Letter Report: Critique of the Sargent and Lundy Assessment of Concentrating Solar Power Cost and Performance Forecasts (2002) / Chapter Skim
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. The National Research Council will establish a committee that will review an analysis of the technical opportunities to reduce the cost of generating electricity using concentrating solar power (CSP)
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The fourth section then focuses on S&L's deployment forecast, a topic that the committee addressed early in its study and revisited frequently during its reading of several S&L draft reports. The committee regards these forecasts as a dominant issue in any assessment of the potential for realizing projected cost reductions.
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t2] foresaw the potential of renewable energy technologies, including CSP technologies, to reduce greenhouse gas emissions, dependent on further technical progress and cost reductions, and their ability to compete with other means of generating electricity.
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Since 1999, significant progress has been made in understanding the potential impacts of thermal storage technologies, thin film glass mirrors, improved heat collection units, improved trough support structures, and other technical opportunities to improve CSP technology. Although no CSP projects are currently under construction, as noted in the S&L report evaluated by the committee, technical progress has resulted in reductions of operation and maintenance (O&M)
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The S&L study uses a set of economic assumptions similar to those used by SunLab in terms of debt/equity ratio, interest on debt, debt service coverage ratio, internal rate of return, interest and tax rates, and currently allowed tax credits and accelerates} depreciation. While S&L's selection of base case economic parameters seems reasonable, its review clid not sufficiently examine the effect of uncertainties on these parameters.
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. For the S&L scenario, cost reductions come from volume production and plant scare-up alone, as S&L took the conservative position that few technical advances in trough technology would be made beyonct 2004.
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industry, there will be sufficient R&D resources to support the levels and rates of technology development neecled to achieve the improved efficiencies for troughs. EVALUATION OF SARGENT & LUNDY ASSESSMENT OF POTENTIAL FOR COST REDUCTION TOWERS Sargent & Luncly has performed a review of the power plant characteristics from the baseline Solar Il ant} the near-term Solar Tres to the longer-term Solar 50, 100, 200, and 220 plants.
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Although a claim is made for a 10 percent contingency, this is not much more than the contingency factor that would be placed on a conventional plant design when it is in the "pre-preliminary'' design state which is where S&L's analysis of CSP plants now stands. To go beyond this very preliminary cost estimate would require a bottom-up, design sized equipment list, materials break out, and cost analysis at a specific site, and this effort was not within S&L's work scope.
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It appears that S&L has adequately assessed these cost reductions. On the technology development side, it is notect that for the advanced steam turbine, the projections have assumed a 640°C turbine inlet for added efficiency without much discussion of the heat transfer fluid and thermal storage clevelopment that would be required.
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, p. 2: "With proper funding the DOE CSP Program can play an important role in catalyzing further CSP technology advances which will further improve CSP economics and market penetration." Two paragraphs later, the letter states, "The panel noted that support for the CSP Program is significantly below the level needed to contribute to the goals of the National Energy Program.
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The committee notes that CSP technology is not unique in the requirement for incentivizing the early market phases of emerging energy technologies t83. The committee notes the extensive reports and stucly literature on these issues cited by S&E, including DOE/EE&RE's own August 2002 Report to Congress on the Feasibility of 1,000 Megawatts of Solar Power in the Southwest by 2006 t4]
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This and the nature of incentives are policy issues that S&L properly noted was outside the scope of its study. However, as it so tightly links to cleployment timing and the potential for cost reductions as shown in the Executive Summary of the S&L report, the committee must comment.
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For LECs in 2002 dollars, S&L assumed a project company paying taxes; equity rate of return of 11.5 percent; interest on debt of 6 percent; debt service coverage ratio of 1.35, 20-yr debt repayment; and a project life of 30 years. Current tax incentives are investment tax credit of 10 percent and 5-yr MACRS accelerated depreciation.
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The committee acknowledges SunLab's important involvement in the CSP program, its recognition of the importance of a deployment scenario to drive down costs, and its readily apparent technical proficiency as its team forthrightly and knowledgeably participated in the presentations to the committee. S&L cross-checked the power block costs against its own data while the balance of plant (BOP)
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that while technological innovation alone will reduce costs to some degree, large-scale deployment is the main prerequisite for commensurate reductions in the cost of CSP generation. S&L points out, and the committee agrees, that attaining large-scare deployment is likely to require government intervention by way of, for example, tax subsidies or other financial incentives, the imposition of mandatory renewable portfolio stanciarcis, or stricter environmental policies resthcting or charging for carbon emissions.
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The S&L report shows that about half of the potential cost reduction for troughs and about three-fourths of the potential cost reflection for towers comes from volume production and plant scale-up. Conversely, the report shows that half of the potential cost reduction for troughs and a quarter of the potential cost reduction for towers comes from advances in technology.
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There is no mention made by S&L of the total capital expenditure required to achieve deployment in the time period that it assumes for its plant cost analysis. All required capital expenditure should include investment in manufacturing capacity requirecl, cost for project formation, and so on.
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As is cleveloped in more detail in the deployment section above, there is a problem with drawing the conclusion that "a potential market exists for CSP technology" based on the assumption that a significant deployment rate and cost reductions are forthcoming. Given that 76 percent of the cost reductions for towers relate to scale-up and volume procluction, it might be sail!
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In any event, the S&E review suggests: That CSP technologies are capable of producing base-Ioad power; That with sufficient size and volume, the CSP technology in the long run appears to come into the competitive range with other renewable technologies; but, 3. That significant market incentives will have to be applied to get over the scale-up and volume hurdles.
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Evaluation of Potential for Cost Reductions. The S&L study reviewed opportunities to reduce the cost of generating electricity for both trough and tower CSP technologies.
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Findina: The committee agrees with the S&L conclusion that while technological innovation alone will reduce costs to some degree, large-scale deployment is the main prerequisite for commensurate reductions in the cost of CSP generation. Limitations and Deficiencies in the S&L Analysis Findina: The committee finds that S&E's estimates of projected capital costs and levelized energy costs (LECs)
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Findine: The committee finds that the S&L report would benefit from a clear characterization of financial uncertainty in cost analysis, including uncertainty associated with estimates of capital or other costs; how uncertainties propagate to 2020; the uncertain effects of changes in market interest on debt; the effect of anc3 uncertainty in lenders' perception of risk; and how risk might be managed or recluced as the technology evolves. Associated with this concern, the committee finds that insufficient attention is given to the sensitivity of the projected LECs to the financial parameters used in the modeling.
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