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Prepared by Navigant Consulting, Inc. 77 South Bedford Street Burlington, MA 01803 Arizona Solar Electric Roadmap Study Executive Summary January 2007 Arizona Solar Electric Roadmap Prepared by Navigant Consulting, Inc. 77 South Bedford Street Burlington, MA 01803 Peer reviewed by the Arizona Department of Commerce Economic Research Advisory Committee: Dan Anderson Assistant Executive Director for Institutional Analysis Arizona Board of Regents Brian Cary Principal Economist Arizona Joint Legislative Budget Committee Lisa Danka Director of CEDC, Assistant Deputy Director Strategic Investment and Research Arizona Department of Commerce Kent Ennis, CFA Senior Director Strategic Investment and Research Arizona Department of Commerce Wayne Fox Director, Bureau of Business and Economic Research Northern Arizona University James B. Nelson Economic Development Manager Salt River Project William P. Patton, Ph.D. Director of Economic Development Tucson Electric Power Elliott D. Pollack Elliott D. Pollack & Co. Mobin Qaheri Economist Arizona Department of Housing Tom Rex Research Manager Center for Business Research Arizona State University Brad Steen Chief Economist Arizona Department of Transportation Marshall Vest Director, Economic and Business Research Eller College of Management University of Arizona Don Wehbey Economist Research Administration Arizona Department of Economic Security Jim Wontor Advisor, APS Forecasting Arizona Public Service © 2007 by the Arizona Department of Commerce. This report was prepared for the Arizona Department of Commerce with funding from the Commerce and Economic Development Commission. Elements of this report may be presented independently elsewhere at the author's discretion. This report will be available on the Internet for an indefinite length of time at http://www.azcommerce.com. Inquiries should be directed to the Office of Economic Information and Research, Arizona Department of Commerce, (602) 771-1161. The Arizona Department of Commerce has made every reasonable effort to assure the accuracy of the information contained herein, including peer and/or technical review. However, the contents and sources upon which it is based are subject to changes, omissions and errors and the Arizona Department of Commerce accept no responsibility or liability for inaccuracies that may be present. THIS DOCUMENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. THE ARIZONA DEPARTMENT OF COMMERCE PRESENTS THE MATERIAL IN THIS REPORT WITHOUT IT OR ANY OF ITS EMPLOYEES MAKING ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR ASSUMING ANY LEGAL LIABILITY OR RESPONSIBILITY FOR THE ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY INFORMATION, APPARATUS, PRODUCT, OR PROCESS DISCLOSED, OR REPRESENTING THAT ITS USE WOULD NOT INFRINGE PRIVATELY OWNED RIGHTS. THE USER ASSUMES THE ENTIRE RISK AS TO THE ACCURACY AND THE USE OF THIS DOCUMENT AND ANY RELATED OR LINKED DOCUMENTS. Solar Roadmap Steering and Technical Advisory Committee Members: Stephen Ahearn, State Residential Utility Consumer Office Bud Annan, Solar Energy Advisory Council Chuck Backus, Arizona State University Research Park Harvey Boyce, Arizona Power Authority Eric Daniels, BP Solar Jonathan Fink, Arizona State University Greg Flynn, The League of AZ Cities and Towns Ed Fox, Arizona Public Service Barbara Lockwood, Arizona Public Service Peter Johnston, Arizona Public Service Chico Hunter, Salt River Project Gail Lewis, Governor's Office Robert Liden, Stirling Energy Systems Inc. Doug Obal, Stirling Energy Systems Inc. Larry Lucero, Tucson Electric Power Todd Madeksza, County Supervisors Association of Arizona Willis Martin, Pulte Homes Fred Du Val, Commerce and Economic Development Commission Leslie Tolbert, University of Arizona Joe Simmons, University of Arizona Deb Sydenham, Arizona Department of Commerce Lisa Danka, Arizona Department of Commerce Kent Ennis, Arizona Department of Commerce Lori Sherill, Arizona Department of Commerce Jim Arwood, Arizona Department of Commerce Martha Lynch, Arizona Department of Commerce Deborah Tewa, Arizona Department of Commerce Page i Table of Contents 1. Background............................................................................................................................. 3 2. Existing Solar Policies............................................................................................................. 4 3. Likely Market Penetration of Solar in AZ ...........................................................................7 Central Station Solar System Economics ........................................................................................... 7 Customer‐Sited Solar System Economics.......................................................................................... 9 Market Penetration ............................................................................................................................. 10 4. Potential Barriers and Opportunities for AZ....................................................................11 5. AZ Solar Roadmap ...............................................................................................................14 Appendix: Key Contributors to Report .................................................................................18 Page ii List of Figures Figure 1. Central Station Solar Power Options Reviewed.................................................................. 4 Figure 2. Customer Sited Solar Power Options Reviewed................................................................. 4 Figure 3. Key Federal, State and Tribe Solar Incentives...................................................................... 5 Figure 4. Key AZ Utility Incentives ....................................................................................................... 5 Figure 5. AZ State Level Incentives Applicable to Solar..................................................................... 6 Figure 6. Solar Set Aside Capacity by 2020........................................................................................... 6 Figure 7. Comparative Economics of Central Solar Power Options ................................................. 7 Figure 8. Peak Load Growth in the Southwest..................................................................................... 8 Figure 9. Solar Trough Economics Relative to Peaking Power Options........................................... 9 Figure 10. Customer‐Sited Solar Economics....................................................................................... 10 Figure 11. AZ Solar Deployment in MWs........................................................................................... 10 Figure 12. Potential Jobs from Solar Development............................................................................ 12 Figure 13. Emission Reduction Potential in Accelerated Scenario in 2020..................................... 12 Figure 14. Opportunities for AZ with Solar Development............................................................... 13 Figure 15. Roadmap Process ................................................................................................................. 14 Figure 16. Five Key Initiatives for Meeting the Solar Vision............................................................ 15 Figure 17. Key Milestones for the Solar Zone and Building Large Central Solar ......................... 15 Figure 18. Key Milestones for Sustainable Partners and Marketing and Outreach...................... 16 Figure 19. Key Milestones for Developing a Center of Excellence for Solar R&D........................ 17 Figure 20. Foundation Elements for Achieving the Solar Roadmap Ambitions ........................... 17 Figure 21. Steering Committee Members............................................................................................ 18 Figure 22. AZ Department of Commerce Contributors .................................................................... 19 Figure 23. Navigant Consulting, Inc. Contributors ........................................................................... 20 Page 3 1. Background The Arizona Department of Commerce (ADOC) has the legislated responsibility to develop a 10‐year economic plan for the state of Arizona (AZ). In its role as AZ’s strategic economic research and initiatives entity, the Commerce and Economic Development Commission (CEDC) commissioned this project to help inform the strategy for future business development in the solar industry. Solar (along with water and sustainable manufacturing) was identified in the 2004 ʺSustainable Systems Prospectusʺ as an ʺeconomy definingʺ industry opportunity for AZ based on the R&D strengths of its university system and building on its presence as one of three solar labs in the world. Several international solar energy companies have recently expressed interest in AZ due to the number of days of sunshine and the existing solar electric infrastructure. AZ has the potential to become a world leader in many aspects of solar development, and is a model location for the evolution of new solar technologies and applications. The two primary goals of the project were to provide a framework that would: • Accelerate the use and adoption of solar technologies in the market and applications to increase energy self‐reliance, enhance energy security and protect the environment in AZ, and • Describe the conditions that could enable AZ to move toward a leadership position in the research, development, manufacturing and deployment of solar technology by adopting the recommendations and potentially designing a series of demonstration activities. The project objectives were to: 1. Describe the necessary conditions for the solar electric industry to make investments in AZ that will result in widespread solar electric deployment of: – centralized generation, distributed generation, building practices, local infrastructure support, workforce development, manufacturing and research 2. Describe and recommend the environmental conditions and policy options that will assist AZ in choosing the optimal portfolio of solar electric energy options 3. Review the potential to increase jobs in solar energy Page 4 2. Existing Solar Policies Solar electric technologies are in various stages of development and require various incentives levels to be competitive. Navigant Consulting, Inc. (NCI) was hired by the ADOC to first assess the compositeness of several solar options. NCI reviewed five central station solar technology options: parabolic trough, solar Dish, power tower, concentrating photovoltaics (PV) and flat plate PV, Figure 1 and two customer sited technology option: residential building and commercial building applications, Figure 2. Parabolic Trough Solar Dish Power Tower Flat Plate Photovoltacis (single‐axis tracking) Concentrating Photovoltaics Figure 1. Central Station Solar Power Options Reviewed Residential Commercial Figure 2. Customer Sited Solar Power Options Reviewed The PV options convert sunlight directly into electricity, whereas some of the other central power options concentrate solar energy onto heat transfer fluids to generate heat for use by a turbine generator or heat engine. Page 5 NCI assessed both state and Federal policies that would impact the economic viability of each of these solar technologies from 2006 through 2025. As shown in Figures 3 and 4, there are many Federal, state, and utility incentives for solar technologies. Solar is often provided incentives compared to other renewable options. EPACT 2005 provides a 30% Investment Tax Credit for commercial installations through 2007 that will revert back to 10% at the end of 2007, unless it is extended. – There is also a residential tax credit of 30% (with a maximum cap of $2,000) Key Federal Policy Incentives for Solar As of May 2006, the Solar America Initiative (SAI) has been funded $148 million at the President’s request. Key State and Tribe Policy Incentives for Solar As of June 2006, 20 states plus DC have renewable portfolio standards (8 with solar or non‐wind set asides), and two additional states have renewable goals. For commercial installations, there is also the 5 year accelerated depreciation Tribes are eligible for incentives from a variety of sources and are trying to leverage Renewable Energy Certificates (RECS) as well. CA Million Solar Roofs Bill became law in August 2006 providing significant solar incentives for solar development in CA. Figure 3. Key Federal, State and Tribe Solar Incentives •Incentives available for up to 50 kW of solar per year • $2.4/Wpdc for 1 – 5 kW if installed in 2006 for residential UES SunShare PV BuyDown and commercial systems •10 kW for SRP •10 kW for TEP (500 kW in aggregate) Net Metering • $2/Wpac Option 1 customer purchase • $2/Wpac Option 2 if purchased from TEP • $2.4/Wpdc Option 3 if customer purchased and operational within 180 days after receipt of agreement TEP SunShare PV BuyDown • $3/W for residential and commercial PV up to 10 kW •As of July 5, 2006 the incentive level will be $2.50/W for PV systems >10 kW • $.50/kWh for SHW • $3/W for residential and $2.50/W for commercial grid connected • $2/W for off‐grid <5 kW • $.50/kWh for SHW Incentive Amount •Maximum size for PV residential is 10 kW •Maximum amount of credit is $30,000 for residential and $500,000 for commercial •Total cap per customer per year is $500,000 • $8.5 million total available for 2006 Comments SRP EarthWise Solar Energy (PV and SHW) APS Solar Partners Incentive Program (PV and SHW) Utility Incentive Figure 4. Key AZ Utility Incentives Page 6 • Program capped at $1 million. Part of the recent HB2429 bill • 10% commercial tax credit capped at $25,000 per system and $50,000 per company annually Commercial Tax Credit • An effort to improve economies of designated areas in AZ by enhancing opportunities for private investment. • $3,000 for each net‐new qualified employee over a 3‐year period for a maximum of 200 employees in any given tax year. • A reduction of assessment ratio from 25% to 5% of all personal and real property for primary tax purposes for 5 years AZ Enterprise Zone • Part • Full property tax exemption for property of the recent HB2429 bill Property Tax Exemption owners installing solar energy systems • Full sales tax exemption for solar energy • Part of the recent HB2429 bill Sales Tax Exemption systems • Provides free services to employers who seek access to skilled new hires or existing worker training resources AZ Workforce Connection • Provides grant money to companies creating full time permanent new jobs or training for Job Training Program existing worker within AZ Interconnection • ACC is developing a statewide interconnection standard, but this is still in progress • 25% up to $1,000 Incentive Amount • For residential only • Applies to all solar technologies (PV, SHW, and CSP) Comments State Income Tax Credit Arizona Incentive Figure 5. AZ State Level Incentives Applicable to Solar As shown in Figure 3, there are 20 states that have renewable portfolio standards (RPS) and eight with solar or non‐wind set asides. These RPS require that a certain percentage of new or existing generation come from renewable energy resources. NCI estimated the impact of the eight solar or non‐wind set‐asides could result in between 3,000 – 6,200 MW of new solar installed capacity by 2020, Figure 6. Source: Navigant Consulting Analysis, 2006 1. States have either specific solar targets as a % of generation or MW, or solar can be part of a non‐wind set‐aside or a DG set‐aside. 2. Solar assumed to capture the following % of the stateʹs RPS target: 0.2%‐1.0% for NY, 1%‐5% for TX, 3%‐15% for AZ. For AZ, the 15% RPS target is assumed to have passed. 3.Lower bound for CA assumes installations stall at the 2005 installed capacity level. Upper bound assumes latest CA solar initiative is met. Estimated Solar Set Aside Capacity Targets by 2020 (MW) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Colorado District of Columbia Nevada New Jersey Pennsylvania New York Arizona Texas Total Non‐ CA California Cummulative PV Installed (MWp) High Low States with specific solar targets1 States with non‐specific solar targets1,2 Impact of CA3 Figure 6. Solar Set Aside Capacity by 2020 Page 7 3. Likely Market Penetration of Solar in AZ Central Station Solar System Economics NCI estimated the likely market penetration of solar for customer and central station applications. NCI reviewed the economics of each of the technology options from 2006 through 2020. From conversations with experts in the field, NCI and the Steering Committee1 for the project determined that the Power Tower options were unlikely to be competitive in the timeframe of interest and that the development risks were currently too high to be considered for detailed analysis. NCI therefore focused the central station analysis on the four other central station power options. As shown in Figure 7, central station power options are not currently competitive with a new gas turbine combined cycle (GTCC) plant (assuming $5 – 10/MMBtu gas prices) or a new coal plant (assuming $1 – 3/MMBtu coal prices). 0 5 10 15 20 25 30 35 Dish Stirling PV Central Station ‐ 1‐axis tracker Concentrator PV (Amonix) Solar Parabolic Trough ¢/kWh ($2006) 2006 2010 2025 Note: All cost estimates exclude additional revenue from renewable energy certificates. New Coal will generate electricity at 3.7 to 5.6 cents/kWh and new Gas Turbine Combined Cycle (GTCC) at 5.7 to 9.2 cents/kWh. LCOE includes 10% ITC and accelerated depreciation, and 30% ITC for 2006. NCI analysis using data from NREL in 2006 and Bob Liden, Executive VP and General Manager, Stirling Energy Systems, for Dish Stirling, September 19, 2006. New GTCC @ $5‐10/MMBtu New Coal @ $1‐3/MMBtu Based on large scale production installed cost claims by SES Figure 7. Comparative Economics of Central Solar Power Options The levelized cost of electricity2 (LCOE) for many of the central station options ranges today from about $.14 ‐ .20/kWh with Federal incentives. This compares to the cost of a new GTCC 1 The Steering Committee members are listed in the Appendix of this report 2 The LCOE is the required selling price to cover all project cost over the project life, expressed in constant dollars (i.e., the revenue requirement). LCOE focuses on costs, not market prices and is the busbar cost of electricity and does not include transmission or distribution costs. Page 8 at $.057 – $.092/kWh. By 2010, the costs are shown to increase, as one of the major incentives for solar, the 30% Investment Tax Credit (ITC) is due to revert back to its previous 10% level at the end of 2007. Dish Stirling technology is the only central station application noted to reduce in price, as there have been significant claims about increases in production volumes that could help to provide economies of scale. Stirling Energy Systems (SES), a leading manufacturer of the technology has Power Purchase Agreements (PPAs) with two leading utility companies in California. One is with Southern California Edison (Edison International) for 500 MW with a 350 MW option and the other is with San Diego Gas & Electric (Sempra) for 300 MW with a 600 MW option. Using installed cost estimates provided by SES for 2010, NCI calculated the LCOE for the Dish Stirling technology at $.13 ‐ .14/kWh in 2010. Peak loads in the desert southwest states and California are forecasted to grow by nearly 2,000 MW per year for the next 15 years. As shown in Figure 8, there is significant peak load growth. Electric transmission is a critical link, however and under the current infrastructure, potential exports of solar to other markets are limited. Peak Load Growth (MW) 0 5 10 15 20 25 30 MW (Thousands) AZ, NM, & So NV 0 4,652 9,000 13,925 California 0 4,661 9,707 15,169 2005 2010 2015 2020 Source: WECC, CA Energy Commission, NCI Analysis Peak growth in the desert southwest is forecasted to be nearly the same as CA. Expected Peak Load (MW) 2005‐2020 CA 57,324 61,985 67,031 72,492 AZ, NM, 26,972 31,624 35,972 40,897 South NV Total 84,296 93,609 103,003 113,389 NERC Sub‐ 2005 2010 2015 2020 Region Figure 8. Peak Load Growth in the Southwest One of the main advantages of solar technologies is that they often generate power that is coincident with utility peak loads that are more costly. As shown in Figure 9, the cost of parabolic trough solar technology (as shown in the yellow bars in Figure 9) is less than the cost of peaking power today (the top two peaker solid and dotted lines in Figure 9). Trough technology costs will only become more cost effected relative to peaking unit costs as the cost of trough units are expected to decline by more than 50% by 2025. Page 9 0 20 40 60 80 100 120 140 160 180 200 2006 2010 2025 $/MWh Solar Trough Peaker @ $8/MMBtu Peaker @ $10/MMBtu CC @ $8/MMBtu CC @ $10/MMBtu Operation (Hours/yr) 1,200 7,500 Heat Rate (Btu/kWh) 10,000 7,200 2006 Capital Cost ($/kW) $500 $650 260 MW Combined Cycle 50 MW Peaking Plant Note: LCOE for solar includes Federal Investment tax credit, and accelerated depreciation. 2010 and 2025 assumes 6 hours of storage. Figure 9. Solar Trough Economics Relative to Peaking Power Options Some of the disadvantages of solar are that it is an intermittent resource and the sun does not always shine. Peaking capacity may therefore still be needed to address the intermittency and some of the non‐coincidence of solar output. On the other hand, solar provides a hedge against gas price volatility, allows the gas plant to use less gas and may therefore result in lower gas prices, reduces emissions, and by 2010 the trough technology may be able to have cost effective storage to provide six hours of storage. Customer‐Sited Solar System Economics Residential PV economics, as shown in Figure 10, are currently 2 – 3 times more expensive than retail electricity rates provided by utility companies in AZ. Commercial PV economics on the other hand are currently more competitive as a result of the 30% ITC, 5‐year accelerated depreciation, and other state incentives discussed in Section 1. Flat plate PV costs are expected to decline as shown in Figure 10 and the economics in the figure assume a business as usual cost reduction scenario. NCI also conducted an analysis assuming a cost breakthrough or incentives scenario that would result in more aggressive system price reductions. Page 10 Residential Rooftop (2.5 – 3kW) Key residential assumptions without incentives: 100% debt, cost of debt = 6.25%, Insurance = 0.5%, Loan period = 10 years. Project economic life (for property tax calculations) = 25 years. Property tax rate of $11.70/$100 of assessed value. Electricity cost of .095$/kWh growing at 1%/yr. Key commercial assumptions (without incentives): Debt equity ratio: 55%:45%, cost of equity = 15%, cost of debt = 8%, Marginal federal + state income tax = 41%. Insurance = 0.5%, Depreciation under Modified Accelerated Cost Recovery System (MACRS): Depreciation period considered is 15 years. Loan period = 10 years. Project economic life (for property tax calculations) = 25 years. Property tax rate of $11.70/$100 of assessed value. Electricity cost of $.07/kWh growing at the rate of inflation. Retail elect. rates assume constant (real) 2006 dollars and a 1%/yr real increase through 2025. See more detailed discussion in Section 3 for with incentive assumptions. Note: The LCOE for residential is lower than for commercial building installations primarily as a result of cost of capital assumptions. 0 5 10 15 20 25 30 35 40 2006 2010 2020 2025 Levelized Cost of Electricity ¢/kWh (2006 US$) Without Incentives With Federal Incentives Retail Elect. Rate With Federal and Utility Incentives 0 10 20 30 40 50 60 2006 2010 2020 2025 Levelized Cost of Electricity ¢/kWh (2006 US$) Without Incentives With Federal Incentives Retail Elect. Rate With Federal and Utility Incentives Commercial Rooftop (50 – 300 kW) Figure 10. Customer‐Sited Solar Economics Market Penetration In the accelerated cost reduction scenario, solar can result in 1,000 MW by 2020 and close to 2,600 MW of power by 2025, Figure 11, with rooftop PV accounting for 45% of the capacity. 0 500 1000 1500 2000 2500 3000 2005 2010 2015 2020 2025 Base Case Accelerated Figure 11. AZ Solar Deployment in MWs Page 11 4. Potential Barriers and Opportunities for AZ NCI conducted a series of interviews with key stakeholders in the state to determine the strengths and uniqueness of AZ for solar development. Below are some of the key points identified: • AZ Corporation Commission provides proactive leadership on its Renewable Energy Portfolio Standard • There is population and economic growth in the state • AZ has an excellent solar resource for central and customer sited PV along with large areas of land for potential development • AZ has high dependence on gas which has a volatile price • The location is ideal and central to key nearby solar markets (TX, CA, NV, CO, NM) • State Trust Lands and tribal lands may be used for large scale solar developments • There are competitive labor costs and tax rates • ASU Poly PV certification capability is only one of three in the world (the other two are in Northern Italy and Germany) • ASU hosts the Power Systems Engineering Research Center, a consortium of 13 universities and 39 companies which is funded by the National Science Foundation • There will be funds available for solar close to $1.2 billion from the Renewable Energy Standard (RES) through 2025 ($60 million per year) • ASU has very good assets that can be leveraged such as its clean room, and monitoring and evaluation equipment • UA has very good assets that can also be leveraged such as its R&D on 3rd generation solar cells, clean rooms and characterization equipment • The STAR facility evaluates emerging technologies (there are only two others in world: Weizmann Institute in Israel and Australian National University) There are however, many potential barriers to solar development in the state: • The capital cost of the solar technologies are very high • Some solar technology immaturity • Other countries provide significant solar incentives that could draw solar development elsewhere — Tax holidays (personal and corporate); free land; reduced power rates; access to water and plant cost subsidies of 30 – 45% in locations such as Germany • Lack of PV educated human capital and infrastructure • Low utility rates relative to other nearby states • Lack of local strong markets (relative to other some other U.S. states) Page 12 • Competition from neighboring states (e.g. NM manufacturing incentives) • Perception of the need for gas back‐up with solar to address intermittency • Local building codes that restrict solar develop • Homeowner associations and restrictions on solar installations If many of these barriers can be overcome, there is tremendous potential for jobs and emission reductions in the state. As shown in Figure 12, the accelerated development scenario for solar can potentially result in over 3,000 jobs in AZ in 2020. 510 60 450 Direct Manufact. (# Jobs*) 30 26 4 O&M Labor Expenditure (Million $) 2,229 429 1,800 Installation/ Construction (# Jobs) TOTAL 992 258 308 297 Central 742 143 233 54 Solar Rooftop PV 250 115 75 243 Installation Labor Expenditure (Million $) O&M (# Jobs) Installations in 2020 (MW/yr) Cumulative Capacity (MW) Accelerated Scenario In 2020 *Assumes none of central solar components are manufactured in AZ, except for PV where 20 MW were assumed to be manufactured in state. Assumes that an additional 150 MW plant is in AZ for the rooftop PV market (some in state and some exported). Source: Navigant Consulting, Inc. estimates, June 2006. Figure 12. Potential Jobs from Solar Development Emission reductions are also estimated at 400,000 tons per year by 2020 in an accelerated development scenario. *Assumes .31 lbs/kWh of CO2 are displaced for a Combined Cycle Gas Turbine in 2020. ** Assuming market shares of: 70% trough, 20% dish Stirling, 5% concentrating PV, and 5% flat plate PV based on economics. Source: Navigant Consulting, Inc. estimates, August 2006. 2,570,575 2,182,500 1,728,000 299,000 81,000 74,500 388,075 299,775 88,300 Energy Delivered (MWh) 398,200 338,200 267,800 46,300 12,600 11,500 60,000 Total CO2 Reduction (Tons) TOTAL 992 26.3% 38% 23% 25% 23% 742 519 148 37 37 Central Solar** • Trough • Dish Stirling • PV • Concentrating PV 18.3% 16% 250 187 63 Rooftop PV • Residential • Commercial Average Capacity Factor (%) Cumulative Capacity (MW) Accelerated Scenario Figure 13. Emission Reduction Potential in Accelerated Scenario in 2020 Page 13 By 2020, the opportunities for solar can be significant in an accelerated development scenario. As shown in Figure 14, there can be >250 MWs per year of solar being installed that can result in close to 3,000 new jobs. • MWs in 2020 (Accelerated Scenario): – Central Solar: 145 per year – Rooftop: 115 per year • Jobs in 2020 (Accelerated Scenario): – Direct Manufacturing: 510 per year – Installation/Construction + O&M: ~2,535 • Emissions Reductions in 2020 (Accelerated Scenario): – Central Solar: ~338,200 Tons of CO2/Year – Rooftop: ~60,000 Tons of CO2/Year • Spin‐off value of R&D development • Additional economic development e.g. tourism to visit solar “centers of excellence” and deployment centers • Enhanced sustainable AZ: maintaining AZ’s quality of life Opportunities Figure 14. Opportunities for AZ with Solar Development Page 14 5. AZ Solar Roadmap NCI’s road‐mapping process identified actions and recommendations based on the analyses of the market opportunities, competition, and barriers to solar development, Figure 15. NCI and the Steering Committee used this information to develop initiatives and policies for achieving the three initial project goals and ambitions. Potential Benefits To Arizona Arizona Competitive Position Roadmap & Action Plan Barriers •Research & Development •Manufacturing •Distributed systems deployment •Central station development & operation •Strengths •Weaknesses •Threats •Areas of competitive advantages •Financial •Institutional •Infrastructure •Availability •Wholesale markets •Transmission •Siting •Other Policy and program recommendations and action items for: • Near–term • Mid‐term • Long‐term •Jobs •Supply security •Electricity prices and stability •Reduced emissions •Image Market Opportunity Figure 15. Roadmap Process Figure 16 lays out the major five initiatives identified to help meet the vision of achieving 1,000 MW of solar development by 2020, 3,000 new jobs, and a Solar R&D Center of Excellence. The five initiatives include: • Establishing a Marketing and Outreach Program; • Establishing a Solar Zone; • Developing a Solar Center of Excellence; • Establishing “Sustainable Partners”; and • Building Large Central Solar Plants. Page 15 Distributed Generation will be an integral part of the California energy system, providing consumers and energy providers with safe, affordable, clean, reliable, and readily accessible energy services. • 1,000 MW of solar installations • 3,000 new jobs • Solar R&D Center of Excellence Foster Leadership Position & Role in R&D Accelerate Development & Adoption of Solar 2006 2010 2015 2020 Strategic Objective: Establish solar electric cost-competitiveness and stimulate market demand for solar Strategic Objective: Establish Arizona as a Center for Solar Electric R&D Build Large Central Solar Plants Establish Solar Zones Multiple installations as technology develops Develop Center of Excellence Establish Marketing and Outreach Program Establish “Sustainable Partners” Rooftop PV Both Rooftop & Central Solar Central Solar Figure 16. Five Key Initiatives for Meeting the Solar Vision Four of the initiatives are focused on accelerating the development and adoption of solar, and one is focused on fostering a leadership position and role in R&D. The detailed milestones for each of the key initiates to help accelerate the development and adoption of solar are shown in Figures 17 and 18. 2006 2010 2015 2020 Establish Solar Zone Build Large Central Solar Plant Alliance formed, project site designated, and design parameters complete (‘06) Provide political support for project (‘07) Building/community aesthetic and structure analysis complete (‘07) Identify and approve funding (‘07) • 1,000 MWs of Solar Installations • 3,000 Jobs Utility modeling, analysis complete (‘07) Develop utility coalition (’06 – ‘07) Establish Solar Cost Competitiveness Establish Solar Cost Competitiveness Economic analysis complete (‘07) Interconnection, storage, energy control and DSM strategies developed (‘07) Community pilot scale effort initiated (‘08) Pilot scale completed (‘10) Large scale plant built (‘11) Issue solicitation (‘07) Figure 17. Key Milestones for the Solar Zone and Building Large Central Solar Page 16 The initiatives in Figure 18 that identify the milestones for “Establishing Sustainable Partners” and an Outreach and Education Program will help the development and adoption of solar through stimulating market demand and building awareness. 2006 2010 2015 2020 Establish “Sustainable Partners” Design program, logo, criteria, promotional campaign (’07) Identify and prioritize opportunities to target (‘07) Launch initiative (‘08) Define lead within Department of Commerce (‘06) Develop incentive marketing packages for central solar developer, big box store, or manufacturers wanting to locate in AZ etc. (‘07) Talk with key solar players about possible incentive gaps in packages (‘07) Link with Governors Innovation Awards (’07) •1,000 MWs of Solar Installations •3,000 Jobs Stimulate Market Demand & Build Awareness Establish Marketing and Outreach Program Stimulate Market Demand & Build Awareness Develop summary of gaps and educate key stakeholders as needed (‘08) Figure 18. Key Milestones for Sustainable Partners and Marketing and Outreach To foster a leadership position and role in R&D, the NCI team and Steering Committee members identified the milestones shown in Figure 19. Page 17 2006 2010 2015 2020 Develop Center of Excellence Solar R&D Form Solar R&D Leadership (‘06) Brief state leaders and congressional delegation (‘07) Tie research plan to federal and state support criteria (‘07) Inventory capabilities, define AZ energy needs, outline 10-yr solar research plan (‘07) • 1,000 MWs of Solar Installations • 3,000 Jobs Establish Arizona as a Center for Solar Electric R&D Invite federal stakeholders to see AZ solar science capabilities first hand (‘07) Market AZ science capabilities internationally (‘08) Figure 19. Key Milestones for Developing a Center of Excellence for Solar R&D Implementing the roadmap initiatives above will allow AZ to build upon its assets and policies to establish a leadership position in fostering solar, Figure 20. The opportunities are significant if the state can take a leadership role in facilitating the activities that will leverage AZ’s strong assets to help achieve the MW and job targets desired. Leadership Initiatives Arizona’s Solar Policies Assets Arizona Solar Roadmap Ambitions by 2020: • 1,000 MW of solar installations • Solar R&D Center of Excellence • 3,000 new jobs • Establish solar zones •Build large central station plant (s) • Establish “Arizona Sustainability Partners” • Establish marketing & outreach • Develop Solar Center of Excellence •RES requirements •Utility programs • Tax credits (including sales and property tax exemptions) • Job training funds • Best solar resource in nation • Rapidly growing markets • Region committed to sustainable development • Pro‐business environment •Opportunity for Tribal partnerships • Intellectual capital at post‐secondary institutions Roadmap Initiatives Figure 20. Foundation Elements for Achieving the Solar Roadmap Ambitions Page 18 Appendix: Key Contributors to Report There were four meetings that NCI held with the Steering Committee members listed in Figure 21. They provided valuable input throughout the process to ensure accuracy and completeness. NCI and the ADOC are thankful for their time and commitment to the project. Peter Johnston, Manager Technology Arizona Public Service Development Barbara Lockwood, Renewable Energy Arizona Public Service Manager Eric Daniels, President of Technology BP Solar Gail Lewis, Policy Advisor Governor’s Office Chico Hunter, Senior Engineer Salt River Project Ed Fox, Vice President Arizona Public Service Greg Flynn The League of AZ Cities and Towns Jonathan Fink, Vice President for Research Arizona State University & Economic Affairs Lee Edwards, CEO BP Solar Harvey Boyce, Director Arizona Power Authority Chuck Backus, President Arizona State University Research Park Bud Annan Solar Energy Advisory Council Stephen Ahearn, Director State Residential Utility Consumer Office Name Organization Figure 21. Steering Committee Members Page 19 Doug Obal, Director of Financial Analysis Stirling Energy Systems, Inc. Joe Simmons, Chair of Department of University of Arizona Materials Science and Engineering Leslie Tolbert, Vice President of Research University of Arizona Commerce and Economic Development Commission Fred DuVal, Member Willis Martin, Vice President of Land Pulte Homes Acquisition – Phoenix Area Todd Madeksza County Supervisors Association of Arizona Larry Lucero, Manager of Government Tucson Electric Power Affairs Robert Liden, Executive VP and General Stirling Energy Systems, Inc. Manager Name Organization Figure 21. Steering Committee Members (continued) In addition to the Steering Committee members, several staff from the Arizona Department of Commerce contributed their time and oversight on this project. Those key members are listed in Figure 22 along with the NCI contributors in Figure 23. Deborah Tewa, Renewable Energy Tribal Arizona Department of Commerce Energy Specialist Martha Lynch, CPPB, Director of Arizona Department of Commerce Procurement Services, Chief Procurement Officer Jim Arwood, Director Energy Office Arizona Department of Commerce Lori Sherill, Support Specialist, Community Arizona Department of Commerce Planning Kent Ennis, Research Manager, Strategic Arizona Department of Commerce Investment and Research Lisa Danka, Assistant Deputy Director, Arizona Department of Commerce Strategic Investment and Research Deb Sydenham, Assistant Deputy Director, Arizona Department of Commerce Community Development Name Organization Figure 22. AZ Department of Commerce Contributors Page 20 Lisa Frantzis Director‐in‐Charge phone: 781.270.8314 lfrantzis@navigantconsulting.com 77 South Bedford Street Burlington, MA 01803 Steve Hastie Managing Consultant phone: 215‐832‐4435 1717 Arch St. Philadelphia, PA 19103 Rich Germain Associate Director phone: 415‐356‐7177 One Market Street San Francisco, CA 94105 Craig McDonald Managing Director phone: 215.832.4466 cmcdonald@navigantconsulting.com 1717 Arch Street Philadelphia, PA 19103 Jay Paidipati Senior Consultant phone: 781.270.8302 jpaidipati@navigantconsulting.com 77 South Bedford Street Burlington, MA 01803 Figure 23. Navigant Consulting, Inc. Contributors
Object Description
TITLE | Arizona solar electric roadmap study |
CREATOR | Navigant Consulting |
SUBJECT | Solar energy--Arizona; |
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Land and resources Science and technology |
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REPOSITORY | Arizona State Library, Archives and Public Records--Law and Research Library |
Description
TITLE | Arizona solar electric roadmap study executive summary |
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DATE ORIGINAL | 2007-01 |
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Source Identifier | COM 1.2:S 55 |
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Full Text | Prepared by Navigant Consulting, Inc. 77 South Bedford Street Burlington, MA 01803 Arizona Solar Electric Roadmap Study Executive Summary January 2007 Arizona Solar Electric Roadmap Prepared by Navigant Consulting, Inc. 77 South Bedford Street Burlington, MA 01803 Peer reviewed by the Arizona Department of Commerce Economic Research Advisory Committee: Dan Anderson Assistant Executive Director for Institutional Analysis Arizona Board of Regents Brian Cary Principal Economist Arizona Joint Legislative Budget Committee Lisa Danka Director of CEDC, Assistant Deputy Director Strategic Investment and Research Arizona Department of Commerce Kent Ennis, CFA Senior Director Strategic Investment and Research Arizona Department of Commerce Wayne Fox Director, Bureau of Business and Economic Research Northern Arizona University James B. Nelson Economic Development Manager Salt River Project William P. Patton, Ph.D. Director of Economic Development Tucson Electric Power Elliott D. Pollack Elliott D. Pollack & Co. Mobin Qaheri Economist Arizona Department of Housing Tom Rex Research Manager Center for Business Research Arizona State University Brad Steen Chief Economist Arizona Department of Transportation Marshall Vest Director, Economic and Business Research Eller College of Management University of Arizona Don Wehbey Economist Research Administration Arizona Department of Economic Security Jim Wontor Advisor, APS Forecasting Arizona Public Service © 2007 by the Arizona Department of Commerce. This report was prepared for the Arizona Department of Commerce with funding from the Commerce and Economic Development Commission. Elements of this report may be presented independently elsewhere at the author's discretion. This report will be available on the Internet for an indefinite length of time at http://www.azcommerce.com. Inquiries should be directed to the Office of Economic Information and Research, Arizona Department of Commerce, (602) 771-1161. The Arizona Department of Commerce has made every reasonable effort to assure the accuracy of the information contained herein, including peer and/or technical review. However, the contents and sources upon which it is based are subject to changes, omissions and errors and the Arizona Department of Commerce accept no responsibility or liability for inaccuracies that may be present. THIS DOCUMENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. THE ARIZONA DEPARTMENT OF COMMERCE PRESENTS THE MATERIAL IN THIS REPORT WITHOUT IT OR ANY OF ITS EMPLOYEES MAKING ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, OR ASSUMING ANY LEGAL LIABILITY OR RESPONSIBILITY FOR THE ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY INFORMATION, APPARATUS, PRODUCT, OR PROCESS DISCLOSED, OR REPRESENTING THAT ITS USE WOULD NOT INFRINGE PRIVATELY OWNED RIGHTS. THE USER ASSUMES THE ENTIRE RISK AS TO THE ACCURACY AND THE USE OF THIS DOCUMENT AND ANY RELATED OR LINKED DOCUMENTS. Solar Roadmap Steering and Technical Advisory Committee Members: Stephen Ahearn, State Residential Utility Consumer Office Bud Annan, Solar Energy Advisory Council Chuck Backus, Arizona State University Research Park Harvey Boyce, Arizona Power Authority Eric Daniels, BP Solar Jonathan Fink, Arizona State University Greg Flynn, The League of AZ Cities and Towns Ed Fox, Arizona Public Service Barbara Lockwood, Arizona Public Service Peter Johnston, Arizona Public Service Chico Hunter, Salt River Project Gail Lewis, Governor's Office Robert Liden, Stirling Energy Systems Inc. Doug Obal, Stirling Energy Systems Inc. Larry Lucero, Tucson Electric Power Todd Madeksza, County Supervisors Association of Arizona Willis Martin, Pulte Homes Fred Du Val, Commerce and Economic Development Commission Leslie Tolbert, University of Arizona Joe Simmons, University of Arizona Deb Sydenham, Arizona Department of Commerce Lisa Danka, Arizona Department of Commerce Kent Ennis, Arizona Department of Commerce Lori Sherill, Arizona Department of Commerce Jim Arwood, Arizona Department of Commerce Martha Lynch, Arizona Department of Commerce Deborah Tewa, Arizona Department of Commerce Page i Table of Contents 1. Background............................................................................................................................. 3 2. Existing Solar Policies............................................................................................................. 4 3. Likely Market Penetration of Solar in AZ ...........................................................................7 Central Station Solar System Economics ........................................................................................... 7 Customer‐Sited Solar System Economics.......................................................................................... 9 Market Penetration ............................................................................................................................. 10 4. Potential Barriers and Opportunities for AZ....................................................................11 5. AZ Solar Roadmap ...............................................................................................................14 Appendix: Key Contributors to Report .................................................................................18 Page ii List of Figures Figure 1. Central Station Solar Power Options Reviewed.................................................................. 4 Figure 2. Customer Sited Solar Power Options Reviewed................................................................. 4 Figure 3. Key Federal, State and Tribe Solar Incentives...................................................................... 5 Figure 4. Key AZ Utility Incentives ....................................................................................................... 5 Figure 5. AZ State Level Incentives Applicable to Solar..................................................................... 6 Figure 6. Solar Set Aside Capacity by 2020........................................................................................... 6 Figure 7. Comparative Economics of Central Solar Power Options ................................................. 7 Figure 8. Peak Load Growth in the Southwest..................................................................................... 8 Figure 9. Solar Trough Economics Relative to Peaking Power Options........................................... 9 Figure 10. Customer‐Sited Solar Economics....................................................................................... 10 Figure 11. AZ Solar Deployment in MWs........................................................................................... 10 Figure 12. Potential Jobs from Solar Development............................................................................ 12 Figure 13. Emission Reduction Potential in Accelerated Scenario in 2020..................................... 12 Figure 14. Opportunities for AZ with Solar Development............................................................... 13 Figure 15. Roadmap Process ................................................................................................................. 14 Figure 16. Five Key Initiatives for Meeting the Solar Vision............................................................ 15 Figure 17. Key Milestones for the Solar Zone and Building Large Central Solar ......................... 15 Figure 18. Key Milestones for Sustainable Partners and Marketing and Outreach...................... 16 Figure 19. Key Milestones for Developing a Center of Excellence for Solar R&D........................ 17 Figure 20. Foundation Elements for Achieving the Solar Roadmap Ambitions ........................... 17 Figure 21. Steering Committee Members............................................................................................ 18 Figure 22. AZ Department of Commerce Contributors .................................................................... 19 Figure 23. Navigant Consulting, Inc. Contributors ........................................................................... 20 Page 3 1. Background The Arizona Department of Commerce (ADOC) has the legislated responsibility to develop a 10‐year economic plan for the state of Arizona (AZ). In its role as AZ’s strategic economic research and initiatives entity, the Commerce and Economic Development Commission (CEDC) commissioned this project to help inform the strategy for future business development in the solar industry. Solar (along with water and sustainable manufacturing) was identified in the 2004 ʺSustainable Systems Prospectusʺ as an ʺeconomy definingʺ industry opportunity for AZ based on the R&D strengths of its university system and building on its presence as one of three solar labs in the world. Several international solar energy companies have recently expressed interest in AZ due to the number of days of sunshine and the existing solar electric infrastructure. AZ has the potential to become a world leader in many aspects of solar development, and is a model location for the evolution of new solar technologies and applications. The two primary goals of the project were to provide a framework that would: • Accelerate the use and adoption of solar technologies in the market and applications to increase energy self‐reliance, enhance energy security and protect the environment in AZ, and • Describe the conditions that could enable AZ to move toward a leadership position in the research, development, manufacturing and deployment of solar technology by adopting the recommendations and potentially designing a series of demonstration activities. The project objectives were to: 1. Describe the necessary conditions for the solar electric industry to make investments in AZ that will result in widespread solar electric deployment of: – centralized generation, distributed generation, building practices, local infrastructure support, workforce development, manufacturing and research 2. Describe and recommend the environmental conditions and policy options that will assist AZ in choosing the optimal portfolio of solar electric energy options 3. Review the potential to increase jobs in solar energy Page 4 2. Existing Solar Policies Solar electric technologies are in various stages of development and require various incentives levels to be competitive. Navigant Consulting, Inc. (NCI) was hired by the ADOC to first assess the compositeness of several solar options. NCI reviewed five central station solar technology options: parabolic trough, solar Dish, power tower, concentrating photovoltaics (PV) and flat plate PV, Figure 1 and two customer sited technology option: residential building and commercial building applications, Figure 2. Parabolic Trough Solar Dish Power Tower Flat Plate Photovoltacis (single‐axis tracking) Concentrating Photovoltaics Figure 1. Central Station Solar Power Options Reviewed Residential Commercial Figure 2. Customer Sited Solar Power Options Reviewed The PV options convert sunlight directly into electricity, whereas some of the other central power options concentrate solar energy onto heat transfer fluids to generate heat for use by a turbine generator or heat engine. Page 5 NCI assessed both state and Federal policies that would impact the economic viability of each of these solar technologies from 2006 through 2025. As shown in Figures 3 and 4, there are many Federal, state, and utility incentives for solar technologies. Solar is often provided incentives compared to other renewable options. EPACT 2005 provides a 30% Investment Tax Credit for commercial installations through 2007 that will revert back to 10% at the end of 2007, unless it is extended. – There is also a residential tax credit of 30% (with a maximum cap of $2,000) Key Federal Policy Incentives for Solar As of May 2006, the Solar America Initiative (SAI) has been funded $148 million at the President’s request. Key State and Tribe Policy Incentives for Solar As of June 2006, 20 states plus DC have renewable portfolio standards (8 with solar or non‐wind set asides), and two additional states have renewable goals. For commercial installations, there is also the 5 year accelerated depreciation Tribes are eligible for incentives from a variety of sources and are trying to leverage Renewable Energy Certificates (RECS) as well. CA Million Solar Roofs Bill became law in August 2006 providing significant solar incentives for solar development in CA. Figure 3. Key Federal, State and Tribe Solar Incentives •Incentives available for up to 50 kW of solar per year • $2.4/Wpdc for 1 – 5 kW if installed in 2006 for residential UES SunShare PV BuyDown and commercial systems •10 kW for SRP •10 kW for TEP (500 kW in aggregate) Net Metering • $2/Wpac Option 1 customer purchase • $2/Wpac Option 2 if purchased from TEP • $2.4/Wpdc Option 3 if customer purchased and operational within 180 days after receipt of agreement TEP SunShare PV BuyDown • $3/W for residential and commercial PV up to 10 kW •As of July 5, 2006 the incentive level will be $2.50/W for PV systems >10 kW • $.50/kWh for SHW • $3/W for residential and $2.50/W for commercial grid connected • $2/W for off‐grid <5 kW • $.50/kWh for SHW Incentive Amount •Maximum size for PV residential is 10 kW •Maximum amount of credit is $30,000 for residential and $500,000 for commercial •Total cap per customer per year is $500,000 • $8.5 million total available for 2006 Comments SRP EarthWise Solar Energy (PV and SHW) APS Solar Partners Incentive Program (PV and SHW) Utility Incentive Figure 4. Key AZ Utility Incentives Page 6 • Program capped at $1 million. Part of the recent HB2429 bill • 10% commercial tax credit capped at $25,000 per system and $50,000 per company annually Commercial Tax Credit • An effort to improve economies of designated areas in AZ by enhancing opportunities for private investment. • $3,000 for each net‐new qualified employee over a 3‐year period for a maximum of 200 employees in any given tax year. • A reduction of assessment ratio from 25% to 5% of all personal and real property for primary tax purposes for 5 years AZ Enterprise Zone • Part • Full property tax exemption for property of the recent HB2429 bill Property Tax Exemption owners installing solar energy systems • Full sales tax exemption for solar energy • Part of the recent HB2429 bill Sales Tax Exemption systems • Provides free services to employers who seek access to skilled new hires or existing worker training resources AZ Workforce Connection • Provides grant money to companies creating full time permanent new jobs or training for Job Training Program existing worker within AZ Interconnection • ACC is developing a statewide interconnection standard, but this is still in progress • 25% up to $1,000 Incentive Amount • For residential only • Applies to all solar technologies (PV, SHW, and CSP) Comments State Income Tax Credit Arizona Incentive Figure 5. AZ State Level Incentives Applicable to Solar As shown in Figure 3, there are 20 states that have renewable portfolio standards (RPS) and eight with solar or non‐wind set asides. These RPS require that a certain percentage of new or existing generation come from renewable energy resources. NCI estimated the impact of the eight solar or non‐wind set‐asides could result in between 3,000 – 6,200 MW of new solar installed capacity by 2020, Figure 6. Source: Navigant Consulting Analysis, 2006 1. States have either specific solar targets as a % of generation or MW, or solar can be part of a non‐wind set‐aside or a DG set‐aside. 2. Solar assumed to capture the following % of the stateʹs RPS target: 0.2%‐1.0% for NY, 1%‐5% for TX, 3%‐15% for AZ. For AZ, the 15% RPS target is assumed to have passed. 3.Lower bound for CA assumes installations stall at the 2005 installed capacity level. Upper bound assumes latest CA solar initiative is met. Estimated Solar Set Aside Capacity Targets by 2020 (MW) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Colorado District of Columbia Nevada New Jersey Pennsylvania New York Arizona Texas Total Non‐ CA California Cummulative PV Installed (MWp) High Low States with specific solar targets1 States with non‐specific solar targets1,2 Impact of CA3 Figure 6. Solar Set Aside Capacity by 2020 Page 7 3. Likely Market Penetration of Solar in AZ Central Station Solar System Economics NCI estimated the likely market penetration of solar for customer and central station applications. NCI reviewed the economics of each of the technology options from 2006 through 2020. From conversations with experts in the field, NCI and the Steering Committee1 for the project determined that the Power Tower options were unlikely to be competitive in the timeframe of interest and that the development risks were currently too high to be considered for detailed analysis. NCI therefore focused the central station analysis on the four other central station power options. As shown in Figure 7, central station power options are not currently competitive with a new gas turbine combined cycle (GTCC) plant (assuming $5 – 10/MMBtu gas prices) or a new coal plant (assuming $1 – 3/MMBtu coal prices). 0 5 10 15 20 25 30 35 Dish Stirling PV Central Station ‐ 1‐axis tracker Concentrator PV (Amonix) Solar Parabolic Trough ¢/kWh ($2006) 2006 2010 2025 Note: All cost estimates exclude additional revenue from renewable energy certificates. New Coal will generate electricity at 3.7 to 5.6 cents/kWh and new Gas Turbine Combined Cycle (GTCC) at 5.7 to 9.2 cents/kWh. LCOE includes 10% ITC and accelerated depreciation, and 30% ITC for 2006. NCI analysis using data from NREL in 2006 and Bob Liden, Executive VP and General Manager, Stirling Energy Systems, for Dish Stirling, September 19, 2006. New GTCC @ $5‐10/MMBtu New Coal @ $1‐3/MMBtu Based on large scale production installed cost claims by SES Figure 7. Comparative Economics of Central Solar Power Options The levelized cost of electricity2 (LCOE) for many of the central station options ranges today from about $.14 ‐ .20/kWh with Federal incentives. This compares to the cost of a new GTCC 1 The Steering Committee members are listed in the Appendix of this report 2 The LCOE is the required selling price to cover all project cost over the project life, expressed in constant dollars (i.e., the revenue requirement). LCOE focuses on costs, not market prices and is the busbar cost of electricity and does not include transmission or distribution costs. Page 8 at $.057 – $.092/kWh. By 2010, the costs are shown to increase, as one of the major incentives for solar, the 30% Investment Tax Credit (ITC) is due to revert back to its previous 10% level at the end of 2007. Dish Stirling technology is the only central station application noted to reduce in price, as there have been significant claims about increases in production volumes that could help to provide economies of scale. Stirling Energy Systems (SES), a leading manufacturer of the technology has Power Purchase Agreements (PPAs) with two leading utility companies in California. One is with Southern California Edison (Edison International) for 500 MW with a 350 MW option and the other is with San Diego Gas & Electric (Sempra) for 300 MW with a 600 MW option. Using installed cost estimates provided by SES for 2010, NCI calculated the LCOE for the Dish Stirling technology at $.13 ‐ .14/kWh in 2010. Peak loads in the desert southwest states and California are forecasted to grow by nearly 2,000 MW per year for the next 15 years. As shown in Figure 8, there is significant peak load growth. Electric transmission is a critical link, however and under the current infrastructure, potential exports of solar to other markets are limited. Peak Load Growth (MW) 0 5 10 15 20 25 30 MW (Thousands) AZ, NM, & So NV 0 4,652 9,000 13,925 California 0 4,661 9,707 15,169 2005 2010 2015 2020 Source: WECC, CA Energy Commission, NCI Analysis Peak growth in the desert southwest is forecasted to be nearly the same as CA. Expected Peak Load (MW) 2005‐2020 CA 57,324 61,985 67,031 72,492 AZ, NM, 26,972 31,624 35,972 40,897 South NV Total 84,296 93,609 103,003 113,389 NERC Sub‐ 2005 2010 2015 2020 Region Figure 8. Peak Load Growth in the Southwest One of the main advantages of solar technologies is that they often generate power that is coincident with utility peak loads that are more costly. As shown in Figure 9, the cost of parabolic trough solar technology (as shown in the yellow bars in Figure 9) is less than the cost of peaking power today (the top two peaker solid and dotted lines in Figure 9). Trough technology costs will only become more cost effected relative to peaking unit costs as the cost of trough units are expected to decline by more than 50% by 2025. Page 9 0 20 40 60 80 100 120 140 160 180 200 2006 2010 2025 $/MWh Solar Trough Peaker @ $8/MMBtu Peaker @ $10/MMBtu CC @ $8/MMBtu CC @ $10/MMBtu Operation (Hours/yr) 1,200 7,500 Heat Rate (Btu/kWh) 10,000 7,200 2006 Capital Cost ($/kW) $500 $650 260 MW Combined Cycle 50 MW Peaking Plant Note: LCOE for solar includes Federal Investment tax credit, and accelerated depreciation. 2010 and 2025 assumes 6 hours of storage. Figure 9. Solar Trough Economics Relative to Peaking Power Options Some of the disadvantages of solar are that it is an intermittent resource and the sun does not always shine. Peaking capacity may therefore still be needed to address the intermittency and some of the non‐coincidence of solar output. On the other hand, solar provides a hedge against gas price volatility, allows the gas plant to use less gas and may therefore result in lower gas prices, reduces emissions, and by 2010 the trough technology may be able to have cost effective storage to provide six hours of storage. Customer‐Sited Solar System Economics Residential PV economics, as shown in Figure 10, are currently 2 – 3 times more expensive than retail electricity rates provided by utility companies in AZ. Commercial PV economics on the other hand are currently more competitive as a result of the 30% ITC, 5‐year accelerated depreciation, and other state incentives discussed in Section 1. Flat plate PV costs are expected to decline as shown in Figure 10 and the economics in the figure assume a business as usual cost reduction scenario. NCI also conducted an analysis assuming a cost breakthrough or incentives scenario that would result in more aggressive system price reductions. Page 10 Residential Rooftop (2.5 – 3kW) Key residential assumptions without incentives: 100% debt, cost of debt = 6.25%, Insurance = 0.5%, Loan period = 10 years. Project economic life (for property tax calculations) = 25 years. Property tax rate of $11.70/$100 of assessed value. Electricity cost of .095$/kWh growing at 1%/yr. Key commercial assumptions (without incentives): Debt equity ratio: 55%:45%, cost of equity = 15%, cost of debt = 8%, Marginal federal + state income tax = 41%. Insurance = 0.5%, Depreciation under Modified Accelerated Cost Recovery System (MACRS): Depreciation period considered is 15 years. Loan period = 10 years. Project economic life (for property tax calculations) = 25 years. Property tax rate of $11.70/$100 of assessed value. Electricity cost of $.07/kWh growing at the rate of inflation. Retail elect. rates assume constant (real) 2006 dollars and a 1%/yr real increase through 2025. See more detailed discussion in Section 3 for with incentive assumptions. Note: The LCOE for residential is lower than for commercial building installations primarily as a result of cost of capital assumptions. 0 5 10 15 20 25 30 35 40 2006 2010 2020 2025 Levelized Cost of Electricity ¢/kWh (2006 US$) Without Incentives With Federal Incentives Retail Elect. Rate With Federal and Utility Incentives 0 10 20 30 40 50 60 2006 2010 2020 2025 Levelized Cost of Electricity ¢/kWh (2006 US$) Without Incentives With Federal Incentives Retail Elect. Rate With Federal and Utility Incentives Commercial Rooftop (50 – 300 kW) Figure 10. Customer‐Sited Solar Economics Market Penetration In the accelerated cost reduction scenario, solar can result in 1,000 MW by 2020 and close to 2,600 MW of power by 2025, Figure 11, with rooftop PV accounting for 45% of the capacity. 0 500 1000 1500 2000 2500 3000 2005 2010 2015 2020 2025 Base Case Accelerated Figure 11. AZ Solar Deployment in MWs Page 11 4. Potential Barriers and Opportunities for AZ NCI conducted a series of interviews with key stakeholders in the state to determine the strengths and uniqueness of AZ for solar development. Below are some of the key points identified: • AZ Corporation Commission provides proactive leadership on its Renewable Energy Portfolio Standard • There is population and economic growth in the state • AZ has an excellent solar resource for central and customer sited PV along with large areas of land for potential development • AZ has high dependence on gas which has a volatile price • The location is ideal and central to key nearby solar markets (TX, CA, NV, CO, NM) • State Trust Lands and tribal lands may be used for large scale solar developments • There are competitive labor costs and tax rates • ASU Poly PV certification capability is only one of three in the world (the other two are in Northern Italy and Germany) • ASU hosts the Power Systems Engineering Research Center, a consortium of 13 universities and 39 companies which is funded by the National Science Foundation • There will be funds available for solar close to $1.2 billion from the Renewable Energy Standard (RES) through 2025 ($60 million per year) • ASU has very good assets that can be leveraged such as its clean room, and monitoring and evaluation equipment • UA has very good assets that can also be leveraged such as its R&D on 3rd generation solar cells, clean rooms and characterization equipment • The STAR facility evaluates emerging technologies (there are only two others in world: Weizmann Institute in Israel and Australian National University) There are however, many potential barriers to solar development in the state: • The capital cost of the solar technologies are very high • Some solar technology immaturity • Other countries provide significant solar incentives that could draw solar development elsewhere — Tax holidays (personal and corporate); free land; reduced power rates; access to water and plant cost subsidies of 30 – 45% in locations such as Germany • Lack of PV educated human capital and infrastructure • Low utility rates relative to other nearby states • Lack of local strong markets (relative to other some other U.S. states) Page 12 • Competition from neighboring states (e.g. NM manufacturing incentives) • Perception of the need for gas back‐up with solar to address intermittency • Local building codes that restrict solar develop • Homeowner associations and restrictions on solar installations If many of these barriers can be overcome, there is tremendous potential for jobs and emission reductions in the state. As shown in Figure 12, the accelerated development scenario for solar can potentially result in over 3,000 jobs in AZ in 2020. 510 60 450 Direct Manufact. (# Jobs*) 30 26 4 O&M Labor Expenditure (Million $) 2,229 429 1,800 Installation/ Construction (# Jobs) TOTAL 992 258 308 297 Central 742 143 233 54 Solar Rooftop PV 250 115 75 243 Installation Labor Expenditure (Million $) O&M (# Jobs) Installations in 2020 (MW/yr) Cumulative Capacity (MW) Accelerated Scenario In 2020 *Assumes none of central solar components are manufactured in AZ, except for PV where 20 MW were assumed to be manufactured in state. Assumes that an additional 150 MW plant is in AZ for the rooftop PV market (some in state and some exported). Source: Navigant Consulting, Inc. estimates, June 2006. Figure 12. Potential Jobs from Solar Development Emission reductions are also estimated at 400,000 tons per year by 2020 in an accelerated development scenario. *Assumes .31 lbs/kWh of CO2 are displaced for a Combined Cycle Gas Turbine in 2020. ** Assuming market shares of: 70% trough, 20% dish Stirling, 5% concentrating PV, and 5% flat plate PV based on economics. Source: Navigant Consulting, Inc. estimates, August 2006. 2,570,575 2,182,500 1,728,000 299,000 81,000 74,500 388,075 299,775 88,300 Energy Delivered (MWh) 398,200 338,200 267,800 46,300 12,600 11,500 60,000 Total CO2 Reduction (Tons) TOTAL 992 26.3% 38% 23% 25% 23% 742 519 148 37 37 Central Solar** • Trough • Dish Stirling • PV • Concentrating PV 18.3% 16% 250 187 63 Rooftop PV • Residential • Commercial Average Capacity Factor (%) Cumulative Capacity (MW) Accelerated Scenario Figure 13. Emission Reduction Potential in Accelerated Scenario in 2020 Page 13 By 2020, the opportunities for solar can be significant in an accelerated development scenario. As shown in Figure 14, there can be >250 MWs per year of solar being installed that can result in close to 3,000 new jobs. • MWs in 2020 (Accelerated Scenario): – Central Solar: 145 per year – Rooftop: 115 per year • Jobs in 2020 (Accelerated Scenario): – Direct Manufacturing: 510 per year – Installation/Construction + O&M: ~2,535 • Emissions Reductions in 2020 (Accelerated Scenario): – Central Solar: ~338,200 Tons of CO2/Year – Rooftop: ~60,000 Tons of CO2/Year • Spin‐off value of R&D development • Additional economic development e.g. tourism to visit solar “centers of excellence” and deployment centers • Enhanced sustainable AZ: maintaining AZ’s quality of life Opportunities Figure 14. Opportunities for AZ with Solar Development Page 14 5. AZ Solar Roadmap NCI’s road‐mapping process identified actions and recommendations based on the analyses of the market opportunities, competition, and barriers to solar development, Figure 15. NCI and the Steering Committee used this information to develop initiatives and policies for achieving the three initial project goals and ambitions. Potential Benefits To Arizona Arizona Competitive Position Roadmap & Action Plan Barriers •Research & Development •Manufacturing •Distributed systems deployment •Central station development & operation •Strengths •Weaknesses •Threats •Areas of competitive advantages •Financial •Institutional •Infrastructure •Availability •Wholesale markets •Transmission •Siting •Other Policy and program recommendations and action items for: • Near–term • Mid‐term • Long‐term •Jobs •Supply security •Electricity prices and stability •Reduced emissions •Image Market Opportunity Figure 15. Roadmap Process Figure 16 lays out the major five initiatives identified to help meet the vision of achieving 1,000 MW of solar development by 2020, 3,000 new jobs, and a Solar R&D Center of Excellence. The five initiatives include: • Establishing a Marketing and Outreach Program; • Establishing a Solar Zone; • Developing a Solar Center of Excellence; • Establishing “Sustainable Partners”; and • Building Large Central Solar Plants. Page 15 Distributed Generation will be an integral part of the California energy system, providing consumers and energy providers with safe, affordable, clean, reliable, and readily accessible energy services. • 1,000 MW of solar installations • 3,000 new jobs • Solar R&D Center of Excellence Foster Leadership Position & Role in R&D Accelerate Development & Adoption of Solar 2006 2010 2015 2020 Strategic Objective: Establish solar electric cost-competitiveness and stimulate market demand for solar Strategic Objective: Establish Arizona as a Center for Solar Electric R&D Build Large Central Solar Plants Establish Solar Zones Multiple installations as technology develops Develop Center of Excellence Establish Marketing and Outreach Program Establish “Sustainable Partners” Rooftop PV Both Rooftop & Central Solar Central Solar Figure 16. Five Key Initiatives for Meeting the Solar Vision Four of the initiatives are focused on accelerating the development and adoption of solar, and one is focused on fostering a leadership position and role in R&D. The detailed milestones for each of the key initiates to help accelerate the development and adoption of solar are shown in Figures 17 and 18. 2006 2010 2015 2020 Establish Solar Zone Build Large Central Solar Plant Alliance formed, project site designated, and design parameters complete (‘06) Provide political support for project (‘07) Building/community aesthetic and structure analysis complete (‘07) Identify and approve funding (‘07) • 1,000 MWs of Solar Installations • 3,000 Jobs Utility modeling, analysis complete (‘07) Develop utility coalition (’06 – ‘07) Establish Solar Cost Competitiveness Establish Solar Cost Competitiveness Economic analysis complete (‘07) Interconnection, storage, energy control and DSM strategies developed (‘07) Community pilot scale effort initiated (‘08) Pilot scale completed (‘10) Large scale plant built (‘11) Issue solicitation (‘07) Figure 17. Key Milestones for the Solar Zone and Building Large Central Solar Page 16 The initiatives in Figure 18 that identify the milestones for “Establishing Sustainable Partners” and an Outreach and Education Program will help the development and adoption of solar through stimulating market demand and building awareness. 2006 2010 2015 2020 Establish “Sustainable Partners” Design program, logo, criteria, promotional campaign (’07) Identify and prioritize opportunities to target (‘07) Launch initiative (‘08) Define lead within Department of Commerce (‘06) Develop incentive marketing packages for central solar developer, big box store, or manufacturers wanting to locate in AZ etc. (‘07) Talk with key solar players about possible incentive gaps in packages (‘07) Link with Governors Innovation Awards (’07) •1,000 MWs of Solar Installations •3,000 Jobs Stimulate Market Demand & Build Awareness Establish Marketing and Outreach Program Stimulate Market Demand & Build Awareness Develop summary of gaps and educate key stakeholders as needed (‘08) Figure 18. Key Milestones for Sustainable Partners and Marketing and Outreach To foster a leadership position and role in R&D, the NCI team and Steering Committee members identified the milestones shown in Figure 19. Page 17 2006 2010 2015 2020 Develop Center of Excellence Solar R&D Form Solar R&D Leadership (‘06) Brief state leaders and congressional delegation (‘07) Tie research plan to federal and state support criteria (‘07) Inventory capabilities, define AZ energy needs, outline 10-yr solar research plan (‘07) • 1,000 MWs of Solar Installations • 3,000 Jobs Establish Arizona as a Center for Solar Electric R&D Invite federal stakeholders to see AZ solar science capabilities first hand (‘07) Market AZ science capabilities internationally (‘08) Figure 19. Key Milestones for Developing a Center of Excellence for Solar R&D Implementing the roadmap initiatives above will allow AZ to build upon its assets and policies to establish a leadership position in fostering solar, Figure 20. The opportunities are significant if the state can take a leadership role in facilitating the activities that will leverage AZ’s strong assets to help achieve the MW and job targets desired. Leadership Initiatives Arizona’s Solar Policies Assets Arizona Solar Roadmap Ambitions by 2020: • 1,000 MW of solar installations • Solar R&D Center of Excellence • 3,000 new jobs • Establish solar zones •Build large central station plant (s) • Establish “Arizona Sustainability Partners” • Establish marketing & outreach • Develop Solar Center of Excellence •RES requirements •Utility programs • Tax credits (including sales and property tax exemptions) • Job training funds • Best solar resource in nation • Rapidly growing markets • Region committed to sustainable development • Pro‐business environment •Opportunity for Tribal partnerships • Intellectual capital at post‐secondary institutions Roadmap Initiatives Figure 20. Foundation Elements for Achieving the Solar Roadmap Ambitions Page 18 Appendix: Key Contributors to Report There were four meetings that NCI held with the Steering Committee members listed in Figure 21. They provided valuable input throughout the process to ensure accuracy and completeness. NCI and the ADOC are thankful for their time and commitment to the project. Peter Johnston, Manager Technology Arizona Public Service Development Barbara Lockwood, Renewable Energy Arizona Public Service Manager Eric Daniels, President of Technology BP Solar Gail Lewis, Policy Advisor Governor’s Office Chico Hunter, Senior Engineer Salt River Project Ed Fox, Vice President Arizona Public Service Greg Flynn The League of AZ Cities and Towns Jonathan Fink, Vice President for Research Arizona State University & Economic Affairs Lee Edwards, CEO BP Solar Harvey Boyce, Director Arizona Power Authority Chuck Backus, President Arizona State University Research Park Bud Annan Solar Energy Advisory Council Stephen Ahearn, Director State Residential Utility Consumer Office Name Organization Figure 21. Steering Committee Members Page 19 Doug Obal, Director of Financial Analysis Stirling Energy Systems, Inc. Joe Simmons, Chair of Department of University of Arizona Materials Science and Engineering Leslie Tolbert, Vice President of Research University of Arizona Commerce and Economic Development Commission Fred DuVal, Member Willis Martin, Vice President of Land Pulte Homes Acquisition – Phoenix Area Todd Madeksza County Supervisors Association of Arizona Larry Lucero, Manager of Government Tucson Electric Power Affairs Robert Liden, Executive VP and General Stirling Energy Systems, Inc. Manager Name Organization Figure 21. Steering Committee Members (continued) In addition to the Steering Committee members, several staff from the Arizona Department of Commerce contributed their time and oversight on this project. Those key members are listed in Figure 22 along with the NCI contributors in Figure 23. Deborah Tewa, Renewable Energy Tribal Arizona Department of Commerce Energy Specialist Martha Lynch, CPPB, Director of Arizona Department of Commerce Procurement Services, Chief Procurement Officer Jim Arwood, Director Energy Office Arizona Department of Commerce Lori Sherill, Support Specialist, Community Arizona Department of Commerce Planning Kent Ennis, Research Manager, Strategic Arizona Department of Commerce Investment and Research Lisa Danka, Assistant Deputy Director, Arizona Department of Commerce Strategic Investment and Research Deb Sydenham, Assistant Deputy Director, Arizona Department of Commerce Community Development Name Organization Figure 22. AZ Department of Commerce Contributors Page 20 Lisa Frantzis Director‐in‐Charge phone: 781.270.8314 lfrantzis@navigantconsulting.com 77 South Bedford Street Burlington, MA 01803 Steve Hastie Managing Consultant phone: 215‐832‐4435 1717 Arch St. Philadelphia, PA 19103 Rich Germain Associate Director phone: 415‐356‐7177 One Market Street San Francisco, CA 94105 Craig McDonald Managing Director phone: 215.832.4466 cmcdonald@navigantconsulting.com 1717 Arch Street Philadelphia, PA 19103 Jay Paidipati Senior Consultant phone: 781.270.8302 jpaidipati@navigantconsulting.com 77 South Bedford Street Burlington, MA 01803 Figure 23. Navigant Consulting, Inc. Contributors |