years, Jmin = 11 years
   France is the EU country with the largest differences in Eiy values, and the proposed differentiated tariff system
    can work : minimum profitability is positive, maximum profitability can establish a strong market growth,
    without undue profitability levels:

                                                                                 France: PI = f(Eiy, Iu)
                                                                Iu = 2.7 €/Wp       Iu = 3 €/Wp             Iu = 3.24 €/Wp        Iu = 3.6 €/Wp
                                                                Iu = 4 €/Wp         Iu = 4.4 €/Wp           Iu = 5 €/Wp
                                                         0,40


                                                         0,35


                                                         0,30


                                                         0,25
                                          PI = NPV / I




                                                         0,20
    Exemple      Eia 30° Sud
    de sites   kWh.m2/an kWh/j                           0,15
      Lille      1100      3,0
      Paris      1200      3,3                           0,10
      Tours      1300      3,6
    Limoges      1400      3,8                           0,05
      Lyon       1500      4,1
    Valence      1600      4,4                           0,00
                                                            1 000    1 100      1 200   1 300       1 400     1 500       1 600    1 700    1 800
     Nîmes       1700      4,7
                                                                      Eiy on optimal plane of modules, without shadows (kWh/m2.year)
     Toulon      1800      4,9
                                                                                                                                                    43
Case studies comparisons: example of tariffs levels
                      Values of « Equivalent constant tariff Tce = f(T1, T2, n, j, t)
                      Two examples of Iu values: 4.4 €/Wp (domestic PV roofs 2008-2010) and 2.7 €/Wp (large PV plants 2017-2020)


                          Constant equivalent tariffs (Iu = 4.4 €/Wp)                                                                                 Constant equivalent tariffs (Iu = 2.7 €/Wp)
                 0,6   Germany                                                                                                          0,4

                                                Italy
          0,55
                                                                                                                                              Germany
                          France
                 0,5                                                                                                                   0,35
                                                                                                                                                                         Italy
          0,45
                                                                                                                                                  France




                                                                                                                      Tariff (€/kWh)
Tariff (€/kWh)




                                                    Turkey
                 0,4                                                                                                                    0,3


          0,35

                                                                                                                                                                             Turkey
                 0,3                                                                                                                   0,25


          0,25


                 0,2                                                                                                                    0,2
                   1000    1100     1200     1300    1400     1500    1600     1700       1800    1900       2000                         1000     1100    1200      1300      1400      1500      1600      1700      1800   1900   2000
                                  Eiy (kWh/m2 in the optimal plane of modules, without shadows)                                                              Eiy (kWh/m2 in the optimal plane of modules, without shadows)




                                                                      Tariff                T1
                                                                      €(0)                                      Tce = f(T1,T2,t, j, n)


                                                                                                                       T2
                                                                                0     1                  j      j+1                           n      Years
                                                                                                                                                                                                                                     44
Example of strategic analysis:
 assessing potential impact of
   carbon taxes and carbon
 credits from the PI Method


                             45
           Introducing the
“Tariff – Energy – Carbon (T.E.C)”
               Formula




                                     46
   Potential impact of selling "Carbon Credits"
Avoided CO2 emissions : Quce (kg CO2/kWhe). Selling price of
 carbon credit : TVce ($/avoided kg of CO2). Price bonus: TVce*Quce
The "PI line" translates horizontally of a TVce*Quce value
 The T.E.C formula: dPI = (Quce*TVce) / Ci
Or: dPI = {(Quce*TVce)/ODC} /(Ci/ODC) basic role of Ci/ODC

                   PI                       -Quce*TVce
        Pif = PIi +dPI
  dPI
                    PIi




                                   ODC     TV0       TV
                    -1
                              S

                              Ci

                                                                  47
         Potential impact of a “Carbon Tax”
CO2 emissions : Quce (kg CO2/kWhe). Carbon tax : TVce (€ /
 emitted kg of CO2). Price malus: TVce*Quce
The "PI line" translates horizontally by a TVce*Quce value
 The T.E.C formula: dPI = (Quce*TVce) / Ci
Or: dPI = {(Quce*TVce)/ODC} /(Ci/ODC)  basic role of Ci/ODC

                                             Quce*TVce
                  PI

                 PIi
   dPI
         Pif = PIi + dPI
                                Ci
                                 ODC   TV0        TV
                   -1
                            S




                                                              48
                           Conclusions
 Simple    FITs and then Advanced Renewable Tariffs are at the
    basis of European success stories for renewable electricity

 Replicating those success stories is possible in North America
     Example of Ontario FITs (2006 and 10/2009 implementation)
     Example of US initiatives for FITs

 The    Profitability Index Method can complement the LCCOE
    approach and provides a reliable way for ARTs design and
    strategic energy investment and policies analysis

   Knowledge transfer for this PI method is easy, as demonstrated
    many times and also during the NREL Sept 28-29 Seminar

 Regulators   and investors could benefit from this innovative but
    simple and reliable approach                                  49

								
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