## PV economics . . . Step one to calculating your return . . . how much electricity will your PV system produce?

April 9, 2011 § 1 Comment

Calculating the rate of return for you PV system does not need to be so mysterious. Forget the calculators, let’s do some simple math.

We need to determine the benefit or income stream from the PV system over a certain period of time (25 to 40 years) and then calculate a present value rate of return (Internal Rate of Return) which includes the initial capital investment. This is the way investment decisions are made, so why not do the same for your PV system?

Remember, payback is a misplaced metric! What if your PV system has a payback of 7 years but an economic life of only 8 years? Oops . . . not good thinking! PV is a long term investment, and so is the economic return.

So, the very first step is to determine how much electricity your PV system is likely to produce.

Your best resource is PV Watts

PV Watts is a performance database developed by the ** National Renewable Energy Laboratory** (NREL) to provide performance estimates for grid-tied PV systems. It is incredibility easy to use:

- Click on your state
- Click on a nearby city with similar topography
- Under PV System Specifications . . .
- Enter the system size (DC Rating), and
- Enter variables for the AC to DC Derate Factor, Array Tilt, and Array Azimuth Factor only
*if different than the default settings*

- If you like, enter your Cost of Electricity
- Click Calculate!

In one second, you will have a first year monthly calculation of estimated AC energy produced by your system and its corresponding Energy Value. How easy is that? Do not be concerned if the site location is not an exact address. This is an estimate, and if your location is close to the chosen city the difference is not material.

OK, now you have a very credible estimate of your first year’s electricity generation from your PV System. Let’s convert this into a 40 years projection.

The place to start is your module warranty. Reduce your power production in accordance with the warranty specifications.

I will use Schott as my example. The Schott warranty specifies 97% of rated power at the end of the first year, and for years 2 through 25 the power will degrade no more than .7% per annum of the original rated output. Actual field data has been considerably better.

Your PV system will not disappear after 25 years. A high quality system will keep on keeping on! For my calculation, I apply the .7% power derate factor until year 40. At that time, the system output is approximately 70% of the original rated power. Now I have a 40 year projection of power produced.

Year |
Annual power reduction |

1 |
3% |

2 – 25 |
.7% |

Next, how do I convert this 40 year power projection to a monetary income stream?

*Chet Boortz, CEO*

*Total Solar Direct*

*[The comments, positions, and opinions stated above are my own and may or may not represent those of Total Solar Direct and its affiliate companies.]*

Great Information! This article does not confuse fact with fiction. Forty years is a reasonable amount of life for quaility panels.