PV economics . . . Let’s do the math!

April 16, 2011 § Leave a comment

The purpose of this Economic Series is to demonstrate with real numbers and basic analysis that an investment in a grid-tied PV system for home or business is a very economic proposition.  Now!  Yes now; not someday in the future but at the present.

In these writings, I have discussed important variables in determining a present value rate of return:

  • PV as an avoided cost
  • PV and residual value
  • Payback is the wrong metric
  • Determining electricity production from your PV system
  • Calculating the value of your electricity production
  • Performing the present value rate of return calculation
  • Grid parity is here!

None of this analysis is based on local incentives, rebates, feed-in or performance tariffs, REC’s, and certainly not on any social cost/benefit analysis . . . just simple numbers.  There is one exception; I do consider the beneficial 30% federal PTC or ITC for residential and commercial PV installations.

I hope in the process, I have made PV economics more approachable.  You should not simply rely on canned PV calculators to make your decision; understand the basics, and think through the analysis yourself.

Here are my assumptions and economic results for a 1.84kW (8 Schott 230W modules) residential installation in Fort Worth, Texas:

Assume*

  • A 1.84kW grid-tied PV system
  • Fort Worth, Texas location
  • 180°  azimuth, and 32.9° tilt
  • PV Watts power calculation (77% derate factor)
  • $5.00/W installed costs
  • 30% personal tax credit for installed costs
  • Inverter replacement allowance at year 15
  • 12.02¢ kWh electricity costs (average U.S. residential rate, EIA, 08. 2010)
  • Efficiency loss based on module warranty (20% after 25 yrs.)
  • After FIT (avoided cost) calculation (28% marginal tax rate)
  • Residual value at 25 years: 10X annual savings
  • All cash; no leverage
  • Twenty-five years present value rate of return
  • NO REBATE !!

IRR calculation table

IRR calculations graph
*These are the primary variables for determining a present value rate of return for your PV system.  Your actual return will be more or less depending on site characteristics and your actual system performance.  Remember, Quality Counts!

I recently attended a North Dallas Chamber of Commerce Energy Forum with a panel comprised of local utility executives.  The Chairman of Atmos Gas, a large Texas-based natural gas utility, while expounding the virtues of producing natural gas by fracking tight shale rock formations from South Texas to the Adirondacks Mountains of New York, assured the audience of a 100 year supply of natural gas for electricity generation.  Really, 100 years?  In the Q & A, when asked about renewable energy, the notion was summarily dismissed with an authoritative response that renewable energy was ‘5 or 6 times’ more expensive than conventional resources.  Really?  Mr. Chairman, do the math please.

Chet Boortz, CEO

SES21 USA

[The comments, positions, and opinions stated above are my own and may or may not represent those of SES21 USA and its affiliate companies.]

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