A cost-benefit analysis of power generation from commercial reinforced concrete solar chimney power plant

Energy Conversion and Management 79 (2014) 104–113

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Energy Conversion and Management journal homepage: www.elsevier.com/locate/enconman

A cost-benefit analysis of power generation from commercial reinforced concrete solar chimney power plant Weibing Li a, Ping Wei a, Xinping Zhou b,⇑ a b

School of Economics, Huazhong University of Science and Technology, 1037 Luoyu Road, Wuhan 430074, PR China School of Civil Engineering and Mechanics, Huazhong University of Science and Technology, 1037 Luoyu Road, Wuhan 430074, PR China

a r t i c l e

i n f o

Article history: Received 14 October 2013 Accepted 29 November 2013 Available online 31 December 2013 Keywords: Reinforced concrete solar chimney Power generation Cost-benefit analysis Sensitivity analysis

a b s t r a c t This paper develops a model different from existing models to analyze the cost and benefit of a reinforced concrete solar chimney power plant (RCSCPP) built in northwest China. Based on the model and some assumptions for values of parameters, this work calculates total net present value (TNPV) and the minimum electricity price in each phase by dividing the whole service period into four phases. The results show that the minimum electricity price in the first phase is higher than the current market price of electricity, but the minimum prices in the other phases are far less than the current market price. The analysis indicates that huge advantages of the RCSCPP over coal-fired power plants can be embodied in phases 2– 4. In addition, the sensitivity analysis performed in this paper discovers TNPV is very sensitive to changes in the solar electricity price and inflation rate, but responds only slightly to changes in carbon credits price, income tax rate and interest rate of loans. Our analysis predicts that RCSCPPs have very good application prospect. To encourage the development of RCSCPPs, the government should provide subsidy by setting higher electricity price in the first phase, then lower electricity price in the other phases. Ó 2013 Elsevier Ltd. All rights reserved.

1. Introduction A worldwide greenhouse effect caused by utilization of conventional fossil fuels draws global attention. It is well known that the greenhouse effect makes a great deal of economic and social losses. Stern [1] estimated that the economic losses caused by global warming go beyond 20% of world GDP. For this reason, more and more countries begin to take measures to reduce the emission of greenhouse gases. One of these measures is to develop the technologies utilizing renewable and clean energy sources. As a renewable and clean energy, solar energy is carbon-free, inexhaustible, sustainable, cost free and practically unlimited. It is able to satisfy the power demand of mankind at present and in the future if some of the solar radiation radiating on the Earth’s surface is utilized. In recent years, how to turn the abundant solar energy into the energy that human can directly utilize has become a popular and difficult problem. With the diminishing of fossil fuels and the exacerbation of greenhouse effect, many countries provide economic incentives for the development of solar power plants, including non-returnable subsidies, soft loans, favorable tax policies and so on. The solar chimney power plant (SCPP) technology is a robust, long lasting, economic, large-scale power generating technology which is suitable to be located in arid and semi-arid

⇑ Corresponding author. Tel.: +86 27 87543838. E-mail address: [email protected] (X. Zhou). 0196-8904/$ - see front matter Ó 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enconman.2013.11.046

zones. The SCPP will provide the electric power for many decades, even more than 100 years [2]. The feasibility of the SCPP technology has been demonstrated successfully by the famous prototype plant at Manzanares, Spain in 1982 [2,3]. Another kW-level pilot plant prototype was built and started operation in the desert region of Jinshawan, Wuhai City of Inner Mongolia Autonomous Region, North China, in October 2010. The plant had a SC 53 m high and 18.5 m in diameter, an ellipse-shaped glass-glazing collector covering an area of 6170 m2, and five single horizontal-axis single-rotor three-blade wind turbines installed at the collector outlet [4]. Besides, a number of small-scale experimental setups have also been built in succession all over the world recently [2,5]. This technology has attracted more and more attention from around the world, and a great amount of work on it has been reported [6]. Besides much work on the conventional vertical-chimney SCPP [7–23], some work has been reported on the novel SCPPs, e.g., the sloped-collector SCPP [24–31], the floating solar chimney power plant (FSCPP) [32], the inflatable free-standing flexible SC power plant [33], the mountain-supporting SC power plant [34,35], the SCPPs for energy and desalination, atmospheric water harvest, or food drying [36–43], the SCPP with an equipment installed at the SC outlet helping to drive the air to arise in SC [44], etc. The solar collector was proposed to combine with a natural draft dry cooling tower to increase the suction through the tower so that more air flow is achieved through the compact heat exchangers that cool condensers of a geothermal power plant.

W. Li et al. / Energy Conversion and Management 79 (2014) 104–113

105

Nomenclature SC SCPP FSCPP RCSCPP PCU TNPV NPV LEC O&M B C

solar chimney solar chimney power plant floating solar chimney power plant reinforced concrete solar chimney power plant power conversion unit total net present value (Yuan) net present value (Yuan) levelized electricity cost (Yuan/kW h) operation and maintenance benefit (Yuan) cost (Yuan)

The system was called solar enhanced natural draft dry cooling tower, which is similar to SCPP [45,46]. Some work on the effect of high SC on local atmosphere and the effect of atmospheric cross flow at the SC outlet has also been done [47–49], which is suitable for both the conventional vertical-chimney SCPPs and novel SCPPs. By now, no one commercial SCPP have been built in the world. A comprehensive economic analysis is very necessary to show the competitiveness of the SCPP technology before its commercial application. Recently, several economic models were developed to assess the economic competitiveness of the commercial SCPPs. Schlaich [2] and Bernardes [50] estimated the component cost for various plant sizes, evaluated the levelized electricity cost (LEC), and analyzed the sensitivity of the LEC to some economic parameters. Besides, Bernardes [50] derived a parametric cost model for the main plant components. Schlaich et al. [51] estimated the cost of plants and the LEC with different power capacities. The collector roofs of the plants were assumed to be made of plastic membrane in the studies by Schlaich [2] and Schlaich et al. [51], and of glass in the study by Bernardes [50]. Fluri et al. [52] presented a more detailed cost model to estimate the cost of two commercial plants whose configurations were similar to the 100 MW plants, respectively proposed by Schlaich et al. [51] and Bernardes [50]. In their economic analysis, the impact of carbon credits on the LEC was also considered. These studies mentioned above considered commercial reinforced concrete solar chimney power plants (RCSCPPs). The costs of some novel SCPPs have also been estimated. For example, Papageorgiou [32] estimated the component cost of a 100 MW FSCPP excluding the additional revenue generated by carbon credits, whereas Zhou and Yang [34] evaluated the LECs of the potential FSCPPs with FSCs supported by high mountains in the deserts in northwest China and also excluded the additional revenue of carbon credits. Zhou et al. [35] proposed a method of estimating the cost of producing energy integrating a solar collector with a man made mountain hollow for different time intervals (stages) without considering the additional revenue of carbon credits. By now, little work on economic analysis of SCPPs has been reported by taking into consideration the cash flows. Zhou et al. [53] performed economic analysis of power generation from a 100 MW FSCPP by analyzing cash flows during their whole service period and compared the economics of the 100 MW FSCPP and a 100 MW RCSCPP. The life span and the service period of the RCSCPP were assumed to be 90 years. The life span of an FSC was assumed to be 15 years which is far lower than the assumed service period of an FSCPP, and the FSC was assumed to be renewed at the end of its life. Later, Cao et al. [54] performed economic analysis of conventional SCPPs and sloped-collector SCPPs with three power capacities of 5.1 MW, 35.1 MW, and 104.7 MW proposed in Northwest China by analyzing cash flows during their whole service periods. The service periods of the proposed plants were as-

P ES h n d r

q l b Q t

price annual electricity output (GW h/a) inflation rate (%) life span of the plant (years) depreciation rate interest rate of loans (%) risk-adjusted discount rate risk free discount rate risk return rate risk degree income rate (%)

sumed to be 30 years. In Zhou et al’s. [53] and Cao et al’s. [54] views, the revenue of carbon credits need not be taxed, and the income tax cost has not been calculated. In this paper, a detailed cost-benefit model is developed to estimate the cost and benefit of power generation from a 100 MW RCSCPP in northwest China. There are several differences between this paper and the previous studies. Firstly, we develop a more comprehensive model than the ones built by others. Our model considers the benefit of carbon credits excluded by Schlaich [2] and Bernardes [50], as well as the income tax cost omitted by Fluri et al. [52], Zhou et al. [53] and Cao et al. [54]. Secondly, we use riskadjusted discount rate method for the first time to discount net cash flow. Compared to conventional discount method employed by Fluri et al. [52], Zhou et al. [53], Cao et al. [54] and so on, risk-adjusted discount rate method can consider the huge risk of RCSCPPs whose service period exceed 100 years. Thirdly, we consider an RCSCPP which can be used for 120 years and divide the whole service periods into four phases to calculate total net present value of each phase. By doing so, we can compare RCSCPPs with coal-fired power plants which can usually serve 30 years. Finally, unlike previous studies, we use elasticity method to make sensitivity analysis. Accordingly, we can see the responsiveness of total net present value to many parameters. The exchange rate between the Euro and Chinese Yuan used in this paper is 1–8.

2. Performance of reinforced concrete SCPP The working principle of SCPPs is simple: A huge chimney in an arid area with sufficiently high solar irradiation is surrounded by a large glass roof, the collector. The warm air collected under the roof flows towards the chimney. There, on its way, it drives turbines connected to generators which create electric power. The high SCs for most commercial SCPP proposals were proposed to be built with reinforced concrete. The main advantage of RCSCPPs is that it has a long life span and can bring cash flows continually. Generally, RCSCPPs can be used for more than 100 years [2]. Since the floating chimneys of FSCPPs need to be replaced every once in a while, RCSCPPs are more economic compared to FSCPPs owing to much less maintenance required. An RCSCPP consists of three parts as shown in Fig. 1: chimney, collector and power conversion unit (PCU). The chimney is usually made of reinforced concrete. In order to improve the efficiency of SCPP, the chimney is needed to be as high as possible. With the development of construction technology, it is not very difficult to build more than 1000 m high chimneys. The collector is simply made up of collector cover, column system and support matrix. By and large, the collector cover is built with glass or plastic mate-

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W. Li et al. / Energy Conversion and Management 79 (2014) 104–113

3.2. Cost analysis Total costs of an SCPP in the whole service consist of the principal and interest of loans in the repayment period, the operation and maintenance cost, and the tax cost.

chimney

collector turbogenerator

hot air

cold air

Fig. 1. Schematic diagram of a solar chimney power plant.

rials. The PCU includes turbines, generators, electronic control equipment and grid feed-in apparatus. 3. The model 3.1. Benefit analysis

C iP ¼

The benefits of an SCPP include two parts: the benefit of electricity sale and the additional benefit resulted from carbon credits because of lessening GHG emissions. 3.1.1. Benefit of electricity sale The benefit of electricity sale depends on the price of solar electricity (PS) and annual electricity output (ES). In order to promote the development of solar power plants, the government usually gives economic incentives by setting higher sale price than the market level of solar electricity. And the price goes up with the constant inflation rate (h) every year. The electricity output is usually sold to the utility or used by the plant itself. Because the proportion of electricity used by the plant itself in the electricity output is very low, this paper supposes all the electricity is sold to the utility. Therefore, the benefit of electricity sale in the kth year ðBkE Þ can be given by

BkE ¼ ES  PS ð1 þ hÞk1

3.2.1. Initial investment Let CC denote the initial investment cost during the construction period. Suppose that all the investment cost is borrowed from banks and the loans will be repaid in the mth year. In general, there are two means of repaying loans, namely matching interest repayment law and equal principal repayment method. The former allows borrowers to repay the same amount of loans every period. However, the latter demands that borrowers repay equal principal and different amount of interest every period. Because borrowers repay constant principal every period, the interest cost becomes less and less. For this reason, total interest cost of equal principal repayment method is less than that of matching interest repayment law. Zhou et al. [53] adopt matching interest repayment law to evaluate the cost of solar power plants. In order to reduce the interest cost, this paper uses equal principal repayment method. Therefore, the principal repaid in the ith year ðC iP Þ is given by:

ð1Þ

CC m

ð4Þ

And the debt after paying back the principal and interest in the ith year ðC iD Þ becomes

C iD ¼ C C  ði  1ÞC iP So the interest in the ith year

C iI

¼

C iD

ð6Þ

where i = 1, . . ., m and r represents the interest rate of loans. 3.2.2. Operation and maintenance (O & M) cost The solar power plant need spend money to maintenance and repair the collector, chimney and PCU during the whole service period. All these costs are known as the operation and maintenance cost. Let C 1O denote the operation and maintenance cost in the first year and suppose that the cost increases with the constant inflation rate (h). Then the operation and maintenance cost in the kth year is given by

C kO ¼ C 1O ð1 þ hÞk1

3.1.2. Benefit of carbon credits One main advantage of a solar power plant over a conventional coal-fired power plant is that it never releases greenhouse gases. The data published by China Development and Reform Commission shows that burning one ton of standard coal can approximately generate 3000 kW of electricity and release 2.66–2.72 tons of carbon dioxide [55]. Here takes the average value, namely 2.69. Then we can conclude the carbon dioxide released by coal-fired power plants is about 0.9 kg/kW h. We suppose that the price of carbon credits (PC) annually increases with constant inflation rate (h). Consequently, the benefit resulted from cutting down emissions of carbon dioxide in the kth year ðBkC Þ can be expressed as:

where k = 1, . . ., n.

ð2Þ

ð7Þ

3.2.3. Tax cost According to the tax law of China, depreciation and interest of loans can be excluded from the taxable benefit. In this work, the service period of the plant goes beyond 100 years. Therefore, the residual values approach zero when the plant comes to an end. In the case of proportional tax, it is favorable for the plant to use the accelerated depreciation method. Popular accelerated depreciation methods include the double-declining-balance method and the annual summation method of depreciation. Different from the depreciation method applied by Zhou et al. [53], this paper considers the latter. The depreciation rate in the kth year can be expressed as k

n  ðk  1Þ

3.1.3. Total Benefits Total benefits of a solar power plant are the sum of the benefit of electricity sale and the benefit of carbon credits. Let Bk denote total benefits in the kth year, then

d ¼

Bk ¼ BkE þ BkC

Dk ¼ C C  d

ð3Þ

can be expressed as

r

where n represents the life span of the plant and k = 1, . . ., n.

BkC ¼ ES  PC ð1 þ hÞk1  0:9 ¼ 0:9  ES  PC ð1 þ hÞk1

ð5Þ ðC iI Þ

nðnþ1Þ 2

¼

2ðn  k þ 1Þ nðn þ 1Þ

ð8Þ

Consequently, the depreciation expense in the kth year can be given by k

ð9Þ

W. Li et al. / Energy Conversion and Management 79 (2014) 104–113

Let t and C kT denote the income tax rate and the tax cost in the kth year, respectively. Based on the above analysis, we have the following

C kT ¼ ðBkT  C kI  Dk Þt

ð10Þ

where k = 1, . . ., n , and if k > m , then C kI ¼ 0. 3.2.4. Total cost Let Ck represent total costs of the solar power plant. Then

C k ¼ C kP þ C kI þ C kO þ C kT

ð11Þ

where k = 1, . . ., n, and if k > m, C kI ¼ 0 and C kP ¼ 0. 3.3. Cost-benefit analysis In order to perform economic analysis of the solar power plant, it is necessary to discount the net cash flow of every year during the whole service period. Whether investment projects are profitable partly depends on the choice of the discount rate. Zhou et al. [53] used the conventional discount method considering the inflation rate. One major shortcoming of this method is that it does not consider the risk of the project. In the light of huge risk of RCSCPPs whose service periods exceed 100 years, this work uses the riskadjusted discount rate method (RADRM). By combining the net present value method with the capital asset pricing model, the RADRM adjusts the standard discount rate in term of the degree of risk. Let l, b and Q denote the risk free discount rate, the risk return rate and the risk degree, respectively. Then the risk-adjusted discount rate (q) can be expressed as

q ¼ l þ bQ

ð12Þ

where b is calculated by the difference between the investment return rate demanded by the project and the minimum return rate dividing the coefficient of medium risk, and Q is measured by the standard deviation of present value dividing total present value of benefits during the whole service period. Thus, the net present value (NPV) of RCSCPPs in the kth year can be given by

NPVk ¼

Bk  C k ð1 þ qÞk

ð13Þ

Accordingly, total NPV (TNPV) becomes

TNPV ¼

n X NPVk

ð14Þ

k¼1

4. Cost estimation of an RCSCPP built in the northwest China The northwestern areas of China have many advantages in developing large scale solar power system, such as vast desolation, huge-fall mountains, abundant available radiation and so on. So the SCPP system has large potential of application in northwest China. This paper considers a 100 MW RCSCPP whose dimension (chimney height is 1000 m, chimney diameter is 110 m and collector diameter is 4300 m) is similar to the configuration II of Fluri et al. [52]. 4.1. Initial investment estimation Total initial investment of the RCSCPP consists of the investment on the collector, chimney and PCU.

107

4.1.1. Cost of the collector The collector consists of transparent roof, column system and support matrix. Glass or plastic film is often used as collector cover material. Schlaich et al. [51] and Bernardes [50] evaluated the cost of different solar power plants which have plastic roofs. In comparison with a glass cover, a plastic film is easily age and readily destroyed in terrible environment. Here considers a glass cover. The collector cost includes the cost of materials, transportation cost and construction cost. In the estimation by Fluri et al. [52], construction cost and transportation cost were 20% and 1.7% of the cost of materials, respectively. Because the roads in northwest China are very bad, this work supposes that transportation cost is 2% of the cost of materials. The prices of steel and 4 mm thick tempered glass are 4300 Yuan/t and 35 Yuan/m2, respectively [56]. Here neglects the land cost because solar power plants are usually built in the vast wastelands or mountainous regions. Based on the estimation by Fluri et al. [52], we can easily calculate the cost of the collector presented in Table 1. 4.1.2. Chimney cost The chimney cost consists of the cost of materials, construction cost, transportation cost and hoisting cost. Considering the height of the chimney and the harsh weather conditions in northwest China, here supposes the chimney is built with the high performance concrete (C80) whose price is 800 Yuan/m3 [57]. The price of the reinforcement used in the plant is 4300 Yuan/t [58] and every cubic meter needs 120 kg of reinforcements [59]. The construction cost including the concrete cover and labor cost is assumed 2000 Yuan/m3 [60]. The material hoisting cost of the high chimney is assumed to be 20% of the concrete and ring stiffener costs, excluding the transport cost. Based on the analysis of Fluri et al. [52] and the relevant prices in China, the cost of the chimney can be estimated in Table 2. 4.1.3. PCU cost The PCU includes turbines, generators, electronic control equipments, grid-in apparatus and power plant infrastructure. Bernardes [50] simply assumed a cost of 767 € per kW rated power for the PCU. Fluri et al. [52] developed a more comprehensive cost model and estimated total cost of €26.9 M for the PCU. With a peak power of 66 MW this equals a cost per installed power of 407 €/kW. The main reason for the difference of the PCU cost mentioned above can be explained by the different turbine cost. The turbines and generators are very expensive in China. At present, unit power investment of PCU is about 9000 Yuan/kW [61]. With a peak power of 66 MW this equals a total cost of 594 million Yuan for the PCU, among which unit equipment and infrastructure account for 75% and 20%, respectively. Table 3 presents the corresponding results. 4.1.4. Total investment On the basis of the above analysis, total investment of the RCSCPP considered in this work amounts to 3841.1 million Yuan, largely made up by the collector (60.63%) and the chimney (23.91%). The PCU makes a minor contribution (15.46%). Table 4 displays the cost of each component and its proportion of total cost. 4.2. Operation and maintenance cost Schlaich et al. [51] specified the operation and maintenance cost of a 100 MW RCSCPP to be 1.9 million Euros in the first year of operation. Similar with Fluri et al. [52], this paper employs the cost of 1.9 million Euros, namely 15.2 million Yuan and supposes this cost increases with inflation rate.

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W. Li et al. / Energy Conversion and Management 79 (2014) 104–113

Table 1 Cost of the collector (million Yuan). Component

Material cost

Construction cost

Transportation cost

Total cost

Glass Column system Support matrix Collector

508.01 89.21 1311.67 1908.90

101.60 17.84 262.33 381.78

10.16 1.78 26.23 38.18

619.78 108.84 1600.24 2328.85

Table 2 Cost of the chimney (million Yuan). Component

Material cost

Construction cost

Hoisting cost

Transportation cost

Total cost

Chimney shell Ring stiffeners Chimney foundation Chimney

221.52 22.02 83.77 327.30

336.65 4.40 127.31 468.36

111.63 4.40 0.00 116.04

4.43 0.44 1.68 6.55

674.23 31.26 212.76 918.25

Table 3 Cost of the PCU (million Yuan). Component

Unit equipment

Infrastructure

Others

Total

Cost

445

119

30

594

Table 4 Cost structure of initial investment. Component

Cost (million Yuan)

Percent of total cost (%)

Collector Chimney PCU

2328.85 918.25 594

60.63 23.91 15.46

Total

3841.1

–

5. Cost-benefit analysis of the RCSCPP built in northwest China 5.1. Parameter value The cost and benefit of the RCSCPP are determined by many parameters, including the inflation rate, the interest rate of loans, the income tax rate, the life span, the initial investment, the operation and maintenance cost and so on. China’s average inflation rate in recent 10 years is about 3%. Therefore, this work takes 3% of inflation rate which is lower than that of Schlaich et al. [51] and Fluri et al. [52]. At the moment, the interest rate of more than 5 years loans is 6.55% in China [62]. The western countries often provide lower interest rate of loans (about 2%) for solar photovoltaic power generation industry. In order to promote the development of solar power generation industry, China adopts a series of incentive policies which include favorable interest rate and income tax rate. Here supposes that the RCSCPP can get a 3% interest rate loan whose repayment period is 30 years. Grounded on the fact that China imposes 15% income tax rate on high-tech enterprises, this paper supposes the RCSCPP is subject to a corporate income tax rate of 15%. In term of the notice given by China Development and Reform Commission in July 2011, on-grid price of solar photovoltaic power generation after July 2011 is set to 1 Yuan/kW h [63]. But in practice, many local governments provide large subsides to the price of solar electricity. This paper will calculate the NPV of the RCSCPP according to the price of 1.5 Yuan/kW h. Considering a plant similar with this paper, Schlaich et al. [51] predicted a larger electricity output of 320 GW h/a in comparison to 190.4 GW h/a predicted by Fluri et al. [52]. Here takes the average value of the two predictions, namely 255.2 GW h/a.

The minimum attractive rate of return (MARR) of the solar power industry is usually 8% [64]. Here supposes that the risk free discount rate (l) is equal to MARR. When the price of solar electricity (PS) is set to 1.5 Yuan/kW h, it is easy to calculate the present value of benefits during the whole service period and its combined standard deviation, respectively 7855.69 and 3473.85 million Yuan. Accordingly, the risk degree (Q) is 0.44. If the investment return rate demanded by the RCSCPP is set to 12%, and the coefficient of medium risk is 0.5, then the risk return rate (b) amounts to 0.08. Using Eq. (12), we can get the 11.52% of the risk-adjusted discount rate (q). In recent years, the price of carbon credits has fluctuated considerably. When the Netherlands and the World Bank firstly traded carbon credits in 2001, the price of carbon credits was 5 Euros/t. After that, the price began to rise. Up to April 2006, it has exceeded 31 Euros/t. And then it gradually declined to 6 Euros/t in April 2012. At present, the price of carbon credits pre tone is 7.7 Euros, namely 61.6 Yuan [56]. In the light of the above references and analysis, the values of economic parameters used in carrying out cost-benefit analysis are given in Table 5. 5.2. Cost-benefit analysis Based on the economic model developed in this paper and relevant data, the detailed cost and benefit of the 100 MW RCSCPP are presented in Table 6. Conventional coal-fired power plants are assumed to serve 30 years. To compare with coal-fired power plants, the whole service period of the RCSCPP is divided into four phases and TNPV of each phase is calculated and shown in Table 6. Because of the influence of the discount rate, TNPV decreases from 1158.7 million

Table 5 Values of economic parameters used in carrying out cost-benefit analysis. Economic parameter

Value

Inflation rate, h Interest rate of loans, r Income tax rate, t Repayment period of loans, m The whole service period, n Initial investment, CC Annual electricity output, ES Solar electricity sale price, PS Price of carbon credit, PC Risk free discount rate, l Risk-adjusted discount rate, q

3% 3% 15% 30 years 120 years 3841.1 million Yuan 255.2 GW h/a 1.5 Yuan/kW h 61.6 Yuan/t 8% 11.52%

109

W. Li et al. / Energy Conversion and Management 79 (2014) 104–113 Table 6 Detailed cost and benefit of the RCSCPP (million Yuan). Year

Benefit Electricity sale

Principal repayment

Interest repayment

11.32 11.66 12.01 12.37 12.74 13.12 13.52 13.92 14.34 14.77 15.21 15.67 16.14 16.62 17.12 17.63 18.16 18.71 19.27 19.85 20.44 21.06 21.69 22.34 23.01 23.70 24.41 25.14 25.90 26.67

128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04 128.04

115.23 111.39 107.55 103.71 99.87 96.03 92.19 88.35 84.50 80.66 76.82 72.98 69.14 65.30 61.46 57.62 53.78 49.93 46.09 42.25 38.41 34.57 30.73 26.89 23.05 19.21 15.36 11.52 7.68 3.84

929.16 957.03 985.74 1015.31 1045.77 1077.15 1109.46 1142.74 1177.03 1212.34 1248.71 1286.17 1324.75 1364.50 1405.43 1447.59 1491.02 1535.75 1581.83 1629.28 1678.16 1728.50 1780.36 1833.77 1888.78 1945.45 2003.81 2063.92 2125.84 2189.62

27.47 28.30 29.15 30.02 30.92 31.85 32.80 33.79 34.80 35.85 36.92 38.03 39.17 40.35 41.56 42.80 44.09 45.41 46.77 48.17 49.62 51.11 52.64 54.22 55.85 57.52 59.25 61.03 62.86 64.74

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

2255.31 2322.96 2392.65 2464.43 2538.37 2614.52 2692.95

66.68 68.69 70.75 72.87 75.05 77.31 79.63

0.00 0.00 0.00 0.00 0.00 0.00 0.00

Phase 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 TNPV1

382.80 394.28 406.11 418.30 430.84 443.77 457.08 470.80 484.92 499.47 514.45 529.88 545.78 562.15 579.02 596.39 614.28 632.71 651.69 671.24 691.38 712.12 733.48 755.49 778.15 801.50 825.54 850.31 875.82 902.09

Phase 2 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 TNPV2 Phase 3 61 62 63 64 65 66 67

Cost Carbon credits

O & M cost

Annual depreciation

Tax

Net benefit

NPV

15.20 15.66 16.13 16.61 17.11 17.62 18.15 18.69 19.25 19.83 20.43 21.04 21.67 22.32 22.99 23.68 24.39 25.12 25.88 26.65 27.45 28.28 29.12 30.00 30.90 31.83 32.78 33.76 34.78 35.82

85.07 84.36 83.65 82.94 82.23 81.53 80.82 80.11 79.40 78.69 77.98 77.27 76.56 75.85 75.15 74.44 73.73 73.02 72.31 71.60 70.89 70.18 69.47 68.77 68.06 67.35 66.64 65.93 65.22 64.51

29.07 31.53 34.04 36.60 39.22 41.90 44.64 47.44 50.30 53.23 56.23 59.29 62.43 65.64 68.93 72.30 75.74 79.27 82.88 86.59 90.38 94.26 98.25 102.33 106.51 110.80 115.19 119.70 124.32 129.06

21.51 34.97 48.72 62.76 77.11 91.78 106.77 122.09 137.76 153.78 170.17 186.93 204.08 221.62 239.58 257.96 276.77 296.04 315.76 335.96 356.65 377.85 399.56 421.81 444.61 467.99 491.94 516.50 541.68 567.49

19.28 28.12 35.13 40.58 44.71 47.71 49.77 51.03 51.64 51.69 51.29 50.52 49.45 48.16 46.68 45.07 43.36 41.59 39.78 37.95 36.13 34.32 32.54 30.81 29.12 27.48 25.91 24.39 22.94 21.55 1158.7

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

36.89 38.00 39.14 40.32 41.52 42.77 44.05 45.38 46.74 48.14 49.58 51.07 52.60 54.18 55.81 57.48 59.20 60.98 62.81 64.69 66.64 68.63 70.69 72.81 75.00 77.25 79.57 81.95 84.41 86.94

29.38 29.05 28.73 28.40 28.07 27.75 27.42 27.10 26.77 26.44 26.12 25.79 25.46 25.14 24.81 24.48 24.16 23.83 23.50 23.18 22.85 22.52 22.20 21.87 21.55 21.22 20.89 20.57 20.24 19.91

139.09 143.44 147.92 152.54 157.29 162.19 167.23 172.42 177.76 183.26 188.93 194.76 200.77 206.96 213.33 219.89 226.64 233.60 240.76 248.14 255.74 263.56 271.62 279.92 288.46 297.26 306.32 315.66 325.27 335.17

751.27 774.83 799.10 824.08 849.80 876.29 903.56 931.65 960.57 990.34 1021.00 1052.58 1085.09 1118.57 1153.05 1188.55 1225.10 1262.75 1301.52 1341.44 1382.55 1424.89 1468.49 1513.39 1559.62 1607.24 1656.27 1706.77 1758.78 1812.34

25.58 23.65 21.88 20.23 18.71 17.30 15.99 14.79 13.67 12.64 11.68 10.80 9.98 9.23 8.53 7.88 7.29 6.74 6.23 5.75 5.32 4.91 4.54 4.20 3.88 3.58 3.31 3.06 2.83 2.61 306.79

0.00 0.00 0.00 0.00 0.00 0.00 0.00

89.55 92.24 95.01 97.86 100.79 103.82 106.93

19.59 19.26 18.93 18.61 18.28 17.95 17.63

345.36 355.86 366.67 377.80 389.27 401.08 413.24

1867.49 1924.29 1982.79 2043.03 2105.08 2168.97 2234.78

2.41 2.23 2.06 1.90 1.76 1.63 1.50

(continued on next page)

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W. Li et al. / Energy Conversion and Management 79 (2014) 104–113

Table 6 (continued) Year

Benefit Electricity sale

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 TNPV3 Phase 4 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 TNPV4

Cost Carbon credits

Principal repayment

Interest repayment

O & M cost

Annual depreciation

Tax

2773.74 2856.95 2942.66 3030.94 3121.87 3215.53 3311.99 3411.35 3513.69 3619.10 3727.68 3839.51 3954.69 4073.33 4195.53 4321.40 4451.04 4584.57 4722.11 4863.77 5009.69 5159.98 5314.78

82.01 84.47 87.01 89.62 92.31 95.08 97.93 100.87 103.89 107.01 110.22 113.53 116.93 120.44 124.05 127.78 131.61 135.56 139.62 143.81 148.13 152.57 157.15

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

110.14 113.44 116.85 120.35 123.96 127.68 131.51 135.46 139.52 143.71 148.02 152.46 157.03 161.74 166.59 171.59 176.74 182.04 187.50 193.13 198.92 204.89 211.04

17.30 16.98 16.65 16.32 16.00 15.67 15.34 15.02 14.69 14.36 14.04 13.71 13.38 13.06 12.73 12.40 12.08 11.75 11.43 11.10 10.77 10.45 10.12

425.77 438.67 451.95 465.64 479.73 494.24 509.19 524.58 540.43 556.76 573.58 590.90 608.74 627.11 646.03 665.52 685.59 706.26 727.55 749.47 772.06 795.32 819.27

2302.55 2372.34 2444.22 2518.25 2594.49 2673.01 2753.88 2837.17 2922.94 3011.28 3102.26 3195.97 3292.47 3391.87 3494.23 3599.66 3708.25 3820.08 3935.26 4053.88 4176.06 4301.90 4431.50

1.39 1.28 1.18 1.09 1.01 0.93 0.86 0.80 0.74 0.68 0.63 0.58 0.54 0.50 0.46 0.42 0.39 0.36 0.33 0.31 0.28 0.26 0.24 28.75

5474.22 5638.45 5807.60 5981.83 6161.28 6346.12 6536.50 6732.60 6934.58 7142.61 7356.89 7577.60 7804.93 8039.07 8280.25 8528.65 8784.51 9048.05 9319.49 9599.08 9887.05 10183.66 10489.17 10803.84 11127.96 11461.80 11805.65 12159.82 12524.62 12900.36

161.86 166.72 171.72 176.87 182.18 187.64 193.27 199.07 205.04 211.19 217.53 224.05 230.78 237.70 244.83 252.18 259.74 267.53 275.56 283.83 292.34 301.11 310.14 319.45 329.03 338.90 349.07 359.54 370.33 381.44

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

217.37 223.89 230.60 237.52 244.65 251.99 259.55 267.33 275.35 283.61 292.12 300.89 309.91 319.21 328.79 338.65 348.81 359.27 370.05 381.15 392.59 404.37 416.50 428.99 441.86 455.12 468.77 482.84 497.32 512.24

9.79 9.47 9.14 8.81 8.49 8.16 7.83 7.51 7.18 6.86 6.53 6.20 5.88 5.55 5.22 4.90 4.57 4.24 3.92 3.59 3.26 2.94 2.61 2.29 1.96 1.63 1.31 0.98 0.65 0.33

843.94 869.35 895.53 922.48 950.25 978.84 1008.29 1038.62 1069.87 1102.04 1135.18 1169.32 1204.47 1240.68 1277.98 1316.39 1355.95 1396.70 1438.67 1481.90 1526.42 1572.27 1619.51 1668.15 1718.25 1769.86 1823.01 1877.76 1934.14 1992.22

4564.98 4702.45 4844.05 4989.88 5140.08 5294.77 5454.10 5618.20 5787.22 5961.29 6140.58 6325.25 6515.44 6711.33 6913.09 7120.89 7334.92 7555.36 7782.41 8016.26 8257.12 8505.19 8760.70 9023.86 9294.92 9574.09 9861.63 10157.79 10462.83 10777.01

0.22 0.21 0.19 0.18 0.16 0.15 0.14 0.13 0.12 0.11 0.10 0.09 0.09 0.08 0.07 0.07 0.06 0.06 0.05 0.05 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.02 0.02 2.66

Total

Yuan in the first phase to 2.66 million Yuan in the last phase. So far, China has not carried out the trade of carbon credits throughout the country. Therefore, it is necessary to evaluate TNPV of the RCSCPP excluding the benefit of carbon credits. From Table 7, it can be seen that if the benefit of carbon credits is not included in the total benefit, TNPV will decrease from 1496.89 to 1383.98 million Yuan, namely a 7.5% drops. The reason why the benefit of carbon credits has little influence on the TNPV is because the price of carbon credit is too low at present. TNPV estimated here shows the RCSCPP is economical under the strict assumptions. It must be noted that TNPV estimated in this work is far lower than the result estimated by Zhou et al.

Net benefit

NPV

1496.89

[53]. This can be mainly explained by the fact that they assumed higher solar electricity sale price (4.03 Yuan/kW h in the first 25 years of operation) and higher carbon credits price (21.4 Euros/t). There is no doubt that lower electricity sale price can reflect the advantages of the RCSCPP over coal-fired power plants. By analyzing the cost and benefit of the RCSCPP, we can derive the minimum solar electricity sale price which can make TNPV of the RCSCPP equal zero. The service period of the RCSCPP is three times longer than that of coal-fired power plants. For this reason, one RCSCPP is equivalent to four coal-fired power plants. After the RCSCPP pays off the loans in the first phase, it only incurs the operation and

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W. Li et al. / Energy Conversion and Management 79 (2014) 104–113 Table 7 TNPV of different phase (million Yuan). Phase Phase Phase Phase Phase

1 2 3 4

Total

TNPV (Include benefit of carbon credits)

TNPV (exclude benefit of carbon credits)

1158.7 306.79 28.75 2.66

1056.17 297.33 27.9 2.58

1496.89

1383.98

TNPV /million yuan 8000 7000 6000 5000 4000 3000 2000

maintenance cost, depreciation cost and tax cost which are very low. At the same time, when a coal-fired power plant comes to an end after 30 years, there is a need to invest again to build a new plant which costs a lot. Under the circumstances, RCSCPPs can show huge advantages over coal-fired power plants. Applying similar method, we can calculate the minimum electricity sale prices of each phase which are displayed in Table 8. Table 8 shows the minimum electricity sale price in the whole service period is 0.912 Yuan/kW h if the benefit of carbon credits is included in the whole benefits. Even though the benefit of carbon credits is excluded, the minimum price is still 0.956 Yuan/kW h. Both of the minimum prices are less than on-grid price of solar photovoltaic power generation (1 Yuan/kW h), which shows the electricity from RCSCPPs is competitive with solar photovoltaic power generation. The minimum electricity sale price of the first phase (0.998 or 1.043 Yuan/kW h) is very close to 1 Yuan/kW h whether the benefit of carbon credits is included or not. The price maybe exceed the current market price of electricity which is different in different regions. But if looking at the minimum price of the other phases, we will find that it (below 0.11 Yuan/kW h) is far less than the current market price. The above analysis indicates that the huge advantages of the RCSCPP over coal-fired power plants can be embodied in phase 2–4. The reason is that the RCSCPP need not make initial investment after the end of phase 1 and only incurs a low cost, but coal-fired power plants need cost a lot to invest again so as to build a new plant after 30 years. The above estimation is based on a very low price of carbon credits. We expect the price of carbon credits will rise rapidly in the future, thus the competitiveness of RCSCPPs with coal-fired power plants will be more and more remarkable. From Table 8, we also find that the minimum electricity price during the whole service period is very close to that of phase 1. The reason is that the RCSCPP need additional cost to repay huge loans in the first phase, but only incur a low cost in other phases. This analysis suggests that the government should set a higher price than the market electricity price for the RCSCPP in the first phase, but appropriately lower the price in other phases.

1000 0

TNPV

0

0.5

1

1.5

2

2.5

3

3.5

4

solar electricity price/% Fig. 2. Relation between TNPV with the solar electricity price.

tricity, the price of carbon credits, the inflation rate, the interest rate of loans, and the income tax rate. To examine the effect of a certain parameter on TNPV, we will estimate TNPV by changing the value of one parameter in turn and keeping the values of other parameters unchanged.

5.3.1. Effect of the solar electricity price on TNPV TNPV displayed in Table 6 is calculated at the solar electricity price of 1.5 Yuan/kW h which is far lower than that of developed countries. For example, the price of a solar photovoltaic power generation in America and Australia respectively reach 0.457 and 0.6 Euros/kW h which are about ten times as the market price of electricity in both countries. Even though in Spain, the price of solar photovoltaic power generation is also up to 5.75 times as the market price of electricity. To make a sensitivity analysis, here supposes the maximum price of solar power electricity is 5 times as the market price of electricity (0.75 Yuan/kW h) in China, namely 3.75 Yuan/kW h. Fig. 2 presents the computing result when the price ranges from 1 to 3.75 Yuan/kW h. From Fig. 2, it can be seen that a 150% increase in the price of electricity (from 1.5 to 3.75 Yuan/kW h) causes TNPV during the whole service period to increase by 382.67% (from 1486.89 to 7225 million Yuan). We can calculate the electricity price elasticity of TNPV is 2.55. This elasticity is greater than 1, so that TNPV responds substantially to changes in the price. To put it different, a slight change in the solar electricity price will lead to a big change in the TNPV.

TNPV /million yuan

5.3. Sensitivity analysis

1850

It can be seen from the above analysis that many parameters have effects on TNPV of the RCSCPP, such as the price of solar elec-

1800 1750 1700

Table 8 Minimum electricity sale price of each phase (Yuan/kW h). Phase

Phase 1 Phase 2 Phase 3 Phase 4 The whole service period

Minimum electricity price in each phase (Include benefit of carbon credits)

(Exclude benefit of carbon credits)

0.998 0.06 0.04 0.02 0.912

1.043 0.104 0.08 0.06 0.956

1650 1600 1550 1500 1450 TNPV

1400 20 40 60 80 100 120 140 160 180200 220 240 260

price of carbon credits (yuan/t) Fig. 3. Relation between TNPV with the prices of carbon credits.

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W. Li et al. / Energy Conversion and Management 79 (2014) 104–113

Table 9 TNPV during the whole service period at different income tax rates.

TNPV/million Yuan The income tax rate/%

At the income tax rate of 15%

At the income tax rate of 25%

Percentage change (%)

1496.89 15

1174.01 25

–21.57 66.67

Income tax rate elasticity of TNPV

0.32

5.3.2. Effect of the price of carbon credits on TNPV Faced with the reduction of the price of carbon credits, the European Union started to take measures to reduce the supply of carbon emission permit. A report issued by European Commission predicts that the price of carbon credits during 2013–2020 will reach 30 Euros/t (namely 240 Yuan/t). Seeing that the European carbon trading volume accounts for more than 85% of global carbon trading volume, this work uses this price to make sensitivity analysis. Fig. 3 shows the corresponding result under the condition that the price of carbon credits ranges from 40 to 240 Yuan/t. As can be seen from Fig. 3, a 140% increase in the price of carbon credits (from 100 to 240 Yuan/t) gives rise to a 21.85% increase in TNPV (from 1640.6 to 1823.90 million Yuan), which means a carbon credits price elasticity of TNPV of 0.16. This elasticity is far less than 1, thus TNPV responds only slightly to changes in the price of carbon credits. In other words, a big change in the price of carbon credits only result in a slight change in TNPV. 5.3.3. Effect of income tax rate on TNPV The popular income tax rate of corporations is 25% in China. In the previous analysis, we suppose the RCSCPP is regarded as a high-tech enterprise and taxed according to the income tax rate of 15%. Using the model developed earlier, we can calculate TNPV at the two income tax rates (Table 9). Table 9 shows TNPV decreases with increases in the income tax rate because the tax is one cost of the RCSCPP. The income tax rate elasticity of TNPV is 0.32, which means a big increase in the income tax rate only leads to a small decrease in TNPV. One thing to be noted is that these elasticities calculated in this work are not constant at different values of parameters. 5.3.4. Effects of inflation rate and interest rate of loans on TNPV This work supposes the values of many parameters increase with the inflation rate. So TNPV will increase with the inflation rate. Fig. 4 depicts the relation between TNPV during the whole service period with the inflation rate from 1% to 9%. The interest rate is the opportunity cost of loans. The annual interest payment of loans depends on the interest rate. Therefore,

TNPV /million yuan 10000

TNPV will decrease with the increase in the interest rate of loans in theory. Fig. 4 displays the variations of TNPV during the whole service period with different interest rates. Fig. 4 shows that TNPV is very sensitive to the change of inflation rates. For example, TNPV increases from 1102.81 to 3524.02 million Yuan with increase in the inflation rate from 2% to 6% which means an elasticity of 1.1. Meanwhile TNPV responds only slightly to changes in the interest rate of loans, which can be proved by the fact that TNPV decreases from 1496.89 to 883.33 with increase in the interest rate of loans from 3% to 6%. 6. Conclusions This paper develops an economic model to analyze the costbenefit of the RCSCPP built in northwest China. The model uses risk-adjusted discount rate method which considers the huge risk of SCPPs. Another feature of this model is that it applies equal principal repayment method which can save the interest cost, but existing studies usually use annuity method. In addition, this model considers the annual summation method of depreciation which is different from existing studies. The initial investment estimated in this paper is 3841.1 million Yuan. Based on the model presented in this work, we calculate that TNPV during the whole service period is 1496.89 million Yuan under some assumptions on parameter values including loans at an interest rate of 2%, an income tax rate of 15%, and collection of additional benefit generated from carbon credits. By dividing the whole service period into four phases and calculating the minimum price of electricity, we find the minimum price of phase 1 is very close to 1 Yuan/kW h which is higher than the current market price of electricity. But if looking at the minimum price of the other phases, we become aware of that it is below 0.11 Yuan/ kW h which is far lower than the price of coal-fired power generation. The analysis predicts that huge advantages of the RCSCPP over coal-fired power plants can be embodied in the phase 2–4. The policy implication here is that the government should provide subsidy for RCSCPPs by setting higher electricity price in the first phase, then lower electricity price in the other phases. By sensitivity analysis, this paper discovers TNPV is very sensitive to changes in the electricity sale price and inflation rate, but responds only slightly to changes in carbon credits price, income tax rate and interest rate of loans. The cost-benefit analysis of the RCSCPP built in northwest China shows that the RCSCPP has very good application prospect.

9000 8000

Acknowledgments

7000 6000

TNPV at different inflation rate TNPV at different interest rate

5000 4000 3000 2000 1000

inflation rate,interest rate

0 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%10%

Fig. 4. Relation between TNPV with the inflation rate or interest rate.

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