Introduction to the LCoE Financing

In this article we will discuss about the components Levelized Cost of solar PV Energy (LCoE – PV) in Mining for each of the four Chilean regions at «Norte Grande»; while the introductory post explaining the fundamentals of LCoE for Chilean Mining is in a precedent article.  We will use mainly two units: cents of USD / KWh (some figures) and USD/MWh (most common terms used by utilities and mining).

 

II. The Components of the LCoE over 25 years

We could subdivide the LCoE in four LCoE Components: CAPEX, OPEX, Financial Costs (or FinEX) and Income Taxes (or TaxEX). Our model can show this data for every month, year on each of the 67 PV Projects studied. The Turnkey Model and the PPA model are exposed in the linked posts.

• The Turnkey Model consists of CAPEX and OPEX cost because it is internal to the mine. The mining simply pay for the development of the photovoltaic plant and outsourced operations and maintenance. So it is not dedicated to «selling» electricity and has, therefore, taxes from the sale of electricity.
• In other way, the leveraged model (PPA Model) has the «sale» of this power is by a utility that is by an IPP. So we must take into account the costs of financing this photovoltaic plant (FinEX) and taxes (TaxEX) in addition to CAPEX and OPEX.

 

II.1. Analysis of the CAPEX component of the LCoE (CAPEX LCoE)

This section includes the upfront investment costs (in the PPA model), the leveraged part of this cost is annually in «debt repayment». These are the main results:

Norte Grande CAPEX LCoE: 47.7 USD / MWh

• Arica CAPEX: 53.4 USD / MWh
• Tarapacá CAPEX: 47.2 USD/ MWh
• Antofagasta CAPEX: 27.5 USD / MWh
• Atacama CAPEX: 24.1 USD / MWh

 

PPA Model: In the «outsourced» model, the CAPEX component involves the 38.94% over costs Solar photovoltaic (PV LCOE) and 22.10% over the BAU costs (representing the opportunity costs).
Turnkey Model: In the mining internal model, the CAPEX component comprises 66.43% of PV LCOE and 22.10% of the costs Business As Usual (BAU LCOE)

 

II.2. Analysis of the OPEX component of the LCoE (OPEX LCoE)

In this section, the 67 models include all the costs of operation and maintenance including the «Repowering Inverters»

Norte Grande OPEX LCoE: 24.1 USD / MWh

• Arica OPEX: 27.3 USD / MWh
• Tarapacá OPEX: 24.1 USD / MWh
• Antofagasta OPEX: 23.0 USD / MWh
• Atacama OPEX: 27.5 USD / MWh

 

PPA Model: In the leveraged model, the OPEX  component involves the 19.67% over costs Solar photovoltaic (PV LCOE) and the 11.17% over the BAU costs (representing the opportunity costs).

Turnkey Model: In the mining internal model, the OPEX component comprises the 33.57% of PV LCOE and 11.17% of the costs Business As Usual (BAU LCOE)

 

II.3. Analysis of the direct Financial Costs (FinEX) for LCoE

Financial costs (Direct) are the result of the interest on the debt of photovoltaic plants. Only taken into account in the leveraged model (PPA Model).

Norte Grande FinEX LCoE: 30.3 USD / MWh

• Arica OPEX FinEX: 38.4 USD / MWh
• Tarapacá OPEX FinEX: 33.4 USD / MWh
• Antofagasta OPEX FinEX: 27.0 USD / MWh
• Atacama OPEX FinEX: 38.2  USD / MWh

 

PPA Model: In the leveraged model the FinEX component involves the 24.73% over costs Solar photovoltaic (PV LCOE) and the with a maximum of 28.09% at the Arica region and a minimum of 22.98% at Antofagasta. Norte Grande FinEx average represents only the 11.17% over the BAU costs.
Regarding FinEX portion, it represents the 14.04% of the costs of the BAU Model with up to 17.79% at Arica and a minimum of 12.51% in Antofagasta.

 

II.4. Analysis of he Income Tax (TaxEX) for the LCoE

Income taxes apply only in the leveraged model (PPA Model). These taxes are, really, financial indirect costs for the mining companies.

Norte Grande TaxEX LCoE:  20.4 USD / MWh

• Arica TaxEX: 17.6 USD / MWh
• Tarapacá TaxEX: 19.4 USD / MWh
• Antofagasta TaxEX: 21.6 USD / MWh
• Atacama TaxEX: 17.4  USD / MWh

 

The TaxEX component achieves the 16.65% of PV LCOE with a minimum of 12.70% in Atacama region and a maximum of 18.32% in Antofagasta region.
The TaxEX component reaches the 9.45% for the BAU Model. With a minimum of 8.06% in Atacama and a maximum of 10.01% in Antofagasta.

 

Total financial costs: FinEX (direct) & TaxEX (indirect)

From the point of view of a mine, the cost of financing a photovoltaic plant externally is the result of adding financial costs (FinEX) plus the costs of taxes (TaxEX) the financier charged to the mine so the result of the total «Financial costs to mining in northern Chile» show the following results:

 

Norte Grande Total financial costs (FinEX + TaxEX LCoE):

 50.7 USD / MWh – (41.39% of Total LCoE)

• Arica (FinEX + TaxEX): 56.0 USD / MWh (40.97 of TOTAL LCoE)
• Tarapacá (FinEX + TaxEX): 52.8 USD / MWh (42.55% of Total LCoE)
• Antofagasta (FinEX + TaxEX): 48.6 USD / MWh  (41.36% of Total LCoE)
• Atacama (FinEX + TaxEX): 55.6 USD / MWh  (40.58% of Total LCoE)

 

Cost of Opportunity: BAU LCoE vs PV LCoE

What would be the summary that attempt to explain the previous data? What is the opportunity cost which is lost remaining in 100% consumption of electricity based on fossil fuels?

The opportunity cost for NO change a portion of of fossil electricity by photovoltaic electricity is determined by the difference between the BAU LCoE and PV LCoE. So the margin percentage of this difference determines the opportunity cost.

 

In this way and for each of the two models (PPA and Turnkey), Norte Grande Average:

Opportunity Cost of 66.73% for Turnkey Model

Opportunity Cost of 43.25% for PPA Model

• Opportunity Costs in Arica: 62.61% for Turnkey model and 36.67% for PPA model
• Opportunity Costs in Tarapacá: 66.97% for Turnkey model and 42.5% for PPA model
• Opportunity Costs in Antofagasta: 68.08% for Turnkey model and 45.56% for PPA model
• Opportunity Costs in Atacama: 62.29% for Turnkey model and 36.53% for PPA model

 

 And what about the Savings?

….. next article