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Economics

January 2, 2023 Author No Comments

In situations where the price charged per kWh of electricity is lower if monthly electricity consumption remains below a certain, having a grid-connected PV system can ensure consumption from the grid remains below this level.

Electricity purchased from the grid remains in the lower tariff band through the month. The PV system produces enough electricity to ensure that this is the case, even when overall electricity consumption is higher. The size of the PV system will depend on the load profile, solar irradiation and tariff arrangements. A net-metering arrangement would normally be used.

Utility tariff structures can be complex. For example, it may be the case that if monthly electricity consumed is above a certain level, then the higher tariff will be charged for all the electricity consumed or alternately, only for electricity consumed above that level. The price of electricity per kWh could also differ at different times during the day. Therefore, a clear understanding of utility tariff arrangements is required so that the solar system delivers optimum cost-saving and does not produce more electricity that is required.

Daytime electricity can also be reduced by the use of low-energy and energy-efficient electrical appliances, and replacing electric water heating with a solar water heating system.

Economics

January 2, 2023 Author No Comments

Often, electricity purchased from the utility is charged at a higher tariff when electricity consumption goes above a certain level. When it is below this level, the standard tariff is charged. A grid-connected PV system can be sized to produce enough electricity to ensure that electricity consumption never goes above the level at which peak tariffs are charged. The size of the PV system will depend on the electricity demand profile, solar irradiation and tariff arrangements. A net-metering arrangement would normally be used.

Graphical representation of sample electricity consumption during the day where a peak tariff is charged when electricity consumption exceeds a certain amount

In situations where daytime electricity prices are higher than at other times, a grid-connected PV system can be used to replace this expensive grid electricity with electricity generated by a grid-connected PV system.

Most of the solar electricity is generated during the time period when electricity from the grid is most expensive. The size of the PV system will depend on the load profile, solar irradiation, and tariff arrangements. A net-metering arrangement would normally be used.

Utility tariff structures can be complex. For example, in addition to a higher tariff above a certain level of electricity consumption, the cost of electricity per kWh could also differ at different times during the day. Therefore, a clear understanding of utility tariff arrangements is required so that the PV system delivers optimum cost savings and does not produce more electricity than is required.

Peak daytime electricity can also be reduced by the use of low-energy and energy-efficient electrical appliances, and replacing electric water heating with a solar water heating system.

Economics

January 2, 2023 Author One Comment

Offsetting the electricity consumption of a building means that instead buying all the electricity needed from the grid, a grid-connected PV system is installed to cover part of the electricity needs. However, such a system can usually not provide all of the electricity needed. For instance, this is the case at night or when the solar irradiation levels are insufficient.

Metering configuration for offsetting electricity consumption. Meter stops running when solar is producing enough power for the building. Other configurations are possible.

Offsetting is similar to net metering except that there are no payments for any electricity exported to the grid. The PV module array should therefore be sized so that it does not produce more electricity than is needed.

Offsetting makes sense when the cost of electricity per kWh produced by the system is less than the cost of a kWh purchased from the grid and most electricity is consumed during the day. However, a system can also be sized to cover constant daytime loads, such as cooling fans or other equipment.

The meter must be suitable. Some meters can register electricity exported as electricity consumed, and add it to the electricity bill. Inverters with a ‘zero export’ function are available to ensure that no electricity is exported (which might not be permitted by some utilities).

Economics

January 2, 2023 Author One Comment

The break-even point refers to when the investment in a solar system is paid off meaning the system has ‘paid for itself’ and starts generating income if it is selling to a grid. The concept applies to every type of grid-connected system. For an off-grid system, this is when it starts producing electricity ‘for free’ (apart from maintenance costs).

When exactly the break-even point occurs depends on many factors that vary depending on the type of system, such as:

Initial capital cost of all system components, including the costs of planning, shipping, installation, testing and commissioning.
Cost of finance (interest rates).
Operational and periodic costs, such as replacing inverters, batteries and other equipment which has a shorter life than PV modules, and other incidentals.
Maintenance costs (preventive, predictive and corrective).
Costs associated with grid outages for back-up systems providing security of supply.
Price at which electricity is sold to the grid (for grid-connected systems).
Price of electricity purchased from the grid if it is being replaced by electricity generated by the PV system.
For off-grid systems, savings associated with not using a diesel generator (fuel, generator, servicing).
For off-grid systems, savings associated with not connecting to the grid (this can be very expensive in remote areas, or may not be even possible).
Annual solar irradiation at the site.
Rate of system degradation as system components age over time and system losses increase (electricity production decreases).
The service life of the system and the related performance ratio, which depends on the quality of design; sizing and planning; quality of the components used, and quality of the installation; quality of maintenance; and the previous two points.

Example of cost and payback structure with break-even point for a solar power plant selling electricity to the grid. This will be similar for many grid-connected systems. Estimating the break-even point for grid-connected systems which offset electricity normally purchased from the grid and/or have batteries to provide energy security will be more complex. This will also be the case with many off-grid systems.

The investment in a PV system, can be seen as upfront purchase of a quantity of electricity for a specified time period at a more or less predetermined price.

Economics

January 2, 2023 Author One Comment

The electricity generated by large solar power plants – in the MW range and connected to the medium-voltage transmission network – is usually sold directly to an electric power utility via a power purchase agreement (PPA). This is a legal contract defining pricing and conditions of sale, often including the agreement to purchase all the power produced by the solar power plant. The selling party usually needs to be registered as an independent power producer (IPP), a status which may require a range of technical, legal and financial criteria to be fulfilled, depending on the country and local regulations.

Metering arrangement for a solar power plant.

Tendering schemes for power purchase agreements are common. In tendering schemes, solar power producers place bids (usually for a particular project). The bidder offering the lowest PV electricity price, and who also meets other defined criteria, is awarded a long-term power purchase agreement. Conditions will vary from country to country.

Economics

January 2, 2023 Author One Comment

Grid parity is the point when it becomes cheaper to generate electricity with a solar electric system than to buy it from the grid. It is reached when the levelised cost of a kWh of electricity produced by a PV system is equal to the cost of a kWh of electricity purchased from the utility grid.

Grid parity depends on:

The level of solar irradiation
The cost of the system installed
The local retail price of electricity

Reaching grid parity means that it is just as economic to purchase and install a solar system and utilise the solar electricity than it is to purchase electricity from a utility company which supplies electricity produced from conventional energy sources. Installing PV modules on a roof can therefore be considered a sound investment, providing electricity at a price-level competitive with local grid prices. Also, whereas grid electricity prices from conventional energy sources are typically increasing annually, PV delivers electricity at a price that will not change over the entire life of the system.

Grid parity is reached when it becomes cheaper to produce electricity with one’s own PV system rather than to purchase it from the grid.

Grid parity may occur earlier for residential and small-business consumers than for commercial and industrial users. This is because the price of electricity for commercial and industrial users, who consume a lot of electricity, may be lower than the price paid by smaller consumers, who consume less electricity.

Additionally, some countries subsidise fuels such as diesel. Where electricity is produced from a diesel generation, the price the consumer pays does not represent the real cost of electricity.

Economics

January 2, 2023 Author No Comments

The levelised cost of electricity (LCOE) is the average cost of a kWh of electricity produced over the working life of an energy generating. To calculate it, the total cost of the system (upfront and total running costs) is divided by the estimated total amount of electricity which the system will produce over its working life.

The costs of a solar system can be categorised as follows:

Upfront costs, which include the initial capital cost of all the system’s components, including the costs of planning, shipping, installation, testing and commissioning. If the system is grid-connected, then upfront costs will also include equipment, services and fees associated with connecting the system to the electricity grid, as well as for arranging an electricity purchase agreement with a buyer and/or agreements with government agencies.
Total running costs, which include annual maintenance costs and incidentals.
Periodic costs, which must also be included because certain system components will reach the end of their working lives before the PV modules will. Inverters, for example, will need to be replaced at least twice as often as PV modules. In off-grid systems, batteries may need to be replaced several times.

How to calculate the levelised cost of electricity (LCOE) produced by a solar electric system. Interest payments and capital repayment on loads should be included in running costs.

The working life of system will depend on the system type. However, PV modules usually have 20 to 25 year warranties that guarantee that at the end of that period the PV modules will still be producing 80% of their original rated peak power output (Wp).

LCOE calculations also need to take into account the method of financing and the associated cost of capital. A certain rate of system depreciation must also be included in the calculation because as system components age over time, losses within the system increase, and its productivity decreases.

LCOE is also useful in comparing the cost of energy delivered from different generation plants with different technologies, such as those using fossil fuel, nuclear or renewables, with different cost structures and performance characteristics. For example, PV is characterized by high capital costs and low operating expenses. The LCOE indicator takes these differences into account and enables a direct comparison with fossil fuel power plants.

Economics

January 2, 2023 Author One Comment

Gross metering is a type of metering for grid-connected systems.

The total production of the PV array is metered and then fed directly into the grid. On-site loads are fed by consuming power directly from the grid. The installation includes two meters: one meter to measure the power generated by the PV system and sold to the grid, and one meter to measure power consumed from the grid. The system owner receives a payment (or a credit) for the PV power generated and a normal bill for the grid electricity consumed.

Meters for gross metering. There are two meters. All the electricity produced by the PV modules is exported. Other configurations are possible.

The payment rate (called a feed-in tariff or FiT) per kWh sold needs to be higher than the cost of consuming a kWh from the grid in order for the system to be attractive to the system owner. If the cost of consuming a kWh were higher than the feed-in tariff per kWh, it would make more sense to directly use the electricity generated and save on the electricity bill.

Economics

January 2, 2023 Author One Comment

Net metering is a type of metering for grid-connected systems.

Typically, only one kilowatt-hour meter is used, a two-way meter. This runs forwards when power is consumed from the grid and backwards when power is injected into the grid, or the meter has an import-export display. One kWh of PV power consumed means one less kWh that needs to be imported from the grid, thereby saving the system owner the cost of one kWh from the grid. The money saved by generating one kWh of PV electricity and the cost paid for one kWh of grid electricity are equal. In some schemes, system owners are not paid for any excess electricity they produce over and above their annual or monthly consumption; in other schemes they are paid for this excess power.

Net metering occurs when electricity is exported only when an excess is being produced by the PV modules. Other configurations are possible.

Net metering makes sense in situations where the cost of generating PV electricity is lower than buying it from the public grid (e.g. where tariffs during midday may be higher than during other times of the day).

Intro

June 9, 2019 Author One Comment

What is photovoltaics?

Photovoltaics (PV) is the technology which generates electricity directly from sunlight via the photoelectric effect. A photovoltaic module (also called a PV module or a solar module), which is made up of photovoltaic cells, transforms solar energy into direct current (DC) electricity. Another solar energy technology is solar thermal. Solar thermal uses solar energy to generate heat rather than electricity.

Left: Photovoltaics – sunlight is converted into direct current (DC) electricity.

Right: Solar thermal – solar energy generates heat, e.g. hot water.

Electric systems which use photovoltaic modules are referred to as photovoltaic systems, PV systems or solar electric systems.

The electricity generated by photovoltaic modules can be fed into the electricity grid, stored in batteries for later use, or used directly. The amount of electricity produced depends mainly on the number and size of PV modules installed, and the solar irradiation where the solar electric system is located.

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