A

Presentation
on
Economic analysis of Solar PV projects

Presented by
Suman Raj Manandhar
068MSREE520

20th February, 2013

 Popularity

• Continued progress in performance and cost reduction of PV systems.

• Increase in the cost of fossil fuels.
• Increase in environmental costs for fossil-fuel-based electricity
• The need for off-grid electric power being very large
• Incentive policies and economic support schemes

Global PV capacity has been increasing at an average annual growth rate of more than 40% since
2000 and it has significant potential for long-term growth over the next decades. It is envisioned
(IEA, 2010) that by 2050, PV will provide 11% of global electricity production (4 500 TWh per
year), corresponding to 3 000 gigawatt of cumulative installed PV capacity.
 Economics:
Cost and Benefits
 The purchase of a PV system represents an expenditure of
capital resources at a given time
 construction expenditures may occur over more than a year.
 expectation of benefits
 Primary: electric energy delivered over some future period
 Secondary: reductions in greenhouse gases, energy
independence
 The future benefits may be realized over a 10- to 30-year
period.
Approach…
 Economic analysis
 measuring the value of future benefits from a present expenditure
 compare that value for a PV system with a consistently defined value
for an alternative system (diesel-electric system, a fuel cell, or
electricity from the grid)
 Salvage value at the end of the system life
 Issues not only for future benefits but also for future costs
(maintenance and the replacement of failed modules)
 qualitative benefits
 energy independence
 reduction in the risk of future escalation of energy costs
 economic assessment requires some consistent measure of the cash flows
 Money has its time value !
F
P  [( 1  i ) n  1]
(1  i ) n P  a
[ i (1  i ) n ]

 factor i is referred to as a discount rate.

 the value that the system owner puts on the capital invested in the system
 opportunity cost of the investor i.e., the ROR foregone on the next most attractive investment.
P = Pinvestment + Pelectricity + Pmaintenance + Preplacement + Psalvage

cash flows requires projection up to 30 years

result depends not just on the proper application of computational methods, but on
the assumptions and information that go into this projection.
economic analysis is made under a range of scenarios rather than a single set of
assumptions.
 Evaluation criteria
• Simple pay back period
• Discounted pay back period
• Net present worth
• Internal rate of return
• Levelized cost of energy

For two independent project the two systems must be designed to meet the same
load profile in order to be compared by a single measure such as NPW or IRR.
 Pay back period
•The payback (PB) and discounted payback (DPB) measures are more typically
appropriate to homeowners or others without tax considerations.
•Project with shortest PB is preferred.
 Net present worth
L
Xn
P n
n  0 (1  i )

• Where
– Xn = annual net cash flow
– L = service life of the project
– i= minimum acceptable rate of return

• If P>0, accept the project

 Internal rate of return
L
Xn
P n
n  0 (1  IRR )

• Evaluated at P=0
• If IRR> MARR, accept the project
 Levelized cost of energy
The LEC method, in effect, takes a present worth of the cost (but not revenue)

(NPWC )(CRF)
LEC 
E
CRF=capital recovery factor
E=annual energy production kilowatt hour

Particularly appropriate to energy providers such as electric utilities

This method provides a unit cost of electricity in $/kWh that is constant over time
(i.e. levelized) and expressed in monetary units at the beginning of a commercial
operation.
Easy to compare the computed LEC to the costs of electricity from other
conventional or renewable sources.
Can also be adapted for nonutility system owners.
 Commercial
technology cost System cost Utility avoided
cost rate
module
Vendor
price Balance of
system
Annual energy Annual energy
production saving

System Project value

Levelized
design (NPW, IRR, PB,
energy cost
DPB)

Economic
Economic criteria assessment
(LEC′, NPW′ , IRR′
PB′, DPB′)
 Cost estimation
• PV cells • Site improvements (grading, roads,
• PV modules fencing, buildings)
• Module support structure • Installation labor and management
• Tracking structure/drives/controls
• Financing cost during construction
• Heliostats
• Shipping
• Foundations and structures
• Cooling system • Taxes
• Interconnection wiring and terminations • Licenses, permits.
• Power-conditioning unit
• Transfer switching and metering
• Substation equipment
• Land
 Typical cash flow
$80,000

Revenues
- variable costs $60,000

- fix costs
= Earnings before $40,000
interest and taxes
(EBIT)
$20,000
+ depreciations
salvage
+ amortizations
$-
- taxes repair
1 2
= Operational cash maintenance
flow $(20,000)
- investment cost electricity

- changes in WC $(40,000) purchase

= Free operational
cash flow (FOC) 0.2%-0.5%
$(60,000)

$(80,000)

$(100,000)

$(120,000)
 Risk analysis
• NPW = f{costs(C), benefits(B)}
– C = f{interest rates, inflation, O & M variations, Replacement frequency}
– B = f{cost/KWh, sunshine hours, module efficiency}
• The inputs are susceptible to the changes, hence is the NPW
• NPW varies when subjected to the variation in input factors
• The result is probabilistic rather than deterministic
• The characteristics of input variables thus should be examined.

Sensitivity analysis
• Identify the key factors which influence the cost of solar PV power.
• By quantitative analysis, we get a sensitivity coefficient which indicates the influence degree of
one or set of factors’ changes to the economic indicators.
• Crucial factors: Price of the PV modules, annual sun hours, and so on
•we find the incidence relationship between changes of solar PV generating cost and a crucial factor
by changing the value of this crucial factor in sequence, provided that other factors given a fixed
value.
 Energy payback
There is an energy cost to produce energy.

The mining, refining, and purification of semiconductor materials

Energy usage in framework (glass, Al, enclosures etc)

Support structures, and balance of system (BOS) components

Transporting and erecting a PV system at its operating site.

During the life of a PV system, usually taken as 20 to 30 years, energy is

produced as a return on the energy “invested” in its creation.
Energy payback…
• The design of the PV system, including all components : determines conversion η

• The location of the system

: Determines the overall energy production
• The life of the PV system

• The portion of the manufacturing energy-consumption chain included in the payback –

it depends!

Multicrystalline modules have a longer energy payback because they have a much larger
content of silicon than thin-film modules.

Eg. 420 kWh/m2 for multicrystalline modules, 12% conversion efficiency

Payback=4yrs
Dutch researcher Erik Alsema
 Economy and environment
•There is an obvious cost associated with GHG emissions from energy sources

•Being a clean source of energy production is one of the positive side of PV

technology

An average US household uses 830 kWh of electricity per month. On an average,

producing 1000 kWh of electricity with solar power reduces emissions by nearly 8
pounds of sulfur dioxide, 5 pounds of nitrogen oxides, and more than 1400 pounds of
carbon dioxide. During its 28 years of clean energy production, a rooftop system with 2
year payback and meeting half of a household’s electricity use would avoid conventional
electrical plant emissions of more than half a ton of sulfur dioxide, one-third of a ton of
nitrogen oxides, and 100 tons of carbon dioxide.
 Address to solar energy : Nepal
4.4 Solar Energy Technology
4.4.1 Emphasis will be given for the necessary study and research for reducing cost of solar
energy technology and its efficient use.
4.4.2 Arrangement shall be made to operate solar energy technology at community and
institutional level by integrating it with irrigation, health, education and drinking water.
4.4.3 Development of solar energy technologies will be encouraged by integrating it with
technologies for drying and cooking of food, purifying water, lighting and
communication systems.
4.4.4 Necessary public awareness activities will be launched to increase the use of solar
cookers.
4.4.5 Solar energy map for whole Nepal will be prepared.
4.4.6 Arrangement shall be made to collect the battery used in solar energy production for
recycling or proper management.

5.9 Subsidy to solar electricity will be discouraged in the areas where there is financial and
physical feasibility of micro and small hydro.
5.10 Use of solar energy and wind energy will be encouraged where hydropower is not
feasible.
5.11 Necessary arrangement will be made for development of solar thermal technology in
the rural areas.

Source: Rural Energy policy, 2006

 Address to solar energy : Nepal
121. Starting form Kathmandu Valley; all street lights throughout the country will
be transformed into lead lamp and solar lamp immediately. To implement "People's
Desire, of a Bright City" programme, modern energy efficient street light will be
installed in major cities including the Kathmandu Valley.

156. Electricity will be provided to 6500 households through solar energy by fixing
solar household electricity system. The residents of far remote and inaccessible region
will be provided with drinking water facilities by means of 100 community water solar
pumps. For this, Rs. 1.49 billion budget is allocated

157. High priority will be given to promote and expand the solar energy. Policy will
be followed to provide electricity will be provided through energy in vital public entities
and places.

Budget 2068: Nepal

 Conclusions
 Solar energy is the most abundant energy resource on earth.
 poor competency due to high initial investment(for large capacity)
 conversely the Operation and Maintenance costs is quite lower.,
 price of on-grid PV power vary with several factors, such as the local solar
resource, efficiency of PV system, technical lifetime of PV plant, price of
PV modules and so on, most of which are improvable by technological
innovation.
 Solar PV electricity generation is expanding very rapidly due to dramatic
cost reductions.
 significant potential for long-term growth in nearly all world regions.
 References
 Technical and business economic study of photovoltaic systems B. Verhelst, J.
Desmet, C. Debruyne, H. Van Landeghem and L. Vandevelde

 Re-considering the Economics of Photovoltaic Power Morgan Baziliana, Ijeoma

Onyejia, Michael Liebreichc, Ian MacGilld, Jennifer Chasec, Jigar Shahe, Dolf
Gielenf, Doug Arentg, Doug Landfearh, and Shi Zhengrongi

 Economic Analysis and Environmental Aspects of Photovoltaic Systems - Richard

A. Whisnant, Stephen A. Johnston and James H. Hutchby

 Rural Energy Policy, 2006, Government of Nepal, Ministry of Environment

 Economic analysis of solar photovoltaic based on life cycle costing - Technical&

Economic Consulting Centre of Electric Power Construction, China Electricity
Council, China
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