Legal Framework of Concentrating Solar Power (CSP) Utilization

• Legal Framework
• Financing

Economic barriers

CSP today is usually not competitive in wholesale bulk electricity markets, except perhaps in isolated locations such as islands or remote grids, so in the short term its deployment depends on incentives. A number of regions, including Spain, Algeria, some Indian states, Israel and South Africa, have put in place feed-in tariffs or premium payments. Spain, for example, lets the producers choose between a tariff of EUR 270 (USD 375)/MWh, or a premium of EUR 250 (USD 348)/MWh that adds to the market price, with a minimum guaranteed revenue of EUR 250/MWh and a maximum of EUR 340 (USD 473)/MWh. This approach has proven effective, as it offers developers and banks long-term price certainty, and makes CSP one of the less risky investments in the power sector. In the United States, the federal government recently created the Renewable Energy Grant Program, as well as a Federal Loan Guarantee Program designed to foster innovation. BrightSource became the first CSP provider to benefit from this programme, securing USD 1.4 billion from the US Department of Energy in February 2010 for several projects. In the long term, however, financing of CSP plants may become difficult if investors in technology companies do not supply some equity capital. Prices for capacity and energy are only guaranteed by utilities on a case-by-case basis under renewable portfolio standards (the regulations that require increased production of energy from renewable sources) and these standards are not always binding.

Incentives for deployment

To support CSP deployment, it is vital to build investor confidence by setting a sufficiently high price for the electricity generated, and in a predictable manner. Feed-in tariffs and premiums have proven effective for CSP deployment in Spain, and for other renewable energy technologies in many countries. The levels of feed-in tariffs or premiums must be carefully studied and agreed upon with everyone involved, however, as they are ineffective if too low and economically inefficient if too generous. Renewable energy standards might be effective if they are sufficiently ambitious and “binding” for utilities – that is, if the financial penalties or safety valves are set at appropriate levels in case of no or imited compliance. While incentives need to be gradually reduced to foster less expensive CSP electricity, revisions need to be announced in advance to enable producers to adapt. Furthermore, while governments may want to limit the benefit of incentives to specified overall project capacities, they should not arbitrarily limit plant size, as scaling up plant size is one important way of reducing costs. Similarly, governments should avoid arbitrarily setting hybridisation rates; instead, they should establish ways to limit incentives to the solar fraction of CSP power. As PV power and CSP use the same resource, they should enjoy the same incentives so that choices efficiently match the quality of the solar resource with energy needs. Governments should also design and implement incentives for solar process heat for industrial applications of all kinds and, at a later stage, for the various solar fuels that concentrating solar plants can deliver. Regardless of whether the electricity sector belongs to state-owned or partially state-owned monopolies or is fully deregulated, governments could encourage all utilities to bid for CSP capacities. Governments should also consider other options to help initiate or develop CSP capacities, such as: offering suitable land or connection to the grid or to water resources; waiving land property taxes; and helping ensure the availability of low-cost or at least reasonably priced loans. Utilities, for their part, should reward the flexibility of CSP plants, i.e. their ability to dispatch electricity when needed. Capacity payments represent a simple option for doing this. Storage has a cost, and should be valued at grid level, not plant level. Policy frameworks should encourage this necessary evolution.

Addressing non-economic barriers

Obtaining permits and grid access are the main challenges for new CSP plants. Access to water or gas networks for backup may be difficult in some locations, and will certainly become important if large numbers of CSP plants are deployed in desert regions. Nearby residents do not usually object to permits, although the synthetic oil of trough plants and molten salts are classified as hazardous material in some jurisdictions. Before permits are given, however, all environmental impacts must be evaluated, including loss of animal habitat, water use, visual impact and species. The pace of the permitting process is the most frequent problem. In California, for example, environmental analyses on federal or state land can take 18 to 24 months. Similarly, grid access problems are not caused by utilities, which like the guaranteed, dispatchable nature of CSP, but by slow planning and permitting processes.Governments must act decisively to streamline procedures and permits for CSP plants and transmission lines. It is especially important to build a network of HVDC lines to transmit electricity from CSP plants in sunny regions to less sunny regions with large electricity demand. The global success of CSP depends on interested countries, producers and consumers sharing a common vision.

Addressing non-economic barriers

Obtaining permits and grid access are the main challenges for new CSP plants. Access to water or gas networks for backup may be difficult in ome locations, and will certainly become important if large numbers of CSP plants are deployed in desert regions. Nearby residents do not usually object to permits, although the synthetic oil of trough plants and molten salts are classified as hazardous material in some jurisdictions. Before permits are given, however, all environmental impacts must be evaluated, including loss of animal habitat, water use, visual impact and effects on endangered species. The pace of the permitting process is the most frequent problem. In California, for example, environmental analyses on federal or state land can take 18 to 24 months. Similarly, grid access problems are not caused by utilities, which like the guaranteed, dispatchable nature of CSP, but by slow planning and permitting processes. Governments must act decisively to streamline procedures and permits for CSP plants and transmission lines. It is especially important to build a network of HVDC lines to transmit electricity from CSP plants in sunny regions to less sunny regions with large electricity demand. The global success of CSP depends on interested countries, producers and consumers sharing a common vision. Such projects need to result in win-win situations. It would seem unacceptable, for example, if all solar electricity were exported overseas while local populations and economies lacked sufficient power resources. Newly built plants will have to fulfil develop local economies. Meanwhile, the returns from exporting clean, highly valued renewable electricity to industrialised countries could help cover the high initial investment costs of CSP beyond the share devoted to exports. CSP would thus represent a welcome diversification from oil and gas exports, and help develop local economies by providing income, electricity, knowledge, technology and qualified jobs. Possible energy security risks for importing countries must also be carefully assessed. Large exports would require many HVDC lines following various pathways. The largest transfers envisioned in this roadmap, from North Africa to Europe, would require by 2050 over 125 GW of HVDC lines with 50% capacity factor – i.e. 25 distinct 5 GW lines following various paths. If some were out of order for technical reasons, or as a result of an attack, others would still operate – and, if the grid within importing and exporting countries permits, possibly take over. In any case, utilities usually operate with significant generating capacity reserves, which could be brought on line in case of supply disruptions, albeit at some cost. Furthermore, the loss of revenue for supply countries would be unrecoverable, as electricity cannot be stored, unlike fossil fuels. Thus, exporting countries, even more than importing ones, would be willing to safeguard against supply disruptions.

CSP Dropbox

For more information on the legal framework of Concentrating Solar Power check out the CSP-Dropbox.