Europe Lcoe Sensitivity Analysis Report - PR

Europe levelised cost of electricity 2022 (LCOE) – Sensitivity analysis report
Power technology and generation cost trends, competitiveness and sensitivities

February 2023
Inspiring Decisions woodmac.com

Europe power and renewables competitiveness report woodmac.com
Contents
1. Levelised Cost of Electricity (LCOE) methodology summary 6

2. Europe market dynamics impacted by LCOE trends 9
3. LCOE summary by technology overview 14
4. Appendix 79
1
Europe levelised cost of electricity (LCOE) 2022 outlook to 2050: report and data release
Introduction
• This report accompanies our Europe LCOE 2022 outlook to 2050 data tool release covering 14 power markets (Belgium, Denmark,
Finland, France, Greece, Germany, Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden, and the United Kingdom) and 16
generation technologies (highlighted in the executive summary). It provides commentary on trends and key assumptions impacting the
outlook.
• The outlook takes into consideration post-covid supply chain issues impacting costs and the significant shift in commodity prices and
energy policy arising in response to the war in Ukraine.
• Enhancements included in this update are the addition of Greece and Poland for all technologies and the Gas Engine technology for
all markets.
• This research includes a LCOE sensitivity analysis on key input assumptions for each technology and will be extended to include an
outlook by market for distributed solar LCOE.
• We hope you find the data tool useful and would welcome your feedback and comments on its scope, contents and findings.
Feedback from our clients is an important input to the continued development, expansion and improvement of our work, and always
gratefully received – our contact details can be found at the end of the report.
• Should you require any further market information or data or wish to discuss any of the broader themes connected to decarbonisation
and transition in European power markets, please do not hesitate to contact us - we’d be pleased to hear from you.
Source: Wood Mackenzie 2

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Executive summary
Onshore renewables remain the technology with the lowest LCOE in Europe LCOE rankings
(2050, EUR/MWh)
• Onshore wind remains the most cost-competitive technology throughout the outlook. Average LCOE will fall 53% by 2050
relative to 2022, principally due to wind turbine OEMs continuing to deliver scale with turbine ratings growing from 3.7 to 8.7 MW. Wind-Onshore 23
• Average Solar PV (fixed tilt) LCOE drops 62% by 2050 relative to 2022 due to an expectation of widespread adoption of PV-tracker 24
bifacial module technologies, larger wafer sizes and material improvements which will increase energy yields. Due to improved
PV-fixed 25
manufacturing and economies of scale, CAPEX costs are forecast to decline by 55% to 415 EUR/kWac by 2050.
Wind-Offshore 36
• Offshore wind remains comparatively expensive but leads the cost reduction race, with LCOE reducing 68% by 2050.
The sky’s the limit, with average hub heights almost doubling to 200m by 2050 and turbine ratings growing from 9 to 25 MW. Hybrid - PV tracker 41
Transmission cost is a key cost area for this technology as farms scale up and move further offshore. The development of
offshore wind production hubs will present cost synergies and facilitate systems integration. Hybrid - PV fixed 45
• Battery storage LCOE will drop ~60% by 2050. The charging cost component of energy storage LCOE is 43% in 2022 and PV-DG-Comm. 70
33% by 2050. Increasing power price volatility and spread see day-ahead price arbitrage deltas reaching more than 100% of Storage - FTM 87
charging prices.
Nuclear 104
• Hybrid storage paired with solar (tracker) comes at a 74% cost premium (€42/MWh) on standalone PV, reducing to 70% by
2050 with an €18/MWh premium on standalone solar PV post-2045. Hybrid solar PV (tracker) is a more attractive proposition and PV-DG-Resi. 116
is likely to be the go-to hybrid option in Europe’s future energy mix. The premium costs of hybrids must be supported by new
CCGT 131
revenues from peak power prices, system services, or innovative and willing corporate buyers.
Coal w/CCS 149
• Effective carbon pricing is key to displacing fossil fuel new build and generation. Combined with the high gas price in
Europe, gas burners can’t compete with renewables on cost. However, they remain crucial to flexibility. Using our Q3 2022 view CCGT w/CCS 151
of carbon pricing, the carbon cost component of CCGT LCOE rises from 26% in 2022 to 36% in 2050 as the carbon price
reaches €136/MtCO2 in 2050 (from the current €86/MtCO2). Coal 180
• Supply chain pressure and cost inflation is making renewables and energy storage LCOE increase by an average of Gas-Engine 199
19% in 2022. Still, it will continue to decline at 3% annually by 2050. The LCOE of fossil fuel technology is also rising as fuel and OCGT 240
carbon prices rally upwards, increasing 2022 prices by 10% before declining at an average rate of 1% to 2050.
Note: Technology average LCOE here refers to the 14 market average 3
Source: Wood Mackenzie
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LCOE comparison - 16 technologies, averaged over 14 markets

Gas is expensive but remains system critical until low-carbon retrofits, newbuilds or other low carbon
flexibility and storage options can displace it
Technology average LCOEs (€/MWh, real 2022)
CCGTs, pushed up by gas CCUS technologies become more Onshore renewables compete head-to-head with
Battery storage already beating gas and carbon prices, are beaten competitive than gas engine and hybridization becoming an economic option.
300 engine and coal by battery storage, nuclear conventional coal by 2032
and all renewable options by Onshore wind remains as the lowest cost option.
2028. However, the premium between onshore wind and
250 solar diminishes to almost zero
200
150
100
50
Coal Coal w/CCS OCGT CCGT CCGT w/CCS Gas-Engine

Nuclear PV - fixed PV-tracker PV-DG-Comm. PV-DG-Resi. Wind-Onshore
Wind-Offshore Storage - FTM Hybrid - PV fixed Hybrid - PV tracker
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Near-term rising costs, supply-chain issues won’t slow the transition

The current supply chain issues have spiked the cost of building power plants by up to 15%, but long term
outlook shows the CAPEX reducing by 55% for solar and offshore wind and 42% for onshore wind
Europe average capital cost 2050 outlook (€/kW, real 2022)
3,500
3,000
2,500
2,000
1,500
1,000
500
Coal Coal w/CCS OCGT CCGT CCGT w/CCS

Gas-Engine PV - fixed PV-tracker PV-DG-Comm. PV-DG-Resi.
Wind-Onshore Wind-Offshore Storage - FTM Hybrid - PV fixed Hybrid - PV tracker
Nuclear CAPEX (6,000 €/kW in 2022 to 3,800 €/kW in 2050) is excluded from the chart above to have a zoomed-in view of all other technologies
1. Levelised Cost of Electricity (LCOE) methodology summary
Summary of levelised cost of electricity (LCOE) methodology*

LCOE is a standard metric used to measure the total cost of power generation from a source averaged per
megawatt-hour over a project’s lifetime
Example of LCOE component Key inputs for calculating LCOE include:
breakdown (€/MWh) • Capital expenditure (capex) including generation equipment, ancillary equipment and switch gear, EPC scope,
grid connection, finance costs and project development fees
200 • Operational expenditure (opex), including fixed and variable operations and maintenance (FOM and VOM) along
Markets Average
180 Year: 2023 with other items, such as land lease costs, royalties and insurance
160 • Net Capacity Factor (NCF) reflecting market conditions, technology availability & efficiency, and resource
140 availability
120 • Curtailment is set to zero for all technologies and markets
100 • Fuel and carbon emissions costs (including local fuel and carbon taxes/levies where appropriate)
80 • Technology incentives, such as Feed-in Tariffs (FiTs), largely now removed from the European market.
60 • Government rates and taxes
40 LCOE figures represent the national average cost for new-build projects:
20 • Accounts for technology trends and associated capacity factors in each state rather than ideal conditions
0 • Uses the year of final investment decision (FID) for key inputs such as capex, rather than the year in which
Gas Solar PV Wind Storage construction is completed
(CCGT) (fixed tilt) (onshore) (FTM)
• Accounts for fuel and opex outlooks over the lifetime of a project, not only in the year of construction
Capital Cost OPEX • Uses inputs to model LCOE for an average or typical new-build project, not the existing fleet.
Fuel Carbon
Charging Cost Taxes LCOE will vary around the national average in each region due to project specific factors
*Note: A more detailed discussion on LCOE methodology is available in the appendix of this report
LCOE does NOT define project profitability or provide a proxy for asset valuation
LCOE is a major component of asset valuation and remains a critical measure of generator competitiveness
Fundamental differences between LCOE and asset valuation over a 20-year operating period (GB as case study in Europe)
200 PV- fixed (GB) 200
Surplus (EUR/MWh)
LCOE (EUR/MWh)
PV - fixed -ve
150 150 20Yrs average +ve & -ve surplus: +3.8 EUR/MWh "Surplus
Taxes PV - fixed +ve
100 100 "Surplus
OPEX
LCOE
CAPEX 50 50
Capture prices
0 0
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2023 investment
• LCOE indicates the revenue that needs to be received for each megawatt-hour to cover all costs and reasonable profits.
• The net revenue or capture margins that a project may receive depends upon several critical market dynamics, including the wider supply-mix, dispatch costs, load profiles,
transmission congestion, and renewable energy penetration and characteristics.
• In the case above, saturation of the grid with wind and solar production, alongside new nuclear capacity, weakens power prices and increases curtailment.
• The addition of a storage asset or innovation with other sources of flexibility could help improve capture margins for the generator, but only if these complementary
resources are competitively priced and load arbitrage opportunities exist
• LCOE does not determine the pricing of a power purchase agreements (PPAs). PPA prices will likely reflect the specific financial and/or operational strategies of the
developer or asset owner. For example, PPAs tend to be <20 years in term and, as such, do not account for the value of revenue during the merchant tail of the project.
• As LCOE is energy output centric, it not be an effective benchmarking for some assets, such as storage and peakers, that are deployed for non-energy services - such as
capacity and ancillary markets. In such cases, alternative metrics may be more insightful.
Prices in Real 2022 8

Source: Wood Mackenzie European Power Service
2. Europe market dynamics impacted by LCOE trends
Key markets* in the European power generation and storage sector will attract 1.64
EUR trillion from 2023 to 2050 with 78% of investments going towards wind and solar
Commodity price inflation and supply chain bottlenecks have pushed up the power sector investment requirements
by 140 billion dollars between 2023 and 2050
Power plants capital expenditure – by Technology Power plants capital expenditure – by Market
39, 2% 34, 2%
120 Total capital expenditure 120 Total capital expenditure 41, 3%
24, 1%
2023 - 2050 265 , 346 , 47, 3%
15% 2023 - 2050
(EUR Billion) 20% (EUR Billion) 71, 4%
383,
77, 5%
100 115 , 100 23%
7% 78, 5%
244,
113, 7%
15%
80 422 , 80
24% 605 , 160, 189,
34% 10% 12%
€Billion
138, 8%
€Billion
60 60
40 40
20 20
0 0
Wind Offshore Wind Onshore Germany France Great Britain Italy Spain
Solar Battery Storage Poland Netherlands Finland Sweden Belgium
Other power plant technologies Total Capex Norway Denmark Greece Portugal
Pre-crisis total capex cost**
*Key markets include the 14 countries covered in this report. The capital costs by technology to 2050 are detailed in the Europe LCOE data file attached to this report. The CAPEX includes equipment, the balance of plant
cost, interconnection and financing costs and covers on-grid wind and solar. The grid and hydrogen infrastructure-related spending are not included in this analysis. For further reference, refer to Q3 2022 Power Outlook
Reports for NW &Sth Europe, the Nordics, Poland and Greece for deeper insights into the capacity outlooks and the narrative on market trends.
**This pre-crisis CAPEX benchmark has been calculated using the updated capacity infrastructure data from Q3 2022, but with the cost estimates derived from the 2021 LCOE report (adjusted to inflation). 10
Costs are in real 2022.
Supply chain bottlenecks and commodity price inflation will continue to exert
significant pressure on onshore renewables costs in the short term
Offshore wind bucks the cost inflation trend due to the rapid scaling up of turbines in the early 2020s. Hyper-
competition, hedged contracts and increasing industry maturity continue to support cost reductions.
Generator capex cost index Balance of system cost index Wind turbines / solar module rating index
2020 set as the base year 2020 set as the base year 2020 set as the base year
150 150 300
125 125 250
100 100 200
75 75 150
50 50 100
Onshore wind balance of system
cost inflation is muted due to the
Solar costs fall more rapidly than that of Offshore turbine rating undergoes
25 25 accelerated pace of turbine rating 50 explosive growth in the early 2020s,
onshore wind in the mid-2020s as the
increase compared to the growth in
supply-demand balance improves helping negate the cost inflation pressure
project size
0 0 0
PV-UtilityFixedTilt Wind-OffshoreFixed PV-UtilityFixedTilt Wind-OffshoreFixed PV-UtilityFixedTilt Wind-OffshoreFixed

Wind-Onshore Wind-Onshore Wind-Onshore
Note: European national average is shown above. Generator capex cost consists of turbines for wind onshore and offshore, module and inverter hardware for solar. The balance of system cost is the remaining cost
stack associated with labour, installations, electrical equipment, civil engineering etc but not interconnection costs. Our onshore wind, offshore wind, storage, and solar research service has detailed cost breakdowns for
different technologies. Source: Wood Mackenzie 11
LCOE sensitivities highlight inherent issues with market “averages”

Project characteristics vary widely across Europe (and often within individual countries…)
• More than 50 input variables govern our calculation of LCOE
• Key input assumptions can vary widely across a single region, reflecting market VRE technologies sensitivity - Markets Average (Year: 2025)
deviations from “ideal” conditions
• Where system congestion exists, curtailment will impact project net capacity factor PV – fixed tilt 18% 15% 12% ← Capacity Factor
(NCF)
Lifespan (in years) → 36 30 24
• Increasing grid connection cost will drive up costs and incentivise use of flexibility
Fixed O&M Costs (EUR/kW-yr) → 4.2 6.1 7.9
• Policy and regulation changes, such as on permitting processes and auction rules, can
impact risk appetite and projects’ target IRR 530 757 984 ← Capital Cost (EUR/kWac)
• Equipment tariffs on items such as solar modules or wind turbine towers can be
applied Wind – Onshore
41% 35% 28% ← Capacity Factor
Our methodology attempts to characterize current market conditions as opposed to “ideal”
scenarios 30 25 20 ← Lifespan (years)
Impact of varying carbon cost forecast (Year: 2025) 9.2 13.2 17.2 ← Fixed O&M Costs (EUR/kW-yr)
873 1,248 1,622 ← Capital Cost (EUR /KW)

25-years Carbon Cost Gas-Engine @12% NCF
Forecast (EUR/metric ton)
low 83 OCGT @12 NCF
Basecase 118
Wind – Offshore
CCGT with CCS 55% 45% 36%
High 154
@45%NCF Capacity Factor (%) →
Lifespan (in years) → 30 25 20
CCGT @50% NCF
Coal with CCS @68% NCF 29.2 41.6 54.1
Fixed O&M Costs (EUR/kW-yr) →
Coal @ 75% NCF
Capital Cost (EUR /kW) → 1,522 2,174 2,826
110 130 150 170 190 210 230 250 270 30 40 50 60 70 80

LCOE (EUR/MWh)
LCOE (EUR/MWh)
* The middle of the bar represents our average scenario as published, and the range of values (±30% for CAPEX &OPEX, ±20% for CF & lifespan) have been chosen to demonstrate the impact on the LCOE.
These does not refer to our published low and high scenarios as these scenarios represent different plants (see the Scenario Guidance) 12
Source: Wood Mackenzie
LCOEs help understand potential upside and downside risks for merchant revenues
Where capture prices outlook fails to cover a project’s LCOE, commercial and technical innovations and
different route-to-market options, underpin investment decisions.
Case study on Germany’s technology attractiveness Wholesale market surplus (€/MWh): 20Yrs Revenue minus
The surplus considers the LCOE at a given year and forward 20-year
LCOE (Germany)
average capture prices based on the WM Q3 2022 Power Price Outlook*: 50
• Germany’s solar and onshore wind show attractive positive surplus but
30
decline due to power price cannibalization.
• Offshore wind achieves positive surplus by 2029 with LCOE decline. 10
Surplus (€/MWh)
• Battery storage surpasses CCGT by 2029. -10
-30
-50
Wind-Offshore (Germany, 2023) -70
200 -90
Surplus (EUR/MWh)
20Yrs average +ve & -ve surplus: -11.2 EUR/MWh
-110 Flexible technologies such as stationary batteries and

CCGTs benefit from multiple revenue streams, not only
100 -130 wholesale power sales but also capacity payments,
and ancillary services.
-150
0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
CCGT PV - fixed
Wind-Offshore +ve "Surplus Wind-Offshore -ve "Surplus PV- single axis tracker Wind-Offshore
LCOE Capture prices Wind-Onshore Storage - FTM
Refer to the report "Germany Power Market Outlook to 2050: Q3 2022" for power price outlook information
3. LCOE summary by technology overview
Ultra-supercritical coal (USC)
Ultra-supercritical coal (USC) fired generation – Key dynamics

Coal fired power competitiveness in Europe is a moot point as phase out means likely no more new builds
despite temporary revival due to gas shortage.
Advantage/disadvantage? Technology assumptions
• Coal-fired power is a mature and low-cost technology, which represents a • Project size: 1 x 650 MW net capacity
declining share, 13% of total power supply in Europe in 2020. This share • Economic life: 30 years
spiked temporarily in 2022 due to 18% mid higher gas prices. • Fuel type: Coal (mixed – electricity sector)
• Coal-fired power is heavily polluting, even USC has emissions rates close • Heat rate: 8.12 mmBTU/MWh
to 3X of a gas-fired combined cycle turbine on a per MWh basis.
• Emissions control: Combustion and post combustion
• Coal-fired power has faced increasing opposition with the majority of
• Emissions rate: 0.75 metric tons CO₂ /MWh
units being phased out before 2030
• Carbon capture: None
• Coal only operates longer term in Germany and eastern markets – our
outlook envisages a complete Europe wide phase out by 2040
• Low cost, Commercial market assumptions
especially for older
• Carbon pricing: UK & EU ETS €27 (2020), €57 (2022), €136 (2050) /metric ton
depreciated units • High emissions/
• National tax rate: 19% to 31% (market specific)
Advantages
• Large scale, carbon intensity

Disadvantages
• Tax incentives: None

reliable power • Extreme public
opposition • Debt/equity ratio: 35/65
• Dispatchable
• Not compatible • Cost of debt: 2.5% to 3.9% increasing to 4.5% to 5.4%
• No pipelines
with a net zero • Target after-tax IRR: 12.0% to 13.5% increasing to13.6% to 14.1%
power market
Source: Wood Mackenzie, EIA, NREL ATB 2021 16

Coal fired generation - LCOE segmentation

carbon cost is the largest component of overall coal LCOE and projected to reach about 60% by 2050
EU average LCOE EU average LCOE component trends
240
LCOE components (€/MWh)

250
220 2.7%
200
200
150
180
100
LCOE (€/MWh)
160
50
140
0
120
100
Capital Cost OPEX Fuel Carbon Charging Cost Taxes
80
• Net Capacity Factor maintained at constant 75%
60
6% 4%
• Coal prices will reduce from the current levels due
40 22%
32%
to decreasing demand, stricter regulations, coal
20 phase out
38% 2022 2050 6%
0
• EU carbon tax modelled, increasing carbon cost 57% 11%
8% component to almost 60% of the LCOE.
16% • Minor CAPEX and OPEX reductions
The EU average LCOE for coal includes the Germany and Poland as the only modelled
markets with limited potential to build new coal plants (the two main countries in Europe's so-
called ‘lignite triangle’)
Prices in Real 2022
Source: Wood Mackenzie European Power Service 17
Coal fired generation – key LCOE input assumptions

National phase-outs will the end of coal, before that increasing carbon prices push it further out of merit
Capital expenditures Operational expenditures (per year) Fuel costs

2,500 -26.3% 120 14
-13.6% 19.4%
100 12
2,000
10
€/kW
€/MMBtu
80
€/kW
1,500
8
60
1,000 6
40
4
500 20 2
0 0 0
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
National Units 2022 2030 2040 2050 Percent Additional LCOE reduction potential
average values change
LCOE €/MWh 208.4 171.6 182.4 180.4 -13% Low, heavily dependent on CO₂ Emissions Cost
Capital costs €/kW 2149 1517 1372 1274 -41% Power sector unlikely to benefit from Coal w/o CCS
Operational costs €/kW-yr 104 79 76 75 -28% No significant change is excepted
Net Capacity Factor % 75% 75% 75% 75% 0% Lower CF likely as renewables penetration rises
Fuel costs €/mmBTU 12.16 2.43 2.6 2.49 -80% Costs to decrease long-term, impacted by global dynamics.
WACC % 12% 11% 11% 11% -9% Europe phase out makes it high risk, with limited future

Ultra-supercritical coal with CCS (USC with CCS)
Ultra-supercritical coal (USC) fired generation with CCS – Key dynamics

Coal with CCS remains secondary in Europe, but its future viability improves with lower capital costs and
higher carbon costs, making it more attractive long-term
• Coal-fired power with CCS is an emerging technology that has faced • Project size: 1 x 650 MW net capacity
• substantial technological and commercial hurdles to date. • Economic life: 30 years
• Coal-fired power with CCS can dramatically reduce emissions, but costs • Fuel type: Coal (mixed – electricity sector)
have been high to date while European pilot projects have floundered. • Heat rate: 13.1 mmBTU/MWh (2020) to 10.7 mmBTU/MWh (2050)
• Carbon sequestration is one of the largest hurdles to overcome, as end- • Emissions control: Combustion and post combustion
use applications are limited and connecting CO₂ pipelines to disposal sites • Emissions rate: 0.075 metric tons CO₂ /MWh
with suitable geological characteristics will be challenging
• Carbon capture: Yes, with delivery of compressed CO₂ at supercritical
• There are no new coal-fired generators w/ CCS in our forecast through conditions to a pipeline (CO₂ transport & storage costs are included)
2050
• Enables use of low Commercial market assumptions

cost, domestically • Carbon pricing: UK & EU ETS €27 (2020) - €57 (2022) €136 (2050) /metric ton
• Exceptionally high
Advantages
plentiful coal as a • National tax rate: 19% to 31% (market specific)

cost with current
Disadvantages
fuel • Tax incentives: None

state of technology
• Captures 90% of • Debt/equity ratio: 35/65
Emissions • Concerns regarding
• Cost of debt: 3.5% to 4.9% increasing to 5.3% to 6.2%
carbon containment
• Large scale, • Target after-tax IRR: 15.0% to 16.5% decreasing to14.4% to 15.9%
dispatchable power • Need for new
pipelines

Coal fired generation with CCS - LCOE segmentation

The CAPEX is the largest component of overall LCOE (about half) but projected to reach about 43% by 2050
320

300
300 -36.5%
250
280
260 200
240 150
100
LCOE (€/MWh)
220
200 50
180 0
160
140
120
100
80 • NCF maintained at constant 68% (compared to
8% non-CCS coal plant with a 75% NCF) 8%
60 3% 0%
7%
40 • Coal prices will reduce from the current levels
20 21% due to decreasing demand, 43%
2022 47% 18% 2050
0
• EU carbon tax modelled, increasing the non-
captured carbon cost component to almost 7% of
21% 24%
the LCOE.
The EU average LCOE for coal includes the Germany and Poland as the only modelled markets with limited • Capex reductions come with dramatic increases
potential to build new coal plants (the two main countries in Europe's so-called ‘lignite triangle’)
CO₂ transport & storage costs are included in the OPEX in CCS R&D
Coal fired generation with CCS – key LCOE input assumptions

Coal with CCS will have challenge competing with other technologies despite strong cost reduction potential
Capital expenditures *Operational expenditures (per year) Fuel costs

4,000 -31.6% 400
-29.1%
350 14 19.4%
3,500
3,000 300 12
€/kW
€/MMBtu
€/kW
2,500 250 10
2,000 200 8
1,500 150 6
1,000 100 4
500 50 2
0 0 0
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 269.8 181.4 162.6 148.6 -45% Moderate, requires technology breakthroughs
Capital costs €/kW 3415 2487 2213 2002 -41% Sector expecting substantial R&D investment
Operational costs €/kW-yr 342 275 240 214 -37% CCS equipment still new, substantial learning potential
Net Capacity Factor % 68% 68% 68% 68% 0% Represents energy penalty from non-CCS plant of 75% NCF
Fuel costs €/mmBTU 12.16 2.43 2.6 2.49 -80% Volatile pricing, multiple avenues for price reduction
WACC % 15% 13% 12% 12% -15% Technology risk is substantial, complex system
Prices in Real 2022

*CO₂ transport & storage costs are included in the OPEX 22
Combined Cycle Gas Turbine (CCGT)
Combined cycle gas-fired generation – Key dynamics

CCGTs remain a critical piece for energy transition despite it's diminishing role post REPowerEU

• Gas-fired power is a reliable, mature power generation technology • Project size: CCGT H class, 1200MW net capacity
largely considered to be a bridge to decarbonizing the Europe power system. • Economic life: 30 years
• CCGT in particular is favoured due to its lower emissions, with the added • Fuel type: Natural gas (market price)
benefit of a robust value chain that is able to build plants quickly. • Heat rate: 5.79 mmBTU/MWh
• CCGT is expected to remain a critical flexibility option, as its high power • Emissions control: Combustion and post combustion
density and flexibility will be needed to balance intermittent renewables.
• Increasing carbon prices and reliance on gas imports provides a clear
• Carbon capture: None (new plants are typically built ‘CCS ready’)
incentive for operators to transition to alternative flexible technologies.
• Large scale, • Net gas importer Commercial market assumptions

dispatchable power exposed to supply
Advantages
• Carbon pricing: UK & EU ETS €27 (2020) - €57 (2022) €136 (2050) /metric ton
• High flexibility risk and price
Disadvantages
• National tax rate: 23.5% to 31% (market specific)

• High thermal volatility
efficiency, which • Still a substantial • Tax incentives: None
results in low fuel source of carbon • Debt/equity ratio: 35/65
consumption emissions • Cost of debt: 1.48% to 2.95% increasing to 2.46% to 4.13% (market specific)
• New build stranded • Target after-tax IRR: 8.1% to 10.55% increasing to 8.61% to 11.68% (market
asset risk as system specific)
is decarbonised

Combined cycle gas-fired generation - LCOE segmentation

Post-gas crisis, CCGTs have limited potential to reduce LCOE as the decrease in fuel costs is offset by
increased carbon costs, resulting in a stagnated LCOE
High-low scenario range with EU EU average LCOE component trends
average
200 LCOE

200
-8.8%
180
150
160
100
140
LCOE (€/MWh)
50
120
0
100

80
60
2%
0% • NCF maintained at constant 50% (low 2%
0%
19% 18%
40 34%, high 71%)
25%
• Minor CAPEX and OPEX reductions 36% 8%
20 2022 9%
2050
• EU carbon tax modelled, increasing
0
carbon cost component to 36% of the
45% LCOE. 36%
• Gas prices reached a peak in 2022 but
are expected to decrease by 2050
Prices in Real 2022
25
Combined cycle gas-fired generation – key LCOE input assumptions

The combined impact of short-term higher gas and long-term carbon prices, together with lower CF potential,
poses risk to CCGT
1,200 80
-6.5% -6.1% 40 138.3%
70 35
1,000
60
€/MMBtu
30
€/kW
€/kW
800 50 25
600 40 20
30 15
400
20 10
200
10 5
0 0 0
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE € 155.0 121.5 129.8 131.0 -15% Low, largely due to fuel risk
Capital costs €/kW 1013 763 753 753 -26% R&D continues with focus on lower production costs
Operational costs €/kW-yr 60 47 47 47 -22% Highly specialized needs, profit driver for OEMs
Net Capacity Factor % 50% 50% 50% 50% 0% Lower CF potential as renewables penetration rises
WACC low, stronger environmental regulations may drive

WACC % 8% 8% 8% 8% 0%
increases
Combined Cycle Gas Turbine w/ CCS (CCGT w/CCS)
Combined cycle gas-fired generation with CCS – Key dynamics

Despite CCGTs success in Europe, its CCS derivative will share the same issues as unabated plants, with
looming pressure from low LCOE and zero marginal cost renewables
• Gas-fired power with CCS is an emerging technology with substantial • Project size: 1200 MW net capacity
technological and commercial hurdles ahead. • Economic life: 30 years
• Technology costs are high with parasitic load pushing up operational costs • Fuel type: Natural gas (market price),
• CCGT with CCS is seen as a potential lifeline to current plants for • Heat rate: 7.55 mmBTU/MWh
retrofit or new builds as a low carbon highly flexible resource. • Emissions control: Post combustion
• Carbon sequestration is one of the largest hurdles to overcome, as end- • Emissions rate: 0.05 metric tons CO₂ /MWh
use applications are limited and connecting CO₂ pipelines to disposal sites
• Carbon capture: Yes, with delivery of compressed CO₂ at supercritical
with suitable geological characteristics will be challenging
conditions to a pipeline (CO₂ transport & storage costs are included)
• Large scale, Commercial market assumptions

dispatchable
• Carbon pricing: UK & EU ETS €27 (2020) - €57 (2022) €136 (2050) /metric ton
Advantages
power • High cost given

Disadvantages
• High flexibility current state of • National tax rate: 19% to 31% (market specific)
• Potential to avoid technology • Tax incentives: None
stranded CCGT • Low CO₂ emission • Debt/equity ratio: 30/70 to 80/20
assets with retrofit concentration • Cost of debt: 1.97% to 3.12% increasing to 2.46% to 3.62%
options brings technical
• Target after-tax IRR: 8.1% to 13.51% changing to 9.08% to 12.52%
challenges
• Concerns
regarding carbon
containment
Combined cycle gas-fired generation with CCS - LCOE segmentation

The cost of fuel has become the most significant factor in determining the overall LCOE. The outlook for lower
gas prices and the decrease in capital costs makes CCGT with CCS becoming more appealing post 2030
average LCOE

300
450 250
-36.8% 200
400
150
100
350
50
LCOE (€/MWh)
300 0
250
200
• NCF at 45% (low 30% and high 63%)
4% (representing about 10% energy penalty 4% 4%
150 2%
compared to non-CCS gas plant)
37% • 33%
100 CAPEX and OPEX reductions driven by
38% 2022 significant CCS R&D 2050
39%
50
• The modelled carbon price has an
0 insignificant impact on LCOE 20%
19%
• Expected gas price decline drives LCOE
reduction
Combined cycle gas-fired generation with CCS – key LCOE input assumptions
The reduction in the capital expenditures is attributed to substantial R&D investments and increasing
deployment
Capital expenditures *Operational expenditures (per year) Fuel costs
3,000 -30.6% 250 40
-25.2% 138.3%
2,500 35
200
€/MMBtu
30
€/kW
2,000
€/kW
150 25
1,500 20
100 15
1,000
10
500 50
5
0 0 0
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 264.5 179.5 163.4 151.3 -43% Moderate, requires technology breakthroughs
Operational costs €/kW-yr 200 162 145 132 -34% CCS equipment still new, substantial learning potential
Net Capacity Factor % 45% 46% 47% 49% 8% Represents energy penalty from non-CCS plant of 51% NCF
Fuel costs €/mmBTU 30.7 7.2 7.6 8.1 -74% Improving supply demand balance support price reduction
WACC % 10.3% 9.6% 8.8% 8.7% -16% Technology risk is substantial, complex system
Prices in Real 2022

*CO₂ transport & storage costs are included in the OPEX 30
Open cycle combustion turbine (OCGT)
Open cycle combustion turbine – Key dynamics

Market competition from other flexibility providers such as battery storage. The pressure is compounding even
further as the current gas crisis has made OCGTs the most expensive generation technology
• Gas-fired power is a reliable, mature power generation technology • Project size: 400 MW (100 MW high scenario) net capacity
largely considered to be a critical bridge to decarbonising the Europe system. • Economic life: 30 years
• Open Cycle Gas Turbines (OCGT) also known as peakers can provide • Fuel type: Natural gas (market price)
much more rapid start-times than a CCGT. • Heat rate: 8.98 mmBTU/MWh
• Alongside gas reciprocating engines and other flexible sources, they will • Emissions control: Combustion and post combustion
be critical in the decades to come to balance variable renewable output
• Energy storage has already overtaken the OCGT market for shorter
duration system services and requirements.
• Extreme flexibility • Low efficiency and Commercial market assumptions

to support high emissions
Advantages
renewables • Carbon pricing: UK & EU ETS €27 (2020) - €57 (2022) €136 (2050) /metric ton
• Sensitive to gas price
Disadvantages
• Unlimited • National tax rate: 19% to 31% (market specific)

volatility
response duration • Tax incentives: None
• High cost of operation
given extreme duty • Debt/equity ratio: 35/65
cycle • Cost of debt: 1.48% to 2.95% increasing to 2.46% to 4.13%
• Stranded asset risk if • Target after-tax IRR: 8.1% to 10.55% changing to 8.61% to 11.68%
carbon pricing and
policy dictate

Open cycle combustion turbine - LCOE segmentation

A mature technology with limited cost reduction potential and exposure to carbon and gas price risk
average LCOE

350
550 300
-7.7% 250
500
200
450 150
100
400 50
LCOE (€/MWh)
350 0
300 High LCOE scenario @ 6% NCF

Low LCOE scenario @ 20% NCF
250
200
3% 3%
150 • NCF maintained at constant 12% (low 6%,
25% 23%
21%
100 high 20%)
31%
• Minor CAPEX and OPEX reductions
50 2022 2050
13%
14% • The increased carbon cost component,
0
37%
outweighs the expected gas price decline,
30%
driving the LCOE increase post 2025
Prices in Real 2022

33
Open cycle combustion turbine – key LCOE input assumptions

In addition to high gas and carbon prices, battery storage poses a growing threat to OCGT plants in balancing
services, further lowering the NCF potential
800 50
-6.5% -6.3% 40 138.3%
700
€/MMBtu
40 35
600 30
€/kW
€/kW
500 30 25
400 20
300 20
15
200 10
10
100 5
0 0 0
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 288.8 225.5 238.1 239.8 -17% Low, largely due to fuel and carbon price risk
R&D continues with focus on lower production costs,

Capital costs €/kW 666 503 496 496 -26%
increased efficiency and faster responding assets
Operational costs €/kW-yr 41 33 32 32 -22% Specialized workforce, profit driver for OEMs
Net Capacity Factor % 12% 12% 12% 12% 0% Lower CF potential as energy storage penetration rises
Fuel costs €/mmBTU 30.7 7.2 7.6 8.1 -74% Improving supply demand balance support price reduction

WACC % 7.5% 7.5% 7.5% 7.5% 0%
increases
Gas Engine (GE)
Gas Engine – Key dynamics

Small, versatile and modular units of gas engine are potential candidate of flexibility provider for highly
renewable grid
• Gas-fired power is a reliable, mature power generation technology • Project size: 100 MW (20 MW high, 300 low scenario) net capacity
largely considered to be a critical bridge to decarbonising the Europe system. • Economic life: 20 years
• Gas engine can provide much more rapid start-times than a CCGT. • Fuel type: Natural gas (market price)
• Gas engines and other flexible sources, they will be critical in the decades • Heat rate: 7.1 mmBTU/MWh
to come to balance variable renewable output • Emissions control: Combustion and post combustion
• We expect energy storage to start overtaking the reciprocating peaker • Emissions rate: 0.42 metric tons CO₂ /MWh
market for shorter duration system services and requirements.
• Low capital cost, Commercial market assumptions

small, quick
Advantages
deployment • Low efficiency and • Carbon pricing: UK & EU ETS €27 (2020) - €57 (2022) €136 (2050) /metric ton
Disadvantages
• Extreme flexibility high emissions • National tax rate: 19% to 31% (market specific)
to support • High cost of • Tax incentives: None
renewables operation given • Debt/equity ratio: 35/65
• Unlimited extreme duty cycle • Cost of debt: 0.99% to 2.45% increasing to 1.97% to 3.64%
response duration • Stranded asset • Target after-tax IRR: 8.1% to 10.55% changing to 8.61% to 12.66%
risk if carbon
pricing and policy
dictate
Gas Engine - LCOE segmentation

Gas engines have limited cost reduction prospects, with exposure to carbon and gas price risks
average LCOE

300
450
250
-6.5%
400 200
150
350 100
50
LCOE (€/MWh)
300
0
250

200
150
3% 3%
• NCF maintained at constant 12% (low 6%,
100 19% 28% 26%
high 20%)
29%
50 • Minor CAPEX and OPEX reductions
2022 2050
• The increased carbon cost component, 13%

0 13%
37% outweighs the expected gas price decline,
29%
driving the LCOE increase post 2025
Prices in Real 2022

37
Gas Engine – key LCOE input assumptions

In addition to high gas and carbon prices, storage poses a growing threat to gas engines in balancing services,
further lowering the NCF potential
600 40
-6.5% -5.6% 40 138.3%
35
€/MMBtu
500 35
30
€/kW
30
€/kW
400 25 25
300 20 20
15 15
200
10 10
100 5 5
0 0 0
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 241.2 185.9 197.5 199.1 -17% Low, largely due to fuel and carbon price risk
R&D continues with focus on lower production costs,

Capital costs €/kW 525 396 391 391 -26%
increased efficiency and faster responding assets
Operational costs €/kW-yr 34 26 26 26 -23% Specialized workforce, profit driver for OEMs
Net Capacity Factor % 12% 12% 12% 12% 0% Lower CF potential as energy storage penetration rises

WACC % 8.1% 8.1% 8.1% 8.1% 0%
increases
Nuclear, Pressurised Water Reactor (PWR) Technology
Nuclear pressurised water reactor (PWR) – Key dynamics

The growth of nuclear energy is becoming more popular after the Russia-Ukraine conflict, but still faces many
challenges such as cost overruns, delays, safety risks, and reliability issues.
• Nuclear power is a substantial source of zero-emissions power, • Project size: 1400 MW net capacity
generating 22% of the electricity in WoodMac's modelled markets in Europe • Economic life: 50 years
(down from 27% in 2021 due to fleet maintenance in France). • Fuel type: Uranium fuel assemblies
• New unit construction costs and delays continue to balloon, with • Heat rate: 10.34 mmBTU/MWh
Finland’s Olkiluoto 3 reactor 12 years late and € 5 billion over budget. Two
• Emissions control: N/A
more being built with similar issues, these will likely be the last of these EPRs.
• Emissions rate: N/A
• Germany followed by a growing number of European markets are
• Carbon capture: N/A
phasing out nuclear due to post Fukushima safety concerns.
• Fuel disposal costs: not included, assumed on-site storage
• Small Modular Reactors (SMRs) are expected to be primary focus of sector
innovation moving forward.
Commercial market assumptions
• Large scale, • Public safety • Carbon pricing: N/A
dispatchable concerns following
Advantages
renewable energy Fukushima

•
Disadvantages
Tax incentives: None

• Zero-emissions • Fuel disposal
• Debt/equity ratio: 35/65
• Non-weather costs and safety
dependent • Cost of debt: 2.46% to 3.93% increasing to 3.45% to 4.43%
• Cost and schedule
overruns • Target after-tax IRR: 8.10 to 11.55% changing to 9.6 to 13.02%
• Does not typically

provide flexible
power
Nuclear pressurised water reactor (PWR) - LCOE segmentation

Relatively high LCOEs mean that future new build hinges on targeted government support, such as CfD and
potentially Regulated Asset Base (RAB) approaches (as being considered in the UK)

200 200
-6.4%
180 150
160 100
140 50
LCOE (€/MWh)
120 0
100
80
60 8% 8%
• NCF maintained at constant 85%
40 18% • Lack of fuel volatility tightens LCOE range 21%
2022 2050
20
• Capital cost reductions most likely to
0 74% come from EPC scope 71%
• Future innovations to reduce cost and

increase plant flexibility needed.

Nuclear pressurised water reactor (PWR) – key LCOE input assumptions

Capital expenditure is projected to decrease as the sector moves towards modular designs
Capital expenditures Operational expenditures (per year) Net capacity factor

7,000 -23.4% 300 100% 0.0%
-10.8%
6,000 250 80%
5,000
€/kW
200
NCF
60%
€/kW
4,000
150
3,000 40%
100
2,000
20%
1,000 50
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 159.7 117.7 109.6 104.4 -35% Low, diminishing value following recant cost overruns
Capital costs €/kW 5992 4300 3955 3729 -38% Sector moving increasingly towards modular reactors
Operational costs €/kW-yr 221 172 168 166 -25% Highly specialized work, minimal scale opportunity
Net Capacity Factor % 85% 85% 85% 85% 0% High, inflexible baseload with minimal upside
Fuel costs €/mmBTU 0.77 0.77 0.77 0.77 0% Fuel costs have minimal impact on LCOE
WACC % 9.8% 9.8% 9.7% 9.7% -1% Technology risk is substantial, complex system

Onshore Wind
Onshore wind – Key dynamics

Onshore wind costs are exceptionally low due to cost reductions and performance gains

• Onshore wind is a mature renewable technology with over 192 GW • Project size: Average 22 to 32 MW net capacity
installed in the Europe and 65% growth potential over the next ten years. • Economic life: 25, extending to 33 years by 2050
• Onshore wind prices have dropped precipitously this past decade, • Net capacity factor: average of 33% to 44%
although cost escalation concerns are rising due to the commodity crunch. • Average turbine MW rating: 3.7 MW in 2020 to 8.7 MW in 2050
• Wind intermittency is difficult to forecast over the long term, though • Average turbine rotor diameter: 126m @ 2020 to 199 m @ 2050
advances in data analysis and wind sensors have shrunk short-term
• Average hub height: 105 m @ 2020 to 141 m @ 2050
forecasting for day-ahead markets to the 5% error range
• Wind speed: 7.4 to 9.2 m/s
• Wind is expected to maintain a central role in Europe’s energy transition
• Zero-emissions Commercial market assumptions

• Potential for very
• Carbon pricing: N/A
Advantages
large projects • Intermittent

Disadvantages
resource • National tax rate: 19% to 31% (market specific)

• Mature, reliable
renewable energy • High volatility with • Tax incentives: None
technology potential for long • Debt/equity ratio: 80/20
wind “droughts” • Cost of debt: 0.97% to 2.66% increasing to 1.97% to 3.64%
• Visual impact and • Target after-tax IRR: 4.9% to 9.1% % changing to 5.88% to 8.48%
permitting

Onshore wind - LCOE segmentation

Average LCOE will fall 53% from 2022 level (40% from 2021 level) by 2050 relative to 2022, principally due to wind
turbine OEMs continuing to deliver scale with turbine ratings growing from 3.7 to 8.7 MW
100

60
-38.8% 50
40
80 30
20
LCOE (€/MWh)
10
60 0
40 Capital Cost OPEX Fuel Carbon Charging Cost Taxes
24%
20 • NCF varies wildly by state 29%
• Up-tower maintenance aids OPEX
2022 2050
0 • Evolutionary advancements in technology

71%
76% and production processes lower costs

Onshore wind – key LCOE input assumptions

Capex and Opex decline as turbine sizes increase, and NCF sees an increase due to cutting edge controls

2,500 -25.9% 70 50% 21.7%
-24.4%
60
2,000 40%
50
€/kW
NCF
€/kW
1,500 40 30%
1,000 30 20%
20
500 10%
10
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 49.5 32.3 26.1 23.1 -53% Moderate, much depends on cost benefit of larger WTGs
Capital costs €/kW 1503 1069 947 873 -42% BOP costs takes centre stage as turbine size increase
Operational costs €/kW-yr 34 26 24 23 -33% Larger turbines lower turbine to tech ratios, higher part cost
Net Capacity Factor % 34% 35% 38% 40% 19% Evolutionary gains driven by turbine and farm controls
Fuel costs €/mmBTU 0 0 0 0 0% N/A
WACC % 3.0% 3.0% 3.0% 3.0% -1% Low technology and commercial risk

Offshore Wind with Fixed Bottom Foundations
Offshore wind with fixed bottom foundations – Key dynamics

Explosive growth and continuation of large leasing and auction rounds aids in building scale and reducing costs
• Offshore wind is now a commercially proven technology and Europe was • Project size: Average 234 MW increasing to 1136 MW net capacity by 2050
an early adopter, 12 GW installed today increasing up to 111 GW by 2030. • Economic life: 25, expanding to 30 years by 2030
• Offshore wind prices dropped precipitously following the introduction of • Net capacity factor: average of 43% to 55%
competitive tendering systems in the EU, and other markets such as the
• Average turbine MW rating: 6.4 MW in 2020 to 25 MW in 2050
US have followed suit with their own such competitive bidding systems.
• Average turbine rotor diameter: 154 m in 2020 to 350 m in 2050
• Offshore wind is more complex, more expensive than onshore wind,
• Average hub height: 107 m in 2020 to 206 m in 2050
though proximity to vast areas with high wind resource and increasing
nimbyism for onshore can aid markets achieving renewable energy targets. • Wind speed: 8.9 to 9 m/s
• Future projects are moving further away from shore and into more
challenging seas with higher transmission network costs.
• Zero-emissions
• Potential for very • Carbon pricing: N/A
large projects • Intermittent • National tax rate: 19% to 31% (market specific)
Advantages
resource
Disadvantages
• Proximity to vast • Tax incentives: None

areas with high • High volatility with • Debt/equity ratio: 75/25
wind resource potential for long
• Cost of debt:1.23 % to 2.7% increasing to 2.22% to 3.89%
wind “droughts”
• Target after-tax IRR: 5.92% to 9.57% changing to 5.96% to 8.97%.
• Environmental
impact and
permitting

Offshore wind with fixed bottom foundations - LCOE segmentation

Offshore wind remains comparatively expensive but leads the cost reduction race, with LCOE reducing 68%
from 2022 levels by 2050
EU average LCOE(EUR/MWh) EU average LCOE component trends (EUR/MWh)
240

140
220 -63.9%
120
100
200
80
180 60
40
LCOE (€/MWh)
160 20
0
140
120
100
• Auctions continue to lead route to market
80 3% 1%
and sustain competition
60 21% • Installation and OPEX infrastructure is 24%
ramping up across Europe
40
2022 2050
20 • Expecting substantial cost reductions in
76% both turbine and BOP costs 75%
0
• Further innovation to scale with offshore

interconnections and P2X likely
Offshore wind with fixed bottom foundations – key LCOE input assumptions
Capex reduces about 50% from 2022 level by 2050 as bigger machines bring efficiency gains

6,000 -50.7% 200 70% 27.9%
-55.0%
5,000 60%
150 50%
4,000
€/kW
€/kW
NCF
40%
3,000 100
30%
2,000
50 20%
1,000 10%
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 115.0 51.0 40.8 36.4 -68% Moderate
Capital costs €/kW 3451 2028 1813 1719 -50% Localization and new technology enable lower costs
Operational costs €/kW-yr 88 55 47 43 -51% Substantial investment required, but able to adopt latest tech
Net Capacity Factor % 42% 49% 53% 55% 31% Will be using next generation turbines
Fuel costs €/mmBTU 0.0 0.0 0.0 0.0 0% N/A
WACC % 4.8% 4.1% 3.9% 3.8% -20% The technology risk decreases as the industry matures.

Utility scale solar PV with fixed tilt racking
Utility scale solar PV with fixed tilt racking – Key dynamics

Average LCOE for utility PV with fixed tilt racking will more than halve from 2022 to 2050
Technology assumptions
Advantage/disadvantage?
• Project size: 5 to 38.5 MW net capacity
• Exposure to fluctuations in freight costs and raw materials, particularly • Economic life: 30 years in 2020, increasing to 35 years by 2050
polysilicon and steel prices due to supply chain shortages, caused an
• Net capacity factor: 10.3%-19% in 2020; 13.5%-24.3% by 2050
increase in capex in 2022, leading to higher LCOE. However, fixed tilt
• Bifacial modules become mainstream in 2030
racking solutions are highly cost competitive with other technologies, as solar
module price declines have driven these costs down. • Larger wafer sizes and material improvements
• Fixed tilt applications can be implemented on complex sites with • Bifacial modules, lower system losses and overall degradation rates will
challenging terrain, more easily than tracker applications. lead to increased capacity factors over time.
• Average PV module rating: 2020 = 405 W DC (312 W AC); 2050 = 700 W DC
(539 W AC)
• Zero-emissions • Tracker: None
• Low cost solution from • Inverter loading ratio: 1.3
Advantages
both CAPEX and • Intermittent resource

Disadvantages
OPEX perspective • High land intensity

• Low up-front capex • Exposure to polysilicon • Carbon pricing: N/A
investment, relative to prices and global
tracker systems disruptions
• Tax incentives: None
• Beneficial for projects • Interconnection and
with high land costs or permitting bottlenecks
space constraints • Cost of debt: 0.49% to 1.96% increasing to 1.48% to 3.15%

Utility PV with fixed tilt racking - LCOE segmentation

Due to improved manufacturing and economies of scale, CAPEX costs are forecast to decline by 55% to 417
EUR/kWac by 2050.
120

80
-47.3% 70
60
100 50
40
30
20
LCOE (€/MWh)
80
10
0
60
40
1% • NCF varies wildly by country, note 1%
23% curtailment will push these down (not
modelled here) 33%
20
2022 2050
• Minimal labour requirements for OPEX 66%
0 76%
• Substantial cost reduction and
performance gains via bifacial technology
and increased power density
Utility PV with fixed tilt racking – key LCOE input assumptions

PV with fixed tilt racking will continue to become more competitive throughout the outlook with limitations from
permitting and grid constraints, not system costs
1,200 -39.1% 35 30% 28.7%
-18.9%
1,000 30 25%
25
€/kW
NCF
800 20%
€/kW
20
600 15%
15
400 10%
10
200 5 5%
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 67.0 41.5 31.5 25.5 -62% Moderate, aggressive cost-out already assumed
Capital costs €/kW 925 615 483 415 -55% Aggressive cost-out already assumed, low tech BOP
Operational costs €/kW-yr 18 14 13 13 -30% Additional automation possible, reliability must improve
Net Capacity Factor % 15% 15% 17% 18% 27% Bifacial modules with increased power density coming
WACC % 3.1% 3.0% 3.0% 3.1% 0% Low operational risk, but weather risk on the rise

Utility scale solar PV with single axis tracker
Utility PV with single axis tracker – Key dynamics

Average LCOE for utility PV with single-axis trackers are 18% lower than that of fixed tilt applications in 2022
• Spain was a leading market for high adoption of PV trackers, with Italy, • Project size: 5 to 38.5 MW net capacity
Portugal, and France also showing increased usage. • Economic life: 25 years in 2020, increasing to 35 years by 2050
• Exposure to fluctuations in freight costs and raw materials, particularly • Net capacity factor: 13.7%-25.5% in 2020; 15.4%-29.4% by 2050
polysilicon and steel prices due to supply chain shortages, caused an • Bifacial modules are mainstream from 2030-2050
increase in capex in 2022, leading to higher LCOE. However, tracker
• Lower system losses and overall degradation rates will lead to increased
projects are still cost competitive with other technologies, as PV module price
capacity factors over time.
declines have driven costs down.
• Larger wafer sizes and material improvements
• Tracker technology will continue to evolve to be better suited for more
complex terrain.
(539 W AC)
• Tracker prices will continue to fall as solar modules become more
• Tracker: Single-axis
powerful, reducing the $/W price point.
• Inverter loading ratio: 1.3
• Zero-emissions
• Low cost solution
Advantages
from both CAPEX and • Intermittent resource

Disadvantages
OPEX perspective • High land intensity • Carbon pricing: N/A

• Increased energy • Interconnection and • National tax rate: 19% to 31% (market specific)
production especially permitting bottlenecks • Tax incentives: None
in high irradiance
locations
• Cost of debt: 0.49% to 1.96% increasing to 1.48% to 3.15%
Utility PV with single axis tracker - LCOE segmentation

Utility PV with single axis tracker costs will beat onshore wind to become the cheapest source of new bulk
electricity generation in Europe by 2030
EU average LCOE EU average LCOE component trends (EUR/MWh)

100 60
-39.4% 50
40
80 30
20
LCOE (€/MWh)
10
60 0

40
1% 1%
24% • NCF varies wildly by country
20
• Curtailment will reduce these NCFs 36%
2022 • Minimal labour requirements for OPEX 2050
63%
0 75% • Substantial cost reduction and
performance gains via bifacial technology,
increased power density and tracker
controls
Utility PV with single axis tracker – key LCOE input assumptions

Single axis trackers introduce higher capacity factors and plenty of room for further technology innovation

1,200 -39.0% 40 35% 14.8%
-16.4%
1,000 35 30%
30 25%
€/kW
NCF
€/kW
800
25
20%
600 20
15%
400 15
10%
10
200 5%
5
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
Capital costs €/kW 979 649 509 438 -55% Trackers add complexity, requires BOP cost-out
Operational costs €/kW-yr 21 17 16 15 -27% Additional automation possible, reliability must improve
Net Capacity Factor % 19% 20% 21% 22% 14% Bifacial modules, higher module power density plus trackers
Fuel costs €/MMBTU 0.0 0.0 0.0 0.0 0% N/A
WACC % 3.1% 3.0% 3.0% 3.0% 0% Low operational risk, but weather risk on the rise

Hybrid utility PV with fixed tilt racking
Hybrid utility PV with fixed tilt racking – Key dynamics

Pairing solar assets with storage is still unusual in Europe, due to auction structures with little or no incentive
for flexibility, but this will likely change as policy makers wake up to the challenges of variable renewables
• Solar-plus-storage project development yields cost savings compared • Project size: 20 MW net capacity
to developing standalone solar and standalone storage systems • Economic life: 30 years
separately. Developers can save on origination, permitting, interconnection, • Net capacity factor: 10.3%-19.0% in 2020; 13.5%-24.3% by 2050
labour, O&M and site study costs by co-locating solar and storage projects for • Bifacial modules are mainstream from 2030-2050
greenfield applications.
• Lower system losses and overall degradation rates will lead to increased
• Increased inverter load ratios for hybrid utility PV projects imply a higher capacity factors over time.
DC load, for the same AC capacity. This way, the PV array is oversized to
• Larger wafer sizes and material improvements
charge the batteries.
(539 W AC)
• Zero-emissions, semi-
dispatchable • Tracker: Single-axis
Advantages
• • Inverter loading ratio: 1.3, DC-coupled solar plus storage system

Disadvantages
Low cost solution from

both CAPEX and OPEX • Intermittent resource
perspective • High land intensity
• Efficiencies with BOP, • Interconnection and
permitting, O&M and permitting
bottlenecks • Tax incentives: None
land costs compared to
standalone solar and • Paired storage may • Debt/equity ratio: 75/25
storage have less operational • Cost of debt: 1.48% to 2.95% increasing to 2.22% to 3.89%
freedom compared to • Target after-tax IRR: 5.64% to 8.09% changing to 5.41% to 8.48%
a standalone asset
Hybrid utility PV with fixed tilt racking - LCOE segmentation

The premium costs of hybrids must be supported by new revenues from peak power prices, system services,
or innovative and willing corporate buyers, unless new flexibility support schemes come to the picture.
200

140
-47.7% 120
180
100
160 80
60
140 40
LCOE (€/MWh)
20
120 0
100
60
1% 1%
40 • Massive cost reductions expected in li-ion
29% 34%
technology as EV market expands
20
2022 2050
0 • Substantial cost reduction and 65%
70% performance gains via bifacial technology,
increased power density
• Concerns linger on commodity costs

Hybrid utility PV with fixed tilt racking – key LCOE input assumptions
Hybrid system costs will decline as the incentive to pair with storage grows

1,400 -35.6% 70 30% 28.8%
-32.3%
1,200 60 25%
1,000 50
€/kW
NCF
20%
€/kW
800 40
15%
600 30
10%
400 20
200 10 5%
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
Capital costs €/kW 1220 835 665 567 -54% Aggressive cost-out already assumed, commodity risks linger
Operational costs €/kW-yr 42 31 26 23 -44% Added automation, augmentation costs must improve
Net Capacity Factor % 15% 15% 17% 18% 27% Bifacial, higher power density PV modules and batteries
WACC % 4.0% 3.8% 3.6% 3.6% -10% Low rates, even with higher risks around storage operation

Hybrid utility PV with single-axis tracker
Hybrid utility PV with single-axis tracker – Key dynamics

Hybrid solar PV (tracker) is a more attractive proposition and is likely to be the go-to hybrid option in Europe’s
future energy mix
• Solar-plus-storage project development yields cost savings compared • Project size: 20 MW net capacity
to developing standalone solar and standalone storage systems • Economic life: 30 years
separately. Developers can save on origination, permitting, interconnection, • Net capacity factor: 13.7%-25.5% in 2020; 15.4%-29.4% by 2050
labour, O&M and site study costs by co-locating solar and storage projects for • Bifacial modules are mainstream from 2030-2050
greenfield applications. • Lower system losses and overall degradation rates
• Increased inverter load ratios for hybrid utility PV projects imply a higher • Average PV module rating: 2020 = 405 W DC (312 W AC); 2050 = 700 W DC
DC load, for the same AC capacity. This way, the PV array is oversized to (539 W AC)
charge the batteries.
• Storage: 1, 2 and 4 hour lithium-ion battery, rated at 26% to 32% of PV
• Zero-emissions, semi- array capacity
dispatchable • Efficiency = 86%, 350 cycles per year
• Low cost solution from • Intermittent resource • Inverter loading ratio: 1.5, DC-coupled solar plus storage system
Advantages
both CAPEX and •

Disadvantages
High land intensity

OPEX perspective Commercial market assumptions
• Interconnection and
• Efficiencies with BOP, • Carbon pricing: N/A
permitting
permitting, O&M and bottlenecks • National tax rate: 19% to 31% (market specific)
land costs compared to • Tax incentives: None
• Paired storage
standalone solar and
may have less • Debt/equity ratio: 75/25
storage
operational freedom • Cost of debt: 1.48% to 2.95% increasing to 2.22% to 3.89%
• Enables diversification compared to a • Target after-tax IRR: 5.64% to 8.09% changing to 5.41% to 8.48%
of revenue sources. standalone asset
Hybrid utility PV with single-axis tracker - LCOE segmentation

Hybrid storage paired with solar tracker comes at a 74% cost premium (€42/MWh) on standalone PV, reducing
to 70% by 2050 with an €18/MWh premium on standalone solar PV post-2045

160 120
-40.2% 100
140 80
60
120 40
LCOE (€/MWh)
20
100 0
80
60
1% • Massive cost reductions expected in li-ion 1%

40 technology as EV market expands
30%
37%
20 2022 • Substantial cost reduction and 2050
performance gains via bifacial technology, 62%
69% increased power density
0
• Concerns linger on commodity costs,
materials innovation will continue to adapt
Prices in Real 2022

65
Hybrid utility PV with single-axis tracker – key LCOE input assumptions

Capex and Opex down about 50% from 2022 levels and gains in NCF mean a win-win for hybrid system costs

1,600 -35.7% 70 35% 14.8%
-29.9%
1,400 60 30%
1,200 50 25%
€/kW
NCF
€/kW
1,000
40 20%
800
30 15%
600
20 10%
400
200 10 5%
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
Capital costs €/kW 1267 864 688 586 -54% Aggressive cost-out already assumed, commodity risks linger
Operational costs €/kW-yr 45 34 30 27 -41% Added automation, augmentation costs must improve
Net Capacity Factor % 19% 20% 21% 22% 14% Bifacial, higher power density PV and battery modules
WACC % 4.0% 3.8% 3.5% 3.6% -10% Low rates, even with higher risks around storage operation

Solar PV - Distributed Commercial (PV-DG-Comm.)
Solar PV - Distributed Commercial – Key dynamics

With rising energy costs, the economics for commercial and industrial solar look much stronger
• Project size: 369 KW net capacity
• Net capacity factor: 7.6%-17.5% in 2020; 8.3%-19.0% by 2050
increase in capex in 2022, leading to higher LCOE. However, the
• Building-integrated PV (BIPV) and bifacial module tech will achieve higher
unprecedented increase in retail business electricity prices, combined with
penetration rates from 2030 onwards.
CAPEX rebates, has pushed deployments to unprecedented levels.
• Lower system losses and overall degradation rates, as well as larger wafer
• Offsetting skyrocketing retail business electricity bills is a major driver
sizes and material improvements, will lead to increased capacity factors
for the growing popularity of distributed C&I solar, as the economics
over time.
become much stronger. Also, corporate emission reduction and sustainability
targets have become widespread, driving much higher adoption. • Average PV module rating: 450W DC
• Tracker: None
• Zero-emissions • Inverter loading ratio: 1.22
• Intermittent resource.
• Low-cost, modular solution
from both a CAPEX and • May require structural
Advantages
upgrades to support the Commercial market assumptions

OPEX perspective
Disadvantages

weight of the panels
• Easier permitting
requirements. • Interference with other
rooftop equipment such • Tax incentives: VAT reductions for component sales in some European
• Can provide additional
as HVAC units or markets at present time and in the near future, along with tax exemptions.
revenue streams: selling
antennas. • Debt/equity ratio: 75/25
surplus power to the grid.
• Production is limited by • Cost of debt: 0.99% to 2.45% increasing to 1.97% to 3.64%
roof orientation and • Target after-tax IRR: 5.14% to 7.60% changing to 5.66% to 8.72%
Source: Wood Mackenzie, EIA, NREL ATB 2021 shading. 68
Solar PV - Distributed Commercial - LCOE segmentation

The spectrum of LCOE for distributed commercial Solar PV is mostly impacted by system cost and capacity
factor, which will be limited depending on geographical location, irradiation and roof orientation
350

160
-34.9% 140
300 120
100
80
250 60
LCOE (€/MWh)
40
20
200 0
150
100
1% 2%
15%
• NCF varies wildly by country 21%
50
• Limited O&M automation opportunities
2022 2050
0
performance gains via bifacial technology 77%
84%

Solar PV - Distributed Commercial – key LCOE input assumptions

A moderate, but constant trajectory for tech cost declines and advancements in solar cells improving capacity
factors expected will improve overall system performance
2,000 -26.7% 50 20% 8.4%
-11.5%
40
1,500 15%
€/kW
NCF
30
€/kW
1,000 10%
20
500 5%
10
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 140.0 105.5 84.8 70.3 -50% Moderate PV cell improvements will increase capacity factors
Capital costs €/kW 1402 1111 940 832 -41% Aggressive cost-outs, while commodity risks remain.
Operational costs €/kW-yr 21 17 16 16 -23% Limited cost decline, while O&M crew salaries increase.
Net Capacity Factor % 12% 12% 13% 13% 8% Bifacial module deployment grows.
WACC % 3.6% 3.5% 3.5% 3.6% 0% Low operational risk, but weather risk on the rise.

Solar PV - Distributed Residential (PV-DG-Resi.)
Solar PV - Distributed Residential – Key dynamics

Record-high retail electricity rates and supporting policies will boost installs in the region
• Project size: 6.9 KW net capacity
• Net capacity factor: 8.13%-17.75% in 2020; 8.81%-19.24% by 2050
increase in capex in 2022, leading to a higher LCOE. However, distributed
• Building-integrated PV (BIPV) and bifacial module tech will achieve higher
residential PV deployments grew to unprecedented levels in most major
penetration rates from 2030 onwards.
European markets.
• Lower system losses and overall degradation rates, as well as larger wafer
• Offsetting skyrocketing retail household electricity bills is a major driver
sizes and material improvements, will lead to increased capacity factors
for the growing popularity of distributed residential solar, as the
over time.
economics become much stronger. The high energy prices have made PV-
DG a more attractive option, providing a cost-effective solution to manage • Average PV module rating: 350W DC
energy expenses. • Tracker: None
• Inverter loading ratio: 1.15
• Zero-emissions • Intermittent resource
• Low-cost, modular • Not all buildings are
Advantages
solution from both suitable for solar panel Commercial market assumptions
Disadvantages

CAPEX and OPEX installation due to
perspective structural or orientation • National tax rate: 19% to 31% (market specific)
• Can provide additional limitations. • Tax incentives: VAT reductions and tax exemptions on most European
revenue streams: • Production is limited markets at present time, and in the near future.
selling surplus power. by roof orientation and • Debt/equity ratio: 75/25
• Avoids issues around shading. • Cost of debt: 1.23% to 2.70% increasing to 2.22% to 3.89%
land scarcity. • Target after-tax IRR: 5.39% to 7.84% changing to 5.90% to 8.97%
Solar PV - Distributed Residential - LCOE segmentation

Residential solar market in Europe to grow, driven by the needs for grid decarbonisation and energy
independence. Constant technology cost declines and cell improvements
450

250
-32.6%
400 200
150
350
100
LCOE (€/MWh)
300 50
0
250
150
100 26% • NCF varies wildly by country

• O&M salaries increase over time 39%
50 2022 2050
61%
0 74% performance gains via bifacial technology

Solar PV - Distributed Residential – key LCOE input assumptions

A moderate, but constant trajectory for tech cost declines and advancements in solar cells improving capacity
factors expected will improve overall system performance
2,500 -29.4% 100 25% 8.4%
-7.2%
2,000 80 20%
€/kW
NCF
€/kW
1,500 60 15%
1,000 40 10%
500 20 5%
0 0 0%
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
LCOE €/MWh 217.5 154.7 129.7 115.6 -47% Moderate PV cell improvements will increase capacity factors
Capital costs €/kW 1675 1238 1051 937 -44% Aggressive cost-outs and better economics of scale.
Operational costs €/kW-yr 56 47 47 48 -15% Labour is a much higher proportion of O&M cost.
Net Capacity Factor % 12% 13% 13% 13% 8% More efficient module deployment
WACC % 3.5% 3.4% 3.4% 3.4% -1% Low operational risk, but weather risk on the rise.

Utility grid-scale battery storage
Utility grid-scale battery storage – Key dynamics

Storage is on course for ~60% cost decline by 2050 which will carve out a growing share of the flexibility
market
• Battery energy storage is an emerging technology that has faced • Project size: 50 MW net capacity
substantial commercial hurdles to date, namely high up-front costs with • Duration: Storage: 1, 2 and 4 hour lithium-ion Lithium iron phosphate (LFP)
limited revenue opportunities across Europe. battery
• Battery costs have reduced 86% in the last decade to 2021, enabled by • Economic life: 20 years
automotive innovation – the key reason grid storage is now a viable solution. • Fuel type: Electricity, low, annual average market specific power price
The costs rose 20% in 2022 due to supply chain problems caused by a
• Efficiency: 86% round-trip
shortage of materials. It is estimated to return to 2021 levels by 2025.
• 350 cycles per year
• Battery energy storage systems are flexible assets which in the current
• Degradation: 2%
gas crisis can compete with gas peakers for short duration services.
• Batteries have limited duration, current technology will not help with long
duration system services (4 hours plus)
• Enables use of low cost or • National tax rate: 19% to 31% (market specific)
• Current high costs
otherwise curtailed energy •
Advantages
Tax incentives: None

Disadvantages
• Concerns regarding
• Has a vast array of • Debt/equity ratio: 50/50
safety and fire hazards
applications
• Limited duration (e.g. • Cost of debt: 3.94% to 5.41% increasing to 2.22% to 3.89%
• Well suited to daily cycling
max 4 hours in our • Target after-tax IRR: 8.10% to 10.55% changing to 5.66% to 8.72%
and short duration
model here)
services to enable the
transition • Battery degradation

Utility grid-scale battery storage - LCOE segmentation

The charging cost component of energy storage LCOE is 43% in 2022 and 33% by 2050. Increasing power
price volatility and spread see day-ahead price arbitrage deltas reaching more than 100% of charging prices
EU LCOE average EU average LCOE component trends
450

250
-57.7%
400 200
150
350
100
LCOE (€/MWh)
300 50
0
250
150
3% 2%
100 • Substantial cost reduction and

performance gains expected 33%
42%
50 43% 2022 2050 50%
• As system capex and O&M decline,
0 charging costs become more material, a
key area for optimisation. 15%
12%
• Expecting reliability to increase with lower
augmentation costs
Utility grid-scale battery storage – key LCOE input assumptions

Driven by EV battery R&D and innovation, battery storage sees the biggest cost reduction across technologies
Capital expenditures Operational expenditures (per year) Charging Cost

1,000 -29.3% 40
-42.4% 600 +2.0%
35
800 500 -91.4%
30
€/MWh
€/kW
€/kW
25 400
600
20 300
400 15
200
10
200 100
5
0 0 0
2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050 2020 2025 2030 2035 2040 2045 2050
High depending on EV battery breakthroughs and

LCOE €/MWh 220.52 111.48 97.35 86.96 -61%
innovation driven by the automotive industry
Degradation and augmentation costs weigh heavily on opex –

Operational costs €/kW-yr 28 20 16 13 -53%
these will come down with battery cost
Net Capacity Factor % 11% 11% 11% 11% 0% CF dependant on renewable penetration and storage duration
Charging price becomes cheaper with higher renewables

Charging cost €/MWh 233 28 25 22 -90%
share, making arbitrage more attractive in the longer term
WACC
Source: Wood Mackenzie % 7.2% 4.9% 4.5% 4.5% -37% Technology risk is substantial, complex system 78
4. Appendix
Levelised cost of electricity model (LCOE)

LCOE definition
LCOE is equal to the power price required to reach a target rate of return (IRR), generally after-tax equity IRR.
Alternatively, LCOE is equal the ‘break-even’ price when levelised lifecycle costs equal levelised revenue
The definition below is the standard methodology applied by governments, utilities, IPPs and major consultants. We apply this same methodology in an extensive
discounted cash flow model, where we solve for the required revenue rate to support the assumed after-tax equity IRR hurdle rate.
𝐷𝐸𝑃 𝐿𝑃 𝐼𝑁𝑇 𝐴𝑂 𝐹𝑢𝑒𝑙 𝑐𝑜𝑠𝑡

(𝐶𝐴𝑃𝐸𝑋 − σ𝑛1 × 𝑇𝑅 + σ𝑛1 − σ𝑛1 × 𝑇𝑅 + σ𝑛1 × (1 − 𝑇𝑅) + σ𝑛1 × (1 − 𝑇𝑅)))
1+𝑟 𝑛 1+𝑟 𝑛 (1 + 𝑟)𝑛 (1 + 𝑟)𝑛 (1 + 𝑟)𝑛
𝐿𝐶𝑂𝐸 =
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑀𝑊ℎ × 1 − 𝐷𝑒𝑔𝑟𝑎𝑑𝑎𝑡𝑖𝑜𝑛 𝑛
σ𝑛1
(1 + 𝑟)𝑛
CAPEX: Capital cost AO = Annual operation cost including operation and maintenance cost or
DEP: Depreciation other taxes such as carbon tax
r = Discount rate Fuel cost = Cost of fuel
TR = Tax Rate Degradation = System degradation rate
LP = Loan payment
INT = Interest

Input parameters for LCOE model

Inputs reflect current market conditions and expected technology development
Typical LCOE segmentation LCOE category Included parameters Key notes on included parameters
Capital costs Includes construction, equipment, land, • Regional differences in CAPEX defined by EIA regional
engineering, management and related capital scaling factors for thermal technologies
costs to complete the power project. • Thermal generation and renewables CAPEX generally
provided as “overnight costs” including generation,
Finance costs included reflecting after-tax equity BOP, development and interconnection costs
IRR hurdle rates for Tier One developers and • Thermal costs and cost trajectories defined by IEA 2020
utilities. Constant maturity ten-year Treasury bond and BEIS 2020
used as risk free rate, coupled with a Baa • Development costs reported as % of total CAPEX for
corporate rating. renewable energy projects
Operations and Ongoing costs to run the power station, including • FOM includes both scheduled and unscheduled
maintenance equipment maintenance and servicing, site maintenance costs for all technologies
maintenance, salaries and staff, management and • VOM for select thermal generation technologies only
sales • Augmentation costs included in battery storage OPEX
Fuel and The delivered cost fuel for gas, coal or nuclear • Projects with lifetimes exceeding 2050 will use the fuel
emissions costs power plants based on the price outlooks over the cost defined in 2050 for remaining portion of its life
project lifetime • No national carbon tax assumed
• State carbon taxes reflect current market participants in
state regional carbon markets
Taxes and fees May include land, regulatory, corporate, carbon, • National tax rates used.
value-added or other taxes or fees required by
law
Other Other items not included above • Curtailment is not included in this analysis
Performance Constant utilization rates used for thermal • Thermal generation heat rates defined by EIA or NREL
generators reflecting current market conditions. • Onshore and offshore wind NCF calculated based on
Capital intensive, Fuel cost intensive, Renewable generator NCFs increase over time prevailing wind conditions in the state and associated
such as renewables such as gas or coal reflecting technology and reliability improvements. turbine type
• NCF for utility PV informed by Global Solar Atlas and
assumptions made by Wood Mackenzie
• Wind speeds obtained from Global Wind Atlas
LCOE model applies country by country delivered fuel prices

Data sourced from Wood Mackenzie’s Gas and Power Long-Term Outlook
160
40
140 35
Gas Prices (EUR/MMBTU)

Carbon Prices (EUR/tCO2)
120 30
25
100
20
80
15
60
10
40 5
20 0
EU range (current view) EU average (current view)

ETS Carbon Price (current view) GB Carbon Price (current view)
EU average (2021 view)
ETS Carbon Price (2021 view) GB Carbon Price (2021 view)
Prices in Real 2022
Source: Argus Media group (outturns) & Wood Mackenzie 82
LCOE scenario guidance

Low Average High
(Lower LCOE) (average LCOE) (Higher LCOE)
General Very cost competitive, below average bid prices but Typical new build plant, that could be reasonably Cost competitive LCOE but a
sustainable returns (possibly with help from competitive (though not the most competitive) plant in its deteriorating scenario in cost driven by
innovative business models) technology bucket. This represents average LCOE if the capex (unavoidable increases,
country had a plain vanilla auction. inefficiencies in opex).
Utilization Similar technology or slightly better tech as in Almost best in class – available commercially. Would Utilizing new technology but not
average but better situated from a resource outperform fleet average. necessary best in class, lower resource
(capacity
standpoint. Potential availability is better due to Regional variation is subjective but typically could availaiblity but also competitive enough to
factor) better optimisation and effective O&M represents bulk of new build coming online. have sizable new builds in the area.
Capex Large scale procurement helping with economics of Inline with industry trends to match the above description. Lower volume of procurement implying
scale. Optimal timing of procurement. Strong Developer margin considered – typical build time assumed higher per unit cost, non-optimal
relationship between developer / OEM / supply (major disruptions like pandemic impacts, supply chain procurement timings, slightly longer lead
chain stakeholders. Innovate business models at bottlenecks and commodity price inflation captured). time, regions with slightly higher labor
play. cost / difficult geography for execution
Interconnecti Standard interconnection’ assumption – proximity to the grid, reasonable infrastructure in place (road/water), sufficiently safe place. Connection to transmission
line (high voltage) for >5 MW projects, lower projects (DG solar) in distribution networks. Assumed project passing through interconnection que smoothly though
on costs
marginal variation accounted for based on different sources. Considers evolving cost dependent on renewable penetration.
O&M costs Very large and integrated portfolio helps make Typical portfolio player, so some scaling effects Smaller portfolio, geographically
gains on margin. High level of digitalization and considered. Cost competitive in the market but not the dispersed. Slow in digitalization and
generally lower labor footprint. Experience helps lowest, scope of coverage is sufficiently large. Also higher labor footprint.
optimizing scope and preventive spend and good at consists of replacement items (e.g., storage/inverter in 10
forecasting issues pre hand. years in additional to generic additional stocks)

Contributors
The data presented in this report was the result of a collective effort by all P&R teams, demonstrating their
collaborative spirit and commitment to producing high-quality results
Technology Technology Speciality Contacts
Project Lead Power Rishab Shrestha Ahmed J. Abdullah

rishab.shrestha@woodmac.com AhmedJameel.Abdullah@woodmac.com
Conventional Power Plants Power Ahmed J. Abdullah Rishab Shrestha

AhmedJameel.Abdullah@woodmac.com rishab.shrestha@woodmac.com
Carbon Capture Plants Power & CCS Mhairidh Evans Peter Findlay Ahmed J. Abdullah
mhairidh.evans@woodmac.com jonathon.findlay@woodmac.com AhmedJameel.Abdullah@woodmac.com
Wind Onshore Plants Wind Endri Lico Paula Jara

endri.lico@woodmac.com
-
Wind Offshore Plants Wind Srinivasan Santhakumar Finlay Clark Soeren Lassen
srinivasan.santhakumar@woodmac.com finlay.clark@woodmac.com soren.lassen@woodmac.com
Solar Power Plants Solar Daniel Tipping Daniel Liu

daniel.tipping@woodmac.com daniel.liu@woodmac.com
Solar Distributed Generation Solar Juan Monge Daniel Liu

juan.monge@woodmac.com daniel.liu@woodmac.com
Battary Storage Storage Anna Darmani Kevin Shang

anna.darmani@woodmac.com gunan.shang@woodmac.com
Hydrogen Fired Gas plants Power & Hydrogen Ahmed J. Abdullah Flor Lucia De la Cruz Bridget van Dorsten
AhmedJameel.Abdullah@woodmac.com florlucia.delacruz@woodmac.com bridget.vandorsten@woodmac.com
Operation & Maintenance Data Global Assets Daniel Liu

daniel.liu@woodmac.com
84
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Europe levelised cost of electricity 2022 (LCOE) – Sensitivity analysis report

Power technology and generation cost trends, competitiveness and sensitivities

Inspiring Decisions woodmac.com

1. Levelised Cost of Electricity (LCOE) methodology summary 6

Source: Wood Mackenzie 2

LCOE comparison - 16 technologies, averaged over 14 markets

Coal Coal w/CCS OCGT CCGT CCGT w/CCS Gas-Engine

Near-term rising costs, supply-chain issues won’t slow the transition

Coal Coal w/CCS OCGT CCGT CCGT w/CCS

Summary of levelised cost of electricity (LCOE) methodology*

200 PV- fixed (GB) 200

Prices in Real 2022 8

125 125 250

100 100 200

PV-UtilityFixedTilt Wind-OffshoreFixed PV-UtilityFixedTilt Wind-OffshoreFixed PV-UtilityFixedTilt Wind-OffshoreFixed

LCOE sensitivities highlight inherent issues with market “averages”

873 1,248 1,622 ← Capital Cost (EUR /KW)

110 130 150 170 190 210 230 250 270 30 40 50 60 70 80

20Yrs average +ve & -ve surplus: -11.2 EUR/MWh

-110 Flexible technologies such as stationary batteries and

Ultra-supercritical coal (USC) fired generation – Key dynamics

• Large scale, carbon intensity

• Tax incentives: None

Source: Wood Mackenzie, EIA, NREL ATB 2021 16

Coal fired generation - LCOE segmentation

LCOE components (€/MWh)

Coal fired generation – key LCOE input assumptions

Capital expenditures Operational expenditures (per year) Fuel costs

Operational costs €/kW-yr 104 79 76 75 -28% No significant change is excepted

Prices in Real 2022 18

Ultra-supercritical coal (USC) fired generation with CCS – Key dynamics

• Enables use of low Commercial market assumptions

plentiful coal as a • National tax rate: 19% to 31% (market specific)

fuel • Tax incentives: None

Source: Wood Mackenzie, EIA, NREL ATB 2021 20

Coal fired generation with CCS - LCOE segmentation

LCOE components (€/MWh)

Coal fired generation with CCS – key LCOE input assumptions

Capital expenditures *Operational expenditures (per year) Fuel costs

Prices in Real 2022

Combined cycle gas-fired generation – Key dynamics

Advantage/disadvantage? Technology assumptions

• Large scale, • Net gas importer Commercial market assumptions

• National tax rate: 23.5% to 31% (market specific)

Source: Wood Mackenzie, EIA, NREL ATB 2021 24

Combined cycle gas-fired generation - LCOE segmentation

LCOE components (€/MWh)

Capital Cost OPEX Fuel Carbon Charging Cost Taxes

Combined cycle gas-fired generation – key LCOE input assumptions

WACC low, stronger environmental regulations may drive

Combined cycle gas-fired generation with CCS – Key dynamics

• Large scale, Commercial market assumptions

power • High cost given

Combined cycle gas-fired generation with CCS - LCOE segmentation

LCOE components (€/MWh)

Prices in Real 2022

Open cycle combustion turbine – Key dynamics

• Extreme flexibility • Low efficiency and Commercial market assumptions