CHILE LEVELISED

COST OF ENERGY
PRESENTED TO NRDC

TYLER TRINGAS, ENERGY ECONOMICS

APRIL 2011

/ / / / / / // // /// / / / / / / / / / / / / / / / / / / /
Chile Levelised Cost of Energy, April 2011 1
CONTENTS

• Introduction
• Objectives
• Levelised Cost of Energy Model Description
• Levelised Cost of Energy in Chile
• Impact of Transmission Costs
• Impact of CCS
• Impact of Fuel Prices
• Learning Curve Impacts
• Case Study: Time of Day Value
• Conclusions

/ / / / Chile Levelised Cost of Energy, April 2011 2

INTRODUCTION

• Bloomberg New Energy Finance (BNEF) is a leading provider of industry

information and analysis to investors, corporations and governments in the
clean energy and carbon sectors. BNEF has a dedicated global network of
125 analysts, based across 10 offices in Europe, the Americas, Asia &
Africa that continuously monitor market changes, deal flow and financial
activity, increasing transparency in clean energy and carbon markets.
• Natural Resources Defense Council (NRDC) commissioned Bloomberg
New Energy Finance to prepare an assessment of the levelised cost of
energy (LCOE) for various generation technologies in the Chilean power
sector and commissioned Valgesta Energía to provide Chilean data.
• Where the Chilean experience or data was limited or lacking, BNEF drew
upon its global database. Where indicated, BNEF conducted independent
research in Chile which also supplements the information provided by
Valgesta.

/ / / / Chile Levelised Cost of Energy, April 2011 3

OBJECTIVES

• The analysis first compares the levelised cost of energy (LCOE) for
conventional and renewable energy sources in Chile in 2011, 2020 and
2030 to show the evolution of the costs of non-conventional renewable
energy technologies.
• The analysis then shows the impacts of the costs of transmission, fuel
and pollution control investments on the LCOE.
• Finally, the analysis presents a scenario showing the possible impact of
non-conventional renewable energy on peak energy prices.

/ / / / Chile Levelised Cost of Energy, April 2011 4

LEVELISED COST OF ENERGY MODEL DESCRIPTION

Construction Analysis The levelised cost of energy

Development represents a constant cost
Cost per unit of generation
Cash flow Analysis
computed to compare the
Capital generation costs of different
Equity Post-Tax IRR
Equipment
Investment Cash flows technologies.
Cost

The specific LCOE is the

Construction
Cost power price, in USD/MWh,
in year 1 that, escalating
LCOE with inflation through the
project life, exactly returns a
Annual Operational Analysis IRR (in this case, 10%).

Revenues By indicating the price at

Capacity Power Price
which a technology can
Variable O&M Tax Analysis Guess profitably sell electricity, the
Factor
technique allows the LCOE
Fixed O&M
to be representative of a
Depreciation
competitive tendering
process for actual power
contracts.

Source: Bloomberg New Energy Finance

/ / / / Chile Levelised Cost of Energy, April 2011 5

FIGURE 1.1: 2011 LCOE CHILE LEVELISED COST OF
ENERGY

Diesel utilty-scale 346 560 Today, on an LCOE basis, a

PV cSi commercial 225 328
wide range of non-
cPV two-axis tracking utilty-scale 193 277
conventional renewable
energy (NCRE)
PV cSi utilty-scale 156 242
technologies, including
STEG tower + heliostat utilty-scale 155 221
biogas/landfill gas, small
STEG trough utilty-scale 197 284
hydro, biomass, onshore
Geothermal binary utilty-scale 82 108
wind, geothermal are
Coal utilty-scale 73 155 competitive with the new
CCGT utilty-scale 68 111 build cost of Chile’s
Geothermal flash utilty-scale 56 91 mainstay energy sources of
Wind onshore utilty-scale 51 259 large hydro, natural gas and
Biomass all feedstocks utilty-scale 35 179 coal.
Large Hydro 32 137
Large Hydro Aysen 45 137 Energy prices are from CNE
Small Hydro 30 169 data and calculated as the
Biogas/Landfill utilty-scale 39 102 USD/MWh average of 1st quarter 2011
and the last three quarters
0 100 200 300 400 of 2010.
NCRE LCOE Conventional LCOE Central Scenario SIC Energy Price SING Energy Price

Note: Large Hydro are non-Aysen projects, small hydro are less than 20MW. Source: Bloomberg New Energy Finance, Valgesta Energía

/ / / / Chile Levelised Cost of Energy, April 2011 6

FIGURE 1.2: 2020 CHILE LEVELISED COST OF ENERGY

Diesel utilty-scale 450 590 By 2020, utility scale PV

PV cSi commercial 128 187 and solar thermal systems
cPV two-axis tracking utilty-scale 174 249 will be competitive
PV cSi utilty-scale 92 143 sources of energy without
STEG tower + heliostat utilty-scale 110 133 subsidies.
STEG trough utilty-scale 131 159
Geothermal binary utilty-scale 82 108 With increasing thermal
Coal utilty-scale 77 169 fuel prices and decreasing
CCGT utilty-scale 78 121 costs for renewables,
Geothermal flash utilty-scale 56 91 several technologies such
Wind onshore utilty-scale 60 121
as wind, biomass,
Biomass all feedstocks utilty-scale 35 179
geothermal and small
Large Hydro 32 137
hydro will in some cases
Large Hydro Aysen 45 137
be a cheaper option for
Small Hydro 30 169
new energy capacity than
Biogas/Landfill utilty-scale 39 102 USD/MWh
conventional
0 100 200 300 400 technologies.
NCRE LCOE Conventional LCOE Central Scenario SIC Power Price SING Power Price
Energy prices are based
on PRIEN* 2008 forecast
Note: Large Hydro are non-Aysen projects, small hydro are less than 20MW.
to 2030, “dynamic” case.
*Programa de Estudios e Investigaciones en Energia - Instituto de Asuntos Públicos en Energía
Universidad de Chile. Diesel fuel prices beyond 2030 not modelled Source: Bloomberg New Energy Finance, Valgesta Energía

/ / / / Chile Levelised Cost of Energy, April 2011 7

FIGURE 1.3: 2030 CHILE LEVELISED COST OF ENERGY

Diesel utilty-scale 470 610 By 2030, most selected

PV cSi commercial 104 151 renewable energy
cPV two-axis tracking utilty-scale 155 221 technologies will be
PV cSi utilty-scale 74 115 cheaper or competitive
STEG tower + heliostat utilty-scale 87 106
with thermal
STEG trough utilty-scale 104 127
technologies.
Geothermal binary utilty-scale 82 108
Coal utilty-scale 78 172
CCGT utilty-scale 81 123 Energy prices are based
Geothermal flash utilty-scale 56 91 on PRIEN* 2008
Wind onshore utilty-scale 52 105 forecast to 2030,
Biomass all feedstocks utilty-scale 35 179 “dynamic” case.
Large Hydro 32 137
Large Hydro Aysen 45 137
Small Hydro 30 169
Biogas/Landfill utilty-scale 39 102 USD/MWh
0 100 200 300 400

NCRE LCOE Conventional LCOE Central Scenario SIC Power Price SING Power Price

Note: Large Hydro are non-Aysen projects, small hydro are less than 20MW.
*Programa de Estudios e Investigaciones en Energia - Instituto de Asuntos Públicos en Energía
Universidad de Chile. Diesel fuel prices beyond 2030 not modelled Source: Bloomberg New Energy Finance, Valgesta Energía

/ / / / Chile Levelised Cost of Energy, April 2011 8

FIGURE 2: IMPACT OF TRANSMISSION COSTS ON LCOE

Diesel utilty-scale 346 570 Except for distributed

PV cSi commercial 225 328 generation (not connected
cPV two-axis tracking utilty-scale 193 286
to the grid), new generation
PV cSi utilty-scale 156 255
sources require some
STEG tower + heliostat utilty-scale 155 229
transmission build out
STEG trough utilty-scale 197 284
unless built adjacent to
existing transmission.
Geothermal binary utilty-scale 82 118
Coal utilty-scale 73 156
Renewables and large
CCGT utilty-scale 68 112
hydro must be located
Geothermal flash utilty-scale 56 101
where resources are found
Wind onshore utilty-scale 51 264
and therefore have a wide
Biomass all feedstocks utilty-scale 35 180
range of possible costs.
Large Hydro 32 139
Large Hydro Aysen 45 181
Transmission costs for
Small Hydro 30 170
stand-alone coal and gas
Biogas/Landfill utilty-scale 39 102
facilities will depend heavily
USD/MWh
0 100 200 300 400 on where local regulations
NCRE LCOE Conventional LCOE Transmission Cost permit project siting and
Central Scenario SIC Energy Price SING Energy Price could vary significantly for
an individual project.

Source: Bloomberg New Energy Finance, Valgesta Energía

/ / / / Chile Levelised Cost of Energy, April 2011 9

FIGURE 3: 2011 LCOE WITH CCS

CCS technology is
Geothermal 56 90 expensive because it has
not yet been
commercialized. In
PV cSI utility-scale 156 242 addition to incremental
CAPEX, it reduces a
plant’s operating
Wind Onshore utility-
scale
51 264 efficiency lowering
capacity factors.

Natural Gas CCGT 68 200 As a consequence, in

2011 CCS could increase
the LCOE by a factor of 2.
Coal 73 245
USD/MWh BNEF does not predict
0 50 100 150 200 250 300 widespread deployment of
NCRE LCOE Conventional LCOE Cost of CCS CCS until 2030, with costs
reductions in excess of
25% only occurring in
2050.

Note: Assumes Valgesta Central coal scenario and CNE SIC gas price forecast. Source: Bloomberg New Energy Finance

/ / / / Chile Levelised Cost of Energy, April 2011 10

FIGURE 4.1: FUEL PRICE FORECASTS TO 2030
USD/ton 350
Coal
Chile
300 historic Future thermal prices
trend
250 Coal EIA are very uncertain for
trend
Chile and forecasts
200
Coal range widely. These
Valgesta
150 Central forecasts have a large
100 Coal EIA impact on future LCOE.
+ Export
price
50
Coal CNE Valgesta created a
0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
weighted-average coal
USD/MMBtu
forecast methodology
16 which is our base case
14 assumption although
12 Gas CNE some forecasts are
SING
10 substantially higher.
Gas CNE
8 SIC
The CNE forecast for
6 Gas EIA
SIC from 2012 was used
4
as the base case for
2
natural gas.
0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Note: Prices assumed steady after 2030 Source: Bloomberg New Energy Finance, Valgesta Energía

/ / / / Chile Levelised Cost of Energy, April 2011 11

FIGURE 4.2: IMPACT OF COAL PRICE FORECASTS

USD/MWh
180 NCRE follow a
Range of coal predictable path for price
160 price estimates reductions in the long-
term. However, future
thermal prices depend
140
on very unknown fuel
prices.
120
This makes the point of
100 parity with other fuels
very uncertain but
possibly very near.
80

60
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Coal (historic trend) Coal (EIA trend) Coal (Valgesta Central)
Coal (CNE forecast) Wind onshore PV cSi utilty-scale
Solar Thermal expected grid parity possible grid parity

Source: Bloomberg New Energy Finance, Valgesta Energía

/ / / / Chile Levelised Cost of Energy, April 2011 12

FIGURE 5: LEARNING CURVE, CAPEX ASSUMPTIONS:
USDM/W
5.0 USD/W
4.5 Crystalline silicon PV
modules, fall in cost by 25%
4.0
for each doubling of global
3.5 capacity.
3.0
2.5 Wind turbine prices in Chile
are historically very high but
2.0
in the medium term we
1.5 expect them to quickly
1.0 converge with our global
0.5 averages.
0.0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Learning effects ultimately
slow as global markets
Coal CCGT PV cSi residential roof
mature and capacity
PV cSi commercial/BIPV PV cSi utilty-scale Wind onshore utilty-scale
Solar Thermal
doubles less frequently.
Tech 2010 2015 2020 2025 2030 % ∆ 2020 % ∆ 2030
Coal 3.17 3.17 3.17 3.17 3.17 0% 0%
CCGT 1.51 1.51 1.51 1.51 1.51 0% 0%
PV cSi residential roof 3.76 2.20 1.68 1.45 1.35 -55% -64%
PV cSi commercial/BIPV 3.48 2.08 1.61 1.38 1.29 -54% -63%
PV cSi utilty-scale 2.98 1.84 1.43 1.23 1.15 -52% -61%
Wind onshore utilty-scale 2.62 2.02 1.66 1.50 1.36 -37% -48%
Solar Thermal 4.61 3.00 2.58 2.22 1.90 -44% -59%
Source: Bloomberg New Energy Finance

/ / / / Chile Levelised Cost of Energy, April 2011 13

FIGURE 6: GLOBAL PV EXPERIENCE CURVE
USD/W
Using inflation-adjusted data
100 back to 1976 from Paul
Maycock, Bloomberg New
Energy Finance estimates
the industry learning rate at
25%. This figure shows blue
10 and purple points
representing the actual data
points from the historical
dataset, and the line is a fit
to the experience curve
1 formula. Cumulative volume
is on the x-axis and cost is
on the y-axis, both on a log
scale to make the
relationship display as a
MW straight line.
0.1
1 10 100 1000 10000 100000 1000000

historic prices experience curve Chinese c-Si module prices

Source: Bloomberg New Energy Finance Solar Price Index,

Paul Maycock, Solarbuzz

/ / / / Chile Levelised Cost of Energy, April 2011 14

FIGURE 7: GLOBAL WIND TURBINE PRICE INDEX

Our Wind Turbine Price

€m/MW Index includes analysis of
approximately 100 turbine
1.21 1.20 contracts globally, including
1.10 1.10 Latin America,
1.06 1.02
1.00 1.03 1.02 0.98 0.98 0.98
encompassing around 20%
0.95 0.96 of the global annual wind
0.86 0.88 market. Because onshore
0.79 wind turbines represent a
mature technology, the
learning curve is essentially
flat. Offshore wind turbines,
by contrast, represent an
emerging technology whose
costs are expected to
decline 15% in the period up
to 2030.
H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1
2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012

Disclosed contracts H1 2010

Source: Bloomberg New Energy Finance

Wind Turbine Price Index

/ / / / Chile Levelised Cost of Energy, April 2011 15

FIGURE 8: LEARNING CURVE LCOE FORECAST BY
PROJECT COMMISSIONING DATE
USD/MWh

300

250

200

150

100

50
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Coal utilty-scale CCGT utilty-scale PV cSi commercial

PV cSi utilty-scale PV cSi residential roof Wind onshore utilty-scale
Solar Thermal
Source: Bloomberg New Energy Finance

/ / / / Chile Levelised Cost of Energy, April 2011 16

FIGURE 9.1: SIMPLIFIED TIME OF DAY MULTIPLIERS FOR
CALIFORNIA SHOWING PEAK ENERGY VALUE
Value
multiplier This analysis only looks at a
1.6 constant USD/MWh cost,
however in reality energy
1.4 produced at times of peak
demand has higher value.
1.2 For reference, we include a
simplified perspective of the
1.0 “value multipliers” used by
California utilities to
0.8 represent this time of day
value. Customized
0.6 multipliers would have to be
developed for Chile.
0.4
These multipliers are used
0.2 to adjust power contracts
based on time of day the
0.0 project delivers power.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Utility 1 Utility 2 Utility 3 Hour of day

Source: Bloomberg New Energy Finance, California Public

Utilities Commission

/ / / / Chile Levelised Cost of Energy, April 2011 17

FIGURE 9.2: SIMPLIFIED DAILY OUTPUT PROFILE OF
SOLAR TECHNOLOGIES
% of total
output This figure shows a
16% typical daily output
profile of solar
14% technologies,also using
12% California as a
reference.
10%

8%
By multiplying the
curves in Figures 9.1
6% and 9.2, power from PV
4%
and solar thermal are
worth 1.3 – 1.5x the
2% nominal USD/MWh paid.
0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
We would expect results
to be roughly similar in
Hour of day
PV - Commercial PV - Utility the SIC.
Solar Thermal Electric Generation (STEG) STEG plus Storage

Source: Bloomberg New Energy Finance

/ / / / Chile Levelised Cost of Energy, April 2011 18

FIGURE 10: SOLAR: RESIDENTIAL PV GRID PARITY VS. LCOE:
CHILE, MEXICO, BRAZIL POISED TO COMPETE

Retail electricity prices (USD/kWh)

0.70 Grid parity differs in each
country dependant on the
solar resource and avoided
0.60 cost of retail electricity.

The lines on the graph to

0.50
the left show how cost
declines in solar module
0.40
prices over time move more
Hawaii
Latin America countries into grid parity.
Denmark North America
Italy Europe Chile is expected to hit retail
0.30
Germany Turkey Asia and Africa grid parity by 2014, although
Brazil $4.00/W
Spain Chile
$2.00/W
sunnier parts of the country
0.20 Japan Mexico
will see it earlier.
France California
US

0.10 South Africa Peru

China

kWh/kW/year
0.00
700 900 1,100 1,300 1,500 1,700 1,900

Note: WACC = 10%; O&M = 1.5% of capex; system degradation = 0.7% per year; project life = 25
years; based on 2010 retail electricity prices; no electricity price increase assumed
Source: Bloomberg New Energy Finance

/ / / / Chile Levelised Cost of Energy, April 2011 19

FIGURE 11: PROJECTED COST OF POLICY SUPPORT
(LCOE MINUS POWER PRICE)

Depending on the energy

USD/MWh policy framework Chile
200
puts in place, the costs of
scaling up renewable
150 energy will vary.

Solar Thermal A rough estimate of the

100
costs of deploying each
technology can be made
50 by subtracting the
Biomass
projected power price
0 Geothermal
from the projected LCOE
Solar PV (utility) of a given technology.
Wind High
-50
Small Hydro A result greater than zero
Wind Low indicates the amount of
-100 payment required in
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 excess of the projected
power price.

Source: Bloomberg New Energy Finance

/ / / / Chile Levelised Cost of Energy, April 2011 20

AREAS FOR FURTHER STUDY

• The Chilean renewable energy market is still very immature with few data points. Although,
the best available data was included in this report, global averages and local analyst
estimates were frequently used.
• As Chile’s energy matrix evolves, it is very unclear what entities (small or large independent
power producers, large corporates, state-backed entities) will actually be building future
energy infrastructure. The financing structures and hurdle rates of the each of these entities
could significantly change the actual price of energy from projects within a certain technology.
• Renewable resource information was of limited availability at the time of this study.
Preliminary analysis indicates Chile has world-class solar and geothermal resources and
reasonable wind and biomass resources however there are few projects to have confirmed
this output and a lack of detailed and publicly available studies.
• Other relevant costs and benefits are beyond the scope of the study, such as the costs of
pollution not related to equipment costs, the costs of integrating variable resources into the
grid, the benefits of diversification and other benefits and costs.

/ / / / Chile Levelised Cost of Energy, April 2011 21

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/ / / / Chile Levelised Cost of Energy, April 2011 22

CHILE LEVELISED COST OF
ENERGY
TYLER TRINGAS
TTRINGAS1@BLOOMBERG.NET
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