Feed Laws

Economic Calculations

June 1, 2007
Paul Gipe

Advanced Renewable Tariffs Pricing Worksheets

The following worksheets were developed for the Ontario Sustainable Energy Association and the Toronto Renewable Energy Cooperative in 2007 for the report Renewables without Limits: Moving Toward Advanced Renewable Tariffs.

These tables have multiple tabs. For an explanation of each tab, see the OSEA report.

Note that the assumptions used in the worksheets and the worksheets themselves evolve.

In general, the worksheets use methods that reflect common approaches for estimating the cost of energy. The preferred model is the Chabot Profitability Index Method (PIM), an approach to the cost of energy developed by Bernard Chabot of France's Agence de l'Environnement et de la Maitrise de l'Energie.

Note that there are two crucial assumptions in using the Chabot PI method: the calculations are before tax, and that the tariffs increase 100% with inflation. That is, the model does not include any provisions for tax credits or subsidies and the initial tariffs calculated increase over time. (Up-front subsidies have been incorporated in the solar thermal example.)

Keen observers in North America will also notice that several assumptions differ markedly from those cited in the trade press. For example, the Annual Reoccurring Cost for wind and solar photovoltaics are substantially higher than acknowledged by the industry. The values used in the worksheets reflect real-world experience from operating projects in Germany. The German market is transparent and consequently these values are more trustworthy than values bandied about in North America.

Thus, the tariffs resulting from these cost of energy calculations are far higher than typically reported in North America. Especially in the USA, where there are substantial federal subsidies for wind and solar PV, the unsubsidized price is much higher than commonly reported. In some states, such as California, there are also substantial subsidies to homeowners for solar PV (~$2,000/kW).

Background on the Cost of Generation and the Chabot Profitability Index Method

In the case of wind energy in particular, please note that there are two tabs: the initial tariff (T1), and the second tab for the tariff (T2) in years 6 through 20. Though the initial tariff may seem high, the average tariff (Teq) depends upon the resource intensity at the site in kWh/m²/yr. At windy sites, the average tariff (Teq) will be less, and sometimes much less, than the initial tariff (T1). For example, at a windy site with a specific yield of 1,100 kWh/m²/yr (~7 m/s at hub height), the initial tariff (T1) may be nearly $0.15/kWh but T2 is only $0.059/kWh and the resulting average tariff (Teq) is $0.089/kWh.

Disclaimer: While some of the following worksheets were developed with the aid of ADEME's Bernard Chabot, these worksheets have been modified extensively by me for my use. If you find any errors or corrections that need to be made please contact me directly. I assume responsibility for any errors. Further, I work in QuattroPro, I have made no attempt at formatting in Xcel.--Paul Gipe

There are several additional articles, tables, and worksheets on solar PV at the Solar Energy section of this site.


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