Balancing Act: Three Solar Development Costs That Can Make Or Break Profitability


Rapid deployment makes solar an attractive solution for states and utilities scrambling to meet their respective renewable portfolio standards and keep up with increasing energy demand. This, in turn, provides an opportunity for investors and developers. However, developers still must assess investment risks in the context of project bankability.
One critical step in solar project development is the design and optimization of the solar plant. This task can become complicated as developers try to strike a balance between first costs, total operating costs (TOC) and levelized cost of energy (LCOE).

First costs represent the costs to acquire equipment, as well as to build and commission the solar power plant. TOC include the sum of all direct and indirect costs that go into operating a solar plant. Both first costs and TOC affect when a plant ultimately becomes profitable.

LCOE, usually expressed in cents per kilowatt-hour, takes into account not only the capital cost of building a project, but also the operating and maintenance expenses over time, such as the length of a power purchase agreement and the cost of the plant's fuel.

LCOE is a crucial metric for solar investors, as it is often used to compare the cost of solar energy to other sources. It is LCOE that determines the long-term profitability of a power plant.

Although ABB also supplies components and manages solar projects through installation and commissioning, it is during the design phase that we see the greatest potential to maximize returns and reduce risk. Three great examples of how decisions made during design will affect first costs, TOC and LCOE include product design, product selection and system optimization.

Product design: Transformers are an important capital item and a critical piece of equipment in a solar power plant. Proper consideration should be given to selecting an appropriate transformer; they are an excellent example of the tradeoffs that developers must make between first costs and total operating costs. Variables such as the cost and/or price of energy either generated or consumed – as well as environmental and load factors – aid in the selection of the ideal transformer.

For example, ABB manufactures distribution-type transformers with traditional grain-oriented electrical steel cores as well as with amorphous cores. An amorphous core transformer has superior no-load loss performance when compared to a traditional grain-oriented core transformer. However, a grain-oriented transformer has better load-loss performance than an amorphous core transformer.

An amorphous core transformer has a higher first cost than a traditional grain-oriented core transformer. However, in many cases, a properly designed amorphous core transformer will deliver a three- to five-year payback time. Due to the nature of PV solar power, the transformer spends a great deal of time at no-load or lightly loaded conditions, increasing the importance of the no-load loss performance of the transformer.

In addition, ABB leads the way in developing innovations such as BIOTEMP, a 97% biodegradable, non-toxic transformer fluid that can hold up to 10 times more moisture than mineral oil. Using BIOTEMP in solar applications makes even more sense due to the intermittent nature of solar power generation. BIOTEMP allows a typical transformer to be overloaded by approximately 10% and still achieve the same life expectancy.

To help developers balance first costs vs. TOC, ABB has developed a TOC calculator to determine the present value of a transformer's no-load losses ($/watt) and load losses ($/watt) over the expected life of the transformer. Added to the transformer purchase price, this figure gives the buyer the total ownership cost over the expected life of the transformer for use in payback models.

Once the total ownership costs of various designs have been calculated, developers can use the payback calculator to help select the optimal transformer design based on the shortest payback period, taking into account transformer purchase price, losses and cost of energy.

Product selection: Instrument transformers are another one of the many product choices that can have an impact on TOC and LCOE. Extended range and accuracy are both important features of an instrument transformer, and ABB is one of the few companies to offer both in one product.

Accuracy is crucial to payback, as it allows the utility to capture revenues that might otherwise be lost. For example, if the accuracy of an instrument transformer is off by even 1%, the effect on just one large industrial customer's annual bill could be as much as $23,000. If a utility has 50 customers of this size, that 1% error can translate into as much as $1,150,000 in lost revenues in just one year.

Safety should also be a consideration during the design phase, and product selection has a major impact. For example, ABB's arc-resistant medium voltage switchgear reduces equipment damage due to internal faults, increasing equipment reliability and preventing tragic injuries to employees.

System optimization:
Even if the solar developer makes wise choices to minimize first costs while balancing TOC, the solar plant may not be optimized to provide the greatest return. One illustration of this situation is a concentrating solar power (CSP) pump optimization project where ABB was able to identify design changes that would provide substantial first cost and total ownership cost savings.

The original design of the CSP plant called for 64-inch pipes, two supply pumps, three boosters and five injection pumps. The team was able to optimize the system design by reducing pump size and wall thickness and eliminating the boosters. They even managed to increase capacity of the system by another 10,500 gallons per minute.

The results? The company saved $101 million on first costs, $3 million in energy costs over the estimated life of the plant and $104 million in total costs.

Optimization applies to other systems within the solar development as well. For example, when ABB is brought in to the design process, we can help ensure electrical equipment can carry the load, minimizing downtime and reducing safety concerns.

This article was excerpted from the white paper ‘Six stages of solar bankability.’ The white paper can be downloaded by clicking here. ABB is a leading provider of optimized solar solutions for both photovoltaic and concentrated solar power plants. We help ensure successful solar projects by working with solar developers from site assessment all the way through to installation and commissioning of the plant and have helped solar developers add more than 1,200 MW in capacity around the world.

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