Economic Evaluation of Domestic Grid-Connected Photovoltaic
Systems
Kame Khouzam and Ronelle Tibaldi
Queensland University of Technology
Research Concentration in Electrical Energy
School of Electrical and Electronic Systems Engineering
2 George St., Brisbane, Queensland 4000, Australia
Tel. 61-7-3864-2483, Fax. 61-7-3864-1516
E-mail. k.khouzam@qut.edu.au
Abstract
Electric utilities throughout Australia are required to offer tariff incentives and technical
guidelines for interconnection of renewable energy sources to the grid. Under current
conditions, it is technically feasible to introduce small-scale roof-top grid-connected
photovoltaic systems with and without battery storage. Economic analysis have shown that the
electricity tariff structure for PV and other renewables needed a major change to allow a
reasonable and acceptable pay-back period if PV is to become an attractive investment to
home owners. The introduction of net metering as an incentive in addition to a reduction in
initial system cost will make the investment more viable.
1
INTRODUCTION
Grid-connected PV systems offer several advantages over stand-alone systems including savings on wiring
costs due to the capability to use existing wiring in the building, the removal of the need for storage batteries
as the grid provides a backup and the possibility of selling surplus electricity. Using a battery may also
improve the reliability to the system owner in case of a power failure. In Australia, individual utilities
impose their own regulations on the specifications required for grid interconnection. A national set of
guidelines is also being developed under the auspices of the Electricity Supply Association of Australia
(ESAA, 1997) and is available via their web site. The metering and tariff structures for energy transfer are
set by the utilities.
It is noted, that public awareness of the possibility of residential generation systems is quite low, due to the
intrinsic perception that these systems are costly and also due, to some extent, to a lack of encouragement by
way of advertising and incentives. From the utilities perspective, there are additional costs, inconveniences
and administration involved which can be seen to outweigh any small financial benefit from buying power at
a low price. Furthermore, a marginal loss of system control may be suffered with each additional embedded
generator (Shah, 1994).
The benefits of grid-connected schemes may be seen as expressing concern for the environment, energy
credit associated with reductions in fuel consumption and an opportunity to participate in an emerging
technology (Martel and Usher, 1994). The importance of these benefits should not be discounted, as new
methods (Farmer et al, 1994), in measuring the value of distributed PV generation concluded that there is
evidence to prove that non-traditional benefits are measurable and significant. An update of current resource
planning practices is required if distributed resources are to receive the proper credit.
From an investor viewpoint economic attractiveness is a prime requisite for the adoption of a PV system. A
number of studies were conducted to assess the economic feasibility of renewable energy sources (Hoff et al
Economic Evaluation of Domestic Grid-Connected PV Systems
K.Khouzam and R.Tibaldi
1991, Davies et al 1994, and Machias et al 1992). Machias and Skikos (1992) used net present value,
internal rate of return and payback period as models in their fast economic assessment using fuzzy set theory.
Davies and Cabraal (1994) used net present value analysis as a figure of merit in the least costs analysis of
renewable energy projects. Hacker et. al (1993) found that tariff structures may include fixed periodic
charges, for administration and rental of the meters, and these recurring charges are likely to be significant
compared to the cost saving arising from PV generation.
The economic analysis performed is based on the net present value and the payback period as these figures
of merit are most required when making an investment decision. These parameters are recommended by the
OECD (1991) for the economic analysis of renewable energy technologies. The results are based on the
tariffs set by the Southern Electricity Retail Corporation (trading under SEQEB). A net metering tariff is also
being investigated in this paper.
2
TARIFF STRUCTURE FOR RENEWABLES
Table 1 gives the tariffs that exist for the purchase and sale of electricity to and from SEQEB. The SEQEB
Electricity Purchase Agreement sets out the parameters of small-scale renewable energy systems as stated in
Table 2. The rated parameters may be altered by prior agreement.
Table 1. Electricity tariffs for domestic consumers in south-east Queensland.
Type and code
Daily availability
Monthly charges
Tariff 11: Purchase of Domestic light
Continuous
15.14 cents/kWh for first 100
and power
kWh,
Tariff 31: Purchase of Super Economy
Night Rate
Tariff 33: Purchase of Controlled
Supply
10 pm - 7 am
At least 18 hours
Sale of energy, Peak / Off-Peak Rate
Peak period: 7 am - 9
pm Monday - Friday
Sale of energy, Flat Rate
Continuous (7 days)
10.29 cents/kWh for next 300
kWh,
9.18 cents/kWh for remainder;
$6.80 minimum payment
4.25 cents/kWh;
$4.25 minimum payment
6.22 cents/kWh;
$2.80 minimum payment
9.3 cents/kWh,
other times 3.3 cents/kWh (off
peak)
5.8 cents/kWh
Table 2. Export energy requirements for small scale renewable sources (SEQEB 1997).
Maximum Rated Capacity of renewable source
1.4 kW-peak
Minimum Availability of source
0%
Maximum export energy per day
10 kWh
Maximum voltage variation
240 ± 6%
3
COST PARAMETERS
PV system sizes ranging from 0.5 to 10 kWac PV-inverter output were investigated for each of which the
cost was calculated using the parameters in Table 3. Not included in the cost analysis are the possible costs
for the calculation of fault level at the feeder which may be required by SEQEB, or the costs of any other
investigations SEQEB may have to undertake on behalf of the installation and must be paid by the owner.
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Economic Evaluation of Domestic Grid-Connected PV Systems
K.Khouzam and R.Tibaldi
Table 3. Cost data for PV and battery system.
Item
Cost
PV Modules, BOS & installation
$6.50 per Watt
Inverter: rating > 2 kW
$1 per Watt
rating < 2 kW
$2000
Battery & installation
$70 per kWh
Meter (buy/sell tariff)
$350
Meter (net tariff)
$50
Annual O&M Costs
$0.10 per Watt
Discount rate or loan interest rate
0.1
Energy price inflation rate
0.05
O&M costs inflation rate
0.04
4
SIMULATION RESULTS
Figure 1 shows a typical average residential load connected to SEQEB. The data are extrapolated from the
1993 Domestic Electricity End-Use Study. This does not include energy used during off-peak (Tariffs 31 or
33). The curve has a cumulative daily load close to 12 kWh. Results are obtained for each of the following
system scenarios:
1. (a) A grid connected PV system with buy / sell metering (selling at Peak/Off-Peak rates); and
(b) Same system as in (a) but using the Flat Rate selling tariff (5.8 cents/kWh).
2. A grid connected PV system with net metering, whereby the net energy is calculated and charged at the
same general purchasing tariffs. (This structure is common in many US states).
3. A grid interactive battery system. A 3 kWh battery is charged under Tariff 31 (lowest rate) in off peak
times and the stored energy is used to supply local load and sell excess energy to the gird in peak times.
The resulting costs in this system are calculated using the separate buy/sell tariffs. This system does not
employ a PV array.
4.
4.1
A combined PV and battery charging system which uses the buy / sell tariffs.
Scenarios 1 and 2: A PV System on Different Tariffs
Figure 1 shows the residential load and the output of a 1.5 kWac PV system. The results of the daily energy
flows are given in Table 4 for different system size.
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Economic Evaluation of Domestic Grid-Connected PV Systems
K.Khouzam and R.Tibaldi
Figure 1. A typical average household load and a 1.5 kWac PV system.
Table 4. Energy flow (kWh) for PV system and load.
PV Size (kW)
Import
Export
Total PV
PV Ü Load
0.5
8.411
0.325
3.82
3.495
1
7.42
3.157
7.642
4.485
1.5
6.94
6.489
11.46
4.971
2
6.686
10.054
15.274
5.22
4
6.476
25.116
30.548
5.432
6
6.361
40.276
45.822
5.546
8
6.324
55.517
61.096
5.579
10
6.292
70.752
76.37
5.618
The results for the monthly (30 days) cost of electricity for each system, with and without PV under the
buy/sell tariff, the continuous tariff and the net metering schemes are listed in Table 5. The results show that
the option of a continuous flat tariff of 5.8 cents/kWh is of less economic value compared to the peak/off
peak tariff. Note that the values in Table 5 that are in bold text, will be affected by the minimum monthly
fee. It is shown that the maximum size of the PV system in each tariff system (columns 3, 4 and 5) before
being penalised by the minimum monthly fee are 1.75 kW, 2.05 kW and 1.35 kW. The lowest corresponds to
using net metering scheme.
Table 5. Monthly electricity charges for different tariff system.
PV System Size
No PV
PV on Buy / Sell
PV on Flat Rate
(kW)
Tariff
Sell Tariff
0.5
$41.56
$30.02
$30.20
1
$41.56
$20.41
$22.21
1.5
$41.56
$11.24
$14.93
2
$41.56
$2.22
$7.95
4
$41.56
-$33.10
-$18.91
6
$41.56
-$68.31
-$45.64
8
$41.56
-$103.43
-$72.28
10
$41.56
-$138.53
-$98.88
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Proceedings of Solar ’97 - Australian and New Zealand Solar Energy Society
PV on Net
Metering
$29.76
$17.96
$2.05
-$15.30
-$84.66
-$154.04
-$223.43
-$292.78
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Economic Evaluation of Domestic Grid-Connected PV Systems
4.2
K.Khouzam and R.Tibaldi
Scenario 3: Battery Charging/Discharging
Figure 2 shows the load curves for a grid connected system consists of a 3 kWh battery that is charged
during off-peak times, at Tariff 33, then used to supply the local load and sell excess energy in peak times.
The battery and charger losses are estimated at 15% and the battery minimum SOS is 35%. This system
results in a monthly electricity bill of $38.40 rather than the $41.56 for a home with no energy storage or PV.
Figure 2. Load curves for battery and load scenario.
4.3
Scenario 4: A PV and Battery System
This system comprises a PV array and a battery charging / discharging system, charging at off-peak rates.
The energy flow results are summarised for each PV system size in Table 6.
Table 6. Energy flow (kWh) for combined PV, battery and household load.
PV Size
Import to
Import to
Export to
PV and
Local →
(kW)
Household
Battery
Grid
Battery
Load
0.5
7.146
2.362
1.066
5.75
4.684
1
6.484
2.362
4.217
9.572
5.36
1.5
6.154
2.362
7.708
13.39
5.682
2
6.016
2.362
11.387
17.20
5.817
4
5.838
2.362
26.48
32.48
6.0
6
5.754
2.362
41.678
47.75
6.074
8
5.722
2.362
56.916
63.02
6.11
10
5.688
2.362
72.151
78.3
6.149
5
ECONOMIC ANALYSIS
Economic analysis has been performed using simple payback (PBP) period, which does not take into account
the time value of money. It does however give a clear estimation of the time it takes to recover the initial
investment. The pay back period is given by:
Pay Back Period (PBP) =
Initial Capital Cost
Annual Benefits − Annual O& M
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Economic Evaluation of Domestic Grid-Connected PV Systems
K.Khouzam and R.Tibaldi
Table 7 gives a summary of the results of the payback period for each scenario, illustrating that under the
current conditions only two systems, except the battery charging system alone, will pay themselves back in
the expected system lifetime of 25 years. These are the 8 kWac and 10 kWac systems under the net tariff
scheme. It must be noted however that these payback periods do not take into account the minimum monthly
charge, which would reduce the yearly savings considerably for the larger systems and hence further increase
the payback periods.
PV System
Size (kW)
0.5
1
1.5
2
4
6
8
10
Table 7. Results of payback period analysis for different scenarios.
PBP (yrs)
PBP (yrs)
PBP (yrs)
PBP (yrs)
Scenario: 1a
Scenario: 1b
Scenario: 2
Scenario: 3
62
63.5
56.7
14.6
56.5
65.4
45.7
14.6
55.6
69.6
35.6
14.6
48.3
63.9
26.5
14.6
60.9
90.4
26.4
14.6
62.3
98.4
25.3
14.6
63.4
103.
24.8
14.6
64.1
106.
24.5
14.6
PBP (yrs)
Scenario: 4
47.7
49.1
50.4
44.9
57.9
60.5
62
62.9
Life-cycle techniques is necessary for more accurate representation of a long term investment. In life-cycle
analysis the costs and benefits of the system over its entire operating lifetime are considered. The net present
value (NPV) is the difference between the present value of the total system and O&M costs and the present
value of total energy savings. An investment will be accepted if NPV is positive and rejected if it is negative.
The net present value is given by:
 1 + f
NPV = E A 
 d − f
where:
 1 + j
  1 + f  n  
1 − 
  − M A 
 d − j
  1 + d   
d = discount / loan interest rate,
f = energy price inflation rate,
j = O&M costs inflation rate,
  1 + j  n  
1 − 
   − CS
  1 + d   
(2)
CS = initial system cost
MA = annual O&M cost
EA = annual energy savings
The results given in Table 8 show that none of the scenarios studied can be considered a good investment as
all produced negative NPV’s. These results were calculated without consideration to the $6.80 minimum
monthly charge, which would further decrease the economic value of the investment.
Table 8. Results of net present value (NPV) analysis for different scenarios.
PV System
NPV
NPV
NPV
NPV
NPV
Size (kW)
Scenario: 1a
Scenario: 1b
Scenario: 2
Scenario: 3
Scenario: 4
0.5
-4228
-4259
-3882
-658.5
-3982
1
-6454
-6760
-5713
-1312
-6258
1.5
-8755
-9384
-6821
-1965
-8577
2
-9086
-10061
-5678
-2619
-8925
4
-22543
-24957
-13108
-5233
-22387
6
-34021
-37875
-18536
-7846
-33867
8
-45514
-50811
-23961
-10460
-45363
10
-57010
-63751
-29395
-13073
-56859
Sensitivity analysis has been performed to investigate the effect of system set-up cost on the pay back
period. The results show that a cost reduction of 75% will reduce the PBP to 14 years for the 1 kW system
under the net tariff. Larger systems ratings will have lower PBP. A 4 kW system will have the same PBP
under a 50% reduction in cost. Systems 4 kW and above will have PBP of about 17 years at 25% reduction
in system cost. Under existing tariff even a reduction in cost by 75% will not make the investment
economically viable.
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Proceedings of Solar ’97 - Australian and New Zealand Solar Energy Society
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Economic Evaluation of Domestic Grid-Connected PV Systems
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K.Khouzam and R.Tibaldi
CONCLUSION
The results show that under current conditions the pay back period for residential generation systems will not
make these systems economically viable. The net present value has been applied and consistent results are
obtained. A reduction in PV systems costs by about two-third accompanied by a change of the tariff structure
from buy/sell tariff to net metering, and considering other financial incentives, larger systems could come
close to paying themselves off within the system lifetime. One might also expect that the minimum monthly
charge may be waived at least until the electricity bill reduces to zero.
Further studies will be directed to other life-cycle cost analysis as well as sensitivity analyses of the cost
parameters in order to identify technical and economical scenarios which may favour the installation of
small-scale PV systems from the utility’s perspective. A research project addressing the technical and
economic feasibility of dispersed PV and battery systems as demand/supply side management tool will be
advantageous.
7
ACKNOWLEDGMENT
This project is supported by the Chair of Asset Management and the School of Electrical and Electronic
Systems Engineering.
8
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