Rethinking grid-connected PV economics Cost parity period
Dr Glen Johnston, Director, LAROS Technologies
Typical analysis of PV system economic viability usually assesses net present value of the PV plant capital expense and running costs in comparison with an alternative investment offering a specified rate of return, or ‘discount rate’.
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rid-connected PV plants should be assessed against a different type of competing ‘investment’ - the grid electricity tariff - as PV plants are a power generation system that are most often considered as a cost mitigation element for the grid they are connected to. When viewed this way, a different economic model emerges that assesses the period of time it takes for the value returned from a PV system in relation to the energy it has generated equals, or subverts, the grid electricity tariff: the cost parity period.
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34 Sustainability Matters - Feb/Mar 2015
Simplified model The concept of cost parity period is most easily grasped when described with a working example. Overall, we wish to understand how the PV system value changes together with the cumulative energy it creates, and how the specific energy cost - the ‘levelised cost of energy’ (LCoE) - changes in this value/energy equation. Consider the simplified model of PV value and cumulative energy generation over time for an illustrative PV system having the installed parameters shown in Table 1. Using the design parameters given in Table 1, we can generate a time-series list of how cumulative energy and value creation occurs for such a system, shown in Table 2. Interpretation of Table 2 proceeds as follows: • Column 1 shows the yearly progression against which energy and value are calculated (note that ‘end of year 0’ is just another way of saying ‘the beginning of year 1’). • Column 2 shows the annual cumulative energy generation - ie, after the first year, 15,000 kWh of energy will have been generated; after the second year, a total of 30,000 kWh of energy will have been generated by the system, etc. • Column 3 shows the electricity tariff that will be applicable to energy consumed (or displaced by the PV system). Note the annual increase in the tariff according to the tariff escalation rate. • Column 4 shows the annual electricity displacement cost saving provided by the PV system. • Column 5 shows the progressive (reducing) cost of the PV system to the client. For example, at the beginning of year 1, the system ‘owes the client’ $30,000, or the full purchase price of
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