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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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