Navigant Research Blog

Solar PV Becoming Miners’ Friend

— May 12, 2014

At the Zwartkop Chrome Mine, near Thabazimbi, South Africa, mining company Cronimet Chrome SA has established a technological innovation – not below the ground, but above it.  To help power the mine, Cronimet installed a hybrid solar-diesel system that includes 4,158 solar photovoltaic (PV) panels, producing 1.8 GWh of electricity – about 60% of the mine’s power.  According to a report released by Carbon War Room in March, the Cronimet system will not only reduce fuel costs and carbon emissions for the mine, but also has the potential to “power local communities and improve the local economy.”

Like natural gas and wind power, solar PV and mining are becoming odd bedfellows – seemingly incongruent players in the energy landscape that are increasingly being paired to create win-win situations for each party.  Solar PV is increasingly being utilized to reduce the costs and lower the environmental damage of extracting coal and other minerals.  Chile, South Africa, and Australia are three of the leading countries where solar PV is being installed on mining operations, due to the remote location of the mining sites, unreliable (or nonexistent) electricity from the grid in the mining area, and the heavy use of diesel gensets in every aspect of mining operations.  Navigant Research’s Renewable Energy in the Mining Industry report forecasts that renewable technologies will supply between 5% and 8% of the world’s mining industry power consumption by 2022.

Winning Combination

The world’s largest solar PV company, U.S.-based First Solar, is now aggressively targeting diesel replacement solutions for African mines.  The company acquired Solar Chile, a Chilean project development company with a pipeline of 1.5 GW of solar PV, in 2013.  Much of this pipeline is in the Atacama Desert region, which boasts some of the highest solar irradiance in the world.  Combining high solar irradiance and high cost of electricity is a recipe for solar company success.  First Solar says its levelized cost of electricity is as low as 7 cents per kWh in such places – making it competitive with grid prices without subsidies.

In Australia, First Solar says it expects to develop as much as 200 MW of capacity for the mining industry over the next 3 years.  First Solar’s Sydney-based vice president of business development for Asia Pacific, Jack Curtis, tells Bloomberg News that mines are not as profitable as they used to be, meaning cost control is a bigger concern, and solar PV can be a hedge against volatile fuel costs.

Similar to wind, the solar PV market of today has evolved into a sophisticated global industry and has distanced itself in some ways from the us versus them approach of renewables and fossil fuels.   There can be synergies, albeit uncomfortable ones.

 

Hungry Solar Developers Look to Booming South Africa

— May 8, 2014

South Africa leads the renewable energy market in Africa.  The country has established a target of nearly 3.7 GW of renewables installed by 2030; in November 2013, it completed its third round of bids under the Renewable Energy Independent Power Producer Program, bringing the country to 86 MW of solar operating and nearly 1.5 GW in development.  The program provides power purchase agreements (PPAs) over 20 years with the country’s primary utility, Eskom, for projects up to 75 MW.  In the third round of bidding alone, the country procured 787 MW for wind projects, 450 MW for solar PV, and 200 MW of concentrating solar power (CSP).  There were also bids for 16.5 MW of biomass and 18 MW of landfill gas power.  Not bad for one of the top coal-producing countries in the world.

As is common practice with bidding processes for any large infrastructure projects, the government included a local content requirement (LCR).  In the third round of bidding, the LCR was increased to 45% and, in a unique twist, the local company had to have a black South African shareholder majority.  Together, these requirements were expected to reduce the attractiveness to foreign companies and increase bid prices – both of which proved untrue.  The average price for solar PV projects dropped from around $3.50/W in the first round to less than $2.50/W in the second and third rounds.  This is competitive with solar being installed anywhere in the world today.

Open and Fair, Mostly

This is largely because the companies bidding include leading international project developers, such as Spain’s Abengoa, Italy’s Enel, China’s Longyuan Power, Norway’s Scatec, and SunPower Corporation (where France’s Total is now the majority shareholder).  China’s Trina Solar and U.S.-based First Solar are also active in South Africa.  While the market has either slowed down or become saturated in their home countries, international players are looking to emerging markets to grow sales.  This is a strong indicator of the hunger level of international power producers and the mature state of the solar PV industry in South Africa.

Bidders reported that they were generally pleased with the transparency of the process, typically a gripe when operating in emerging markets, including much of Africa.  There were construction delays for the first two rounds of projects and delays in announcing the third round of preferred bidders due to the overwhelming number of applicants – but these are to be expected as the country gets its first gigawatt under its belt.

The question is whether this apparent success can be replicated in other African countries.  Large-scale solar PV projects are operational in Reunion (15.6 MW), Mauritania (15 MW), and Cape Verde (5 MW), with a number of projects on the continent in development – notably Rwanda, with 8.5 MW.  Kenya, Tanzania, Nigeria, and Ghana are other countries with strong prospects and abundant activity in both on-grid and off-grid solutions.

 

Solar Market for Base of Pyramid Not So Pico

— April 14, 2014

In an upcoming report on pico solar lighting products (<10W) and solar home systems (<200W) sold primarily to rural communities in Africa and Asia, I cover the unit sales, revenue, and capacity of these small solar photovoltaic systems globally.  One of the most important trends covered in the report is that pico solar has transitioned from a humanitarian aspiration to big business – more than $100 million in 2014.  Corporate involvement in rural electrification has traditionally come in the form of corporate social responsibility initiatives, but real money is now flowing to solar companies serving the base of the pyramid market.  The success of a number of off-grid solar lighting companies and social enterprises has attracted interest from major corporations such as Panasonic, Schneider Electric, and Philips, as well as funding from investors.  Some of the more notable investments include:

  • In early 2014, d.light raised $11 million in Series C funding from DFJ, Omidyar Network, Nexus India Capital, Gray Ghost Ventures, Acumen Fund, and Garage Technology Ventures.  The company is one of the leading pico solar manufacturers, and has now raised $40 million and sold an estimated 6 million pico solar systems reaching 30 million people.
  • In early 2014, Persistent Energy Partners acquired Impact Energies, a pay-as-you-go, off-grid solar service provider working in West Africa that has reached 30,000 customers since 2011.  The renamed company, Persistent Energy Ghana, installs village solar microgrids and solar home systems.
  • In late 2013, Khosla Impact invested $1.8 million in a Series A round with BBOXX, a U.K.-based company that sells portable solar kits ranging from 7W to 185W and plug-and-play solar systems that range between 2 kW and 4 kW.  The company also provides a mobile pay-as-you-go service enabled by remote battery monitoring, which was the primary interest of Khosla.
  • In 2012, Greenlight Planet, one of the leading designers and distributors of solar light-emitting diode home lights, raised $4 million from Bamboo Finance and Dr. P.K. Sinha, co-founder of ZS Associates.  The investment followed previous financing by Dr. Sinha.  Greenlight Planet has sold more than 1.8 million solar lamps since the company was founded in 2008.
  • In 2012, Barefoot Power, one of the largest pico solar manufacturers, raised $5.3 million from three social investment funds (d.o.b. Foundation, ennovent, and Insitor Fund), existing shareholders (The Grace Foundation and Oikocredit Ecumenical Development Cooperative), and a number of private angel investors.

The full report will be released in the next few weeks.  It will discuss industry market drivers and challenges, and includes more than 20 company profiles and country-specific forecasts from 2014 to 2024.

 

As Race Tightens, Renewable Energy Costs Fall Quickly

— March 20, 2014

The most common metric used to compare the costs of different power generation technologies is levelized cost of energy (LCOE).  LCOE is defined as the average cost per unit of electricity over the life of a project, which is driven primarily by capital costs, operating costs, financing, and capacity factor (power output relative to the installed capacity).  All of these factors vary by technology and are continually changing.  The chart below shows a snapshot of LCOE for various technologies estimated by Navigant Consulting as of late 2013.  Note that each estimate provided represents an average of a wide range of values, given the many variables such as plant size, age, and location that exist within each technology.

U.S. Levelized Cost of Energy

(Source: Navigant Consulting)

PV Solar Cost Continues Its Precipitous Decline

This chart looked much different 5 years ago, and it will likely be very different in another 5 years.  Photovoltaic (PV) solar and wind in particular have seen dramatic cost reductions in recent years.  For example, average selling prices for PV solar modules have dropped from $3.50 per watt in 2007 to a current price of below $1.00 per watt for large customers.  In addition to declining costs, PV solar has been experiencing improved performance.  Different technologies will also have varying impacts on overall system output.  In warmer climates, for example, thin-film modules will generally produce higher capacity factors compared to crystalline silicon.  Similarly, tracking devices – which allow solar panels to follow the sun – improve the capacity factor of a PV system.  Over the past couple of years, single-axis tracking systems have seen an increase in market share due to lower prices and increased reliability.  While most of the adoption is currently in western states, where the performance benefit of tracking is the greatest, we expect to see more tracking systems across the entire market as prices continue to decline and reliability increases.  For example, Public Service Company of New Mexico recently filed for approval of 23 MW to be built in 2014 at a contracted price of just $2.03 per installed watt.

Wind Cost Resumes Its Downward Trend

The LCOE of wind power has experienced a similar decline since its modern day peak in 2009.  Average power purchase agreement prices for wind plants in the interior (windy) part of the United States were around $50 per MWh (in 2013 dollars) that year, compared to an average of $23 per MWh in 2013.  The newest generation of wind turbines have capacity factors that are approximately 10 percentage points higher (i.e., 45% instead of 35%) compared to just 5 years ago.  With the new large rotor turbines yet to be integrated into the U.S. fleet, we can expect continued improvements in the years ahead, with many projects achieving capacity of factors above 50%.

Mature technologies are also able to secure more favorable financing.  This is due to the lower perceived risk by financial providers, which improves the price competitiveness of these projects.  Both wind and solar are now becoming mainstream technologies and will ultimately become cost-competitive without the need for incentives.  As the newer renewable technologies mature, we expect them to benefit from more attractive financing terms, as well.

Readers should be cautioned that LCOE is only part of the story.  The short-term variability of renewables imposes some cost, especially at higher penetrations.  Resources and projects may require new or expanded transmission investment, which is typically not included in general LCOE estimates.

For those interested in hearing a lively discussion on this subject, representatives from Navigant Consulting, the Lawrence Berkeley National Laboratory, and the National Renewable Energy Laboratory will participate in a panel session covering LCOE forecasts for renewable energy and grid parity projections as part of a renewable energy workshop on May 5, 2014 at the AWEA WINDPOWER 2014 conference in Las Vegas.  For more information, click here.

Notes:  The chart assumes federal incentives only (e.g., 30% investment tax credit [ITC] for solar and accelerated depreciation).  PV is fixed axis.  Concentrated solar power (CSP) assumes trough technology.  Natural gas price of $3.00 per MMBtu.  Geothermal assumes installed cost of $5 per watt, capacity factor of 80%, and ITC of 10%.  Wind assumes 35% net capacity factor with no production tax credit (PTC)/ITC.

Bruce Hamilton is a director in the Energy Practice of Navigant Consulting.

 

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