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Category Archives: Project Valuations
Modules, inverters and balance of system costs define the total installed cost of a solar PV system.
The three cost components are very simple in nature. In practice, total cost is defined using a detailed cost breakdown structure. The structure must also be applied consistently across projects and over time. The result can be improved cost modeling and management.
The economics for solar energy in Qatar are challenged by some of the lowest natural gas prices on Earth, combined with a local and subsidized electricity tariff with retail power prices of $0 to $27.40/MWh, commercial prices of $24.66 to $41.10/MWh, and industrial power prices of $19.18/MWh.
Notwisthstanding, there is still a solid business case for solar energy in Qatar given the rapid decline in capital costs since 2009, and the ability to generate revenues from displaced domestic gas demand that results following the introduction of renewable energy capacity.
Typically, the leveled cost of energy for solar PV is between $0.085 – $0.11 / kWh for GCC countries given solar irradiance, use of high efficiency panels, and cost competitive engineering. The low end of this range is best suited for vertically integrated OEMs with EPC services, or IPPs with scale in equipment purchasing who buy modules close to the cost of goods sold. But IPPs with low construction costs are making their mark.
Bloomberg has released May 2014 PV Spot Prices with current module costs (COGS), margins and sales prices. This data is extended to profile the levelized cost of energy (LCOE) for solar PV technology, and is combined with new solar efficiency data to define the LCOE roadmap for solar energy in Qatar going forward.
A critical component of the economics of solar PV in Qatar is the ability to translate solar power production into local gas market efficiencies and displacement of natural gas demand. More important: the ability to extend gas displacement into higher LNG exports AND to link the export cash flows to the income statement of the solar power systems. The result can be solar PV projects that are economically feasibility in the absence of government grants, production subsidies or tax incentives. Meanwhile, project cash flows tied to natural gas exports can be 20% to 400% greater than cash flows from power sales, depending on the domestic power tariff in force and the gas marketing strategy used.
The levelized cost of energy (LCOE) is presented by region and for different power generation technologies. The simple model ignores the impact of subsidies, financing and tax impacts to focus on relative performance by technology.
The LCOE data is compared to annual average power prices. In practice, price levels can vary over wide ranges, especially given winter weather. Several noteworthy conclusions are evident when average prices are used: