Economic Evaluation of PV systems in Jordan المــــركــز الوطنــــــي لبحــــــوث الطـــاقــــــة National Energy Research Center

Economic evaluation of PV systems in Jordan   Eng. Firas Alawneh Head of Photovoltaics Division National Energy Research Center Amman-Jordan firas.alawneh@nerc.gov.jo

Outline Description of LCC LCC Calculation Capital Cost Maintenance Cost Energy Cost Replacement Cost Salvage Value The Time Value of Money (TVM) Concept Case Study – Comparison between two PV systems in Jordan Q & A

Description of LCC Doing a life-cycle cost analysis (LCC) gives the total cost of your PV system - including all expenses incurred over the life of the system. There are two reasons to do an LCC analysis: to compare different power options to determine the most cost-effective system designs. An LCC analysis allows the designer to study the effect of using different components with different reliabilities and lifetimes. For instance, a less expensive battery might be expected to last 4 years while a more expensive battery might last 7 years. Which battery is the best buy? This type of question can be answered with an LCC analysis.

Description of LCC - continued Some might want to compare the cost of different power supply options such as photovoltaics, fueled generators, or extending utility power lines. The initial costs of these options will be different as will the costs of operation, maintenance, and repair or replacement. A LCC analysis can help compare the power supply options. The LCC analysis consists of finding the present worth of any expense expected to occur over the reasonable life of the system. Any item must be assigned a cost. Also, the competing power systems will differ in performance and reliability. To obtain a good comparison, the reliability and performance must be the same. This can be done by upgrading the design of the least reliable system to match the power availability of the best. In some cases, you may have to include the cost of redundant components to make the reliability of the two systems equal. For instance, if it takes one month to completely rebuild a diesel generator, you should include the cost of a replacement unit in the LCC calculation. A meaningful LCC comparison can only be made if each system can perform the same work with the same reliability.

LCC Calculation The life-cycle cost of a project can be calculated using the formula: LCC = C + Mpw + Epw + Rpw - Spw where, pw: subscript indicates the present worth of each factor. C: represents the capital cost of a project M: represents maintenance costs over the life of the system E: represents the energy cost of a system over the life of the system R: represents replacement cost over the life of the system S: represents the salvage value of a system

Capital Cost (C) The capital cost (C) of a project includes the initial capital expense for equipment, the system design, engineering, and installation. This cost is always considered as a single payment occurring in the initial year of the project, regardless of how the project is financed. Cash Flow Diagram time C

Maintenance Cost (M) Maintenance (M) is the sum of all yearly scheduled operation and maintenance (O&M) costs. Fuel or equipment replacement costs are not included. O&M costs include such items as an operator's salary, inspections, insurance, property tax, and all scheduled maintenance. Cash Flow Diagram time M C

Energy Cost (E) The energy cost (E) of a system is the sum of the yearly fuel cost. Energy cost is calculated separately from operation and maintenance costs, so that differential fuel inflation rates may be used. Cash Flow Diagram time E M C

Replacement Cost (R) Replacement cost (R) is the sum of all repair and equipment replacement cost anticipated over the life of the system. The replacement of a battery is a good example of such a cost that may occur once or twice during the life of a PV system. Normally, these costs occur in specific years and the entire cost is included in those years. Cash Flow Diagram time M E R C

Salvage Value (S) The salvage value (S) of a system is its net worth in the final year of the life-cycle period. It is common practice to assign a salvage value of 20 % of original cost for mechanical equipment that can be moved. This rate can be modified depending on other factors such as obsolescence and condition of equipment. Cash Flow Diagram S time M E R C

The Time Value of Money (TVM) Concept Future costs must be discounted because of the time value of money. One JD received today is worth more than the promise of one JD next year, because 1 JD today can be invested and earn interest. Future sums of money must also be discounted because of the inherent risk of future events not occurring as planned. Several factors should be considered when the period for an LCC analysis is chosen. To discount future costs, a discount rate is selected for an LCC analysis which has a large effect on the final results. It should reflect the potential earnings rate of the system owner. Different discount rates can be used for different commodities. For instance, fuel prices may be expected to rise faster than general inflation. In this case, a lower discount rate would be used when dealing with future fuel costs.

Single Present Worth To discount future costs, the following formula below can be used. This formula gives the single present worth of a future sum of money in a given year at a given discount rate, such as a battery replacement in year 7 of a project. P = F/(1 + I)N where , P: represents single present worth F: represents future sum of money N: represents a year I: represents discount rate Discount Rate = 8% 0 1 2 3 4 5 6 7 8 9 10 time Discounted P = 1750.47 JD F = 3000 JD

Uniform Present Worth To discount annually recurring costs, such as the annual fuel cost of a generator, the below formula calculates the uniform present worth of an annual sum received over a period of years at a given discount rate: P = A[1 - (1 + I)-N]/I where, P: represents the uniform present worth A: represents the annual sum received N: represents a period of years I: represents the discount rate Discount Rate = 8% 0 1 2 3 4 5 6 7 8 9 10 time Discounted Sum A = 300 JD P =2013.02 JD

Life Cycle Cost (LCC) The Life Cycle Cost (LCC) represents the total cost of the project over the life cycle of the system. LCC = C + Mpw + Epw + Rpw - Spw Cash Flow Diagram S time M E R C Discounted LCC

Using Net Present Value (NPV) Function of Microsoft Excel Calculates the net present value (present worth) of an investment by using a discount rate and a series of future payments (negative values) and income (positive values). Syntax: NPV(rate,value1,value2, ...) Rate   is the rate of discount over the length of one period. Value1, value2, ...   are 1 to 29 arguments representing the payments and income.

Using Net Present Value (NPV) Function of Microsoft Excel Examples of single (Cash Flow 1) and uniform (Cash Flow 2) present worth for two different discount rates Discount Rate 8% Year Cash Flow 1 (JD) Cash Flow 2 (JD) 1 300 2 3 4 5 6 7 3000 8 9 10 SUM (JD) NPV (JD) 1,750.47 2,013.02 Discount Rate 10% Year Cash Flow 1 (JD) Cash Flow 2 (JD) 1 300 2 3 4 5 6 7 3000 8 9 10 SUM (JD) NPV (JD) 1,539.47 1,843.37

Case Study Two houses in Jordan, the first house consumes 5,000 kWh/year and the second house consumes 20,000 kWh/year. Determine the feasibility of utilizing PV in each house through the applied net-metering law in Jordan? = ~ Loads kWh Meter Connection Point Utility Grid PV Inverter

Step 1: Determine the monthly consumption of each house: House 1: 5,000 kWh/year /12 months = 417 kWh/month House 2: 20,000 kWh/year /12 months = 1667 kWh/month Step 2: Calculate the monthly consumption cost per house: House 1: 160*0.033+140*0.072+117*0.086 = 25.442 JD House 2: 160*0.033+140*0.072+…+667*0.259 = 284.763 JD 2014 – 2017 Tariff: 2014: 33:1-160, 72:161-300, 86:301-500, 114:501-600, 152:601-750, 181:751-1000, 259:>1000 2015: 33:1-160, 72:161-300, 86:301-500, 114:501-600, 163:601-750, 194:751-1000, 271:>1000 2016: 33:1-160, 72:161-300, 86:301-500, 114:501-600, 175:601-750, 209:751-1000, 285:>1000 2017: 33:1-160, 72:161-300, 86:301-500, 114:501-600, 188:601-750, 224:751-1000, 296:>1000

Step 3: Determine the allowed PV capacity for each house House 1: (417 kWh/month) / 130 kWh/kWp/month = 3.2 kWp House 2: (1,667 kWh/month) / 130 kWh/kWp/month = 12.8 kWp Note: 130 kWh/kWp/month represents the annual average of monthly specific energy yield for a 1 kWp grid connected PV system in Jordan as issued by the Electricity Regulatory Commission (ERC) in year 2012.

Step 4: Determine the cost for PV system in each house House 1: 3.2 kWp x 1200 JD/kWp = 3,840.00 JD House 2: 12.8 kWp x 1200 JD/kWp = 15,360.00 JD Note: 1 kWp PV system installed in Jordan costs around 1200 JD

Step 5: Determine annual savings for each house House 1: 25.442 JD/month x 12 months/year = 305.046 JD/year House 2: 284.763 JD/month x 12 months/year = 3,417.156 JD/year Step 6: Determine Simple Pay-back Period for each system: House 1: 3,840.00 JD / 305.046 JD/year = 12.6 years House 2: 284.763 JD / 3,417.156 JD/year = 4.5 years

Conclusion PV is more feasible for high consumptions!

Q & A