Toward global comparability in renewable energy procurement

•Interpreting renewable procurement prices at their face value can be misleading.•New method shows how compared like-for-like.•The level and composition of offshore wind revenue varies globally.•Support regimes remain essential even when direct subsidy payments decline. Procurement are increasingly used to gauge the financial performance costs energy projects. Comparing from auctions or contracts alone is rarely adequate across different jurisdictions time horizons. This often results in misleading conclusions. We employ a holistic approach capture all relevant project elements apply it eight global In like-for-like comparison, we find significant variation absolute levels relative streams. confirms that our developed metric useful establish comparability. Our findings also emphasize continued importance support regimes, nonexistent. With sufficient data available, enables comparisons inform supplement established cost metrics. Prices competitive for comparative evaluation technology performance. power-purchase agreements not meaningful, particularly over time. Differences market, tax, regulatory environment make comparison convoluted result Here, estimate holistically Using cash flow model, consider applicable regimes; market sales; monetized tax incentives, depreciation, transmission. considerable value, which must considered deducting prices. The resulting decision makers research compare total on an equal footing supplements life-cycle projects expressed as levelized (LCOE). metric, commonly analysis power sector models, touted its simplicity allows among with profiles capital-recovery periods.1Short W. Packey D. Holt T. A manual economic efficiency technologies.1995https://www.nrel.gov/docs/legosti/old/5173.pdfCrossref Google Scholar Cost assumptions computation LCOE challenging obtain because commercially sensitive nature. As result, accuracy comparability estimated ideal.2Aldersey-Williams J. Broadbent I.D. Strachan P.A. Better estimates audited accounts–a new methodology examples United Kingdom CCGT.Energy Policy. 2019; 128: 25-35Crossref Scopus (29) Scholar,3Aldersey-Williams Rubert Levelised - theoretical justification critical assessment.Energy 124: 169-179Crossref (97) increasing deployment projects, price purchase (PPAs) winning bids (both hereafter generically referred “procurement prices”) complementary indicator performance.4International Renewable Energy AgencyRenewable generation 2018.2019https://www.irena.org/publications/2019/May/Renewable-power-generation-costs-in-2018Google contrast LCOE, offer some advantages project. Whereas inferred secondary sources nature (e.g., through press releases bottom-up modeling), PPAs auction awards publicly available represent binding commercial commitment between contract parties. Several analyses have exploited PPA data: Miller et al.5Miller L. Carriveau R. Harper S. Singh Evaluating link structure energy.Energy Strategy Rev. 2017; 16: 33-42Crossref (28) land-based reported identify differences. Apostoleris al.6Apostoleris H. Sgouridis Stefancich M. Chiesa factors led low-priced solar electricity Middle East.Nat. Energy. 2018; 3: 1109-1114Crossref (43) Dobrotkova al.7Dobrotkova Z. Surana K. Audinet P. energy: comparing utility-scale PV developing countries.Energy 118: 133-148Crossref (60) disaggregated photovoltaic (PV) public held East countries. Although these use data, they narrowly focus single only price. More broadly, review literature suggests conducted without clearly defined specification requirements. Sometimes, made implicitly suggesting two synonymous8Hernandez Richard C. Nathwani Estimating – geothermal data. 41st Workshop Geothermal Reservoir Engineering.2016: 1-8https://pangea.stanford.edu/ERE/pdf/IGAstandard/SGW/2016/Hernandez1.pdfGoogle Scholar; however, rounds countries, technologies, systematically considering differences siting parameters, environments lead misrepresented results. Very recently, Jansen al.9Jansen Staffell I. Kitzing Quoilin Wiggelinkhuizen E. Bulder B. Riepin Müsgens F. Offshore competitiveness mature markets subsidy.Nat. 2020; 5: 614-622Crossref (45) introduced formal derive “harmonized expected revenue,” applying this recent European auctions. Their focused understanding whether designated “subsidy free” by revenues markets. important step systematic revenues; left several unexplored directly covered under award but comprise part credits, environmental attributes, capacity sales, depreciation value). limits degree diverse conditions scale. more globally has already been called for.10Broadbent Aldersey-Williams Leaving competition wake.Nat. 555-556Crossref (1) close gap exploring (2) metrics such LCOE. To meet objective, develop captures full scope streams, (LRVE). contributions work 3-fold: First, present structured detailed calculation framework, scale demonstrates interpret values. goes beyond previous approaches, streams and, therefore, cannot analysis. Second, show conceptually quantitatively estimates. aspect, addressed prior research, becomes ever rare herein provides researchers, policymakers, analysts making equitable Third, defining analyzing separately, gain highly resolved insight into both documented literature. Therefore, question broader than those formulated others.6Apostoleris Scholar,7Dobrotkova implications applicability findings. illustrate usefulness approach, quantify LRVE Northern Europe, States, Japan. extends al.’s9Jansen conclusion emphasizes policy development globally. achieve high holistically, express terms units $/MWh. Financial metrics, spreading plant’s annual capital recovery period plant. plants periods. component (when multiplied procured energy) itself usually insufficient jurisdictions, time, typically determined context policies, wider environment. These bidders parties determine willing submit offering. Winning 0 EUR/MWh Europe9Jansen evident that, fall short comparison. For purposes analysis, define “face value” consistent term industry coverage: nominal strike (if auction), PPA) (Equation S7), tariff feed-in tariff). predetermined buyer seller agree settle prevailing wholesale commodity electricity) spot such, constitute instruments, auctions, lowest (i.e., winning) bid price.11Beiter Heeter Spitsen Riley U.S. states. Technical report. National Laboratory), 2020https://www.nrel.gov/docs/fy20osti/76079.pdfCrossref introduce (monetized) three constituent elements: (LROE), (LTV), (3) infrastructure (LIDV). LROE intended possible production provision; LTV dedicated fiscal received form preferential rules; LIDV expenditures benefit project, regardless paying entity. Together, 1):LROE+LTV+LIDV=LRVE?LCOEeq(Equation 1) argue including LCOEeq S5). Table 1 common evaluate include system (LPPA), harmonized (HER). average per unit would required owner recover investment operating costs12U.S. Information AdministrationLevelized avoided supplement.2020https://www.eia.gov/renewable/workshop/gencosts/pdf/methodology_supplement.pdfGoogle alternatively, generating specific source during assumed design life expenses meets investor return expectations.13Wiser Jenni Seel Baker Hand Lantz Smith A. Expert elicitation survey future costs.Nat. 2016; 1: 16135Crossref (159) See Equation S7 supplemental information definition. Ueckerdt al.14Ueckerdt Hirth Luderer G. Edenhofer O. System LCOE: what variable renewables?.Energy. 2013; 63: 61-75Crossref (329) sum technology’s marginal integration unit. variability occur level. LPPA project’s each energy.15National LaboratorySystem advisor model: version 2020.2.29.2020https://sam.nrel.govGoogle S6 Lastly, HER discounted MWh generated lifetime project.9Jansen clear conceptual distinction presented missing existing literature.Table 1Key financial-evaluation metricsKnown parameterCoverageLCOEcosttotal costSystem LCOEcosttotal costLRVEpricetotal valueLPPApricePPA revenueHERpriceenergy-based Open table tab distinguish concepts along dimensions, known parameter coverage. estimating (such operational expenditure), whereas relies parameter. plus system). Regarding coverage, regime), (typically) reflect lifetime. Distinguishing practical purposes. sources, rely infer prices). latter parties, could imply higher confidence derived sources. characteristics complement alternative Under perfectly (as understood traditional literature), LRVE—when capturing else production)—can approximation standard (LCOEeq). Note report does inherent uncertainty associated Recognizing certain types assessments, intentional decision. form, deterministic1Short (For adapted formulation representing uncertainty, see, e.g., Aldersey Rubert3Aldersey-Williams assessment impact risk prices, see Stetter al.16Stetter Piel Hamann Breitner Competitive risk-adequate onshore Germany.Energy Econ. 90: 104849Crossref (6) Scholar) therefore should well Further, adjust structural might arise topography resource availability. comparisons, commercial-scale fair Data procurement, environments, details were readily selected stages operation. They 3.8 GW capacity, nearly 17% installed end 2018.17Musial Beiter Nunemaker technologies Laboratory, 2018https://www.energy.gov/sites/prod/files/2019/08/f65/2018%20Offshore%20Wind%20Market%20Report.pdfGoogle further decompose LROE, LTV, LIDV. represents four components sold remunerated (government) regime:(1)Energy (EM) (ES) revenue(2)Capacity (CM) (CS) revenue(3)Environmental attributes (EAM) (EAS) revenue(4)Ancillary service (ASM) ancillary (ASS) (note relatively small portion remuneration date. See, Denholm al.18Denholm Sun Y. Mai An introduction grid services: concepts, technical requirements, provision wind. 2019https://www.nrel.gov/docs/fy19osti/72578.pdfGoogle discussion US list services here reasons disregard them quantitative study; relevance increase, need future.) Each quantity S1). If delivery obligations set forth regime, needs modeled according regime. bilateral agreement, modeling projections about prices) (see details). any receives government vary subject depending physical location. components:(1)Dedicated credits: credits (PTC), (ITC), others.(2)Depreciation (DV) Tax incentives additional provided (versus “typical” regulation place other assets within jurisdiction). (which do treatment). Examples deprecation increased rules 125% expenditure) accelerated times 25% first 4 years operation declining balance). divided components:(1)Infrastructure (INV)(2)Development (DEV) Infrastructure interpreted broadly. sample electric-grid connection construction proxy. categorize studies, certification, consenting development-value category, Both quantified entity obligation reflected (higher) focuses transactional rather flows analyzed services, taking perspective generator (for instance, still sell contractual arragement). 2 specifies support-regime various studied variety globally, experimental procedures details).Table 2Revenue projectsProjectJurisdictionSize [MW]Remuneration typeLROELTVLIDVESEMCSCMEASEAMPTCITCDVINVDEVKriegers FlakDK600Two-sided CfDxxn/an/an/an/an/an/axxn/aHorns Rev 3DK407Two-sided CfDxxn/an/an/an/an/an/axxn/aAnholtDK400Two-sided CfDxxn/an/an/an/an/an/axxn/aBeatriceUK588Two-sided CfDxxn/an/an/an/an/an/an/an/an/aGode Wind 3+4GER374One-sided CfDxxn/an/an/an/an/an/an/axn/aVineyard I+IIUS800Mand. PPAxn/an/axxn/an/axxn/an/aOcean IUS368Mand. ORECn/an/an/axxn/an/axxn/an/aAkitaJPN370Feed-in tariffxn/an/an/an/an/an/an/an/an/an/aNote: “x” indicates components, Abbreviations follows: CfD, contract-for-difference; Mand. PPA, mandated agreement; OREC, certificate. Note: All receive support. countries combination EM sales contract-for-difference (CfD) schemes. states utilities enter generators certificates (ORECs) specified nameplate capacity. effect, fixed (mandated OREC) (an exception New York OREC [applicable Empire Sunrise projects], effectively functions like two-sided CfD revenue-modeling perspective). Depreciation benefits Denmark States. Export-system cable entities Germany. None compensation) entities. By following calculations procedures, shown Figure 1. range $70/MWh $255/MWh $127/MWh (in 2018 dollars) (all denoted dollars, unless indicated otherwise). Five approximately below just slightly above $100/MWh. Akita (Japan), Beatrice (UK), Anholt (Denmark) feature considerably LRVE. Broadly, seems decrease anticipated date less Revenue (Table 3). Among most stems payments), ranging 80% (Vineyard Wind) 100% (Beatrice Akita). comprises share (expected) election ITC. export-cable 3%–7% Danish German Projects sizable installed) seemingly expose larger sourced CfDs merchant tails). Conversely, developers nascent provide certainty [FIT] Japan PPAs/ORECs States).Table 3LRVE “face- projectsLRVELROELTVLIDVFace-value price$/MWh%%%$/MWhKriegers Flak, DK, 202270912755Gode 3+4, GER, 202386920891Vineyard I+II, US, 2022–23938022084Ocean I, 202410389110114Horns 3, 20191059325114Beatrice, UK, 201915610000221Anholt, 20131499523187Akita, JPN, 202125510000330Note: face-value (auction CfD) (PPA) 3 features price, differs ?30% 26% leading experts group field (International Agency Bloomberg Finance). notable exceptions (Akita, Beatrice, Ocean I), broadly ranges. pricing Its comprehensive nature—considering attributable individual projects—enables realistic rounds, varying regimes. applied demonstrate insights From application results, points conclusions arise, below.