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PÖYRY POINT OF VIEW: MARCH 2018

Utility-Scale Solar+Storage in Southeast AsiaStatus, outlook, and key considerations for a potential game-changer

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Utility-scale solar PV continues to grow at a breakneck pace, driven by continually falling prices, including 19.7 USD/MWh in the recent Mexico auction[1] and 17.9 USD/MWh in the recent Saudi Arabia auction[2] – price levels that, while likely not achievable in Southeast Asia today for a variety of reasons[3], were in any case nearly inconceivable even just a few years ago.

Utility-Scale Solar+Storage in Southeast Asia-Big promise, but new complexities

However, while utility-scale solar PV’s rapid ascent is a positive for the environment and electricity consumers, the technology can represent a challenge for grid operators due to its intermittent nature and concentrated output profile. Some of the challenges that utility-scale solar PV can present include:

• Requirement for additional “back-up” capacity elsewhere in the system

• Curtailment of solar (or other plants)• Negative power prices, in wholesale

markets• Local grid voltage issues• Increased ramping of other, dispatchable

generators

These challenges can be lessened, if not completely mitigated, by adding support systems to help balance the grid network activities. One solution is adding energy storage – for example, batteries – to the electricity system.

Battery storage is a well-documented, if still nascent, method for alleviating many of these challenges (among other services that energy storage can provide). Pumped storage is a proven and effective energy storage technology, but good sites can be difficult to find, and projects require many years to plan, develop, and construct – and furthermore, pumped storage cannot provide all of the services that a battery can provide (and vice versa).. Although grid planners and operators

in Southeast Asia acknowledge that battery storage can be valuable, many governments and electricity systems may not have the financial resources, technical capabilities, and/or market and regulatory mechanisms to support or encourage stand-alone battery deployment. Hence, other approaches are gaining attention and being considered to alleviate the challenges that come with increased use of intermittent renewables.

EMERGENCE OF “SOLAR+STORAGE” One approach to doing this is to co-locate energy storage (e.g., batteries) with a utility-scale solar PV (or wind) plant – i.e., hybrid “Solar+Storage” plants, in order to enable the combined plant to operate more like a conventional plant. Adding storage to solar PV has multiple benefits, including:

• Reduces short-term intermittency. By storing solar output when the sun is shining, a battery can discharge during short-term solar output fluctuations (e.g., when a cloud passes over) to enable the combined plant to maintain stable output.

• Reduces need for balancing elsewhere in the electricity system. In general, the more reliable the output of a solar plant, the fewer the balancing (or “ancillary”) services (e.g., ancillary services such as frequency regulation) are needed elsewhere in the electricity system.

• Shifts output to more-valuable time. Peak system loads in many regions occur

1 UPDATED: Cheapest electricity on the planet is Mexican (actually) wind power at 1.77¢/kWh https://electrek.co/2017/11/16/cheapest-electricity-on-the-planet-mexican-solar-power/. Accessed 28 Nov 2017.

2 Saudi Arabia Gets Cheapest Bids for Solar Power in Auction. https://www.bloomberg.com/news/articles/2017-10-03/saudi-arabia-gets-cheapest-ever-bids-for-solar-power-in-auction. Accessed 28 Nov 2017.

3 Due to better solar resource, availability of “free” land, and greater economies of scales In other regions or auctions, among other reasons.

in the after the sun has weakened or set, when offices and industrial facilities still consume power, but residential evening loads are beginning to increase. A battery can enable a Solar+Storage plant to shift some portion of the combined plant’s output to later in the day, when the energy may be more valuable. Although such applications are currently not common, they may become more

common as battery prices fall, and solar penetrations increase

• Reduces longer-term intermittency. Depending on the size of the battery, the battery can also enable the combined plant to maintain output across longer time frames – for example, a series of cloudy days.

Solar+Storage is already being pursued and even deployed, today. Several such systems

4 Thailand Electricity Generating Authority of Thailand. https://www.egat.co.th/index.php?option=com_content&view=article&id=2078&catid=49&Itemid=251. Accessed 29 Nov 2017.

5 For example: 1. https://www.pv-magazine.com/2017/05/24/indonesias-1-2-mw-community-owned-off-grid-pv-model-for-the-future/ Accessed 30 Nov 2017. 2. https://www.prnewswire.com/news-releases/fluidic-energy-provides-intelligent-energy-storage-system-for-500-island-renewable-energy-project-300166987.html Accessed 30 Nov 2017.

6 http://www.aseanenergystorage.com/ Accessed 30 Nov 2017.

are either in development or in operation in the United States and Australia, among other places around the world. Here in Southeast Asia, the Electricity Generating Authority of Thailand (EGAT) is pursuing the deployment of battery storage in close proximity to solar PV (and wind) systems, including 4:

• 3.5 MW PV + 4 MW / 1 MWh battery in Mae Hong Son

• 141 MW PV + 77.5 MW wind + 16 MW / 16

MWh battery in Chaiyabhumi• 207 MW PV + 94.2 MW wind + 21 MW /

21 MWh battery in Lopburi

In Indonesia, Solar+Storage systems are being considered for various off-grid island applications (possibly with diesel generators)5.. The recent ‘ASEAN Solar + Energy Storage Congress & Expo2017’ held in Manila, Philippines, last November brought together developers, policymakers, NGOs, and other entities from around the world to discuss developments and key issues surrounding Solar+Storage6. And companies like Solar Philippines are aggressively touting the cost-effectiveness of Solar+Storage, even in the very near term.

Finally, Thailand’s current renewables program (the “SPP Hybrid Firm” program) actually requires firm output that, for wind and solar, can only be achieved by co-locating batteries alongside the renewable technology: Thailand is in essence requiring that solar (or wind) plants take responsibility for their own intermittency.

MANY BENEFITS… AND MANY COMPLEXITIESWhile Solar+Storage offers many benefits relative to standard solar PV, adding batteries to a system also introduces additional complexity, cost, and other challenges. In general, the greater the amount of storage added to a renewables plant, the greater the benefits – but also, the greater the cost. Furthermore, storage has diminishing returns: while adding some amount of storage to a plant can produce significant benefits, as yet more storage is added, the incremental benefits tend to decrease.

Considering these tradeoffs, what is the optimal amount of storage to add when

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Importantly, note that the LCOE analysis only considers the cost of Solar+Storage systems that can operate roughly equivalently to conventional plants. We do not attempt to value or otherwise account for the various additional values and services that Solar+Storage plants can provide (e.g., ancillary services). However, a more holistic assessment of Solar+Storage economics should consider these additional values and services.

Solar+Storage-Increasingly cost-competitive with fossil-fuel-based generationdesigning a Solar+Storage plant?

Sizing optimization can yield the most cost-effective balance of solar and storage in order to achieve the desired plant characteristics. But even so, determining what represents an “optimal” system is not necessarily clear, as what is “optimal” depends not only on the relative and absolute costs of the solar and storage components, but also on the purpose of the plant. Is the purpose just to flatten short-term fluctuations in the plant’s output? Or is it to enable it to maintain some standard output profile even during an extremely cloudy day with minimal direct sunlight? Or must it be able to provide a week of baseload power in the event of a natural disaster? Each purpose requires a different mix of solar modules and battery storage.

One vision is that Solar+Storage plants could ultimately replace conventional gas- or coal-fired power plants. What would a Solar+Storage plant designed to be “equivalent” to a conventional plant look like? And how would the costs compare?

COST OF SOLAR+STORAGE VS. CONVENTIONAL GENERATION: APPLES-TO-APPLES? There’s a wealth of research that compares the cost of solar to that of conventional generation. Often, such comparisons are performed on the basis of levelized cost of energy (LCOE) – i.e., cost per unit of electricity delivered (e.g., USD/MWh). However, these are not “apples-to-apples” comparisons: a unit of electricity from a solar plant is not the same as a unit of electricity from a fossil-fuel plant, because the latter is dispatchable on demand.

However, by adding storage to a solar plant, the Solar+Storage plant becomes dispatchable (to varying degrees, depending on the amount

of storage added). Accordingly, Pöyry has developed an approach to compare Solar+Storage to conventional plants in the Southeast Asia context on an arguably more-“apples-to-apples” basis. We designed three hypothetical Solar+Storage plants, each sized to produce output that is nearly equivalent7 to that of a particular generic type of conventional power plant in Southeast Asia:

• Peaker: Simple-cycle gas turbine operating 3 hrs/day (4-7pm), 6 days/wk

• Mid-merit: Combined-cycle gas turbine operating 10 hrs/day (10am-8pm) , 7 days/wk

• Baseload: Coal plant operating 24 hrs/day, 7 days/wk

For both Solar+Storage and conventional plants, we considered “Low”, “Central”, and “High” cost cases in the context of Southeast Asia, with cost levels informed by Pöyry’s extensive experience with power projects across the region8. We then performed a simple LCOE calculation to compare the LCOE of the three hypothetical Solar+Storage systems to the LCOE of the three conventional equivalents. While the results are based on a multitude of assumptions (as with any LCOE analysis), the findings give an indication of the relative cost-competitiveness of each technology.

RESULTS OF SIMPLE LCOE ANALYSIS – AND KEY QUESTIONSBased on our analysis and the assumptions contained therein, in an “aggressive” case (i.e., assuming low costs for Solar+Storage and high costs for conventional plants and fuel), Solar+Storage may be cost-competitive as early as the next couple of years. This is noteworthy, as many consider Solar+Storage to still be many years away from being cost-competitive with conventional generation. On the other hand, using “conservative” assumptions (i.e. high Solar+Storage costs and low costs for conventional plants and fuel), Solar+Storage will not be competitive with conventional plants until many years from now.

7 The Solar+Storage plants were sized to produce at least 90% of the specified output profiles of the “equivalent” generic plants over the course of a year.

8 For conventional plants, the cost cases defined not only plant-specific capital and operating costs, but also fuel costs; fuel costs are a major driver of conventional plant LCOEs.

In all cases, as solar module and battery costs continue to decline, Solar+Storage plants will be increasingly cost-competitive with conventional plants. The key factors that drive how the cost-competitiveness will evolve in the future include:

For Solar+Storage plants:

• What is true cost of Solar+Storage today? Costs of both the solar and battery component of the plant can vary widely, depending on the data source, the equipment provider, the location/jurisdiction in which the system is installed, and many other factors. And how will those costs evolve over time?

• How “equivalent” to conventional plants must the Solar+Storage plant output be? The more relaxed the requirements are for the output profile, the smaller the solar

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Solar (uncontracted) Discharge loss Charging loss Storage (to grid)Solar (charging) Solar (to grid) Required output Battery SOC (EOH)

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FIGURE 1 – EXAMPLE OUTPUT DETAILS OF SOLAR+STORAGE SYSTEM OPTIMIZED FOR 90% EQUIVALENCE TO A “MID-MERIT” PLANT CONTRACTED TO PRODUCE 10 MW BETWEEN 10AM-8PM EVERY DAY

Solar output exceeds required system output level; excess used to charge battery

At around 1:00pm, battery is fully charged; excess solar output fed to grid

Solar output is less than required system output level; battery discharges to meet output requirement

After fully meeting the output requirements, the battery has remaining charge, which is carried over to next day

Like the previous day, morning-time excess solar output is used to charge the battery until full, then the battery is discharged as needed in order to meet the required system output level

Unlike the previous day, the system cannot fully meet the required output level in the last hour, and the battery is fully discharged at the end of the day

A cloudy day causes low solar output and the system can meet the early-day output requirement, but the battery cannot fully charge

Battery discharges to enable producing the required system output for several hours, then the battery depletes and it cannot meet the required output level during the last few hours

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module and battery components can be, reducing the system cost.

• How will the cost of capital evolve over time? Will it decline as financiers become more comfortable with Solar+Storage plants?

For conventional plants:

• What is the current source of fuel, and what is the fuel cost? How will that evolve over time?

• How will possible future environmental regulations affect the cost of conventional options? Will additional emissions-control equipment be required? Will CO2 taxes or fees emerge? How will this impact the capital and operating costs of conventional options?

• How will the cost of capital evolve over time? Will it increase as financiers begin to see more market or other risk in relation to conventional generation?

• Will O&M costs be as predicted?

MARCH 2016PÖYRY PRESENTATION 2

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2 PV+ESS plants with 1-hr storage appear to already be cost-competitive with “peakers” on a purely LCOE basis; plants with 2-hr and 4-hr storage may become cost-competitive in the next several years

PV+ESS plants (with 2- or 4- hour storage) do not appear to become cost-competitive with “mid-merit” gas plants until nearly 20303

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2 Moderate view: “Mid”-cost-case PV+ESS (2-hr) becomes cost-competitive with “mid”-cost-case CCGT in about 10 years

Conservative view: “High”-cost-case PV+ESS (2-hr) more than 10 years away from being cost-competitive with “low”-cost-case CCGT3

FIGURE 3 – LCOE EVOLUTION BY PLANT VINTAGE: CCGT/“MID-MERIT” PLANT VS. PV+ESS PLANT WITH 2-HR STORAGE

1 Aggressive view: “Low”-cost-case PV+ESS (2-hr) is already cost-competitive with “high”-cost-case CCGT

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Summary

OTHER UNIQUE ASPECTS OF SOLAR + STORAGEIn addition to the need to optimize system sizing, and the challenges when thinking about Solar+Storage cost there are a number of other issues that are unique to Solar+Storage.

Criticality of control system and control strategy. Unlike standalone PV systems, which simply produce output when solar resource is available, the operation of a Solar+Storage system is much more complex, and requires significantly more sophisticated

controls and capabilities. For example, the system must be able to:• Constantly and dynamically optimize

storage operating decisions (charging, discharging) according to available solar resource, battery conditions, and, depending on the electricity system in which the system is operating, price signals.

• Employ algorithms, forecasting, and statistical analysis to anticipate future conditions and determine optimal operating plan – and dynamically update when new data arrive.

Safety. While battery safety is constantly improving, batteries still present safety risks that stand-alone PV does not.

Cybersecurity. Due to the importance of control systems and control strategies, cybersecurity is also more important than for a stand-alone PV system.

Solar+Storage is an emerging technology that holds tremendous promise for the Southeast Asia region for environmental, energy security, and – increasingly – economic reasons. And the continued cost declines in both solar PV

and battery storage suggest that it is only a matter of time before Solar+Storage becomes a natural consideration when planning for the region’s increasing energy needs.

At the same time, adding energy storage to an otherwise relatively simple technology produces a new set of complexities, uncertainties, and questions. However, with improved understanding of the technologies themselves and the surrounding power systems to which the plants are connected, it is possible to see a future in which battery-enabled renewable energy truly is the future – whether that is right around the corner or still many years away.

FIGURE 2 – LCOE EVOLUTION BY PLANT VINTAGE: “MID” COST CASES FOR ALL TECHNOLOGIES, BASED ON ESTIMATED COSTS IN SOUTHEAST ASIA

1 Solar PV (without ESS) appears to already be roughly cost-competitive with CCGTs today, on a purely LCOE basis, assuming ‘mid’-case cost assumptions. However, the CCGT LCOE depends heavily on the source and cost of natural gas

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DisclaimerPöyry reserves all rights to this publication. No part of this publication may bereproduced or used in any form without the prior written consent of Pöyry. Thispublication is partly based on information that is not within Pöyry’s control. Pöyrydoes not make any representation or warranty, expressed or implied, as to theaccuracy or completeness of the information contained in this publication. Pöyryexpressly disclaims any and all liability arising out of or relating to the use of thispublication.This publication may contain projections which are based on assumptionssubjected to uncertainties and contingencies. Because of the subjectivejudgments and inherent uncertainties of projections, and because eventsfrequently do not occur as expected, there can be no assurance that theprojections contained herein will be realized and actual results may be differentfrom projected results. Hence the projections supplied are not to be regarded asfirm predictions of the future, but rather as illustrations of what might happen.