Utility-scale solar power: the economics?

This model indicates the economics of a typical utility-scale solar project, as a function of a dozen economic inputs: capex costs per MW, power prices, solar insolation, panel efficiency, decline rates, curtailment, opex, DD&A, loan metrics and tax rates.

Capex costs are also disaggregated across a dozen categories, derived from technical papers and our own calculations (chart below).

Our base case calculations show utility scale can be extremely economic on a standalone basis, with 10% levered returns achieved at 4-7c/kWh input prices.

However, it is interesting to note how quickly the economics deteriorate: by c3-5c/kWh in areas where solar penetration is already high; and by 5-7c/kWh in less sunny locations. There is also a 3-4% risk to IRRs if projects have been under-written with unrealistic decline rates.

Will renewable growth slow down from 2020?

The growth of renewables has been revolutionary, with wind and solar costs emerging towards the bottom of the global cost curve, scaling up at a pace of 300TWH pa. However, we find unsettling evidence that the market could slow down in the 2020s, as curtailment accelerates in heartland markets such as California, Germany and the UK. The rationale, and all the underlying data, are included in this Excel file.

Copyright: Thunder Said Energy, 2022.