In September, ACWA Power contracted with DEWA (Dubai Electricity and Water Authority) to build the world’s largest concentrated solar power (CSP) plant at 700 MW with 15 hours of storage, at 7.3 cents per kWh, one of a cascading series in 2017 of bombshell record-low CSP prices in 2017.
Despite this price record, just months later, CEO Paddy Padmanathan predicted that 7.3 cents would be on the high side going forward for the MENA (Middle East & North Africa) region, “because Dubai has relatively poor DNI” (Direct Normal Irradiance), the solar resource utilized by CSP.
“If everything else is the same, and the only difference is the DNI,” said Padmanathan during a webinar on CSP pricing held by ATA Insights: “Let’s say if the DNI difference is 20 percent better within MENA; then it would be even less than 6 cents, it would be about five cents per kilowatt hour.”
But he cautioned that CSP prices in the region “could also go up to” 7.3 cents, depending on the many other factors that go in to a contract price.
A new new normal for CSP prices
This is not the first time ACWA Power has broken a record. I interviewed Padmanathan in 2013 after he bid Bokpoort at 28% below the prices at that time in South Africa, then a new CSP market. Although in 2017, CSP has broken a series of records, they are part of a downward trend that first shocks the experts, but then goes on to become a new normal.
Padmanathan had been asked about how prices in other MENA nations might compare. He’d first caution against such generalization by likening the question to asking ‘How long is a piece of string?’
“We establish the cost of getting a plant built, financing it and operating it, and then divide by the generation that is going to come out to determine the tariff.”
Nevertheless, as the engineer he is by background, he did go on as to why it’s difficult to generalize:
“Even within one country, the total cost and the total output from any given plant will be different from plant to plant. Simply because cost is driven by so many factors, ranging from topography, foundation conditions, local construction capacity, even cost-of-living — people don’t realize the logistics; all of this is part of the labor cost — indirect taxation, the off taker’s credit rating, the terms and conditions of the power purchase agreement and the duration of the PPA, all of this has an impact on the total cost.”
However, he said that financing cost is the biggest single factor in the price. “Embedded within the 7.3 cents per kilowatt hour tariff in Dubai, 90 percent of that is equity-related cost or 6.5 cents per kilowatt hour,” he explained. Projects of this size generally are financed with a mixture of debt and equity.
Because financing costs account for the lion’s share of the final PPA price, the credit-worthiness of both the project developer and the off taker have a big impact. DEWA has an excellent credit rating and ACWA Power is a $38 billion firm with very solid experience in traditional power generation from gas and coal.
Why CSP competes with gas-fired power: it’s dispatchable solar
As the thermal form of solar, CSP is now typically bid with thermal storage, in order to deliver dispatchable power after dark or at any time needed. Because of the storage typically now included, CSP capacity factor (the percent of annual hours it can operate versus if it was running at full rated capacity 24/7) can average annually to 70% when it has 15 hours of storage, according to the NREL study Advancing CSP Technology, Performance and Dispatchability.
DEWA’s CSP plant will be comprised of two CSP technologies: it will have three sets of 200 MW in (the more bankable) parabolic trough technology, and one 100 MW in (more efficient, but least proven) power tower, and include up to 15 hours of integrated thermal energy storage daily for supplying dispatchable electricity.
The World Bank’s Jonathan Sinter asked how CSP prices compared to natural gas-fired power in the MENA region.
While cautioning that costs vary across MENA countries, like any region, Padmanathan was emphatic:
“CSP is the least cost option pretty much throughout MENA. We can compete with combined cycle gas power generation for dispatchable nighttime base load. So that is what I think is exciting for us. What is absolutely indisputable today is that CSP can do the same job as combined cycle gas fired power, and compete absolutely neck and neck, as has been proven, and is slightly cheaper here.”
“CSP is cheaper than natural gas across MENA”
Despite a much higher upfront cost to build CSP than a gas-fired (Combined Cycle Generation Turbine (CCGT)) plant, over time it is the cheaper option, because of the cost of fuel needed for natural gas generation.
“CSP is very CAPEX-heavy. The investment cost of our 700 MW project is US $3.8 billion; $5.5 thousand US dollars per kilowatt: seven to eight times more costly than CCGT,” he said, adding: “However, overall on an electricity price per generated kilowatt hour, CSP is the cheapest.”
ACWA Power has built traditional thermal power plants in Jordan. Padmanathan noted that Jordan must pay 24 cents per kWh for natural gas. DEWA has said that CSP will be cheaper for them than natural gas.
“DEWA have been very public about the fact that they are importing gas from Qatar via pipeline and the rest of their gas they buy on the world market as LNG. And what they have publicly said is that the CSP solution is truly cheaper than the gas. But with CCGT, the generated electricity tariff is 60% to 75%, so a big number is the fuel cost,” he said. “And let’s not forget that our 7.3 cents is contracted, levelized for the duration of that contract for the next 35 years.”
ACWA Power’s contract sets a record for longevity too, offering 35 years at the set price of 7.3 cents. Typically, renewable energy PPAs are 20 to 25 years). Because CSP has a power block, it is as complex as a CCGT power station. But offering a longer term at a guaranteed price is another way that CSP can compete on price with gas which is unable to guarantee prices over 35 years because gas prices are unpredictable. A longer-term contract also lowers the price simply by supplying many more years of revenue generation over which to amortize upfront costs.
Just like prices tumbled first for onshore wind, then PV, and then this year, offshore wind, now prices for CSP are also going down.
Susan Kraemer covers CSP innovation for SolarPACES, the international association of national research laboratories advancing the form of solar that can generate its own power at night and supply solar heat at up to 1500 C to drive thermochemical reactions for solar fuels.
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