RESIDENTIAL PHOTOVOLTAIC WORTH:
AN ASSESSMENT OF RETROFIT VS: NEW CONSTRUCTION
Thomas L. Dinwoodie
MIT Energy Laboratory Report No. MIT-EL 82-004
January 1982
ABSTRACT
This paper characterizes the basic differences between photovoltaic
retrofit and new construction applications. It quantifies the tradeoffs
forced by rooftop area constraints, special array mounting costs,
maintenance costs, energy loads of older homes, and available terms of
finance.
While the larger average energy loads of older hones tend to enhance
the value of retrofit applications, other conditions serve to enhance the
relative financial attractiveness of PV on newly constructed homes. New
construction applications benefit from more attractive financing terms,
lower installed system costs, enhanced efficiency with architectural
integration (appropriate orientation), and generally lower costs of
operation, maintenance and insurance.
Many of the differences characterizing these two applications may be
reduced or eliminated when retrofit PV systems are simply packaged,
vis-a-vis both long-term financing and easily installed hardware.
-2-
RESIDENTIAL PHOTOVOLTAIC WORTH:
An Assessment of Retrofit vs: New Construction
ABSTRACT .............
.............................
2
Table of Contents ................................... 3
I. Introduction.................................... 4
II. Engineering/Economic Tradeoff Assessments........ 5
III.
II.a
Available Rooftop Area..................... 5
II.b
Residence Energy Loads....................
II.c
System Costs..............................10
II.d
Means of Finance..........................14
Conclusions and Recommendations
6
................ 17
APPENDIX A:
Description of Financial Method........... 18
APPENDIX B:
Array Performance and Market/Financial
Parameters
.............................. 20
REFERENCES............................................ 23
-3-
RESIDENTIAL PHOTOVOLTAIC WORTH:
An Assessment of Retrofit vs: New Construction
Introduction
This paper addresses engineering and economic issues impacting
residential PV-retrofit installations.
The purpose is to highlight the
basic differences between photovoltaic retrofit (PVR)
construction (PVNC) applications.
and new
This paper is not intended to
replicate the several studies that have addressed PV cost goals and
financial analyses (2,5,7,8,9,10,13,14,15).
When estimating photovoltaic investment worth it is necessary to
characterize four conditions: 1) the power output of the system, which is
a combination of physical operating parameters and local insolation
conditions, 2) system costs, including capital, operation and maintenance
costs over the operating life of the system, 3) the finance terms of the
investment, accompanied by the prevailing market parameters (general
inflation rate, interest rates, etc.), and 4) the value of electricity
displaced or sold back to the utility.
Each of these conditions,
excepting the latter, is likely to be influenced according to iw'hether the
PV system is installed on part of an existing, rather than newly
constructed home.
Specific issues that impact PVR for the conditions above are analyzed
in some detail in the next section.
A set of conclusions and
recommendations for PVR applications provides a summlary to this
analysis.
The financial method that is employed in the quantitative
-4-
--- '
---
I
IIY*hhIIIIIi
II
UI
IIb
portion of this study, along with the array performance and market and
financial assumptions, are located in the appendices.
I. Engineering/Economic Tradeoff Assessments
The power output from PVR is likely to be distinguished from PVNC by
three primary considerations: design constraints, financing and the value
of electricity. Design constraints may impact PV system electrical output
and include such issues as the available rooftop area, array tilt angle
from the horizontal and the azimuth angle of roof slope. These may also
be responsible for higher capital and operating costs for the PVR system
in the form of increased insurance costs and the need for special support
structures (6). Financing is likely to cost more for PVR since standard
home mortgage terms are typically more attractive than shorter term
loans.
Finally, the value of electricity supplied from PVR is likely to
be greater than that from PVNC due to the typically higher electric loads
of older homes. The latter issue is less significant in those utility
systems with high buyback rates.
These conditions are explored in some detail in what follows.
II.a
Available Rooftop Area
During previous times of cheap energy supply no particular attention
was paid to the orientation of roof slope in housing design and layouts.
Thus the existing housing stock does not show a proportionately biased
-5-
,
ubl
ll
ihI
I
sample of existing homes that specifically incorporate large,
south-sloping rooftop surfaces. This mandates smaller, on average, array
sizes for PVR in those instances where PV array placement is restricted
to the house rooftop. The relationship of system break-even capital cost
(SBECC)
to array area for a Boston residence is depicted in figure 1.
The several lines indicate the impact of alternative utility buyback
rates upon system worth. High buyback rates yield linearly increasing
returns with array area, whereas medium (50-80%) and low (10-40%) rates
show optimum array sizes in the 60 m2 and 40 m2 ranges, respectively.
From the figure we see that a scale economy exists when buyback rates
exceed 60%, where the incremental electrical output fed back to the
utility more than pays for the added cost to achieve that output. The
2
increase in system value is steepest in all cases from zero to 40 m
array area.
II.b. Residence Energy Loads
In general, older homes consume more energy than newer Iiodel homes.
Thermal loads are greater due to deterioration or lack of insulation and
electrical loads may be slightly higher due to maintenance of older, less
efficient appliances (air conditioners, incandescent lighting,
circulation motors, refrigerators, etc.).
Figures 2 through 5 show the impact of larger energy loads on PV
system worth for varying collector sizes. Figure 2 addresses changes in
stochastic (non-thermal) electrical load whereas figures 3-5 exanine
changes in thermal load requirements when home heating is provided by a
-6-
WA
........
II
11111.
1iIlI
dliN b
lulii6
IIIN,II''
II
,Y 1l
Figure 1
System Breakeven Capital Cost vs: PV Array Area
(1980 Dollars)
Boston Residence
40% Federal ITC
400
I
i
I
Utility Buyback:
IiII
100%
300
80%
SBECC
($/m2)
60%
200
40%
100
0
1.,,IiI I , ,
)
20
I
I0
I
I
iI
40
Array Area (m2)
i0 I
I6I rl ,
60
ll !
80
l
- -
t,
1i0
I Y
l
Figure 2
Sensitivity to House Electrical Load
Gas Heating/Vapor Compression Cooling
1985 Residence
Utility Buy Rate 80% of Purchase Rate
350
300
SBE.C
(W1m )
250
200
2945
5890
8835
11780
14725
Annual House Electrical Load (kWh)
Figure 3
Sensitivity to House Thermal Load
Heat Pump Space Heating/Gas DHW/V.C. Cooling
1985 Residence
Utility Buy Rate 80% of Purchase Rate
350
1980 dollars
2
80 m
Array Area
300
40
SBE9C
($/m )
250
---
mm
200
,l 11
(11111111 111
1.0
1h111
1.5
LL ,
111 Ih
, III1
2.0
2.5
Annual House Space Heat and Cool Load Multiplier
(Multiplies Annual Space Heat Demand of 33 MBTU
Annual Space Cool Demand of 6 MBTU)
I---ww
m-
1
141I1w
hl
Figure 4
Sensitivity to House Thermal Load
Electric Resistance Space Heating/Gas DHW/V.C. Cooling
Utility Buy Rate 80% of Purchase Rate
350
300
SBECC
($/m2)
250
200
1.0
1.5
2.0
2.5
Annual House Space Heat and Cool Load Multiplier
(Multiplies Annual Space Heat Demand of 33 MBTU
Annual Space Cool Demand of 6 MBTU)
Figure 5
Sensitivity to House Thermal Load
Heat Pump Space Heating/Gas DHW/V.C. Cooling
350
'li
iiI
i Ill
I
l ill Itll iil
l TTl11 ill
1980 dollars
Array Area = 80 m
300
60
40
SBESC
($/m )
250
200
I I t 11
i
l.lt t
1.0
1 It
t 1lt
1.5
l
2.0
itl L L
2.5
Annual House Space Heat and Cool Load Multiplier
(Multiplies Annual Space Heat Demand of 33 MBTU
Annual Space Cool Demand of 6 MBTU)
mfliw'11Iml
heat pump, electric resistance and oil (or gas on an equivaltent $/btu
basis). As expected, higher l4ads with oil or gas heating result in no
change in PV system BECC, whereas allowable costs increase slightly
($5-10/m 2 ) under electric forms of heating.
II.c
System Costs
Differences in mounting and O&1 costs will distinguish the economlics
and configuration of PVR and PVNC.
Dividing the large fixed costs of a
PVR installation with the smaller average system capacity result in
higher system costs per unit capacity for the retrofit case.
Cox (6)gives a detailed treatment of the issues contrasting PVR and
PVNC system costs. Quoting the BHKR study (4), he breaks down the array
installation costs for each of the integral, direct, and standoff .ethods
of mounting. These costs are reproduced in figure 6. Integrally mounting
the array is almost an exclusive feature of new construction
applications.
The direct mount is typically reserved for PVNC as well,
where modules displace shingles by direct wIounting on Lhe roof sneatning.
The stand-off figures are for mounting above and roughly parallel to the
existing roof.
The anticipated difference in operation and i;rintenance costs are
again taken from Cox (6) and depicted in figure 7.
Insurance coverage
(liability and comprehensive) was estimated at the higher rate for PVR
due to greater perceived risk in adopting a rooftop to a purpose for
which it was not designed. The service costs include array cleaning,
where costs may be typically higher for PVR due to more difficult access
- 0l-
figure 6
Array Installation Costs (1980 $)
direct
integral
standoff
support frame
.08
.15
.19
installation
.20
.20
.09
mounting gaskets
.13
.07
.12
.01
sealant
roof bracing
U
flashing
--
-
--.
-.
08
08
total installation
.43
.49
.48
roofing credit
.24
.15
--
Final Installation range
.25--.47
.34--.55
.48--.70
figure 7
System O&M Costs
Present Value for
Yearly Cost
20-year annual payments
Insurance
PVNC
$.09/Wp
.24/Wp
PVR
Service
PVNC
$ 84-112
$.18-.23/Wp
PVR
120-160
.23-.32/Wp
*20 year life, 3% (real) discounting
figure 8
1986 PV Projected Costs
Low
Medium
High
1.08
Array
Purchase
.70
.70
Install
.27
.50
.66
Purchase
.19
.26
.98
Install
.04
.08
.04
System Design
.05
.10
.05
Power Conditioner
Total (non-O&M)
*taken from Cox (6).
1.25
1.64
2.75
Figure
Net Present Value vs: PV Array Area
(1980 dollars)
Boston Residence
40% Federal ITC
2000
Utility BBx80%
1000
Balance of System Costs - Low
NPV
(dollars)
-1000
dium
High
-2000,,,
0
,
,,1
II 111 11, 1, , ,t111111
1 , , ttII
,,
,l II,
20
40
Array Area (m2 )
60
80
100
and the likelihood that a greater amount of tree-born debris fills the
air of most older neighborhoods.
Comlponent costs with some fixed cost or scale economy serve to
increase the per unit capacity costs of the sraller PVR systems. These
include array wiring, power conditioning, system installation, inspection
and repair.
A summary of these system costs is shown in figure 8. The three cost
ranges assumed here include 1) the fower cost limit for 1986 PVNC, 2) the
lower cost estimate of 1986 PVR, and 3) the high estimate for 198u PVNC.
By injecting these costs into the financial model it was possible to
calculate the life-cycle investment return of these systems. This is done
over a parameterized range of costs as shown in figure 9. The analysis
assumed the market and financial parameters given in appendix B. T;ie
results show that, unless system costs are reduced well below those now
anticipated for PVR, such applications will not prove economic in Boston.
II.d
Means of Finance
The means of financing a retrofitted PV array iay differ from
typical new home financing. The options likely available to a homeowner
of either category include direct purchase, debt financing or leasing.
The direct purchase is in fact an extreme case of conventional debt
financing characterized by a 100% down payment. With s,stem purchase
costs in the range of $10,000 to $50,000, this option is seldom;i
exercised. It is anticipated that lease financing will be a
o.re
prevalent option for PVR. Since leasing terms would look very similar to
- 14 -
both retrofit and PVNC, and since the impact of lease financing upon the
financial viability of PV has been treated by Davis (7), it is not
studied further here.
Retrofit array investments will likely be characterized by larger
down payments, shorter loan lives, and slightly higher interest rates.
This assumes PVR is not embedded in a conventional home mortgage as would
be'PVNC. Figures 10 and 11 present the results of a sensitivity study
examining the impact of each of these variables. It is evident that the
length of loan and the interest rate for lengthier loans have the
greatest impact upon system worth.
- 15 -
Figure 10
Sensitivity to Loan Life and the Level of Debt F.nancing
40 m2 PV Array (1980 dollars)
Utility Buy Rate 80% of Purchase Rate
300
Loan Life = 20
200
15
SBECC
10
100
-
-5
5 --
1
I i 11l11Ii1
I
till
1111111 tl t1thl
111111 I I
0
I IIIL
1
1 1 1L1~1.
I1 1 l
Loan Down Payment (%)
Figure 11
Sensitivity to Loan Life and the Borrowing Rate
40 m2 PV Array
300
200
SBECC
100
0'
0
5
10
Loan Life (years)
15
20
III. Conclusions and Recoiuriendations
While the higher thermal and electric loads of older homes work to
increase the value of a photovoltaic array relative tu a less
energy-intensive, newly constructed home, numerous other forces serve to
increase the financial viability of PV for the latter. These include more
convenient and attractive financing terms, lower costs and enhanced
efficiency with architectural integration, and generally lower costs of
operation, maintenance, insurance, and system mounting and installation.
Also, with larger available rooftop areas the fixed costs are more easily
hidden, bringing down the cost per unit of installed PV capacity.
It can be shown from this analysis that certain attractive financing
terms can more than offset the disadvantage born by the sometimes costly
physical constraints associated with PVR. As a result, PVR will likely
prove viable when entrepreneurs can package PV systems to the homeowner,
both financially and as hardware. Financial packaging iiay occur through
lease arrangments or provision of long term financing. Hardware packaging
may occur when installation teams are trained to acco!odate alternative
roof structures to the ready acceptance of PV arrays using innovative,
low-cost support structures. It may also occur when PV systems can be
developed in so simple and modular a fashion as to allow for homeowner
installation, with sale out of local departent stores. The PV
"appliance" in this case may be likened to that of an electric range or
heat puiip, where only a lirited amount of outside labor is required, such
as for iiring and utility interconnection.
- 17 -
Appendix A: Description of Financial Method
Finance modeling was carried out on the Optional Energy Systems
Simulator (OESYS)(11) using a cash flow analysis of a standard homeowner
mortgage. The method used is depicted in figure A-1. Here we coripute the
system breakeven capital cost by determining that initial cost, I, where
the net benefits just equal zero. Simulating annual cash flows differs
from closed form solutions in its accountability of time varying
inflation, fuel escalation, tax rates, the treatment of investment tax
credits, and in determining tax benefits due to time-varying interest
charges. Comparison and assessment of the various homeowner finance
models currently being applied to photovoltaic investments is discussed
in Bottaro (1).
- 18 -
Figure A-i
Mortgage Finance Method
y-yb
NB =
-yb
Bt
-
y-yb
O4t + Gt
- Tt
t
(1 + r) . *y-yb
r
- P*I. D-
- (1 -TRt) Ft
+
(1 r)t. * y-yb
Pt
where,
NB =
net benefits to accrue to the project over its operating life
,y-yb =
general inflation multiplier computed for the current
calendar year y with respect to some base year yb.
capital escalator computed for the construction year with
respect to some base year.
O=
Ty-yb
=
real price escalator applied to displaced conventional energy
j (different rates applied to electricity, oil, gas, etc.)
during the current calendar year y with respect to some base
year yb
Btj =
returns to the project in year t in terms of the value of
displacing conventional energy of type j.
D=
percent down payment/100.
Gt =
investment tax credit allowed in year t
I -
initial capital cost
j =
denotes type of energy diplaced (electricity, gas, oil)
r=
mortgage life
L =
project life
OMt =
annual (in year t) operating and maintenance costs including
insurance costs.
r =
homeowners discount rate
t =
project year
Tt =
sum of taxes in year t
TRt =
homeowner's tax rate in year t
Ft =
mortgage interest charge in year t computed as
Ft = A - Pt,
A=
where;
annual mortgage payment, given by
A = I . (I - D) . (i/[l - 1/(l + i))N])
i
=
annual mortgage rate
Pt
=
payment required on the balance of principle in year t, from
Pt - i . BALt,
where
BALt = A [I - 1/ (1 + i) N-t+l] /i
Appendix B: Array Performance and Market/Financial Parameters
Figure B-1 depicts the simulated PV system component
characteristics. Figures B-2 and B-3 list the market and financial
assumptions impacting the system economic analysis. Those parameters
which are independent of the solar investment but which directly impact
the prospects for that investment are listed here as market parameters.
These include fuel and electricity prices for backup service,
time-varying escalation rates applied to these prices, the general
inflation rate and others. Figure B-3 also presents system annual costs
used in the breakeven capital cost analysis. The breakeven capital cost
figure represents the initial allowable system cost only.
- 20 -
Figure B-1
System Component Specifications
Glass thickness (cm)
encapsulant thickness
outermost substrate thickness (cm)
conductivity of glass (w/cm°C)
conductivity of encapsulent (w/cm*C)
conductivity of substrate (W/cm°C)
ra product of cell
toa product between cells
emissivity of glass
emissivity of back surface
packing factor (total cell area/gross cell area
IR absorptivity of glass
IR absorptivity of back surface
visible absaorptivity of roof
IR absorptivity of roof
emissivity of roof
reference cell efficiency
Eff. charge coefficient
reference temperature for ref cell efficiency (*C)
mounting angle from horizontal
.32
.15
.10
.0105
.00173
.01
.8
.75
.88
.9
.90
;99
.9
.6
.903
.903
.135
.0045
28.
latitude + 50
~~-.-;".
-- ---
-
------
--iY----------~ ..~-rr
Figure B-2
Base Case Market/Financial
Parameters and Annualized Costs
Market Parameters
Escalation in Home Heating Oil Prices (real)
Escalation in Gas Prices (real)
Escalation in Electricity Prices (real)
General Inflation Rate
Utility Buyback Rate
Electricity Rates (1980 Boston)
Fixed Charge
kWh Charge
Fuel Adjustment
Total
2%/year
2%/year
1%/year
12% in 1980, declining
linearly to 6% in 1986,
6%/year thereafter
.80
$1.17/month
3.95 C/kWh
3.905 ¢/klh
7.86 C/kWh
Figure B-3
Finance Parameters
1986
20 years
5%
35%
3%
10%
System Installation Date
System Lifetime
Homeowner Discount Rate (real)
Homeowner Tax Rate
Mortgage interest rate (real)
Down payment
Investment tax credit
Property taxes
40%
0
Annualized Costs
Cleaning and Inspection
PV-only system*
Maintenance
PV-only System
(Annual Cost)
$25 + $1.00/m2
(Present value at 5% discounting)
$13.00/m
2
.iP.,_
__
_~
REFERENCES
Bottaro, Drew, et.al. "Modeling Photovoltaic Worth: A Discussion of the
Issues and an Analysis of the Models," MIT Energy Lab Report, MIT
EL-8OXXX, Forthcoming.
Buerger, E.J., et.al. "Regional Conceptual Design and Analysis Studies
for Residential Photovoltaic Systems," Technical Volume II. General
Electric.
Burns, William Allen, "A Model for Residential Demand of Electric
Appliances," Undergraduate Thesis, Department of Urban Studies and
Planning, MIT, Cambridge, MA, May, 1980.
Burt Hill Kosnar Rittleman, "Operation and Maintenance Cost Data for
Residential PV Modules/Panels", 1980 DOE Report #DOE/JPL/955614-80/1.
Caskey, David L., et.al. "Parametric Analysis of Residential
Grid-Connected Photovoltaic Systems With Storage", SANDIA Lab Report No.
SAND79-2331, March, 1980.
Cox, C.H. III, "Residential Photovoltaic System Costs," MIT Lincoln
Laboratory, Report No. DOE/ET/20279-96. January, 1980.
Dinwoodie, T.L., "Flywheel Storage for Photovoltaics: An Economic
Evaluation of Two Applications," MIT Energy Lavoratory Working Paper, MIT
EL-80-002, February, 1980.
Dinwoodie, T.L., and Kavanaugh, J.P., "Cost Goals for a Residential
Photovoltaic/Thermal Liquid Collector System Set in Three Northern
Locations," MIT Energy Laboratory Report No. MIT-EL 80-028, October 1980.
Dinwoodie, T.L., and Cox, A.J., "The Impact on Photovoltaic Worth of
Utility Rate Reform and of Specific Market, Financial, and Policy
Variables," MIT Energy Laboratory Report No. MIT-EL 80-025, September
1980.
Dinwoodie, T.L., "OESYS, A Simulation Tool for Non-Conventional Energy
Applications Analysis, Theoretical and Operational Description With User
Documentation," MIT Energy Lavoratory Report No. MIT-EL 80General Electric Space Division, "Applied Research on Energy Storage and
Conversion for Photovoltaic and Wind Energy Systems," Final Report,
Volume I: Study Summary and Concept Screening and Volume II: Photovoltaic
Systems with Energy Storage, January 1978.
- 23 -
General Electric Space Division, Regional Conceptual Design and Analysis
Studies for Residential Photovoltaic Systems," Volume I: Executive
Summary, January 1979.
Hoover, E.R., "PV/T Combined Collector Study," In a memo addressed to
D.G. Schueler, SANDIA Lavoratories, February 25, 1980.
Russell, Miles C., "Solar Photovoltaic/Thermal Residential Systeins,"
Report Number C00-4577-9, MIT Lincoln Laboratory, December 28, 1979.
- 24 -
Work reported in this document was sponsored by the Department of
Energy under contract No. EX-76-A-01-2295. This report was prepared
as an account of work sponsored by the United States Government.
Neither the United States nor the United States Department of Energy,
nor any of their employees, makes any warranty, express or implied,
or assumes any legal liability or responsibility for the accurary,
completeness, or usefulness of any information, apparatus, product
or process disclosed or represents that its use would not infringe
provately owned rights.
- 25 -