Marco Conceptual.

Figure 5.1 and Figure 5.2 show our assessment of the economic and commercial viability of potential technologies for renewable generation in the service areas of PPC and TCU, respectively. The figures show the Long Run Marginal Cost (LRMC, or all-in cost) of generation (US$ per kWh) for a range of renewable energy technologies, and compare these against the average system variable cost and all-in cost of conventional generation, as well as PPC‘s and TCU‘s retail tariffs for residential and non-residential customers. As explained and referenced in section 0, we show generation costs (and retail tariffs) calculated on the basis of a cost of Diesel No. 2 fuel of US$3.00 per gallon—we need to use some estimate of future oil prices, and US$3.00 is a reasonable estimate because it corresponds to oil prices of about US$93 per barrel, which is the price a ten year oil future contract is trading at.

The figures show an indicative assessment of RE technologies‘ LRMCs for policy purposes, based on estimated average values of capital costs, O&M costs, capacity factor, and lifetime of the various technologies. The assumptions we used for each technology (and sources) are contained in Appendix C—we used data gathered in the TCI where available, and in other cases data from similar small island countries we have recently worked in (Barbados, Bahamas, and Mauritius). Of course, the actual LRMC of any project—especially RE projects—is highly site-specific, and requires a detailed feasibility study that is outside the scope of our assignment (for example, in our calculations we assumed capacity factors of 25 percent for all wind turbines, but detailed measurements would have to be taken to determine the specific capacity factor for a wind farm at a particular site).

A renewable technology is economically viable if it reduces the overall cost of generating electricity in the TCI. It is commercially viable if a utility or a customer can save money by using it. So, by comparing the cost of renewable generation with the right benchmark, we can see if a technology is economically viable, commercially viable, or both.

Figure 5.1: Viability of Renewable Energy Technologies in the Turks and Caicos Islands/PPC Service Area

Note: LRMCs of RE technologies (US$/kWh) are based on a 10% discount rate. Generation costs and tariffs are based on Diesel prices of US$3.00/gallon. Average system variable cost benchmark for distributed generation technologies are grossed up for losses (10.3%).

0.47 0.39 0.37 0.36 0.28 0.28 0.26 0.23 0.21 0.13 0.12 0.12 0.12 0.08 - 0.10 0.20 0.30 0.40 0.50 0.60 0.70

Solar PV (High-Efficiency, fixed, small) Solar PV (High-Efficiency, fixed, commercial) Wind (10kW distributed scale turbines) Solar PV (thin film, fixed, small) Solar PV (thin film, fixed, commercial) CSP (Solar Tower, w/storage) CSP (Parabolic Trough, w/storage) Seawater Air Conditioning Wind (275kW lowerable or tiltable turbines) Solar Water Heater (flat plate, commercial) Waste to Energy (incineration) Wind (850kW 'Class 1' turbines) Solar Water Heater (flat plate, small) Landfill gas to energy (internal combustion)

US$/kWh

Residential tariff: US$0.45/kWh

Non-residential tariff: US$0.52/kWh Avg. system variable cost (non-firm, utility): US$0.21/kWh

All-in cost of Wartsilas (firm): US$0.23/kWh

Avg. system variable cost (non-firm, distributed): US$0.23/kWh

Econ. viable

Figure 5.2: Viability of Renewable Energy Technologies in the Turks and Caicos Islands/TCU Service Area

Note: LRMCs of RE technologies (US$/kWh) are based on a 10% discount rate. Generation costs and tariffs are based on Diesel prices of US$3.00/gallon. Average system variable cost benchmark for distributed generation technologies are grossed up for losses (4.3%).

0.47 0.39 0.37 0.36 0.28 0.28 0.26 0.23 0.21 0.13 0.12 0.12 0.12 0.08 - 0.10 0.20 0.30 0.40 0.50 0.60 0.70

Solar PV (High-Efficiency, fixed, small) Solar PV (High-Efficiency, fixed, commercial) Wind (10kW distributed scale turbines) Solar PV (thin film, fixed, small) Solar PV (thin film, fixed, commercial) CSP (Solar Tower, w/storage) CSP (Parabolic Trough, w/storage) Seawater Air Conditioning Wind (275kW lowerable or tiltable turbines) Solar Water Heater (flat plate, commercial) Waste to Energy (incineration) Wind (850kW 'Class 1' turbines) Solar Water Heater (flat plate, small) Landfill gas to energy (internal combustion)

US$/kWh

Residential tariff: US$0.43/kWh

Non-residential tariff: US$0.48/kWh Avg. system variable cost (non-firm, utility): US$0.22/kWh

All-in cost of Caterpillars (firm): US$0.26/kWh

Econ. viable

Comm. viable

Avg. system variable cost (non-firm, distributed): US$0.23/kWh

Viable technologies

The analysis shows that there are five renewable energy technologies that may be economically viable in the TCI (both PPC‘s and TCU‘s service areas). These are:

 Landfill gas to energy (internal combustion), on a large scale operated commercially (US$0.08 per kWh)

 Solar water heaters (flat plate), on small and commercial scale for homes and businesses, respectively (US$0.12 and US$0.13 per kWh, respectively)

 Wind (‘Class 1’, and lowerable/tiltable turbines), on a large scale operated commercially (US$0.12 and US$0.21 per kWh, respectively)

 Waste to Energy (incineration), on a large scale operated commercially (US$0.12 per kWh). This cost was based on TCI-specific data, but it looks low compared to that of other plants in similar contexts—further investigation is warranted

 Seawater Air-conditioning, on a large scale operated commercially (US$0.23 per kWh).

One additional technology would also be economically viable in TCU‘s service area:

 Concentrated Solar Power (parabolic trough), on a large scale operated commercially (US$0.26 per kWh), although if also TCU were to switch from high- speed diesel plants to higher-efficiency medium speed diesel plants, the assessment would be similar to the one for PPC.

These six technologies are also all commercially viable. The residential customer and the commercial producer would save money with solar water heating. Utilities could cut their generating costs with each form of waste-based technology and wind generation. Also, seawater air conditioning (SWAC) would reduce total generation costs.

Technologies likely to be viable in the near future

The following technologies are likely to become viable in the near future—their cost has been falling rapidly and consistently over the past few years, and is expected to fall further:

 Certain types of commercial and small scale solar photovoltaic technologies—thin film PV systems with fixed mounting at a commercial scale (about 50kW) have the lowest LRMC of PV systems; smaller installations of the same technology are more expensive, but expected to decrease in the coming years. LRMCs shown also depend on the discount rate assumed—we use 10 percent, but if cheaper financing were available the viability of solar PV would of course increase (commercial scale PV systems could cost US$0.22 per kWh with a discount rate of 10 percent). Given the TCI‘s climate, we do not consider tracking systems (single- or dual-axis tracking) that tilt the panels towards the sun increasing output, but are costly and more delicate than fixed mounting systems

 Concentrated Solar Power (parabolic trough, and solar tower) for utility scale generation—CSP using parabolic troughs could be just viable in Grand Turk and Salt Cay, and the cost CSP using solar towers is not much higher. CSP technologies have experienced significant increases in efficiency and cost reductions in the near past, and further improvements are expected. The main

problem for CSP plants to be viable in the TCI is scale—optimal size to keep costs down is several tens of megawatts, which not only requires land space but is also more than the country needs in the medium term, as discussed in section 2. Analyzing the economic viability for each technology

Figure 5.1 and Figure 5.2 show the viability of each RE technology by comparing the LRMC of the technology (shown by the horizontal bar) with the relevant benchmark for that technology (shown by the vertical lines). We use different benchmarks for economic viability depending on the type of conventional generation that the renewable technology displaces:

 Landfill gas to energy, waste to energy, seawater air conditioning, and CSP technologies are benchmarked against the all-in cost of the cheapest base load generation option (Wartsila plants for PPC, and Caterpillar plants for TCU) because they are ‗firm‘ technologies—they can be depended on to generate electricity at any time, just like a conventional generation unit. For purposes of this analysis, we consider CSP ‗firm‘ in spite of being a solar technology because we consider energy storage solutions associated with these plants, and also given the limited range of plant types in the TCI. The Wartsila medium-speed diesel plants may be considered the future benchmark also for TCU if market conditions allowed TCU to switch to these larger and more efficient plants—the cheapest option is the appropriate benchmark for firm RE technologies, because it is the one that firm RE technologies would displace

 Utility scale wind technologies are benchmarked against the average variable cost of the system operated by PPC or TCU, because they are ‗non-firm‘—that is, they cannot be switched on at will. This means that there needs to be a conventional generator on standby that is used as ‗firming‘ supply when the wind is not blowing. Every unit of energy (kWh) generated by wind technologies will save fuel and variable O&M costs, but it will not save the fixed costs of capacity (because the firming technology capacity would also be needed)

 Solar PV, solar water heaters, and distributed wind technologies are also non-firm (for purposes of this analysis, we consider solar water heaters non-firm because they store some, but not all energy in the form of heat). As for utility scale wind, the appropriate benchmark is the average variable cost of the system, but grossed up for system losses, because distributed technologies generate energy consumed at (or very close to) customer premises, and therefore avoid these losses—in other words, distributed technologies are given some additional credit when benchmarked against conventional generation.

A complex analysis could factor in the exact cost of generation displaced for different types of renewable technologies, in different locations and of varying capacity. But it would be of limited value given that our benchmarks for viability are heavily dependent on an uncertain fuel price and can quickly change significantly. It is enough to conclude that some technologies are clearly viable, while others are border-line viable, and will become clearly so if fuel costs rise or the costs of the technologies drop.

Summary assessment of all RE technologies

Table 5.2 briefly describes all RE technologies assessed, and shows their costs, key parameters, and breakeven oil prices.

Table 5.2: Summary of Potential Renewable Energy Technologies in the TCI

Name Description Size of _plant

Unit capital cost (US$/kW) O&M costs (US$/kW/ yr) Lifetime (years) Capacity factor (%) LRMC (US$/kWh) Viable with Diesel at US$3.00/gal PPC/TCU? Breakeven oil price PPC/TCU (US$/gallon)

Solar water heater (flat

plate, commercial) heating water using solar thermal energy Commercial and industrial systems for 70 kW 1,600 24 20 19% 0.13 Yes/Yes 1.6/1.7 Solar water heater (flat

plate, small) Domestic systems for heating water using solar thermal energy 2kW 1,250 20 20 17% 0.12 Yes/Yes 1.5/1.5 Solar PV (thin film, fixed,

commercial) Thin film solar photovoltaic panels with fixed mounting 50kW 4,000 42 20 21% 0.28 No/No 3.8/3.7 Solar PV (thin film, fixed,

small) Thin film solar photovoltaic panels with fixed mounting 2kW 5,000 60 20 21% 0.36 No/No 4.8/4.8 Solar PV (high-efficiency,

fixed, commercial) High-efficiency solar photovoltaic panels with fixed mounting 50kW 5,000 42 20 19% 0.39 No/No 5.3/5.2 Solar PV (high-efficiency,

fixed, small) High-efficiency solar photovoltaic panels with fixed mounting 3kW 6,000 60 20 19% 0.47 No/No 6.4/6.3 CSP (parabolic trough,

w/storage)

Generation of electricity by converting the sun‘s energy into heat using mirrors

(~15% efficiency); with energy storage 50MW 8,000 100 20 45% 0.26 No/Yes 3.5/3.0 CSP (solar tower,

w/storage)

Generation of electricity by converting the sun‘s energy into heat using mirrors

(~35% efficiency); with energy storage 50MW 12,000 200 20 65% 0.28 No/No 3.8/3.3 Wind (850kW ‗Class 1‘

turbines)

Wind turbines for electricity generation, designed to resist extreme gusts of

250km/hr and average wind of 36km/hr 5MW 1,800 50 20 25% 0.12 Yes/Yes 1.6/1.6 Wind (275 kW lowerable

or tiltable turbines)

Wind turbines for electricity generation that may be lowered or tilted in case of

hurricanes 5MW 3,150 98.5 20 25% 0.21 Yes/Yes 3.0/2.9

Wind (10kW distributed

scale turbines) Wind turbines for electricity generation 10kW 6,000 110 20 25% 0.37 No/No 5.0/4.9 Landfill gas to energy

(internal combustion) Generation of electricity by combusting methane captured from a landfill 2.5MW 4,000 150 20 90% 0.08 Yes/Yes 1.3/1.1 Waste to Energy

(incineration) Generation of electricity by combusting municipal solid waste 3.75MW 6,827 157 25 85% 0.12 Yes/Yes 0.6/0.5 Seawater Air Conditioning Use of ocean temperature for cooling 2 MW 4,200 165 20 33% 0.23 Yes/Yes 3.0/2.6

Explaining our calculations of generating costs and benchmarks

We use the following assumptions for calculating the LRMCs of each RE generating technology (US$ per kWh):

 Capacity factor—that is, the share of time, expressed in percentage, at which a plant can operate at full capacity. This involves estimating the yearly output each renewable generation technology could produce (capacity factor multiplied by installed capacity multiplied by hours in a year). This would include resource availability (for example available solar energy, wind speed profile, and conversion efficiency of the technology)

 Capital costs, in US$—we estimate capital costs based on discussions with local developers about market conditions on Turks and Caicos (where available, such as for waste-based technologies), information from other Caribbean or small island countries we have worked in (Barbados, Mauritius), and our experience of the North American renewable generation market

 Operation and maintenance (O&M) costs, in US$—we estimate capital costs based on the same sources used for capital costs

 Lifetime, in years—we estimate the lifetime of renewable generation equipment based on our experience of renewable generation technologies, in most cases 20 years being a reasonable approximation

 Discount rate—we assume a discount rate of 10 percent, as for EE technologies. The formula to calculate the cost of power from any technology is:

Cost of power (US$ per kWh) =

Annualized capital and O&M costs (US$) Annual energy output (kWh per year)

 Solar Water Heating—for this technology, we estimate the cost per kWh of electricity consumption saved based on our experience in Barbados (this is also appropriate because units manufactured in Barbados or Saint Lucia are beginning to be imported in the TCI)

 Tariff and conventional energy costs—we estimate tariffs and conventional energy generation costs based on a cost for Diesel No. 2 of US$3.00 per gallon, as described in section 2 and as done for EE technologies.

Appendix C contains more detailed descriptions of technologies assessed, and sources for assumptions used.