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.]

Advertisements

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 logo

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.

 

Estimated power output of a high quality PV system over 40 years

Estimated power output of a high quality PV system over 40 years

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.]

Where Am I?

You are currently browsing entries tagged with Rate of return at ses21usa.

%d bloggers like this: