PV Grid Parity Monitor for residential

consumers

Financial Advisory Strategy Consulting Market Intelligence Policy Consulting

Leonardo ENERGY Webinar Series/ Madrid (Spain)

25 June, 2013

David Pérez, Partner

dpn@eclareon.com

María Jesús Baez, Associate

mjb@eclareon.com

GPM 2nd Issue Residential Segment

Platinum sponsors

• ECLAREON

• Grid Parity Monitor (GPM)

- Introduction

- Definitions and Methodology

- Results

- Conclusions

Agenda

2

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3

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COMPANY OVERVIEW INDUSTRY FOCUS

ECLAREON’s service portfolio includes strategy and policy consulting as

well as financial advisory

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ECLAREON mainly covers the European, Latin American and US markets

and has permanent offices in Berlin and Madrid (>40 employees) and

partner offices in Bogota, Milan, New Delhi, São Paulo, Santiago and

Washington D.C. ECLAREON’s global presence

Permanent office Partner office* ECLAREON activity

Note: * Partner offices represent partnership agreements with local consultants

COMPANY OVERVIEW GEOGRAPHIC REACH

Platinum sponsors

• ECLAREON

• Grid Parity Monitor (GPM)

- Introduction

- Definitions and Methodology

- Results

- Conclusions

Agenda

5

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PV “grid parity” is the moment when the cost of generating PV

electricity is equal to the price paid for grid electricity

For the sake of simplicity

this report compares PV

LCOE with retail electricity

prices

In reality, depending on the

local auto-consumption

regulation, a part of the PV

generation might be lost or

valued at a lower rate

Note: * Levelized Cost of Electricity

Source: ECLAREON analysis

INTRODUCTION

Grid electricity price

PV electricity cost (LCOE*)

EUR ct /

kWh

Grid Parity

Years

Simplistic Illustration of PV Grid Parity

• Grid electricity is cheaper than

PV-generated electricity

- PV needs support

mechanisms (FiT, tax credit,

etc.)

• PV-generated electricity is

cheaper than grid electricity

- It is more convenient to auto-

consume PV electricity than

to buy electricity from the

utility

6

Platinum sponsors

The PV Grid Parity Monitor may well be one of the most

comprehensive analyses of PV grid parity to date

INTRODUCTION

Overview of PV Grid Parity Monitor

Objective

• To analyze the proximity of grid parity from the viewpoint of a residential consumer

- Total final costs of generating PV electricity with a 3kWn/3.3kWp PV system are compared

with residential retail electricity prices

Methodology • It is based on a rigorous and transparent methodology

- This presentation includes a summary of the main assumptions and considerations

Geographical

Focus

• Potential markets in Europe: France, Germany, Italy, UK, and Spain

• Promising markets outside Europe: Australia, Brazil, California, Chile, and Mexico

- This presentation includes a summary of results for LATAM markets

Frequency • It is recurrent: it will be updated every year to show the evolution of PV grid parity proximity

Inputs

• It uses real and up-dated data as inputs, not estimates

- Includes turnkey quotations of local PV installers from each of the countries under study

• It includes specific and detailed information per country (and city, when applicable)

- For example, the discount rate, retail electricity prices, and inflation

Source: ECLAREON

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The PV Grid Parity Monitor is sponsored by renowned international

companies

Platinum Sponsors

Gold Sponsor

INTRODUCTION SPONSORS

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The PV Grid Parity Monitor is supported by relevant partners

Partner Associations

Technical Partners Supported by

INTRODUCTION PARTNERS

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LCOE of a PV system refers to the constant and theoretical

cost of generating PV electricity over the PV system lifetime

DEFINITIONS & METHODOLOGY

0

200

400

600

800

1.000

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

0

10

20

30

40

50

60

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30

EUR ct /

kWh

EUR

8,800

9,000

Indicative Total Cost of a Small-Scale PV System

PV LCOE of the PV System

Source: ECLAREON analysis

• PV Levelized Cost of Energy (LCOE)

accounts for all costs associated with a PV

system over its life

- These may include initial investment, O&M,

taxes, debt service, among others

• It assumes a constant value per year and is

expressed as cost per kWh

- It incorporates total PV electricity generated

over the system’s lifespan

• It considers the return required from the

investment, to discount future costs (and

production) to present

Initial Investment

Operating Expenses

Key:

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For a specific PV system, PV LCOE is fixed as soon as the PV

system is built, but grid electricity prices are likely to increase

LCOE of PV Technology vs. Grid Electricity Price

0

5

10

15

20

25

30

2009S1 2009S2 2010S1 2010S2 2011S1 2011S2 2012S1

Years

EUR ct/

kWh

LCOE of PV technology

Grid electricity price

0

10

20

30

40

50

60

70

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

EUR ct/

kWh

Years of operation of the PV system

Grid electricity price

LCOE of a specific PV system

installed in S1 2012

LCOE of A SPECIFIC PV System Installed S1 2012 vs. Grid Electricity Price

Source: ECLAREON analysis

DEFINITIONS & METHODOLOGY

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Platinum sponsors

12

0,0

0,2

0,3

0,5

0,6

0,8

- + Regulatory support to PV self-consumption

-

+

Gri

d P

ari

ty P

rox

imit

y

Australia

Brazil

Chile

France

Germany

Italy Mexico Spain

UK

California

Note: * Data of January/February 2013

Source: ECLAREON analysis

RESULTS

Grid Parity proximity and regulatory support (mainly via net

metering or net billing) vary significantly from country to country

Positioning Matrix of the countries analyzed

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RESULTS AUSTRALIA

In Australia, full grid parity has been reached in the residential

segment

Note: * Compound Annual Growth Rate

Source: ECLAREON analysis

AUD ct/

kWh

Grid tariffs

PV LCOE (avg.)

CAGR*

S1'09-J/F´13

-25.8%

Past evolution of grid electricity price and PV LCOE

(SYDNEY)

• In Australia, full grid parity has

been reached mainly as a result

of the following trends

- The important decrease

experienced by PV LCOE in

the last few years

- A significant increase in retail

electricity prices

• The net-metering system in NSW

fosters the self-consumption

market in an effective way, as the

tariff received for the excess

generation is lower than the grid

electricity price

Assessment of Australian regulatory

framework for PV auto-consumption

13

0

20

40

60

80

100

120

200

9S

1

200

9S

2

2010S

1

201

0S

2

201

1S

1

201

1S

2

201

2S

1

201

3J

/F

Standard Tariff

Peak Tariff

Off-Peak Tariff

17.1%

18.5%

21.2%

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RESULTS BRAZIL

In some parts of Brazil, PV technology is close to competitiveness

with retail electricity prices in the residential segment

Note: * Compound Annual Growth Rate

Source: ECLAREON analysis

BRL ct/

kWh

Standard Tariff

Grid tariffs

PV LCOE (avg.) -26.1%

1.4%

BRL ct/

kWh

Standard Tariff

Grid tariffs

PV LCOE (avg.) -26.2%

-4.4%

Past evolution of grid electricity price and PV LCOE

(SAO PAULO)

Past evolution of grid electricity price and PV LCOE

(ITACARAMBI)

• PV is close to competitiveness

with retail electricity prices in

some parts of the country such

as Itacarambi

- A reduction of customs duties

applicable to imports of PV

equipment would accelerate

grid parity arrival in Brazil

• The recently approved net-

metering regulation seems, at

first glance, an excellent

instrument to foster the PV auto-

consumption market

Assessment of Brazilian regulatory framework

for PV auto-consumption

14

0

50

100

150

200

250

300

350

2009S1 2010S1 2011S1 2012S1

CAGR*

S1'09-J/F´13

CAGR*

S1'09-J/F´13

0

50

100

150

200

250

2009S1 2010S1 2011S1 2012S1

Platinum sponsors

RESULTS CHILE

In Chile, a potential PV auto-consumption market could arise in

some locations such as Copiapó, where PV is already competitive

CLP/

kWh

Standard Tariff

Surcharge tariff (Winter)

Grid tariffs

PV LCOE (avg.) -22.8%

-11.9%

-10.4%

CLP/

kWh

Standard Tariff

Surcharge tariff (Winter)

Grid tariffs

PV LCOE (avg.) -22.8%

-8.0%

-5.8%

Past evolution of grid electricity price and PV LCOE

(SANTIAGO)

Past evolution of grid electricity price and PV LCOE

(COPIAPÓ)

• Grid Parity has been reached in

Northern Chile, whilst in other

locations with lower irradiation

only partial grid parity has been

reached

• The net billing regulation, when

implemented, is likely to generate

a PV auto-consumption market in

locations such as Copiapó region

- Further analysis once the

technical code is published is

necessary to determine if the

net billing regulation will

suffice to foster the market

Assessment of Chilean regulatory framework

for PV auto-consumption

Note: * Compound Annual Growth Rate

Source: ECLAREON analysis

15

CAGR*

S1'09-J/F´13

CAGR*

S1'09-J/F´13

0

50

100

150

200

250

300

350

2009S1 2010S1 2011S1 2012S1

0

100

200

300

400

2009S1 2010S1 2011S1 2012S1

Platinum sponsors

RESULTS MEXICO

In Mexico, while for DAC consumers PV is already competitive, for

standard consumers it is still far from competing with grid prices

MXN/

kWh

Standard Tariff

DAC Tariff

Grid tariffs

PV LCOE (avg.) -17.5%

7.5%

-6.9%

MXN/

kWh

Standard Tariff

DAC Tariff

Grid tariffs

PV LCOE (avg.) -17.5%

7.5%

2.9%

Past evolution of grid electricity price and PV LCOE

(MEXICO CITY)

Past evolution of grid electricity price and PV LCOE

(HERMOSILLO)

• An excellent opportunity exists for

PV technology among DAC

consumers

- DAC consumers are

households with high electricity

consumption (about 500,000

potential clients in Mexico)

• The Medición Neta regulation

already allows PV auto-consumers

to feed part of their production into

the grid to obtain credits (in kWh)

used to offset their electricity bill

Assessment of Mexican regulatory framework

for PV auto-consumption

Note: * Compound Annual Growth Rate

Source: ECLAREON analysis

16

CAGR*

S1'09-J/F´13

CAGR*

S1'09-J/F´13

0

2

4

6

8

10

2009S1 2010S1 2011S1 2012S1

0

1

2

3

4

5

6

7

2009S1 2010S1 2011S1 2012S1

Platinum sponsors

RESULTS SPAIN

Grid parity has been reached in Spain, but regulative support is

still needed to seize upon the opportunity to develop the market

EUR ct/

kWh

Off-Peak Tariff

Standard Tariff

Peak Tariff

Grid tariffs

PV LCOE (avg.) -18.4%

10.4%

10.1%

3.2%

EUR ct/

kWh

Off-Peak Tariff

Standard Tariff

Peak Tariff

Grid tariffs

PV LCOE (avg.) -18.6%

9.1%

8.8%

1.9%

Past evolution of grid electricity price and PV LCOE

(MADRID)

Past evolution of grid electricity price and PV LCOE

(LAS PALMAS)

• Both in Madrid and in the Canary

Islands, PV is already competitive

against the standard (no TOU)

retail electricity price

• Grid Parity represents an excellent

opportunity to develop a cost-

effective and sustainable PV

market based on auto-

consumption in Spain

- For this to happen, it is essential

that the Spanish Government

publishes the Balance Neto

regulation (already drafted)

Assessment of Spanish regulatory framework

for PV auto-consumption

Note: * Compound Annual Growth Rate

Source: ECLAREON analysis

17

CAGR*

S1'09-J/F´13

CAGR*

S1'09-J/F´13

0

10

20

30

40

2009S1 2010S1 2011S1 2012S1

0

5

10

15

20

25

30

2009S1 2010S1 2011S1 2012S1

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RESULTS GERMANY

Despite the low irradiation levels in Germany, PV grid parity has

already been reached in Munich

EUR ct/

kWh

Standard Tariff

Peak Tariff

Grid tariffs

PV LCOE (avg.) -17%

6.3%

8.8%

EUR ct/

kWh

Off-Peak Tariff Standard Tariff

Peak Tariff

Grid tariffs

PV LCOE (avg.) -17%

2.5%

3.8% 5.9%

Past evolution of grid electricity price and PV LCOE

(BERLIN)

Past evolution of grid electricity price and PV LCOE

(MUNICH)

• Low PV installation prices, a low

discount rate and high retail

electricity prices compensate low

irradiation levels for Germany to

reach Grid Parity in the residential

segment

• The EEG FiT scheme fosters the

self-consumption market in an

efficient way, as FiTs for small-

scale systems are currently lower

than the retail electricity price

Assessment of German regulatory framework

for PV auto-consumption

Note: * Compound Annual Growth Rate

Source: ECLAREON analysis

18

CAGR*

S1'09-J/F´13

CAGR*

S1'09-J/F´13

0

10

20

30

40

50

60

2009S1 2010S1 2011S1 2012S1

0

10

20

30

40

50

2009S1 2010S1 2011S1 2012S1

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CONCLUSIONS

Main conclusions

• Since the first issue of the residential GPM (2nd half 2012), almost every country improved its grid

parity situation

- This is due mainly to the reduction of the PV LCOE, which has been caused by a reduction in the

cost of PV systems, driven by lower equipment prices (across the board) and increased competition

in emerging markets (like Brazil, Chile or Mexico)

• Results show that grid parity has been reached in several of the cities analyzed

- This is the case of Copiapó in Chile and the segment of DAC consumers in Mexico

• Even if Grid Parity (defined as the moment when PV LCOE equals retail electricity prices) has been

reached, regulatory cover is still necessary to foster the PV self-consumption market

- The Spanish case illustrates this rule very well: grid parity has been reached but with no

governmental support the market has failed to develop

• As 100% self-consumption is not likely to happen for a residential consumer, a proper valuation of

the excess of energy has to be performed to properly understand the business case of a specific

consumer

Source: ECLAREON

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PV GRID PARITY MONITOR Available @

http://www.leonardo-energy.org/

http://www.eclareon.eu/en/GPM

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