Estimation of Unit Cost of Electricity for Renewable Energy Based Power Generation

Tara C. Kandpal Centre for Energy Studies Indian Institute of Technology Delhi Hauz Khas, New Delhi - 110016

Measures of Financial/Economic Performance Unit Cost of Energy (Rs/MJ or Rs/kWh) annualized capital cost + annual cost of operation, repair and maintenance

Unit cost of Energy = annual amount of energy saved/produced Annualized capital cost = Capital cost * Capital Recovery Factor Capital Recovery Factor (CRF): A factor to equally distribute a single amount (at present) over a prespecified period in future with time d(1+d) n value of money taken into account CRF = Pre-specified period useful life (n) n (1+d) - 1) Time value of money discount rate (d)

PV POWER
50 kWp System with capital cost of Rs. 7500000 Annual O&M cost = 2% of capital cost (m = 0.02) Module: cost = 50%, useful life = 20 years Battery: cost = 20%., useful life = 07 years Electronics and others: cost = 30%, useful life = 15 years Average daily output = 150 kWh/day CRF (0.05, 20) = 0.08024 CRF (0.05, 07) = 0.17282 CRF (0.05, 15) = 0.09634 Total annual cost = [(0.08204*0.5 + 0.17282*0.2 + 0.09634*0.3 + 0.02)*7500000] = 926995 Unit cost of electricity = 926995/(150*365) = Rs. 16.93/kWh

PV POWER
Total annual cost = (CRF + m) C0 Rs/Wp 100 150 200 250 Unit Cost(Rs/kWh) 11.08 16.62 22.16 27.70

Discount rate (fraction) Capital cost : Rs. 7500000 0.05 5000 150 40 15 15 30 20 7 15 15 1 1 0.10 0.15

PV POWER

Installed Capacity (W) Energy Output kWh/day % Modules in capital cost % Batteries in capital cost

Energy Output (kWh/day)

Unit Cost of Electricity (Rs. /kWh)

% Conv/reg. in capital cost % Other in capital cost Depreciation period modules:yrs Depreciation period batteries:yrs Depreciation period conv/reg:yrs

100 24.93 150 16.62 200 12.47 250 09.98 (discount rate = 0.05)

Depreciation period other: years Labor + overhead in % cap. cost Maintenance cost in % cap. cost Calculated annual costs Module depreciation Battery depreciation Conv/reg. depreciation Other depreciation Total depreciation Labor + overhead Maintenance Total annual costs Unit cost (Rs. / kWh)

240728 194422 108385 216770 760305

352379 231081 147908 295816

1027184

479284 270405 192394 384788

1326872

d(1+d) n CRF = n (1+d) - 1)

75000 75000
910305

75000 75000
1177184

75000 75000
1476272

16. 62

22

27

Unit Cost of Electricity (WIND POWER)

A simplified approach for estimating average value of unit cost of electricity of wind power plant Capital cost: Rs 5 crores/MW Useful life: 20 years CUF: 20% Annual cost of O&M: 1.25% of capital cost Debt to equity ratio: 70:30 Return on equity: 16% Interest on debt: 12% Effective value of discount rate = (0.7)*(0.12) + (0.3)*(0.16) = 0.132 i.e. 13.2%

ESTIMATING UNIT COST OF ELECTRICITY FOR RENEWABLE ENERGY BASED POWER PLANTS With time (during useful life of the power plant)
Cost of operation and maintenance may increase Interest payments on the debt as well as the principal amount also decreases The return on equity may also be revised from time to time Interest on working capital may also change Depreciation benefits also change depending upon the depreciation schedule

ESTIMATING UNIT COST OF ELECTRICITY FOR RENEWABLE ENERGY BASED POWER PLANTS
The annual electricity generation may also vary due to; Resource availability (year to year variation not considered) Performance deration

Need to estimate for each year and study the time variation of unit cost of electricity during the useful life

UNIT COST OF ELECTRICITY

UCE

ANNUAL ELECTRICITY GENERATION O&M COST

ANNUAL COST OF GENERATION DEBT REPAYMENT

CUF

DERATION FACTOR

DEPRECIATION INSURANCE RETURN ON EQUITY NOMINAL CAPACITY AUXILIARY CONSUMPTION INCOME TAX

INTEREST ON WORKING CAPITAL

DEFINE (KNOWN VALUES OF) DESIGN, OPERATIONAL AND ECONOMIC PARAMETERS

DESIGN PARAMETERS Nominal Capacity Capacity Utilization Factor OPERATIONAL PARAMETERS Deration per Annum Auxiliary Consumption ECONOMIC PARAMETERS Tariff Period Capital Cost Debt to Equity Ratio Debt Interest Rate Debt Repayment Period Return on Equity Discount Rate Income Tax Rate Depreciation Rate Insurance O&M Cost Interest on Working Capital

Life of Power Plant

ESTIMATION OF ANNUAL ELECTRICITY GENERATION Estimate annual electricity generation (MWh) = (nominal capacity in MW)*(Capacity Utilization factor; CUF)*(hours in a year)*(deration factor in jth year; DFj) Hours in a year = 8760 hours (=365*24) Deration factor; DFj = (1-ADR)j-1 where, ADR: Annual Deration Rate j: Year varies from 1 to n (useful life)

ESTIMATION OF WORKING CAPITAL

S.No. 1 2 3 O&M charges for Maintenance spare (% of O&M expenses) Receivables for Item 15% 1.5 months Value 1 month

ESTIMATION OF LOAN REPAYMENT AMOUNT

Amount of loan = (debt fraction)*(capital cost) Loan repayment period = Tlr years Rate of interest on loan = Iloan

ANNUAL EXPENDITURE ON PAYMENT OF RETURN ON EQUITY

Amount of equity = (equity factor)*(capital cost) Rate of return on equity in jth year = Er,j (in special cases Er,j = Er1 for j = 1 to p Er,j = Er2 for j = P+1 to n Annual expenditure (jth year) on payment of return on equity = (amount of equity)*(Er,j)

CALCULATION OF ANNUAL AMOUNT OF DEPRECIATION Capital cost = Co Salvage value = S Depreciation period = Tdp Total amount to be depreciated = (Co - S) Different depreciation methods include:

(ii) Declining balance method of depreciation (iii) Modified accelerated cost recovery system (MACRS) (iv) Accelerated depreciation (e.g. 80% of capital cost in 1st year and 20% of capital cost in 2nd year)

ANNUAL OPERATION AND MAINTENANCE (AOM) COST AOM cost on the 1st year = (faom*Co) or = (AOM cost per MW)*(Rated capacity) Annual rate of escalation of AOM cost = eaom AOM cost in the jth year = (AOM1)*(1-eaom)j-1

CALCULATION OF INCOME TAX AND INSURANCE

Income tax = (income tax rate)*(annual benefits as per provision of the companies act) or = (MAT rate)*(return on equity)
A company is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies Act. There are large number of companies who book profits as per their profit and loss account but are not paying any tax because income computed as per provisions of the income tax act was either nil or negative or insignificant. In such case, although the companies are showing book profits and declaring dividends to the shareholders, they are not paying any income tax. These companies are popularly known as Zero Tax companies. In order to bring such companies under the income tax act, Minimum Alternative Tax (MAT) rate is introduced under which a company has to pay the income tax on return on equity at the MAT rate. Insurance in jth year is the certain percentage of jth year depreciation cost.

ASSUMPTIONS FOR CALCULATION OF UCE FOR ASSUMPTIONS SOLAR THERMAL POWER PLANT IN RAJASTHAN (INDIA)
S. No. Assumption Power Generation Parameter Capacity Installed Power Generation Capacity CUF Deration p.a. Auxiliary Consumption Tariff Period Life of Power Plant Capital Cost/MW Project Cost Tranmssion line Cost Connectivity Charges Debt: Equity inc Land,Trans &Connectivity charges Power Plant Cost MW % % % Years Years Rs Lacs/MW Rs Lacs Rs Lacs/MW Rs Lacs/MW % % Rs Lacs Rs Lacs 1 24.00% 0.25% 6.50% 25 25 1400 1400 0 0 70.00% 30.00% 980 420 1 24.0% 0.25% 6.50% 25 25 1400 1400 0 0 70% 30% 980 420 Parameter Details Unit Base Case (CSP) Generic Case

Project Cost

Sources of Fund

Debt Equity Total Debt Amount Total Equity Amout Funding Options-1 (Domestic Loan Source1) Loan Amount Moratorium Period Repayment Period(incld Moratorium) Intrest Rate Funding Options-2 ( Equity Finance )

Rs Lacs years years %

980 0 12 12.75%

980 0 12 12.75%

Equity amount Rs Lacs Return on Equity for first 10 yrs % p.a Return on Equity from 11th yr onwards % p.a Discount Rate (equiv. to WACC)

420 16.00% 16.00% 13.73%

420 16.00% 16.00% 13.7%

ASSUMPTIONS FOR CALCULATION OF UCE FOR SOLAR THERMAL POWER PLANT IN RAJASTHAN (INDIA)
S. No. Assumption Parameter Parameter Details Unit Base Case (CSP) Generic Case

Financial 4 Assumptions

Fiscal Assumptions

Depreciation

Income Tax MAT Rate (for yr-1) MAT Rate (for yr-2 to yr-10) 80 IA benefits Depreciation Rate(upto 12-yrs) Depreciation Rate(after 12-yrs) Years for 5.28% SLM rate

% % % Yes/No % %

30.90% 19.93% 18.54% Yes 5.28% 2.05% 12

30.90% 19.93% 18.54% Yes 5.28% 2.05% 12

Working 5 Capital

For Fixed Charges O&M Charges Maintenance Spare (% of O&M exepenses) Receivables for Debtors Intrest On Working Capital

Months Months %

1 15.00% 1.5 11.75%

1 15% 1.5 11.75%

Operation & 6 Maintenance

power plant Insurance Total O & M Expenses Escalation

Base year value % of depreciated capital cost

Lakhs % %

15.00 0.30% 5.72%

15.00 0.30% 5.72%

MODEL CALCULATION OF UCE FOR SOLAR THERMAL POWER PLANT IN RAJASTHAN (INDIA)
Units Generation Aux Consumption Deration factor Installed Capacity Generation Unit % % MW MU Year---> 1 6.50% 1.000 1 1.97 2 6.50% 1.000 1 1.97 10 6.50% 0.985 1 1.94 11 6.50% 0.983 1 1.93 12 6.50% 0.980 1 1.93 13 6.50% 0.978 1 1.92 14 6.50% 0.975 1 1.92

Cost of generation O&M Expenses

Unit Rs Lacs

Year--->

1 19.20 73.92 119.74 4.84 83.93 301.63 15.34

2 19.84 73.92 109.33 4.70 82.49 290.28 14.77

10 26.95 73.92 26.03 3.81 82.49 213.21 11.01

11 28.14 73.92 15.62 3.93 97.25 218.86 11.33

12 29.42 73.92 5.21 3.84 97.25 209.63 10.88

13 30.78 28.69 0.00 3.15 97.25 159.87 8.32

14 32.37 28.69 0.00 3.22 97.25 161.52 8.43

Depreciation Rs Lacs Interest on term loan Rs Lacs Interest on working Capital Rs Lacs Return on Equity Total Cost of generation Per unit Cost of generation Rs Lacs Rs Lacs Rs/kWh

CALCULATION OF WORKING CAPITAL

Particular O&M expense for power plant Receivables Maintenance Spares

Unit Rs Lakh Rs Lakh Rs Lakh

Year--->

1 1.25

2 1.32

6 1.65

7 1.75

10

11

1.40 1.48 1.56

1.85 1.95 2.06 2.18

37.70 36.29 35.05 33.83 32.61 31.40 30.20 29.01 27.83 26.65 27.36 2.25 2.38 2.51 2.66 2.81 2.97 3.14 3.32 3.51 3.71 3.92

Total Working Capital Rs Lakh Interest Rate Interest on Working Capital % Rs Lakh 11.75%

41.20 39.99 38.97 37.97 36.99 36.03 35.09 34.18 33.29 32.42 33.46

4.84

4.70

4.58 4.46 4.35

4.23

4.12

4.02 3.91 3.81 3.93

ASSUMPTIONS FOR CALCULATION OF UCE FOR PV POWER PLANT IN RAJASTHAN (INDIA)

S. No. Assumption Parameter Parameter Details Unit Base Case (SPV) 1 20.50% 0.50% 0.25% 25 25 1600 1600 Generic Case 1 20.50% 0.50% 0.25% 25 25 1600 1600 Power 1 Generation

Capacity

Installed Power Generation Capacity CUF Deration p.a. after 2nd year Auxiliary Consumption Tariff Period Life of Power Plant

2Project Cost Capital Cost/MW Project Cost

MW % % % Years Years Rs inc Land,Trans &Connectivity charges Lacs/MW Power Plant Cost Rs Lacs Rs Lacs/MW Rs Lacs/MW Debt Equity Total Debt Amount Total Equity Amout % % Rs Lacs Rs Lacs

Tranmssion line Cost Connectivity Charges Sources of 3 Fund Debt: Equity

0 0 70.00% 30.00% 1120 480

0 0 70% 30% 1120 480

Funding Options-1 (Domestic Loan Source-1)

Loan Amount Moratorium Period Repayment Period(incld Moratorium) Intrest Rate Equity amount Return on Equity for first 10 yrs

Rs Lacs years years % Rs Lacs % p.a

1120 0 12 12.75% 480 16.00%

1120 0 12 12.75% 480 16.00%

Funding Options-2 ( Equity Finance )

ASSUMPTIONS FOR CALCULATION OF UCE FOR PV POWER PLANT IN RAJASTHAN (INDIA)

S. No. Assumption Parameter Parameter Details Unit Base Case (SPV) Generic Case 30.90% 19.93% 18.54% 18.54% Yes 0.00 5.28% 2.05% 12 Financial 4 Assumptions Fiscal Assumptions

Depreciation

Income Tax MAT Rate (for yr-1) MAT Rate (for yr-2 ) MAT Rate (for yr-2 to yr-10) 80 IA benefits Accelerated Depreciation(for 20 years) Depreciation Rate(upto 12-yrs) Depreciation Rate(after 12-yrs) Years for 5.28% SLM rate

% % % Yes/No Rs/kWh % % years

30.90% 19.93% 18.54% 18.54% Yes 0.00 5.28% 2.05% 12

Working 5 Capital

For Fixed Charges O&M Charges Maintenance Spare Receivables for Debtors Intrest On Working Capital

Months (% of O&M expenses) Months %

1 15.00% 1.5 11.75%

1 15% 1.5 11.75%

Operation & 6 Maintenance power plant Rs per MW Insurance % of depreciated capital cost Total O & M Expenses Escalation

Rs Lacs % %

9.51 0.30% 5.72%

9.51 0.30% 5.72%

MODEL CALCULATION OF UCE FOR PV POWER PLANT IN RAJASTHAN (INDIA)

Units Generation Aux Consumption Installed Capacity Deration factor Generation Unit % MW % MU Year---> 1 0.25% 1 1 1.79 2 0.25% 1 1.000 1.79 10 0.25% 1 0.961 1.72 11 0.25% 1 0.956 1.71 12 0.25% 1 0.951 1.70 13 0.25% 1 0.946 1.70 14 0.25% 1 0.942 1.69 24 0.25% 1 0.896 1.60 25 0.25% 1 0.891 1.60

0.50%

Cost of generation O&M Expenses Depreciation Interest on term loan Interest on working Capital Return on Equity Total Cost of generation Per unit Cost of generation Levellised cost of generation (Rs/kWh) (25 yrs)

Unit Year---> 1 14.31 Rs Lakh 84.48 Rs Lakh 136.85 Rs Lakh Rs Lakh Rs Lakh Rs Lakh Rs/kWh 5.21 95.92 336.77 18.80

2 14.61 84.48 124.95 5.02 94.28 323.34 18.05

10 18.22 84.48 29.75 3.82 94.28 230.54 13.40

11 18.86 84.48 17.85 3.93 111.14 236.26 13.80

12 19.56 84.48 5.95 3.78 111.14 224.91 13.20

13 20.31 32.79 0.00 2.96 111.14 167.20 9.86

14 21.27 32.79 0.00 3.01 111.14 168.21 9.97

24 34.88 32.79 0.00 3.62 111.14 182.42 11.37

25 36.73 32.79 0.00 3.70 111.14 184.36 11.55

15.32

ASSUMPTIONS FOR CALCULATION OF UCE FOR BIOMASS BASED POWER PLANT IN RAJASTHAN (INDIA)
S. No. Assumption Power Generation Parameter Parameter Details Unit Base Case (CSP) 1 80.00% 0.25% 9.00% 20 20 500 500 0 0 70.00% 30.00% 350 150 Generic Case 1 80.0% 0.25% 9.00% 20 20 500 500 0 0 70% 30% 350 150

Capacity

2Project Cost

Capital Cost/MW Project Cost Tranmssion line Cost Connectivity Charges Debt: Equity

Installed Power Generation Capacity CUF Deration p.a. Auxiliary Consumption Tariff Period Life of Power Plant inc Land,Trans &Connectivity charges Power Plant Cost

MW % % % Years Years Rs Lacs/MW Rs Lacs Rs Lacs/MW Rs Lacs/MW % % Rs Lacs Rs Lacs

Sources of 3 Fund

Debt Equity Total Debt Amount Total Equity Amout

Funding Options-1 (Domestic Loan Source1) Loan Amount Moratorium Period Repayment Period(incld Moratorium) Intrest Rate Funding Options-2 ( Equity Finance )

Rs Lacs years years %

350 0 10 12.00%

350 0 10 12.00%

Equity amount Rs Lacs Return on Equity for first 10 yrs % p.a Return on Equity from 11th yr onwards % p.a Discount Rate (equiv. to WACC)

150 19.50% 19.50% 14.25%

150 19.50% 19.50% 14.3%

ASSUMPTIONS FOR CALCULATION OF UCE FOR BIOMASS BASED POWER PLANT IN RAJASTHAN (INDIA)
S. No. Assumption Parameter Parameter Details Unit Base Case (CSP) Generic Case 30.90% 19.93% 18.54% Yes 4.50% 4.50% 10

Financial 4 Assumptions

Fiscal Assumptions

Income Tax MAT Rate (for yr-1) MAT Rate (for yr-2 to yr-10) 80 IA benefits Depreciation Rate(upto 10-yrs) Depreciation Rate(after 10-yrs) Years for 5.28% SLM rate

% % % Yes/No % %

30.90% 19.93% 18.54% Yes 4.50% 4.50% 10

Depreciation

Working 5 Capital

For Fixed Charges O&M Charges Maintenance Spare (% of O&M exepenses) Receivables for Debtors Intrest On Working Capital

Months Months %

1 25.00% 2 12.00%

1 25% 2 12.00%

Operation & 6 Maintenance

power plant Insurance Total O & M Expenses Escalation

% of base capital cost % of depreciated capital cost

% % %

19.13 0.80% 5.00%

19.13 0.80% 5.00%

MODEL CALCULATION OF UCE FOR BIOMASS BASED POWER PLANT IN RAJASTHAN (INDIA)
Units Generation Aux Consumption Deration factor Installed Capacity Generation Unit % % MW MU Year---> 1 9.00% 1.000 1 6.38 2 9.00% 1.000 1 6.38 9 9.00% 0.988 1 6.30 10 9.00% 0.985 1 6.28 11 9.00% 0.983 1 6.27 12 9.00% 0.980 1 6.25 19 9.00% 0.963 1 6.14 20 9.00% 0.961 1 6.13

Cost of generation O&M Expenses Depreciation Interest on term loan Interest on working Capital Fuel Consumption Return on Equity Total Cost of generation Per unit Cost of generation considering accelerated depreciation Levellised Tariff (Rs/kWh) (25 yrs)

Unit Year---> 1 23.13 Rs Lakh 22.50 Rs Lakh 39.90 Rs Lakh 6.29 Rs Lakh 147.95 Rs Lakh 36.53 Rs Lakh 276.30 Rs Lakh Rs/kWh 4.33

2 23.90 22.50 35.70 6.25 147.95 35.91 272.21 4.27

9 30.82 22.50 6.30 6.08 146.11 35.91 247.72 3.93

10 32.05 22.50 2.10 6.07 145.75 35.91 244.38 3.89

11 33.35 22.50 0.00 6.24 145.38 42.33 249.81 3.99

12 34.73 22.50 0.00 6.33 145.02 42.33 250.91 4.01

19 20 46.79 48.91 22.50 22.50 0.00 0.00 7.06 7.19 142.50 142.14 42.33 42.33 261.18 263.08 4.25 4.29

3.99

Thank you For Your Attention

CALCULATION OF RETURN ON EQUITY

Praticular

Unit

Year-->

10

11

Pre-tax ROE Income tax component for Gross up ROE (Grossed up for I.Tax)

Rs Lakh

67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20

Rs Lakh

16.73 15.29 15.29 15.29 15.29 15.29 15.29 15.29 15.29 15.29 30.05

Rs Lakh

83.93 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 97.25

LOAN AND INTEREST

Particular Opening Balance Repayment Closing Balance Interest

Unit Rs Lakh Rs Lakh Rs Lakh Rs Lakh

Year-->

1 980.0 0

2 898

3 817

4 735

5 653

6 572

7 490

8 408

9 327

10 245

11 163

12 82

81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 898 817 735 653 572 490 408 327 245 163.3 82 119.7 4 109.33 98.92 88.51 78.09 67.68 57.27 46.86 36.44 26.03 15.62 0 5.21

DEPRECIATION

Opening Balance

1400

1326.08 1252.16

1178.24 1104.32 1030.40 956.48 882.56 808.64 734.72 660.80 586.88 512.96

Depreciation

73.92

73.92

73.92

73.92

73.92

73.92

73.92

73.92

73.92

73.92

73.92

73.92

28.69

Closing Balance

1326.08

1252.16 1178.24

1104.32 1030.40

956.48 882.56 808.64 734.72 660.80 586.88 512.96 484.27

OPERATION AND MAINTENANCE EXPENSES

Particular O&M expense for power plant Insurance Charges Total O&M expense

Year--Unit > Rs Lakh Rs Lakh Rs Lakh

10

15.00 15.86 16.77 17.72 18.74 19.81 20.94 22.14 23.41 24.75 4.20 3.98 3.76 3.53 3.31 3.09 2.87 2.65 2.43 2.20

19.20 19.84 20.52 21.26 22.05 22.90 23.81 24.79 25.83 26.95