Concentrating Solar Power (CSP)

Financing and the Clean Technology Fund

Presentation by Dana R. Younger

Infrastructure Department

Climate Investment Funds CTF Trust Fund Committee

Washington, DC

The Resource

Solar energy comes in two flavors – diffuse and

direct (beam)

Solar Photovoltaics (PV) can use both components

CSP can use only the “direct normal irradiation”

(DNI) because diffuse sunlight cannot be effectively

focused or concentrated

So where is the direct solar energy found?

Global Solar Radiation

China Solar Radiation Map

US Southwest Solar

Resource (Unfiltered Data)

Concentrating Solar Technologies can be used to “mine” this

resource.

Some technologies (CST) use curved mirrors to focus the

sun’s rays and to make steam, others directly produce

electricity (CPV).

Steam is used to produce electricity via conventional power

equipment.

In multi-Megawatt plants, CSP provides lower cost solar

electricity than ground-mount or rooftop solar PV.

Can also provide bulk and/or distributed generation.

How Do We Develop This

Resource?

Concentrating Solar Power Technologies

Parabolic Trough

Power Tower

Dish Engine Concentrating PV

Linear Fresnel

Trough Technology

― Trough collectors (single axis tracking)

― Heat-collection elements

― Heat-transfer Oil

(Therminol VP1)

― Oil-to-water steam

generator

― Oil-to-salt thermal

storage

― Conventional steam-

Rankine cycle power block

Power Tower Technology

― Heliostats (two-axis tracking)

― Air or molten-salt receiver

― Air or molten-salt working fluid

― Thermal storage

― Conventional steam- Rankine cycle

power block, or combustion turbine

― Several developers in the US and

several in Spain

Focus on

molten-salt plant

Dish Stirling Technology

― Dish (two-axis tracking)

― 10 and 25 kW Stirling engines

― Thermal receivers

― Distributed generation or bulk

power

― 8 Different system configurations

built and tested over the last 20

years

― Significant utility interest

Concentrating PV Technology

― 25- 35 kW CPV systems

― Two axis tracking structure

― 350 m2 concentrator

― 3M acrylic lens concentrator at

250X or parabolic dish with PV at

focal point

― Silicon solar cells

― Many companies are developing

new designs and sound business

plans

Why CSP and Why Now?

Necessity – utilities’ other options (coal, nuclear, natural gas)

have significant long term risks with cost implications

Uniqueness of thermal energy storage

Policies still unreliable, such as RPS and ITC both of which

are essential in the US and Feed-in tariffs in EU

Public opinion favors solar

Awareness of CSP

Utilities – Growing fast where good DNI and policies exist

Policy makers – Generally lagging as evidenced by inadequate

or unreliable policies at all levels of government

Investors – Growing fast as evidenced by press reports and

conferences but lagging wind and solar PV investments, held back by policy uncertainty and today’s financial market situation

CSP’s Positive Attributes for Utilities

Utilities are familiar with steam generation

Suitability for utility scale installations of 100MW or more

Stable, known and decreasing costs and zero carbon emissions provide hedge against NG price volatility and carbon caps

Other generation options have significant risks

Ability to provide firm dispatchable output which is of great value to utilities

HTF-SaltHeat Exchanger

Flow Diagram

― Averaged 80% on-

peak capacity factor

from solar

― Over 100% with

fossil backup

― Could approach

100% from solar with

the addition of

thermal energy

storage.

SCE Summer On-Peak

Weekdays: Jun - Sep

12 noon - 6 pm

0%

20%

40%

60%

80%

100%

120%

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

On

-Pe

ak

Cap

ac

ity

(%

)

0

2

4

6

8

10

12

Ins

ola

tio

n (

kW

h/m

^2/d

ay)

Solar Contribution Boiler Contribution Direct Normal Radiation

Mount Pinatubo

Volcano

CA Energy

Crisis

CSP Track Record: 354MW at Kramer Junction, CA

Thermal Energy Storage

• USDOE Solar Two molten-salt power tower experience

• Indirect 2-tank molten-salt design forparabolic trough plants

• Uses oil to salt heat exchangersto transfer energy to/from storage

Cold Salt Tank Hot Salt Tank

Cold salt

pump

Hot salt

pump

Immersion heater

(typical of 4)

Immersion heater

(typical of 4)

Oil-to-salt heat

exchanger (typical of 6)

Distribution

ring header

Distribution

ring header

Cooing air pipes

(typical of 24)

Cooing air pipes

(typical of 24)

1.0 m

Isolation valve

(typical of 4)

Vent valve

(typical of 3) Nitrogen

transfer line

Nitrogen

storage tank

Nitrogen

compressor

Nitrogen

cooler

Pressure

control valve

Drain valve

(typical of 2)

Pump

maintenance

gantry crane

Thermal Energy Storage

• AC Cobra – Andasol 1 plant in Spain will be the first to use the indirect 2-tank molten-salt thermal energy storage.

• Plant should be operational before the end of the year.

Additional Utility Attributes

Large, multi-national corporations are now involved in every part of value chain― Project and Technology Developers

― Utilities and Independent Power Producers

― Engineering and Construction Companies

Quality counterparties reduce overall CSP project risk ― Large balance sheets

― Power and construction expertise

― Strategic technology deployment

Attributes of CSP for Policymakers

Very large domestic resource potential

Carbon free electricity

Potential for cost reduction

Economic benefits will result from its development

Increased public awareness and support of the benefits

of clean energy

CSP Attributes for Investors

Scalable

With a solid Power Purchase Agreement (PPA), the return on investment can be adequate to encourage mainstreamequity and favorable debt financing terms.

Once debt is paid, operates with no fuel – has potential to become financially attractive clean energy asset.

Global CSP Industry Today

Technologies – trough, tower, dish engine, linear Fresnel, and CPV, each of which have variations making the industry very robust

US SEIA CSP Division has ~40 current members

EU’s ESTIA has similar member numbers

Both Associations deal with policy/legislative/regulatory issues and have members who cover all CSP technologies, from consulting firms to multinationals

Over 400 MW in commercial operation, about 4,800 MW under development or contract in the US and about 3,500 MW under development in the rest of the world

Continued market growth is predicted

Select CSP Industry Participants

Trough – Abengoa Solar, Acciona, FPL Energy,

Solar Millennium, Solel, SkyFuel

Tower – Abengoa Solar, Bright Source Energy,

eSolar, Solar Reserve/UTC

Dish – SES, Infinia

Fresnel – Ausra, SkyFuel

Capital Flows for CSP

Abengoa Solar – financed PS10, PS20, Solnova ( 2 x 50MW) in Spain and Algeria & Morocco ISCCS with bank debt and same plan for APS Solana (280 MW) in US

Solar Millennium - financed Andasol 1 & 2 in Spain with bank debt

Acciona – financed Nevada Solar 1 (64MW) in US with bank debt

GEF provided $200M for ISCCS projects in Morocco (in construction), Egypt & Mexico - - India project was cancelled.

Trough companies didn’t anticipate major problems attracting tax equity investors/commercial debt as the ITCs were renewed last year but the global financial crisis has created new uncertainty and US projects are now being delayed

Ample equity available for start-ups as evidenced by: Ausra, SkyFuel, eSolar, Bright Source and Solar Reserve all conducting successful VC fund raises

CSP Activity in the US (as of July 2008)

CSP Activity in EU & ROW (as of July 2008)

* Natural gas/hybrid project; capacity shown is CSP portion only

Major Steps to Bring a CSP

Plant On-Line

Site control, PPA negotiation, regulatory approval, interconnection agreement and financial close (some in parallel) – 12-24 months

Permitting and engineering (in parallel) –

18 – 24 months

Construction – 18 – 24 months

Total time – 4-6 years

Nevada Solar One 64 MW

Abengoa Solar Power Tower Plants

Abengoa Solar US 280 MW Plant

Costs of CSP

There are many costs and they are must be carefully defined –nominal, real, constant dollars, first year, levelized and average

Capital costs and delivered energy costs are most important to the market

Cost is not a wish or a hope - it depends on many variables, all of which must be known to EPC contractors and investors

Costs change and that risk must be managed

The market will define the cost and the value of CSP

Financial parameters, plant size, market size and incentives all impact the cost of energy from CSP plants

Choice of Business Model Impacts Costs

Turnkey – Utility ownership

IPP

―Partnership

―Lease

Other structures

EPC

Contractor

Lender

Project

Sponsor

Equity

Construction Loan

Construction

Cost

STEP 1: Project Development

Utility/Utility

Consortium

Bond MarketCorporate

Equity

EquityLong-Term

Debt

Plant ValueDevelopment Fee

STEP 2: Utility Purchase

Project

Development

Company

Utility Ownership

Private Ownership - IPP

Project

Development

CompanyGovernment

Contractor

Lender

Output

Purchaser

Rules, Regulations,

& Incentives

Output

Revenue

Construction &

Term LoansDebt

Service

Project

Sponsors

Tax Incentive Monetization Payments

Cash Distributions &

Tax Incentives

EquityConstruction

Cost

Operator

Operations

Cost

Taxes

Financial Analysis Results

Private-Taxable Bond

Utility Purchase

70:30 Debt-to-Equity

Private-Commercial Debt

Public-Private Partnership

65:35 Debt-to-Equity

Private-Dev Bank Debt

Private-Tax Exempt Bond

75:25 Debt-to-Equity

PPA Price (cents/kWh)

Mo

dif

ied

In

tern

al

Ra

te o

f R

etu

rn (

MIR

R)

CSP Cost Reduction Predictions

Exist but could be Misleading

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0 1000 2000 3000 4000

Cumulative New Capacity by 2015 (MW)

Nom

inal LC

OE

($/k

wh)

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0.11

0.12

Real LC

OE

(2005$/k

wh)

Assumes:

- Trough Technology w ith 6 hours of TES

- IPP Financing; 30-year PPA

- California Property Tax exemption

- Includes scale-up, R&D, learning effects

- Barstow , California site

Cost Reduction based on Plant Size

139%

115%

100% 90%

0%

20%

40%

60%

80%

100%

120%

140%

160%

25 MWe 50 MWe 100 MWe 250 Mwe

Parabolic Trough Plant, 6-hours Thermal

Energy Storage, IPP Financing, 10% ITC

2006 Nexant Study: Optimum Size

~250MWe For Current Technology

Effect of Plant Size

Effect of Deployment

100%93%

87%81%

0%

20%

40%

60%

80%

100%

120%

Current 1000MW 2000MW 4000MW

Based on Experience from Existing Plants (California)

Cost Reduction based on Market Size

Effect of Financial Incentives

100%

85%92%

75%

96%

0%

20%

40%

60%

80%

100%

120%

Base: 10%

ITC, 5-yr

MACRS

30% ITC, 5-yr

MACRS

Base + Prop

Tax Exclusion

Base + Sales

Tax Exclusion

All

Effect of Incentives (IPP Financing)

CSP Costs Today and Tomorrow

In the SW US with best conditions, LCOE is in the mid-high

teens in ¢/kWh for firm dispatchable power and could drop to

the low-mid teens with existing incentives

Commodity price rises and global financial crisis have

introduced market turmoil and utilities financial position is

weaker than one year ago.

Current cost gap is ~2 - 5 ¢/kWh in the US market

Several independent and credible studies project 8 ¢/kWh

(nominal) cost level after 4GW installed globally, removing the

cost gap and becoming competitive with natural gas

RPS, incentives and policies can close the cost gap between fossil and CSP-derived energy

Cost Gap will Close

Energ

y Cost

t

Current Cost Gap Commodity Prices,

Financial Markets, Equipment, etc.

Policies and Incentives

Carbon, Fuel Risk

CSP energy cost

Fossil energy cost

Needed Policies

Carbon valuation policies that reflect conventional power projects’ true externalities

Adequate Feed-in Tariffs

Land access policies

Transmission policies and investment

Investment tax credits and other financial incentives

Market Outlook

Carbon limits are likely & can help close the CSP cost gap

CSP can scale up fast without critical bottleneck in needed materials making it a good CC mitigation response option

Price for CSP power is near commercial range and costs will come down with increased capacity and could fall below costs for conventional generation in the next decade

Many available CSP technology options add certainty to cost reduction projections

US and EU R&D programs will continue to grow in size and value

Economic development and environmental benefits will drive political support

US CSP market has potential to grow to 2-4 GW per year and a comparable rate is possible in other suitable parts of the world

Conclusions

CSP is a Unique Renewable Technology

― Large resource in many countries

― Ability of CST to store energy to fit utility need

― Medim-term potential for cost competitiveness

Market is Rapidly Developing

― Interest in CSP growing in many CTF-eligible

regions/countries (MENA, SADCC, India, PRC, Mexico, Chile)

― Large, credible, financially stable developers

― Real (financeable, buildable and reliable) projects prepared

Policy Decisions Needed to Maintain Momentum

― Investment tax credits/adequate feed-in tariffs

― Supporting policies & financing (eg CTF and capital grants)

Projects:

120 projects in 40 emerging markets countries

21,733 MW private generating capacity

94 generation projects

7 transmission projects

19 distribution companies

Financing:

$ 5 billion committed in generation, T & D

$ 2.5 billion raised through syndication

$ 22 billion aggregate project values

Renewables:

19% of generation investments in hydropower

$0.9bn in 30 renewable energy projects

(20 hydro, 2 wind, 2 geothermal & 6 other)

Coal, $1,173 , 29%

Natural Gas, $879 , 22%Oil, $427 , 11%

Hydro, $738 , 19%

Wind, $58 , 1%

Geothermal, $65 , 2%

Other Renewables, $45 ,

1%

Generation (multiple

technologies), $601 , 15%

IFC’s Track Record in Power

Generation ,

$3,987 , 80%

Transmission,

$258 , 5%

Distribution, $770 ,

15%

US$5 billion

committed

in power

US$4 billion

committed

in

generation

Grid-Tied Solar Power Plant Projects

IFC mobilized $4 million in GEF grant financing for a

1 MWe Solar PV Power Plant erected in 2004 by a

utility client CEPALCO in the Philippines

IFC evaluating several possible 1-5 MWe Solar PV

power plant projects in India with private companies

under the new GoI support program

IFC in discussions with other solar firms concerning

possible solar power projects including CSP in

various countries in Africa, Asia & Latin America

For more information:

www.ifc.org

Key Contacts for IFC

Power/Renewable Energy

Mr. Darius Lilaoonwala <dlilaoonwala@ifc.org> Sr Manager, Power/Renewables

Mr. Dana R. Younger < dyounger@ifc.org> Sr Renewables Adviser

Clean Technology Fund

Ms. Lisa Da Silva <lisa da silva@ifc.org> Program Manager