L R AS Published on Friday 4 January 2019 - n° 258 - Categories:fundamentals, European countries, fundamentals PV
Profitability of a power plant in Spain built without subsidies
The terms and conditions of the 175 MW Don Rodrigo solar power plant near Seville (Spain) have been presented by its developer, the German company BayWa r.e. The project is due to be completed in 2012, with construction due to be completed in the second quarter of 2019, and has just been sold. It is being built without subsidies, which allows the developer to be independent of any political developments in a very sunny region. Above all, it is an opportunity to
to gain the confidence of electricity companies and private buyers with contracts of at least 15 years (whereas previously contracts of more than six years were rare).
The construction of power plants without subsidies has been made possible by two factors: the fall of more than 20% in 2018 in the price of panels. However, these constitute half the cost of a system. The drop also affects the other components.
This brings the average cost of PV electricity down to €0.04 per kWh. This compares to a new coal-fired power plant (€0.063 / kWh) or a gas-fired system (€0.085 / kWh). What is currently true for the south of Spain will move to the north of Europe. Some countries or regions will move more quickly to grid parity if we take into account the cost of land, grid connections and the local price of electricity. Grid parity projects will arrive earlier in the UK than in the south of France, for example. By 2021, grid parity will be achieved in Europe, except in the Scandinavian countries.
The Don Rodrigo power station achieves an average electricity price of €0.0027 / kWh. At this cost, it would be fully amortised in 15 years. The president of BayWa r.e. explains that the same site in Germany would take around 20 years to pay for itself, with the current costs of the system and an assumed LCOE cost of 50 € / MWh, as was the case in the 2018 tenders.
The other decisive factor is the liberation of investors and companies from reliance on short-term planning in favour of long-term purchase contracts that determine the financial viability of the plants in the long term.
Users are not accustomed to concluding 15-year contracts. In the case of the Spanish BayWa r.e. power plant, a contract has been signed with the Norwegian company Statkraft, which will pay a fixed amount for the first five years (to ensure the profitability of the project). For the following ten years, the price will be indexed to the evolution of market prices with a minimum price for the plant to be able to repay its loan. This allows both parties to benefit from a price increase.
Taking a 30-year electricity production period, BayWa r.e. estimates that it can achieve an annual electricity cost of €0.04 / kWh during the first 15 years of operation. After fifteen years, with an amortised asset, the cost of electricity will fall to €0.008 per kWh, i.e. a cost close to zero. Measured against Spanish electricity price forecasts of between €0.05/kWh and just over €0.07/kWh, this is an extremely interesting result. This was made possible by local electricity prices, land costs and low overheads.
The company had envisaged its first construction in Italy, but simplified permits are limited to plants of less than 50 MW. Beyond this limit, the cost increases significantly.
However, construction is not going to develop easily as companies rarely need more than 50 MW. However, this volume is insufficient to benefit from economies of scale and allow for a competitive cost. In the framework of the project presented (175 MWp), at least three different contracts would have been needed with the customers.
In spite of this example, BayWa r.e. does not believe in generalising the construction of power plants for the supply of electricity on the market, as a higher rate of return (double-digit) would be required due to uncertainties, whereas direct contracts can be satisfied with a profitability of 6.5%. Added to this is the desire of the States to control the energy market, which will result in binding regulations.
https://www.pv-magazine.com/2019/01/01/grid-paritys-muddy-trails/
PV Magazine of 1 January
