PV economics

System size

10 kW

Column 1

Column 2

Column 3

Column 4

Column 5

Column 6

Net system cost

\$30,000

End of year

PV energy yield

1500 kWh/kW/year (doesn’t include annual PV performance degradation)

Cumulative energy generation (kWh)

Electricity tariff (c/ kWh)

Annual cost saving

System cost to client

Electricity tariff

20c/kWh at time of installation

Cumulative cost rate to client (or levelised cost of energy, c/ kWh)

Electricity tariff escalation rate

6% per year

0

0

20

0

\$30,000

Table 1. Illustrative PV system parameters used to model energy and value analyses.

1

15,000

20

\$3000

\$27,000

180

2

30,000

21.2

\$3180

\$23,820

79.4

3

45,000

22.5

\$3371

\$20,449

45.4

4

60,000

23.8

\$3573

\$16,876

28.1

5

75,000

25.2

\$3787

\$13,089

17.5

6

90,000

26.8

\$4015

\$9,074

10.1

7

105,000

28.4

\$4256

\$4818

4.6

8

120,000

30.1

\$4511

\$308

0.3

9

135,000

31.9

\$4782

-\$4474

-3.3

Table 2. Variation of energy and value over time for PV system with installed parameters described in Table 1.

the system. However, after year 1 the PV system has paid back \$3000 to the client (in saved electricity tariff), and hence the system now ‘owes the client’ \$30,000 - \$3000 = \$27,000. Each year the PV system saves the client an increasing electricity tariff; hence, the net system cost to the client keeps reducing. • If we look at the ratio of what the system has cost the client to the net energy it has created over the same time interval, we get a levelised cost of energy figure that decreases with time, as shown in Column 6. For example, after year 1, the system has cost the client \$27,000 and created 15,000 kWh of energy; hence the LCoE

is \$27,000/15,000 = 180c/kWh. After year 2, the system has cost (or ‘still owes’) the client \$23,820, for a net energy creation of 30,000 kWh, or an LCoE of 79.4 c/kWh, etc. If we plot the annual change of both electricity tariff and the LCoE of the PV system (given in Table 2) on the same graph, we get Figure 1. We see two critical points emerge from Figure 1: 1. The falling LCoE (blue) curve eventually intersects the rising price of electricity (red) curve, at the point of the cost parity period, or CPP. The CPP represents the point at which the cumulative energy created by the PV system has cost the client the same

as if the client had bought the same quantity of electricity from the grid. The LCoE from the PV system only keeps decreasing beyond this point, and the PV system effectively ‘beats the grid’ with its cost of electricity. 2. The LCoE curve falls further over time, to eventually cross over the LCoE = 0 axis, at which point the PV system has paid back to the client the complete cost of the system, and we understand this to be the typical (simple) payback period of the investment. For the example shown in Figure 1, we find a payback period of eight years for the system, but a cost parity period of only 4.4 years. This means that after 4.4 years, the client is obtaining electricity for a cheaper price from their PV system than they can buy it from the grid.

Assumptions

Figure 1. Plot of levelised cost of energy and electricity tariff over time for an example PV system.

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The operating assumptions behind this modelling assume: • All of the PV electricity is used onsite and displaces electricity cost at the grid tariff. • Progressive PV module performance degradation (generally ~0.7%/year) is not included (although this will make only a small difference to the overall outcome). • C osts of borrowing, maintenance, depreciation and general time-value-

Feb/Mar 2015 - Sustainability Matters 35

Sustainability Matters Feb/Mar 2015

Sustainability Matters is a bi-monthly magazine showcasing the latest products, technology and sustainable solutions for industry, governmen...

Sustainability Matters Feb/Mar 2015

Sustainability Matters is a bi-monthly magazine showcasing the latest products, technology and sustainable solutions for industry, governmen...