The Cost of Solar Power from Abengoa’s Arizona CSP Plant with Storage

This WSJ article reports that Abengoa, the unregulated power unit of the Spanish utility Abengoa, SA, will build in Arizona, Solana, a 250 MW, US$ 2 billion concentrating solar power (CSP) plant with storage. The article does not state the cost of the solar electricity and leaves out some of the technical details and history of CSP. I have added some CSP technical details and history and then I explain how I computed the levelized cost of the solar electricity to be US$192.18/MWh (19.22US¢/kWh)

This article reported that Abengoa, the unregulated power unit of the Spanish utility Abengoa, SA, will build, in Gila Bend Arizona, a 250 MW solar electric generating power plant at a capacity cost of US$ 2 billion (1.494 billion €) [All US$ values in my analysis are converted into € at US$1.3381/€ (12/31/10)]. Abengoa calls their Gila Bend CSP plant, Solana. Solana is the third CSP plant built in the US by a Spanish company. In 2007, Acciona Solar Power (ANA.MC), a partially owned subsidiary of Spanish conglomerate Acciona Energy, built Nevada Solar One, a 64 MW plant near Boulder City, NV. In 2006, Acciona built the 1 MW Saguaro Solar Facility 30 miles north of Tucson, AZ.

In the solar industry, concentrating solar power (CSP) refers to solar thermal and not to solar photovoltaic (PV). PV directly converts the sunlight into electricity and is what the public usually thinks of when they hear solar power. Solar thermal converts the sunlight into heat. Heat, like electricity, is energy. The higher the temperature of the solar heat, the greater is the thermal energy. CSP concentrates the solar heat (radiation) in order to get higher temperatures (750 F [400 C]). The higher the temperature is the greater is the thermal energy.

The Solana plant uses the parabolic trough technology and not the solar tower technology that is shown in the photo with the WSJ article. The parabolic trough consists of a line of parabolic mirrors that concentrates the sunlight on a heat receiver in the middle of the mirror. Inside the heat receiver is a tube with a heat transfer fluid that takes the heat energy to a heat exchange. In the heat exchange, the heat is transferred from the fluid to water in order to covert the water into superheated steam. This superheated steam is then used to power a conventional steam turbine electric generator. At the Solana plant, this generator will put 250 MW of electric power onto the Arizona grid (i.e. the plant capacity is stated to be 250MW).

Solar energy is intermittent but is very predicable in the desert on an annual basis. The US Government 1961-1990 National Solar Radiation Data Base has standardized solar radiation in solar hours per day. [1 solar hour is 1 kW/m^2 (1MW/km^2)]. I check the data base and in the Gila Bend area there are, on an annual basis, an average of 6 solar hours per day. Without storage, the Gila Bend plant would have a 25% capacity factor (6/24). The article reported that the plant will have the thermal storage capacity to generate electricity for 6 hours after the sun goes down. This increases the Solana plant capacity factor to 50% (12/24).

The lines of parabolic troughs that make up the Solana CSP solar field gather the solar heat. The solar heat is then either directly used to make “solar superheated steam” in the heat exchanger or is put into storage in either of Solana’s two giant thermal “storage tanks”. These tanks use molten salt (it is not table salt, but another salt) to store the heat. At night when the sun is not powering the solar field, the stored heat is removed from the thermal storage tanks and is used by the heat exchange to generate the steam that powers Solana’s 250 MW steam electric generator.

To compute the levelized cost of electricity (LCOE) from Abengoa’s Solana plant, I have used an updated and redesigned (for solar thermal) version of the worksheet in my paper, “A Financial Worksheet for Computing the Cost (¢/kWh) of Electricity Generated at Grid Connected Photovoltaic (PV) Generating Plants”,Journal of Solar Energy Engineering, August, 2002, Vol. 124, Page 319. My revised worksheet uses the levelized cost method to compute the LCOE from a solar power plant. The LCOE is a “back of the envelope” computation. This method computes one constant yearly payment (the capital amortization) for both the cost of capital (interest) and the capital cost (depreciation) of a power plant over the physical life of the plant.

The worksheet interest (cost of capital) is a weighted average blended per cent rate for both the lender’s interest and the equity owner’s ROI. For the Solana plant, I used 7.5% for the following reasons. This WSJ article reported that Abengoa secured a 30 year power purchase agreement (PPA) with Arizona Public Service (APS), the major regulated utility in Arizona. Abengoa also received a US$1.45 billion (1.08 billion €) US DOE loan guarantee. The loan will be provided by private lenders, but is guaranteed by the US DOE. The less the risk, the lower the interest rate paid by the Solana CPS plant to its lenders. This US DOE guaranteed loan represents 73% of the solar plant’s capital structure while owner’s equity represents 27%. I assumed that DOE, the private lenders and the equity owners were satisfied that APS had the financial strength to back the PPA over its 30 year life. As long as construction starts by 12/31/11, I assumed that the Solana plant is eligible for the US Treasury 1603 Grant Program. The Grant Program will greatly increase the project cash inflow in early years and, therefore, greatly reduce the equity risk. The Grant Program will reduce the required equity ROI. The lower Solana’s cost of capital is the lower is the LCOE.

The worksheet is standardized for 1 MW. Abengoa’s Solana power plant costs US$ 2 billion and has 250 MW of capacity. Based on these values, the plant costs US$ 8 million/MW (5.98 million €/MW). There are 8,760 hr/yr (365 X 24). A 1 MW solar power plant with a 100% capacity factor (24/24) will generate 8,760 MWh/yr. A 1 MW solar plant with a 50% capacity factor will generate 4,380 MWh/yr. I assumed that the annual fixed O & M cost is 2% of the capacity cost and that the variable O & M cost is US$ 1/MWh (0.75 €/MWh).

The levelized cost method can be thought of as using a financial annuity. The principal is the capital cost (US$8 million/MW) of the Solana plant instead of the amount borrowed. The number of years is the physical life (30 years as per the APS PPA) of the plant instead of the number of years of the annuity. The cost of capital (7.5%) is used instead of the annuity interest rate. The worksheet computes the yearly capital amortization instead of the annual annuity payment. Based on the above values, the yearly capital amortization is US$ 677,370. The levelized annual cost per MWh (US$ 191.18/MWh) is the sum of the yearly capital amortization and the annual fixed O & M cost (US$ 160,000) divided by the 4,380 MWh/yr generated. The LCOE (US$ 192.18/MWh [19.22 US¢/kWh] [143.62 €/MWh] [14.36 €¢/kWh]) is the sum of levelized annual cost plus the variable O & M cost.