The Cost Benefit of Solar for Small and
Medium Enterprises
Dr Tadhg S. O’Donovan
Overview
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Scottish Institute for Solar Energy Research (SISER)
Assessing the economic viability of Renewable Energy
The Feed-In Tariff (FIT) and the Renewable Heat Incentive
Thermal Storage
Funding Opportunities on the Horizon (2020)
Levelised Cost of Energy (LCOE)
Techno-Economic Modelling of Energy Conversion Devices
Total Lifecycle Cost (Currency)
LCOE 
Total Lifetime Energy Production (Whrs)
Levelised Cost of Energy (LCOE)
Expanding the LCOE equation in basic categories gives:
𝐿𝐶𝑂𝐸 =
𝐼𝑐 +
𝑁
𝑛=1(𝑂
+ 𝑀)𝑛 +
𝑁
𝑛=1(𝐸𝑝 )𝑛
Where:
N = The life of the project
n = Year n
𝐼𝑐 = Initial Costs
𝑂 + 𝑀 = Operation and Maintenance Costs
F = Financing
𝐸𝑝 = Energy Produced
𝑁
𝑛=1(𝐹)𝑛
Initial Costs
Important Factors to consider:
𝐿𝐶𝑂𝐸 =









System Components Cost
Installation Costs
Labour Cost
Overheads
Permitting and Commissioning
Land Cost
Site Preparation
Connection and Transmission Fees
Storage Costs
𝐼𝑐 +
𝑁
𝑛=1(𝑂
+ 𝑀)𝑛 +
𝑁
𝑛=1(𝐸𝑝 )𝑛
𝑁
𝑛=1(𝐹)𝑛
Operation and Maintenance Cost
Important Factors to consider:






Field repairs
Part Cleaning
Failure Rates
Storage Costs
Running Costs
Fuel Costs
𝐿𝐶𝑂𝐸 =
𝐼𝑐 +
𝑁
𝑛=1(𝑂
+ 𝑀)𝑛 +
𝑁
𝑛=1(𝐸𝑝 )𝑛
𝑁
𝑛=1(𝐹)𝑛
Operation and Maintenance
Costs are often taken as
percentage of the Initial Cost
and treated as an assumption.
Financing
Important costs to consider:
 Insurance
 Loan Payments
 Taxes
Important benefits to consider:
• Depreciation
• Investment Tax credit
• Feed in tariffs
• Government Incentives
𝐿𝐶𝑂𝐸 =
𝐼𝑐 +
𝑁
𝑛=1(𝑂
+ 𝑀)𝑛 +
𝑁
𝑛=1(𝐸𝑝 )𝑛
𝑁
𝑛=1(𝐹)𝑛
A key consideration in LCOE
calculations is the discount
rate.
Energy Produced
Important Factors to consider:






Rated Output
Capacity Factor
Geographical Location
Degradation Rate
Failure rates
Other losses
𝐿𝐶𝑂𝐸 =
𝐼𝑐 +
𝑁
𝑛=1(𝑂
+ 𝑀)𝑛 +
𝑁
𝑛=1(𝐸𝑝 )𝑛
𝑁
𝑛=1(𝐹)𝑛
Decommissioning
The cost to decommission a project is rarely considered in
LCOE calculations.
The costs can be high depending on the project.
The amount that can be salvaged at the end of the project
(land sale etc) should also be considered.
LCOE
A more realistic model for LCOE calculation would be:
𝐿𝐶𝑂𝐸 =
(𝐼𝑐 − 𝐿𝑜 ) +
𝑂+𝑀 𝑛
𝐿𝑃
𝑁
+
𝑛=1 1 + 𝑟 𝑛 +
+ 𝑟)𝑛
𝑛
𝑁 𝐼𝑛𝑖𝑡𝑎𝑙 𝑂𝑢𝑡𝑝𝑢𝑡 × (1 − 𝑆𝐷𝑅)
𝑛=1
(1 + 𝑟)𝑛
𝑁
𝑛=1 (1
Where:
Lo= Loan Amount
LP = Loan Payments
(D-S) = Decommissioning cost – Salvage potential
r = Discount rate
SDR= System degradation rate
(𝐷 − 𝑆)
𝑁
𝑛=1 (1 + 𝑟)𝑁
To install Photovoltaic Panels...?
A case study for a simple home installation of PV panels:
 Located in the East of Edinburgh, Polysun software was used
to simulate energy output for the TMY (Typical Metrological
Year).
 8 Sharp ND-R250A5 0.25 kWp panels were used with quotes
from local installation company EvoEnergy.
Equation Inputs
Section
Value
Initial Cost
£4262
Decommissioning
£997.50
Operation and Maintenance £582 (every replacement)
Energy Produced
1760 kWh
System Degradation Rate
0.5%
Discount rate
3.5%
Project Life
25 years
Losses
7%
Results
LCOEWithout
With Loan
LCOE
Loan
£3.00
£0.45
(£/kWh)
LCOE(£/kWh)
LCOE
£0.40
£2.50
£0.35
£0.30
£2.00
£0.25
£1.50
£0.20
LCOE
LCOE
£0.15
£1.00
£0.10
£0.50
£0.05
£0.00
£0.00
Grid Parity
Grid Parity
0
0
5
5
10
10
15
15
Year
Year
20
20
25
25
30
30
The loan
considered is a
10 year loan
with an interest
rate of 5.7% for
the whole Initial
Cost amount
Sensitivity Analysis-Assumptions
System
Degradation
LCOE
With
Loan Rate
Discount
rate
Operation
and Maintenance
£0.50
£0.60
£0.45
£0.45
£0.40
£0.50
£0.40
£0.35
LCOE
(£/kWh)
LCOE
LCOE(£/kWh)
(£/kWh)
£0.35
£0.30
£0.40
0.25%
2%
0%
0.50%
LCOE 3.50%
0.50%
0.75%
4%
1%
Grid Parity
1%
6%
1.50%
1.25%
8%
2%
1.50%
£0.30
£0.25
£0.30
£0.25
£0.20
£0.20
£0.15
£0.20
£0.15
£0.10
£0.10
£0.10
£0.05
£0.05
£0.00
£0.05
£0.00 0
£0.00
£0.00
0
00
5
5
55
10
10
10
10
15
15
Year
15
15
Year
Year
Year
20
20
20
20
25
25
25
25
30
30
30
30
A 2%
in
This
The
LCOE
is achange
major
will topic
the
discount
rate
of
increase
debate
by
within
5%
the
roughly
industry.
forwill
each
0.5%lead to
a 10% change in
increment
LCOE value.
However
the LCOE
will only change by
2% each increment
Sensitivity Analysis-Loan
Loan Year
£0.70
£0.60
LCOE (£/kWh)
£0.50
5 yr
10 yr
£0.40
There is a
11% rise in
the LCOE
value for
each 5 year
increment
15yr
£0.30
20 yr
£0.20
25 yr
£0.10
£0.00
0
5
10
15
Year
20
25
30
A 1% increase
in the interest
rate will lead
to a 4%
increase in the
LCOE value
Sensitivity Analysis-Energy Produced
Tilt Angle
1800
Energy Produced (kWh)
£0.50
£0.45
1750
£0.40
1700
LCOE (£/kWh)
Energy Prodcued (kWh)
1800
Orientation
Losses
1650
1600
1550
0
£0.35
£0.30
£0.25
£0.20
£0.15
£0.10
20
£0.05
40
60
80
This means that
every time the
energy produced
7%
1600
drops by 20 kWh
9%
1550
12%
the LCOE will
-20
0
20
40
60
80
15%
drop
by
1%
Orientation (0)
3%
1650
6%
-60
-40
East
£0.00
5
1700
0%
-80
Tilt Angle (0)
0
1750
10
The tilt angle makes little difference to the
LCOE as long as it is with the 200 to 600
region
15
Year
20
Each 3%
increment changes
the LCOE by 3.2%
West
25
30
The orientation will have little impact to the
LCOE if the system is 400 East or West of
South
Sensitivity Analysis-Project
Inverter
Life
Initial
Cost
£0.50
£0.60
£0.45
£0.50
£0.40
£3500
LCOE (£/kWh)
LCOE (£/kWh)
£0.35
£0.40
£0.30
£4000
5 year
£4262
10 year
£4500
15 year
£0.30
£0.25
£0.20
£0.20
£0.15
£5000
20 year
25 year
£5500
£0.10
£0.10
£0.05
£0.00
£0.00 0
0
5
5
10
10
15
15
Year
Year
20
20
25
25
30
As
expected,
the
The
life of thethe
solar
Changing
Initial
cost
can make
panel
can also
Inverter
Life
a largea difference
on
make
down large
to 5 years
the LCOE, around
difference
will each
increase
the
12%
increment
by outlives
12%
If LCOE
the panel
the 25 year
However
warranty
by 5
increasing
years
then the
LCOE
will life
inverter
decrease
7.5%
will onlyby
lead
to a 5% drop
30
Input
Worst
Case
Best
Case
Initial Cost
£4262
£4262
Decommissioning
£997.50
£997.50
£0.70
Inverter Life
10 years
15 years
£0.60
Inverter Cost
£582
£582
£0.50
Operation and
Maintenance
1%
0%
System
Degradation Rate
0.67%
0.25%
Other Losses
12%
2%
Discount Rate
3.5%
3.5%
Panel Life
25 years
35 years
Loan Year
10 years
5 years
Loan Rate
8%
4%
Findings
LCOE (£/kWh)
LCOE
£0.40
Best Case
Worst
Case
Grid Parity
£0.30
£0.20
£0.10
£0.00
0
5
10
15
20
Year
25
30
35
40
Feed-In Tariff
 Government Incentive for
Micro-generation (decreasing)
 Extra Incentive to Sell to Grid
(increasing)
Dates
Tariff p/kWh
Tariff (p/kWh)
Scale
Type / Rate
1 Apr 2010 - 31 Mar 2011
3 > 1/10/14
1 Apr 2011
≤4 kW- 31 Mar 2012
Higher rate
1 Apr 2012
≤4 kW- 31 July 2012
Medium rate
3.1
3.2
14.38
1 Aug
- 31 Mar 2013
>42012
- 10kW
Higher rate
1 Apr>42013
- 31 Mar 2014
- 10kW
Medium rate
1 Apr
2014
- 31 Mar 2015
>10
- 50kW
Higher rate
4.5
4.64
4.77
13.03
12.94
11.73
12.13
>10 - 50kW
Medium rate
10.92
>50 - 150kW
Higher rate
10.34
>50 - 150kW
Medium rate
9.31
>150 - 250kW
Higher rate
9.81
>150 - 250kW
Medium rate
8.9
≤250kW
Lower rate
6.38
>250kW - 5MW
≤5MW
6.38
Standalone
6.38
Thermal Energy Storage
Renewable Heat Incentive
Case Study Conclusions
 The length of loan, discount rate and initial cost have a large
effect on the LCOE value for a solar PV system.
 The much debated topic of system degradation rate does not
greatly effect the LCOE value.
 If the system ran as well as it could then it would reach close
to grid parity.
Overall Conclusion
 Using the standardised equation with the factors discusses, a
reasonable LCOE value can be calculated.
 The assumptions used in the equation can vary location to
location, however there is a range they should be inside.
 All assumptions must be clearly stated on any LCOE value in
order to make a fair comparison between projects.