Value chain · CLM-1457
In plain terms
A 2021 study for the UK government of the CASSIOPeiA space solar design used two discount rates for two questions: a tough 20 percent, the return it assumed private investors would want, for its cost of electricity, and the government's standard rate at the time, 3.5 percent, for judging whether the whole programme would be worth it for the country. It does not show that pairing the two is standard for other power stations.
The claim as recorded
Frazer-Nash Consultancy's 2021 economic feasibility study for BEIS (Phase 2), which costs a specific realisation of the CASSIOPeiA concept, uses two discount rates for two purposes: 20% for its levelised cost of electricity (LCOE), based on "the projected hurdle rate required by institutional investors", with LCOE calculations that follow the methodology of the BEIS Electricity Generation Cost Reports "to allow direct comparison on a like for like basis with the LCOE for other generation technologies"; and the HM Treasury Green Book rate of 3.5% real for the first 30 years (3% for years 31 to 75) for its programme-level economic appraisal, under which "all costs and benefits are discounted using the Green Book discount rate set by HM Treasury". The study does not show that pairing the two rates is BEIS's method for other technologies, and the BEIS hurdle rates for other generating technologies that it reproduces, observed in 2018, run from 5.0% to 18.8%, not a uniform 20%.
Scope and limits
This states what one 2021 study did. It does not say which rate is right for any public statement of CASSIOPeiA's cost, which depends on the question asked. It does not say what HM Treasury's discount rate is now: the 3.5% is the rate the study took from the 2020 Green Book, and no later Green Book document is held. The study is a consultancy report commissioned by BEIS. CLM-0172 gives the same two rates with the study's annex.
What it assumes
No assumptions are recorded against this claim.
Where it comes from
p.19: "The HMT Green Book [9] recommended standard discount rate of 3.5% (for the first 30 years) is used for discounting costs and benefits for the economic appraisal"; "A 20% discount rate is used for discounting in the calculation of LCOE."; the rate "is based on the projected hurdle rate required by institutional investors"; "The LCOE calculations follow the methodology contained in the BEIS Electricity Generation Cost Reports". In paraphrase: p.3 and p.23: the costs are for one realisation of CASSIOPeiA, the study's reference design, as its designer specified it; p.11: all values are 2018 net present values, discounted at the Green Book's 3.5% a year in real terms; p.20: the LCOE treats one SBSP system as an investment, whereas the economic analysis covers the whole programme as a project; p.32 footnote 4 gives "3% for 31-75 years"; p.40 to 41: Figure 23, which the study takes from the BEIS Electricity Generation Report 2020, gives 2018 hurdle rates for electricity generating technologies from 5.0% to 18.8%, and, since SBSP has no hurdle rate of its own, the study takes 20% as its benchmark and also tests 10%, 15% and 25%; reference 9 (p.67) is the Green Book, HM Treasury, 2020. Prepared for BEIS (p.1), dated 23 April 2021 (p.2).
Basis: percent; the 3.5% is a real rate, and the study's costs are in 2018 prices
Related records
- Answers question
- QST-039 not published in this release
- Supersedes
- CLM-0526 not published in this release
Cite this
energyaperture.com/c/clm-1457
CLM-1457, Energy Aperture, as of 2021.
Connected records
Other published records linked to this one. A list, not a judgement.
- Also from SRC-021
- CLM-0170A UK government-commissioned study estimates the cost of electricity from a mature (fifth-built) space solar power satellite at roughly 3.5...CLM-0171The same model shows the cost of electricity is noticeably higher for the first unit built than for the fifth, and when this study compares...CLM-0172The study uses a high assumed rate of return (20%) to work out the headline cost-per-unit-of-electricity figure, but uses a much lower...CLM-0173Developing a working space solar power system for the UK is estimated to cost somewhere between about 7.5 and 16 billion pounds (in 2021...CLM-0174On the study's own numbers, a first space solar power system would not, by itself, earn investors the return they would expect (20%) - it...CLM-0175For every pound of public money put into the whole programme, the study estimates the UK economy gets back between GBP 1.30 and GBP 1.80...CLM-0522The UK study used a 20% return requirement, based on what institutional investors are expected to want. The US study used 3%, on a one-line...CLM-0538The US and UK studies are not just using different toughness levels for the same test -- they are answering different questions. The US...More on the source page.