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Solar Power Parks: Luz found that sequentially building multiple plants at the same location significantly reduced the cost of the technology. If a single project were developed such that five plants were built in succession, significant savings would result over building a single custom design. Savings would result from improved labor efficiencies and increased ability to competitively bid for components, as well as increased utilization of specialized manufacturing facilities, reduced project development and design costs, and reduced O&M costs. Preliminary estimates indicate that building five plants could easily reduce capital and O&M costs by more than 20%. Capital Cost Reduction Capital is the money invested to build a project. This is the complete cost including equipment, construction, and project development. There are two major types of capital investments in a project: equity and debt. The equity investment is made by the parties that will own the plant. The typical cost-of-capital for an IPP project is 18% Internal Rate of Return (IRR) after tax. The debt investment is similar to a mortgage on a house. Non-recourse debt simply means that the loan is secured by the cash flow of energy sales from the project and the debt investors cannot go after the owners if the project cannot make the loan payments. The primary difference between solar and fossil plants is that the solar plant has a large solar field that is comparable to a 30-year fuel supply at the fossil plant. The reason this is significant is because even if the capital cost of the solar plant is the same as the fuel cost at the fossil plant, the cost of power from the solar plant will be more expensive than the cost of power from the fossil plant. This is primarily because of two factors, first any capital investment must be paid back to investors at a very high IRR, typically on the order of 18% after taxes. Second, tax policy typically treats capital investment differently than expense type investments such as fuel. By way of example, if the fuel consumption on an advanced combined- cycle plant were treated the same from a financing and taxation standpoint as a solar field, the cost of power would increase from 5.5¢/kWh to 11.1¢/kWh. The general approach suggested in this paper is to view the solar field as a fuel and to attempt to develop taxation and investment policies that help reduce the capital cost penalty on solar technologies. The primary opportunities for reducing the capital cost penalty on solar plants are to identify ways to reduce the actual cost-of-capital for the project and to eliminate local, state, and federal tax policies that penalize solar technologies. Low-Cost Capital: Access to low-cost capital can significantly reduce the cost of solar power. One suggestion would be to develop a low-interest debt source for the solar field equipment. This could be achieved by the government providing low-cost debt a debt payment guarantee. Risk Reduction: Risk is a general term used to describe the uncertainties that could have a negative impact on a project. Risk can result from uncertainties in cost, schedule, technology, resource availability, power sales, financial parameters, political stability, or location. When a project is being considered, investors (debt and equity) will analyze the project to evaluate the financial merit versus the risk. High financial returns are required to justify high risks. Thus, increased risk results in increased cost-of-capital. Projects using new technologies or in developing countries are usually considered high risk. Currently, trough projects require a risk premium on both equity and debt over the rates charged to conventional power technologies. To minimize technology risk it is important to utilize a technology and design very similar to the existing SEGS facilities, and to show how performance expectations can be justified from the real plant operational experience. The substantial operating experience with these plants will help minimize the premium charged for debt and equity. Solar Property and Sales Tax Exemptions: Without special property tax exemptions, a solar power plant would be forced to pay property tax on the solar field land and equipment. Because the solar field represents a major portion of the total capital cost of the plant, property tax on this equipment represents a significant cost penalty for solar technologies. In the past, California exempted large-scale concentrating solar power technologies from paying property tax on most of the plant equipment. Even the steam power plant was exempted. Only non-solar related equipment like the back-up fossil-fired boilers were not excluded from property tax. Although this approach provides an advantage for solar over fossil power plants, it can bias local governments against the technology because they receive fewer taxes than they would from a conventional plant. The approach suggested here attempts to achieve a tax neutrality (or tax equity) between various power plant technologies. The approach is to exempt just the solar field equipment from paying property tax. The property tax payments from the conventional equipment at the plant will then be similar to the property taxes paid by other power plant technologies. Similarly, fossil plants do not pay sales tax on their fuel, so to help achieve tax neutrality solar equipment should also be exempted from paying sales tax. Sales tax would continue to be paid on the conventional portions of the plant. Incentives The alternatives presented in the previous section can help reduce the inequity between capital-intensive and expense- intensive technologies; however, short of finding interest-free capital, it is unlikely to completely eliminate the cost penalty for capital-intensive technologies. This section describes a number of potential incentives than could be used to help reduce any remaining capital cost penalties for solar technologies. Investment and Production Tax Credits: Investment tax credits (ITC), intended to encourage the development of new technologies, were a big reason for the success of the SEGS projects. State and federal investment tax credits, initially as high as 55% for the first SEGS projects, are currently down to 10%. In other technologies such as wind power, investment tax credits resulted in a significant number of tax-driven projects Copyright © 1999 by ASMEPDF Image | Parabolic Trough Solar Power for Competitive U.S. Markets
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