Review of Capital Costs for Generation Technologies

Review of Capital Costs for Generation Technologies
Technical Advisory Subcommittee January 31, 2017 Arne Olson, Partner Doug Allen, Managing Consultant Femi Sawyerr, Associate

Fuel and Variable Costs
History In 2009, E3 provided WECC with recommendations for capital costs of new electric generation technologies to use in its 10-year study cycles Prior to this effort, the relative costs of WECC’s study cases could only be compared on a variable-cost basis This effort allowed WECC to quantify relative scenario costs on a basis reflecting their actual prospective costs to ratepayers by combining variable & fixed costs E3 has updated these capital cost assumptions several times to capture major changes in technology costs (e.g. solar PV) and ensure continued accuracy Most recent update: 2014 Total Cost Fuel and Variable Costs Fixed Cost (E3 Capital Cost Tool) = +

Twenty-Year Capital Expansion Plan
Background 20-Year Study In preparation for its upcoming 20-year study plan, WECC has asked E3 to provide guidance on resource cost to use in that study These capital costs will serve as an input to the 20-year study’s LTPT, allowing for the development of robust scenarios through cost minimization This efforts builds on similar work done in early 2014 INPUTS MODELS STUDY RESULTS Long-Term Planning Tools (Capital Expansion Optimization) Twenty-Year Capital Expansion Plan Gen Capital Costs SCDT Generation Portfolio Tx Capital Costs NXT Transmission Topology Other Constraints

Study Approach E3 uses a two-step process to develop capital cost assumptions for the 20-year studies: Determine the cost to install a power plant today (2016) Forecast reductions (if applicable) in technology capital costs over the next two decades E3 uses capital cost estimates in conjunction with other assumptions in WECC studies to determine the annualized costs of new resources: Financing structure and cost Tax credits Depreciation (MACRS) Fixed O&M costs

Data Sources and Assumptions
E3 develops capital cost assumptions based on a literature review of public cost estimates from a variety of sources: Government-contracted engineering studies Regional or industry studies Utility integrated resource plans (IRPs) Publicly reported actual costs WECC stakeholders provided review and feedback during January – April 2017 All costs in this update are expressed in 2016 dollars unless explicitly stated otherwise E3’s cost recommendations represent the “all-in” cost of building a new plant, including the cost of borrowing during construction “Overnight” capital cost estimates are scaled up to allow for comparison with all-inclusive cost estimates

Wind and Solar Capital Cost Summary
Technology Subtypes WECC 2012 E Update E Update (2016 $/kW) Solar PV Residential Rooftop $5,820 $4,452 $2,900 ($/kW-dc) Commercial Rooftop $4,942 $3,845 $2,600 Fixed Tilt (1-20 MW) $3,102 $2,631 $1,500 Tracking (1-20 MW) $3,541 $3,035 $1,600 Fixed Tilt (> 20 MW) $2,635 $2,226 $1,300 Tracking (> 20 MW) $3,075 $1,400 Concentrated Solar Power Parabolic Trough with 7.5 hrs Storage* - $6,000 ($/kW-ac) Solar Tower with 9 hrs Molten Salt Storage* $6,500 Wind Onshore $2,196 $2,125 $1,700-$2,000 Offshore $6,589 $6,375 $4,500 Updated *Following feedback from the CSP Alliance on Solar Thermal costs, E3 has updated previous categories (Solar Thermal with/without storage) to reflect the latest technical developments

Other Generation Technology Capital Cost Summary
Subtypes WECC 2012 E Update E Update (2016 $/kW-ac) Biomass $4,667 $4,351 $4,300 Biogas Landfill $3,020 $2,833 $2,800 Other $6,040 $5,666 $5,600 Geothermal Binary/Flash $6,369 $5,970 $5,000 Enhanced Geothermal $6,589 $10,118 $10,000 Hydro Small $3,843 $4,047 $4,000 Large $3,294 $3,238 $3,200

Storage Technology Capital Cost Summary ($/kW-ac)
Subtypes WECC 2012 E Update E Update (2016 $/kW-ac) Battery Li-Ion n/a $5,059 $3,000 - $5,000 Flow $3,000 - $6,000 Pumped Storage $2,428 $2,500 Compressed Air Energy Storage $1,700

Conventional Generation Technology Capital Cost Summary
Subtypes WECC 2012 E Update E Update (2016 $/kW-ac) CHP Small $3,859 $3,845 $3,800 Large $1,669 $1,670 $1,650 Coal Steam $3,912 $3,744 $3,700 IGCC with CCS $9,388 $8,297 $8,200 Gas CT Aeroderivative $1,147 $1,214 $1,200 Frame $835 $825 Gas CCGT Basic – Wet-Cooled $1,356 $1,138 $1,125 Basic – Dry-Cooled Advanced – Wet-Cooled $1,239 $1,225 Advanced – Dry-Cooled $1,315 $1,300 Nuclear $7,823 $8,094 $8,000 Recip Engine n/a

Note on interpreting graphs
Graphs in the following presentation attempt to show all data points used to generate estimates Includes data from past years which help identify trends over time and within data sources Studies published by the same entity are grouped by color For sources with a single point estimate for capital costs, estimates are denoted by □ Many sources provided estimated ranges, which are denoted by Δ (high estimate) and Ο (low estimate) E3 recommended estimates (past and current) are denoted by ◊ The detailed data behind these graphs can be provided upon request

Present day costs - Solar PV

Solar Price Trends over Time
Solar capital costs have continued to decline sharply during recent years Declines seen across all technologies, as much as 50% relative to 2014 estimates Tight range of estimates for Residential/Commercial solar, wider for Utility-Scale solar Cost advantage of larger systems has decreased in recent years Smaller difference in the updated numbers between the “Small” and “Large” system capital cost estimates

Details on Cost Estimates
Data is presented according to type and size (where appropriate) of installation Residential Rooftop Commercial Rooftop Utility-Scale Fixed Tilt Utility-Scale Tracking Data points collected from sources are shown over time to indicate the trend of cost evolutions in recent years E3 estimate takes into account current cost estimates as well as changes over time relative to 2014 estimate

Residential Rooftop Solar Costs over Time
E3 Recommendation: $2,900/kW-dc

Commercial Rooftop Solar Costs over Time
E3 Recommendation: $2,600/kW-dc

Utility-Scale Fixed Tilt Solar Costs over Time
E3 Recommendation: $1,500/kW-dc (1-20 MW) $1,300/kW-dc (20+ MW)

Utility-Scale Tracking Solar Costs over Time
E3 Recommendation: $1,600/kW-dc (1-20 MW) $1,400/kW-dc (20+ MW)

Aligning Cost & Performance Assumptions for Solar PV
Solar PV capacities Direct current (DC): sum of module nameplate rating Alternating current (AC): inverter nameplate rating Capital costs are typically reported relative to the system’s DC nameplate rating (in $/kW-dc), but can be expressed relative to the AC nameplate ratio by multiplying by the Inverter Loading Ratio Capital Cost ($/kW-ac) Capital Cost ($/kW-dc) Inverter Loading Ratio DC nameplate AC nameplate Chart shows industry average ILRs in recent years For more detail on the treatment of DC and AC capacity in WECC studies, see E3’s presentation to TAS ( ) Source: Utility-Scale Solar 2015: An Empirical Analysis of Cost, Performance and Pricing Trends in the United States (LBNL, 2016)

Recommended Assumptions
Values in the LBNL study cited above indicate that the recommended inverter loading ratios for the fixed tilt solar resources should be updated from their 2014 values: Fixed tilt, utility: 1.35 Tracking, utility: 1.30 Rooftop: 1.20 Solar PV Subtypes E Update (2016 $/kW-dc) Inverter Loading Ratio (2016 $/kW-ac) $/kW-dc X ILR = $/kW-ac Residential Rooftop $2,900 1.20 $3,480 Commercial Rooftop $2,600 $3,120 Fixed Tilt (1-20 MW) $1,500 1.35 $2,025 Tracking (1-20 MW) $1,600 1.30 $2,080 Fixed Tilt (> 20 MW) $1,300 $1,755 Tracking (> 20 MW) $1,400 $1,820

Summary of Solar PV Recommendations
Capital costs expressed in $2016 Comparison of DC and AC costs in E update: Solar PV Subtypes E Update 2016 $/kW-dc 2016 $/kW-ac Residential Rooftop $2,900 $3,480 Commercial Rooftop $2,600 $3,120 Fixed Tilt (1-20 MW) $1,500 $2,025 Tracking (1-20 MW) $1,600 $2,080 Fixed Tilt (> 20 MW) $1,300 $1,755 Tracking (> 20 MW) $1,400 $1,820

Comparison of Solar PV Recommendations to Past Recommendations
Solar costs have declined in recent years Cost differences across the different types of solar have also declined

Present day costs - Wind

Wind Price Trends over Time
Wind capital costs have remained relatively constant over the past few years Slight downward trend, but not approaching the cost decreases seen for solar Data is often presented by region, but little indication of systematic price differences across regions Data on Offshore Wind remains sparse First offshore wind facility in the US came online this month Previous E3 estimates were high relative to costs released since that update

Details on Cost Estimates
Data/estimates are presented for both onshore and offshore wind Data points are presented over time to indicate the trend of cost evolutions in recent years E3 estimate takes into account current cost estimates as well as changes over time relative to 2014 estimate

Cost Differences by Region
Data from LBNL indicates that wind capital costs are likely to vary according to the region in which the project is located Projects in the “Interior” zone (Rocky Mountains) are less expensive to install than those in the “West” zone E3 recommends reflecting this difference in capital cost estimates Within region, E3 applies state-specific capital cost multipliers to reflect variation across state lines Source: 2015 Wind Technologies Market Report, LBNL

Onshore Wind Solar Costs over Time
E3 Recommendation: $1,700/kW-ac (Interior) $2,000/kW-ac (West)

Offshore Wind Costs over Time
E3 Recommendation: $4,500/kW-ac

Summary of Wind Capital Cost Recommendations
Capital costs expressed in $2016 Wind Subtypes E Update E Update E Update 2016 $/kW-ac Onshore Interior $2,196 $2,125 $2,000 Coastal $1,700 Offshore $6,589 $6,375 $4,500 Cost decrease in both categories relative to 2014 update (6-20% for onshore, 29% for offshore)

Future Cost projections

Cost Trajectory Methodology
In 2012, E3 developed methodologies to create plausible trajectories of future generation capital costs Solar PV: application of learning curves to present-day costs 20% learning rate for modules; 10% (Utility-Scale) or 15% (Rooftop) for BOS IEA Medium-Term Outlook forecast of global installations Wind: application of learning curves to present-day costs: 10% learning rate The general framework used to project future costs remain valid, but E3 has updated assumptions based on improved/new data and information and included projections for battery storage

Learning Curve Theory Learning curves describe an observed empirical relationship between the cumulative experience in the production of a good and the cost to produce it Increased experience leads to lower costs due to efficiency gains in the production process The functional form for the learning curve is empirically derived and does not have a direct theoretical foundation The learning rate represents the expected decrease in costs with a doubling of experience Global installed capacity is used as a proxy for cumulative experience in the electric sector

Future Cost projections - Solar

Components of Solar PV Costs
For each segment of solar PV, E3 has broken capital costs out into three categories: Module costs: direct cost of photovoltaic modules Non-module hard costs: costs of inverter, racking, electrical equipment, etc. “Soft costs”: labor, permitting fees, etc. Cost reductions in each category will result from different drivers and may not apply equally across all market segments

Module Cost Reductions
Historically, over the long-term, modules have stayed relatively close to a learning rate of 20% See International Technology Roadmap for Photovoltaic 2015 Results, available at Current module prices are below long-term learning curve Potential for cost reductions due to module cost declines is expected to be limited until trend returns to long-run average

Forecasting Future Module Prices
E3’s projection of module costs relies on the extrapolation of global PV forecast from the IEA’s Medium Term Renewable Energy Outlook Module prices are assumed to remain stable at today’s level until the long-term trend “catches up” Learning curve approach supports anecdotal evidence that suggests further reductions in module costs are limited

Non-Module Cost Reduction Potential
In 2014, E3 assumed that non-module cost components for rooftop PV would follow a learning rate of 15% while those for utility-scale PV would follow a 10% learning rate Reflected substantial effort to identify cost reduction potential in rooftop PV systems Reported “costs” of rooftop systems are increasingly influenced by the retail rate structures that enable their viability Fair market value of PV exceeds actual system costs, allowing for more rapid cost declines with increase experience / competition Learning rates are applied based on global installed capacity E3 believes these learning rates are still appropriate for use in 2016 20% reduction relative to 2016 29% reduction relative to 2016

Comparison to Prior Recommendations: Residential and Commercial
Residential and commercial rooftop solar PV costs have been revised downward from the 2014 E3 Update reflecting recent market cost declines

Comparison to Prior Recommendations: Utility Scale Fixed Tilt

Comparison to Prior Recommendations: Utility Scale Tracking

Future Cost projections - Wind

Forecasting Future Turbine Prices
Learning rates are based on meta-analysis of literature presented in Rubin (2015)2 Estimated at 12% for both on and offshore turbines E3’s projection of module costs relies on the extrapolation of global wind forecast from the Global Wind Energy Council Total installed capacity increases to ~800 GW in 2020, ~2,800 GW in 2040 Offshore wind increases from <3% of global total in 2015 to ~25% of global total in 20401 1 – Share of offshore wind is taken from IEA projections 2 – Rubin, E., I. Azevedo, P. Jaramillo, S. Yeh. “A review of learning rates for electricity supply technologies.” Energy Policy 86, pp

Turbine Price Evolution over Time
Due to relative maturity of onshore wind industry, offshore costs decline more rapidly over the next years Past 2030, growth in offshore wind slows to levels near that for onshore 51% below 2016 estimate 24% below 2016 estimate

Present day costs - Storage

Characterizing Storage Options
The breadth of potential storage applications is wide, and the appropriate technology and its characteristics will vary considerably Sources: Sandia (2013), Indiana State Utility Forecasting Group (2013)

System Characteristics
The table below compares some of the operating characteristics of the energy storage technologies examined here Technology Typical Size (MW) Round Trip Efficiency (%) Economic Lifetime (yrs) O&M Costs (2016 $/kW-yr) Pumped Hydro Storage 100+ 80 20+ 15 Lithium Ion Battery 10 92 5-10 30 Flow Battery 70 10-20 100 Compressed Air Energy Storage

Recommendations – Pumped Hydro Storage
Pumped hydro is a relatively mature technology that can scale-up to over 1 GW although costs are highly dependent on the specific site Recent projects in PacifiCorp’s territory (JD Pool, Swan Lake, and Seminoe) estimated at $2,600 - $2,700/ kW E3 Recommendation: $2,500/kW-ac

Lithium Ion Battery Costs by Storage Capacity
Costs presented according to storage life Tighter range of costs than that seen for flow batteries Likely due to wide range of potential materials that can be used in flow batteries E3 Recommendation: 4-Hour: $3,000/kW-ac, $750/kWh 8-Hour, $5,000/kW-ac, $625/kWh

Flow Battery Costs by Storage Capacity
Costs presented according to storage life Wide range of costs based on materials used Li-Ion batteries expected to have minor cost advantage E3 Recommendation: 4-Hour: $3,000/kW-ac, $750/kWh 8-Hour, $6,000/kW-ac, $750/kWh

Battery cost projections
Dramatic changes since 2005 These cost improvement trends are expected to continue into the 2020s Because of widespread use in other sectors, however, cannot apply “learning curve” methodology used elsewhere Instead, cost projections are based on expected overall % declines before the technology reaches “maturity” Costs are rapidly declining by any metric, whether you look at what the market leaders report, what publications report, or what is reported in the news Rapid decrease means that any storage cost-benefit analysis done in, say, 2013 is now outdated, since the assumed costs were up to 2x higher than today. Source: Nykvist et al. (2015),

Forecasting Future Battery Prices
Price reduction rates are based on data presented by Lazard (2016)1 Li-Ion: A 6% reduction rate was used; average of the high and low values predicted by Lazard Flow: A 5.5% reduction rate was used; average of the high and low values predicted by Lazard Technology reaches maturity by 2028, after which reductions are minimal Updated 1 – Lazard, Levelized Cost of Storage v2.0, 2016

Compressed Air Energy Storage (CAES) Costs over Time
Updated Relatively few data points available All estimates in the $1,200/kW - $2,000/kW range E3 Recommendation: $1,700/kW-ac

Present Day Costs – Other Technologies

Concentrated Solar Power Capital Costs
Updated In past years, E3 has generated two cost estimates for solar thermal plants With and without storage Based on comments from the CSP Alliance, capital cost estimates are now presented for two types of solar thermal plant Parabolic Trough, 7.5 hours of energy storage Power Tower, 9 hours of energy storage Due to change in technologies, cost estimates for solar thermal were based on latest information on technology (trough/tower) and incremental cost of storage International Renewable Energy Agency (IRENA) provided the only estimates for technologies proposed by CSA New cost estimates focus on technology and incremental storage costs rather than vintage

Concentrated Solar Power – Parabolic Trough
Updated E3 Recommendation: 7.5 hours: $6,000/kW-ac IRENA estimates (cited by CSP Alliance) shown in light green

Concentrated Solar Power – Solar Tower
Updated E3 Recommendation: 9 hours: $6,500/kW-ac IRENA estimates (cited by CSP Alliance) shown in light green

Future Cost Projections - CSP
Updated Price reduction rates are based on data presented by IRENA (2016)1 Parabolic Trough: A 33% reduction rate between the 2015 value and the projected 2025 value Solar Tower: A 37% reduction rate between the 2015 value and the projected 2025 value No additional price reductions assumed beyond those estimated by IRENA 1 – IRENA, The Power to Change: Solar and Wind Reduction Potential to 2025, 2016

Biomass Capital Costs No clear trend in Biomass capital cost estimates
EIA estimates increased 12%, Lazard slightly down Mature technology, costs are unlikely to decrease substantially E3 Recommendation: $4,300/kW-ac

Geothermal Costs E3 Recommendation:
Data indicates a modest decline in capital costs for Binary/Flash Geothermal Range of estimates has also narrowed E3 Recommendation: $5,000/kW-ac

Enhanced Geothermal Costs
Little to no updated information on costs / viability of Enhanced Geothermal Systems since 2014 update Limited deployment of EGS systems means that available cost data is based on experimental deployments E3 Recommendation: $9,000/kW-ac

Hydropower Costs A review of the available literature shows no evidence that Hydropower costs have changed since the 2014 update EIA inputs for 2016 AEO did not update hydro costs NWPCC considers hydro to be a “secondary” resource in the 7th Power Plan Cost information not given No change in estimates

Present Day Costs – Conventional Technologies

Conventional Technology Costs
E3 conducted a high-level review of conventional technology costs to determine if there was evidence in significant changes in last two years Generic cost estimates (Lazard, EIA, etc.) have experienced little to no change IRP cost estimates have seen small changes Lack consistent direction, indicating likely a result of project-specific factors Recommendation: Use nominal numbers from 2014 update, assume cost improvements offset inflation

Conventional Generation Technology Capital Cost Summary
Subtypes WECC 2012 E Update E Update (2016 $/kW-ac) CHP Small $3,859 $3,845 $3,800 Large $1,669 $1,670 $1,650 Coal Steam $3,912 $3,744 $3,700 IGCC with CCS $9,388 $8,297 $8,200 Gas CT Aeroderivative $1,147 $1,214 $1,200 Frame $835 $825 Gas CCGT Basic – Wet-Cooled $1,356 $1,138 $1,125 Basic – Dry-Cooled Advanced – Wet-Cooled $1,239 $1,225 Advanced – Dry-Cooled $1,315 $1,300 Nuclear $7,823 $8,094 $8,000 Recip Engine n/a

Present Day Costs – Fixed O&M

Fixed O&M Recommendations
Updated Technology Subtypes Fixed O&M ($/kW-yr.) Solar PV Residential Rooftop $33 Commercial Rooftop $20 Fixed Tilt (1-20 MW) $25 Tracking (1-20 MW) $30 Fixed Tilt (> 20 MW) Tracking (> 20 MW) Solar Thermal Trough with 7.5-hr storage $65 Solar Tower with 9-hr storage Wind Onshore $40 Offshore $100

Updated Technology Subtypes Fixed O&M ($/kW-yr.) Biomass $120 Biogas Landfill $100 Other Geothermal Binary/Flash Enhanced Geothermal $400 Hydro Small $20 Large Battery Li-Ion $30 Flow Pumped Storage $15 Compressed Air Energy Storage $25

Updated Technology Subtypes Fixed O&M ($/kW-yr.) CHP Small $10 Large Coal Steam $35 IGCC with CCS $65 Gas CT Aeroderivative $15 Frame $9 Gas CCGT Basic – Wet-Cooled Basic – Dry-Cooled Advanced – Wet-Cooled Advanced – Dry-Cooled Nuclear $85 Recip Engine $18

LEVELIZED COST Estimates – 2016 and 2036

Levelized Cost of Energy by Resource – 2016 and 2036
Updated Expiration of tax incentives are largely offset by capital cost improvements for Solar PV technologies Forecasted capital cost reductions for wind (especially offshore) make up for expiration of the PTC

Updated Expiration of tax incentives causes increases in LCOE for mature renewable resources Forecasted capital cost reductions for solar thermal technologies offset loss of ITC

Updated Conventional technologies have constant LCOEs in 2016$

Levelized Fixed Costs by Resource – 2016 and 2036
Updated Forecasted capital cost reductions for wind result in lower LFCs Expiration of tax incentives are largely offset by capital cost improvements for Solar PV technologies

Updated Expiration of tax incentives causes increases in LFC for mature renewable resources Forecasted capital cost reductions for solar thermal technologies offset loss of ITC

Updated Conventional technologies have constant LFCs in 2016$

Updated Cost improvements lower LFCs for battery storage options LFCs for more conventional storage options remain constant in 2016$

Thank You! Energy and Environmental Economics, Inc. (E3) Montgomery Street, Suite San Francisco, CA Tel Web

Bibliography

Sources Arizona Public Service Avista California Energy Commission
2014 Integrated Resource Plan. Apr 2014 Link Avista 2015 Electric Integrated Resource Plan. Aug 2015 California Energy Commission Estimated Cost of New Renewable and Fossil Generation in California. Mar 2015

Sources (cont’d) California Solar Initiative (CSI) Greentech Media
CSI data. Nov 2016 Link Greentech Media U.S. PV System Pricing H2 2016: System Price Breakdowns and Forecasts. Nov 2016 Idaho Power Company 2015 Integrated Resource Plan. Jun 2015

Sources (cont’d) International Renewable Energy Agency (IRENA) Lazard
Renewable Power Generation Costs in Jan 2015 Link The Power to Change: Solar and Wind Reduction Potential to 2025, Jun 2016 Lazard Levelized Cost of Energy Analysis – Version 9.0. Nov 2015 Levelized Cost of Energy Analysis – Version Dec 2016

Sources (cont’d) Lazard (cont’d)
Levelized Cost of Storage Analysis – Version 1.0. Nov 2015 Link Levelized Cost of Storage Analysis – Version 2.0. Dec 2016 Lawrence Berkeley National Laboratory (LBNL) Tracking the Sun VIII: The Installed Price of Residential and Non-Residential Photovoltaic Systems in the United States. Aug 2015

Sources (cont’d) Lawrence Berkeley National Laboratory (LBNL) (cont’d)
Tracking the Sun IX: The Installed Price of Residential and Non-Residential Photovoltaic Systems in the United States. Aug 2016 Link Utility Scale Solar Aug 2016 2015 Wind Technologies Market Report. Aug 2016

Sources (cont’d) National Renewable Energy Laboratory (NREL)
Distribution Generation Renewable Energy Estimate of Costs. Feb 2016 Link Pacificorp 2015 Integrated Resource Plan. Mar 2015 Pacificorp and Black & Veatch 2017 Integrated Resource Plan. Aug 2016

Sources (cont’d) Portland General Electric
2016 Integrated Resource Plan. Nov 2016 Link

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