Generation and Transmission Resource Cost Update 2019 Prepared for WECC May 15, 2019
Contents Background, approach, and sources Transmission resource capital cost update • B&V cost framework and recent inflation metrics – Benchmarking vs. estimated Tx project costs Generation resource capital cost update • In-depth review of resources with rapidly declining costs: – Comparison of costs across public sources for solar PV, wind, Li-ion battery storage – Benchmarking vs. recent public PPA prices and RFP bids • Recommended cost updates for all other resources and comparison vs. prior cost reports for WECC Next steps • Updates to FO&M and financing cost assumptions • Levelized cost modeling with state-by-state adjustments (WECC Cost Calculator) 2
Background In 2009, E3 provided WECC with recommendations for capital costs of new electric generation technologies to use in its 10-year study cycles • Prior to this effort, the relative costs of WECC’s study cases could only be compared on a variable-cost basis • This effort allowed WECC to quantify relative scenario costs on a basis reflecting their actual prospective costs to ratepayers by combining variable and fixed costs = + Fuel and Variable Fixed Cost Total Cost Costs (E3 Capital Cost Tool) E3 has updated these capital cost assumptions several times to capture major changes in technology costs (e.g. solar PV) and ensure continued accuracy Most recent update: 2016/2017 3
Approach In preparation for its upcoming 20-year study plan, WECC has asked E3 to provide guidance on resource cost to use in that study These capital costs will serve as an input to the 20- year study’s LTPT, allowing for the development of robust scenarios through cost minimization • Capital costs will serve as inputs to pro forma model (“Capital Cost Calculator”) that applies standard lifetime, financing, and O&M assumptions to calculate levelized costs of each resource This efforts builds on similar work performed in late 2016 – early 2017 INPUTS MODELS STUDY RESULTS Twenty-Year Capital Long-Term Planning Tools 20-Year Study Expansion Plan (Capital Expansion Optimization) Gen Capital Costs SCDT Generation Portfolio Tx Capital Costs Transmission Topology NXT Other Constraints 4
Capital costs versus levelized costs Resource costs are typically quoted in either upfront capital costs ($/kW) or levelized costs ($/MWh) that are indicative of likely PPA prices for renewables Levelized costs include several other cost factors and assumptions beyond the project’s upfront capital cost • Financing costs: cost of capital, financing lifetime, tax rates and incentives • Operating costs: fixed and variable O&M of plant operations (“ opex ”), including fuel • Performance assumptions: amount of energy generation over which fixed costs are spread, i.e. average capacity factor, is a major driver of LCOE In this research phase, E3 has focused on capital costs, which are more comparable across data sources and suitable for benchmarking Capital costs Pro forma Financing costs financial model Levelized costs for project cash Operating costs flows Performance 5
Defining a capital cost reference point Average Wind Speed Resource costs vary significantly from project to project due to a variety of local and project- specific factors • Local climate: wind speed, solar irradiance, temperature • Local terrain: greenfield vs. brownfield, flat vs. hilly, forested vs. desert Forest Cover • Local development costs: labor, permitting, taxes, interconnection • Project-specific: offtaker risk and financing costs, developer economies of scale, etc. These factors explain the wide range of reported costs that E3 has observed In this initial capital cost report, E3 has High-Voltage Transmission identified a reference cost for each technology associated with an average project in WECC • The next phase of work will identify how local cost factors can be generalized a state-by-state basis 6
Sources of resource cost data E3 forms its capital cost estimates by reviewing a wide range of public sources including national lab studies, industry analyst reports, and IRPs from utilities within WECC, including: NREL IRENA • • Annual Technology Baseline 2018 Renewable Power Generation Costs in 2017 • US Solar PV System Cost. Benchmark: • Q1 2018 Electricity Storage Costs in 2017 • 2017 Cost of Wind Energy Review APS – 2017 IRP • 2018 US Utility-Scale PV Plus-Energy Avista – 2017 IRP Storage System Costs Benchmark Idaho Power Company – 2017 IRP LBNL Pacificorp – 2017 IRP Update • Tracking the Sun 2018 Puget Sound Energy – 2017 IRP • 2017 Wind Technologies Market Report Lazard • Levelized Cost of Energy Analysis v12.0 • Levelized Cost of Storage Analysis v4.0 7
Cost benchmarking vs. recent PPAs After reviewing public sources of resource cost data, E3 benchmarks reported capital costs versus recent project prices to ensure its assumptions reflect the latest market trends • Public sources often rely on historical data 1-3 years old and may be outdated by the time they are published • Market prices reflect actual transactable costs for new or future projects PPA benchmarking was performed for resources with greatest cost uncertainty due to rapid cost declines: solar, wind, and battery storage Because PPA prices are quoted as levelized costs, E3 has calculated the implied capital costs from different PPA prices using standard opex and financing assumptions For solar and wind, benchmarking is straightforward, as capital costs are the primary driver of total levelized costs (O&M costs are minimal) • Capital and financing is approximately 70% of wind cost and 90% of solar cost Storage costs are more comparable on a levelized fixed-cost basis for several reasons, thus are benchmarked to PPAs by that metric 8
Cost vintaging and forecast methodology For consistency, all cost data points are reported in real 2018$ and indexed to year of commercial operation date as best possible • National lab and industry analyst reports are mix of retrospective and prospective • IRPs and PPAs quote cost for near-term procurement, COD 1-2 years in future Past E3 cost studies have used learning curve methodology to estimate future cost declines for renewable technologies • Learning curve approach is suitable for macro analysis of technology costs driven by single component (e.g. PV modules), but difficult to apply to soft costs and other factors (global supply chain and policy incentives) E3 proposes using NREL ATB’s low, mid, and constant forecast scenarios as sensitivities in place of single cost forecast in this study NREL Historical price IRPs Forecast price PPAs Market price 2018 2020 2040 2016 9
Transmission Resource Cost Update
Transmission cost update approach Build off existing B&V TEPPC cost calculator while benchmarking vs. external sources • 2014 Transmission Capacity Cost Calculator spreadsheet and report • Maintain same cost factors for terrain, technology types • Check inputs/outputs vs. RETI and other public Tx planning sources Update 2014 costs to revised 2018 figures using following inputs: • Inflation multipliers on commodity prices of raw materials and industrial construction costs: Bureau of Labor Statistics (BLS) • CPI inflation for generic project admin costs: BLS • Right of way costs per acre: Bureau of Land Management (BLM) Linear Right of Way Schedule Check cost assumptions vs. other public studies, planning reports, and new or proposed transmission projects 11
BLM Right-of-Way (ROW) cost updates BLM Zone Land Costs The BLM publishes zonal BLM 2015 Per Acre 2018 Per Acre schedules of ROW rent and Zone Rent Rent % Change corresponding annual Number ($/acre-year) ($/acre-year) 1 9 8 -3% adjustments 2 17 16 -6% • Released once every 10 years 3 34 32 -8% • Latest update was released in 2016 4 52 48 -8% 5 69 66 -4% • Zonal designations across the U.S. 6 103 95 -8% are made on a county level basis 7 172 133 -23% based on census data and can 8 345 85 -75% change with each release 9 690 457 -34% B&V Transmission Cost 10 1,035 1,402 36% Calculator has been updated with 11 1,724 2,805 63% the 2018 rent schedule 12 3,449 7,011 103% 13 14,023 14 21,034 15 28,045 12
Inflation updates to B&V Tx costs Black & Veatch estimated generic inflators for Tx and substation costs of 1.5% from 2012 to 2013 and 2.0% from 2013 to 2014 E3 used inflation data for the primary components of Tx capital costs (materials, labor, and general overhead) to update calculator for 2018 • Refined update for full 2012 to 2018 period, including re-estimate of 2012 to 2014 Approach increases transmission resource costs by 10.5% in nominal terms since 2012, equivalent to 1.7% annual inflation • Real cost increase of 1.3% above US-CPI inflation from 2012 to 2018 Tx Cost 2012-2018 2012-2018 Component Weighting inflation CAGR Sources Materials 50% 5.6% 0.9% BLS Metals PPI, FRED Aluminum and Steel Labor 35% BLS PPI Construction-Industrial 16.3% 2.6% General 15% 13.3% 2.1% BLS CPI-West Total 100% 10.5% 1.7% 13
Inflation indices underlying forecasts show relatively consistent trend Price Indices Used for Inflation Benchmarks Metals prices have been volatile, declining in 2015-2016 before increasing again in 2017-2018 14
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