Impact of Different Economic Performance Metrics on the Perceived Value of Solar Photovoltaics

Abstract

NOTICEThis report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof. Executive SummaryPhotovoltaic (PV) systems are installed by several types of market participants, ranging from residential customers to large-scale project developers and utilities. Each type of market participant frequently uses a different economic performance metric to characterize PV value because they are looking for different types of returns from a PV investment. We find that different economic performance metrics frequently show different price thresholds for when a PV investment becomes profitable or attractive. Additionally, several project parameters, such as financing terms, can have a significant impact on some metrics [e.g., internal rate of return (IRR), net present value (NPV), and benefit-to-cost (B/C) ratio] while having a minimal impact on other metrics (e.g., simple payback time). As such, we find that the choice of economic performance metric by different customer types can significantly shape each customer's perception of PV investment value and ultimately their adoption decision.In this analysis, we characterize PV economic performance for three ownership types: residential customers who purchase their own PV systems, commercial customers (for-profit companies) who purchase their own PV systems, and residential and commercial customers who lease PV equipment or buy PV electricity from a third-party company. We characterize the differences in PV economics for each customer based on the different tax implications of ownership. We do not characterize PV economics for large-scale PV developers or utilities because they frequently use complex project financing structures (Harper et al. 2007) that are beyond the scope of this analysis.We compare PV economic returns for different PV customers using the following economic performance metrics:• Net present value (NPV)• Profitability index (PI)• Benefit-to-cost (B/C) ratio • Internal rate of return (IRR)• Modified internal rate of return (MIRR)• Simple payback and time-to-net-positive-cash-flow (TNP) payback • Annualized monthly bill savings (MBS)• Levelized cost of energy (LCOE).We characterize relative PV economics for each metric over a range of system characteristics, including PV ...

Analyzing the impact of environmental variables on the repayment time for solar farms under feed-in tariff

“…Combining the above information with the figures quoted in (International Energy Agency 2009) and (Drury et al 2011), where average annual PV system costs was reported as $3.85/W and $3.91/W respectively, we believe it is reasonable to assume the costs of PV modules and installation are $4.00/W in this case study.…”

“…The methodology used here is broadly consistent with that used in other broadly similar studies such as (Kirby and Davison 2010;Drury et al 2011;Davison et al 2012); no exact comparison study to this has been published. We also test the robustness of these results via the following parameter sensitivity study.…”

“…Within the DCF framework, the repayment time is a common metric to characterize the economic performance of industrial projects. Some papers (Drury et al 2011;Sidira and Koukios 2005) use time-to-netpositive-cash-flow (TNP) payback time which is similar to the repayment time idea used in this paper. The repayment time is the earliest time at which a project is able to repay all of its debt.…”

“…NPV or DCF analyses are standard ways to evaluate investment profitability. For example, both (Drury et al 2011;Pappas et al 2012;Rehman et al 2007;Borenstein 2008) used NPV as an indicator in their economic analysis.…”

Economic Evaluation of High-Concentrator Photovoltaic Systems

“…Then some methods commonly used to assess the economic profitability analysis of investment projects in renewable energies are reviewed [8,10,52,57,60,61]. Namely, expressions to calculate the IRR, the net present value (NPV), the benefit-to-cost ratio (BCR), and the discounted payback time (DPBT) are proposed.…”