M Stavy, A Financial Algorithm for Computing the Levelized Cost (US$/MWh) of Storing Solar (Wind) Electricity (LCOS) at a Grid Scale Energy Storage Plant (ESP): An Algorithm for Bankers and Investors
ABSTRACT–This paper discusses the financial and technical principles underlying the levelized cost (LC) method of computing the cost (US$/MWh) of the bulk storage of solar (wind) electricity (LCOS). The paper presents a LC algorithm. The algorithm equations are presented. A glossary is presented. For rapid computation, an Excel LC Algorithm Workbook is presented. The financial algorithm uses nine recognized energy storage plant (ESP) specifications (specs) to compute the levelized cost of the stored solar (wind) electricity. Published (assembled) spec values for the proposed Highview/Encore Liquid Air Energy Storage (LAES) Plant (Vermont), for the upcoming Tesla Li-ion Battery Moss Landing ESP (Moss Landing, California) and the actual (since 1967) Cabin Creek Pumped Hydro Energy Storage Plant (Clear Creek County, Colorado) are used as case studies to demonstrate the algorithm. The emphasis in this paper is on ESP cost; not on ESP revenue, but the revenue is discussed when the paper tries to reconcile the LCOS method with ESP GAAP project accounting. When the revenue (US$/MWh) equals the LCOS, the ESP is earning its weighted average cost of capital (WACC). The goal of this paper is to present a standard computational algorithm (an app in an Excel Workbook) for bankers (investors, financial analysts) to use. Readers can do a LC computation based on the paper’s LCOS algorithm and on their own nine assembled ESP specs. The paper’s LCOS algorithm gives the reader who has these nine ESP spec values, a quick “back of the envelope” verification of a developer’s (manufacturer’s; promotor’s) value for their ESP LCOS. A complication arises in using this paper’s LC algorithm. The complication is that published ESP spec values are limited and that an ESP developer’s spec values must be confirmed by the reader before they use this paper’s Excel LC Algorithm Workbook to compute the ESP LCOS. The paper has three case studies that discuss how to assemble the nine ESP specs when good specs are not publicly available.
In finance, having good numbers is always a challenge.
Below download Michael’s Solar and Energy Storage Northeast 2020 Poster. It will look good on your grandchildren’s bedroom wall or on your office wall.
Below download the Post Convention Version of his Poster Handout.
Below download the Pre-Convention Draft Version of Michael’s Solar and Energy Storage Northeast 2020 Paper.
Below download his paper’s Excel LCOS Algorithm Workbook. It is complete unless you find some errors.
Michael wants to thank you for stopping by his poster and discussing his paper with him.
Michael’s paper, Is Wind “Power to Gas” Ready for Prime Time on the North American Grid? has been selected for presentation at CLEANPOWER 2020, 1-4 June, Colorado Convention Center, Denver.
Sorry to inform you but CLEAN POWER 2020 is now Virtual. Michael will post his Clean Power 2020 PAPER and Excel LCOG Algorithm WORKBOOK below.
WARNING! This paper was greatly influenced by Russia and, in particular, by that very famous Russian, Господин Спутник (Mr. Sputnik). In 1957, the Russians launched Mr. Sputnik and we Americans reacted by assigning the MIT Physical Sciences Study Committee to write a new more challenging high school physics textbook. In high school the author of this paper was assigned to use this textbook. He learned how to do the unit analysis that he has used in this paper.
In the hydrogen industry, this technology is known as “power to gas” or as P2G. The power referred to is wind power ( it could be solar energy). The gas referred to is hydrogen (H2) as a green gas. It is green because it is produced with renewable energy. The grid referred to is the natural gas (NG) grid, not the electric grid. The green H2 can be further converted into methane (CH4) for cost effective transmission through the natural NG grid.
ABSTRACT–The reader will learn if wind power to gas (WP2G) is ready for prime time on the North American (NA) electric and natural gas (NG) grids. The paper discusses the two phases of a model wind power to gas plant (WP2GP). First, wind power (electricity) from the grid is converted into hydrogen (H2) gas using a H2 electrolyzer (HE). Second, a Sabatier reactor (SR) is used to convert the H2 into synthetic NG [methane (CH4)]. The synthetic NG is then injected into the grid. The paper discusses both the HE and SR technologies.
The author developed a levelized cost of gas (LCOG) financial algorithm for a model WP2GP. The LC financial principles are discussed. The LCOG Algorithm uses “project accounting” to compute a separate LCOG for both WP2GP operating phases. This LCOG algorithm is used for sensitivity analysis and to confirm published WP2GP specifications (specs).
To compute the LCOG, the financial algorithm requires 18 (subject to revision) WP2GP specs [metrics]. The algorithm 18 (subject to revision) WP2GP specs (independent variables) and 30 (subject to revision) dependent variables are defined using U.S. “English” units. The H2 industry practice is to measure H2 production in Kg-H2 (Nm^3-H2) and to price H2 in US$/Kg-H2 (US$/Nm^3-H2). The North American NG industry practice is to measure NG production in ft^3 and to price NG in US$/mmBtu. For this presentation, both H2 and NG production (mmBtu-H2; mmBtu-NG) and price (US$/mmBtu-H2; US$/mmBtu-NG) are measured in mmBtu.
The author did sensitivity analysis. He found that low round trip WP2GP efficiency (η) and high WP2GP CapEx do not allow a WP2GP to operate commercially in North America. The cost of capital was not a factor. The computed HE H2 LCOG is greater than the current price of NG at the Henry Hub (NYMEX). Using this H2 as feed stock for the SR phase would produce an even higher LCOG for synthetic NG.
Michael’s paper, Making Hydrogen Energy Storage Ready for Prime Time on the North American Grid. A Guide for Bankers and Investors, has been selected for an oral presentation at Solar 2020, 23-26 June, Washington, DC.
Sorry to inform you but Solar 2020 is now Virtual. Michael will post his Solar 2020 PAPER, and Excel LCOS Algorithm WORKBOOK will be posted below.
ABSTRACT–A bulk electric energy storage plant can be used on the North American electric grid for the daily, weekly or seasonal storage of solar energy. This presentation will help bankers and investors determine whether hydrogen (H2) energy storage can operate commercially. To determine this, the author has developed a H2 storage plant (HSP) levelized cost of storage (LCOS) financial algorithm. To compute the LCOS, the HSP algorithm requires 22 HSP specifications (specs). These 22 HSP specs are defined using a set of standard Système International d’Unités H2 energy units. The presentation discusses H2 storage technology, focusing on the three phases of all HSP; one, the production (charging) of the H2 using solar electricity, two, the storage (storing) of the solar electricity as H2, and three, the use of the stored H2 as the fuel to regenerate (discharging) the solar electricity. The HSP LCOS algorithm uses “project accounting” to compute a separate LCOS for each HSP phase. The HSP algorithm is used by the author for sensitivity analysis and to confirm published HSP specs. Currently, Low round trip HSP efficiency (η) and high HSP CapEx do not allow a HSP to operate commercially. The cost of capital was not a factor.
Michael’s NEW Web of Science ResearcherID is AAG-6642-2019. Use this ID and the search function to find his researcher Web of Science Profile at Publons. Go to https://publons.com/about/home/
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