Letter Report: Critique of the Sargent and Lundy Assessment of Concentrating Solar Power Cost and Performance Forecasts (2002)

Here the committee states additional concerns that fall outside the scope of its charge but are essential to proper interpretation and use of the S&L analysis. As this report points out, the S&L cost projections depend very strongly on (1) significant deployment of trough and tower systems to bring down manufacturing costs, (2) CSP technology advances, and (3) engineering improvements required due to the extensive scaling up of CSP technology. S&L does not address what forces would bring about this large-scale expansion. Such growth requires significant government subsidies and related tax incentives, investment by the private sector, or some combination of these developments.

S&L’s report also does not address the attractiveness of the CSP technologies relative to other renewable energy technologies that will also compete for favorable government tax and subsidy initiatives as well as private investment dollars. There is also no comparison to such baseline technologies as natural gas fired gas turbine combined cycles or clean coal plants and the projected performance and economics of these competing systems in 2020. Without such comparisons the S&L report’s expansion scenario is not credible since the projections of future capacity depend strongly on the nature and magnitude of government subsidies as well as the relative attractiveness of CSP compared with other renewable and conventional energy.

To be more specific, the discussion of a LEC for CSP in cents/kWh and the projection of the LEC to 2020 are of little value unless a comparison is made to a conventional technology system on a consistent capital cost basis. How is the reader to know if 3.5 to 6.2 cents/kWh will be acceptable or not in 2020? Even though such an analysis was determined by DOE to be beyond the scope of the S&L study, a reference to the LEC and the capital cost for a conventional technology (e.g., natural gas) determined by the same financial analysis guidelines as S&L used in the CSP evaluations would have been valuable. This is not as much a criticism of S&L as it is a comment on the narrowness of the charge to S&L.

Although a study of competitive systems (i.e., natural gas, coal, other renewable, and nuclear) was outside the scope of the S&L study, it is critical that competitive systems at least be identified. It would have been extremely helpful if a range of competitive capital costs and LECs were provided in order to put the costs of the CSP systems into perspective.

These and other considerations would be essential and routine elements in a financial due diligence analysis prior to private investment in CSP. As the committee acknowledges above, S&L initially was asked to conduct a “due diligence-like” analysis in which these considerations would be relevant. Similarly, an in-depth technical due diligence would be considerably more complex than the S&L treatment and would be based on a higher level of site-specific, detailed design, engineering, construction, and procurement plans; price

quotes rather than budgetary estimates from evaluated and qualified vendors; permit requirements; access to power grids and transmission rights; and terms of power purchase agreements and elements of risk therein. Due diligence exercises at earlier phases of project formation usually would address most or all of these issues at lower levels of confidence, and the degree of confidence would be stated at each level of estimate and analysis. This is well settled practice in engineering and due diligence assessments.

Finding: Like all other new energy technologies, CSP faces tough competition from currently lower-cost fossil fuel alternatives, particularly natural gas. Because of low capital costs, high fuel conversion efficiencies, and most importantly, currently low fuel costs with minimal constraints on deliverability, natural gas combined-cycle plants represent the lowest cost option for adding new or replacing old capacity in a size range that overlaps CSP trough and tower technology.

Finding: Because CSP receives its energy from an indigenous renewable resource, its fuel-cycle-related costs are imbedded in the initial capital investment and hence fully insulated against international price instabilities and deliverability problems. Unfortunately, in today’s energy markets, this positive attribute alone does not provide a sufficient incentive to lead to investment in renewable alternatives.

Recommendation: In light of national objectives that include increased energy security, lowering dependence on imported oil and gas to become more energy independent, and lowering environmental impacts both locally and globally, DOE should conduct a technical and economic analysis of its entire portfolio of renewable energy conversion systems with a uniform set of performance and financial assumptions. This analysis could then be compared against alternative conventional systems that will be available in the time frame when renewable systems would be employed.

Recommendation: The committee recommends that a comparison of CSP with other renewable energy technology options be carried out that connects to regional issues—including resource grade and quality, capital and O&M costs, ease of siting and deployment, and energy demand—to national goals as articulated in the National Energy Plan [16] and DOE’s strategic planning. For example, the high-grade direct insolation resource of the arid Southwest represents a substantial renewable asset in a region with a growing demand for electric power. There are also considerable federal and state lands in the Southwest that are not suitable for agriculture or forestry that would make attractive sites for CSP plants.

Recommendation: Upon successfully completion of the intent of the previous two recommendations, and if the conclusion is positive for CSP plants, the committee recommends that DOE place greater emphasis on supporting U.S. industry by testing critical components for CSP deployment. This effort may include enhancing the current capacity of SunLab to conduct standardized tests to validate the performance and durability of reflectors, heliostats, receivers, storage, and absorber elements to ensure reliability for industrial developers. Furthermore, upgrading current CSP resource assessment capabilities to aid the siting of new generation plants will be needed to

achieve the deployment goals. However, this action should not be taken until the commercial viability of CSP technology has been established.