In order to estimate the overall cost of the photovoltaic system, it is necessary to analyze the relative costs of each component of the system. System costs will vary significantly with regions and local photovoltaic markets (larger markets with many different companies participating, and high competition will enable them to provide lower prices). The main costs associated with photovoltaic systems are as follows:
·Investment cost: The purchase cost of all system equipment such as the earliest photovoltaic modules and system balancing components accounted for about 80% of the total cost of the system. Currently, photovoltaic modules are the most expensive equipment, but inverters are also very valuable; grid-interactive inverters are priced at US$500-2000/kW. Smaller inverters commonly used in residential buildings are also the more expensive inverters in the entire series, because such inverters are smaller. In some regions, power companies are forced to provide photovoltaic system users with free net energy metering methods (as in most states in the United States), and there is no charge for new meter installations; but in regions where there is no similar policy (such as Australia), it is usually required Purchase a new meter for the system. The remaining 20% of the system cost is used for the actual installation project (not including the small maintenance cost to be carried out).
·Maintenance cost: Maintenance cost is about 1% of system cost. Maintenance should be carried out every 6-12 months; if the components and inverter are installed correctly, the maintenance cost will be very low. Photovoltaic arrays should be used continuously for at least 20 years, and most of the modules have a warranty period of 20-25 years, so if they fail prematurely, they can usually be replaced or repaired for free. The inverter may need to be repaired during its life cycle. The inverter generally comes with a 5-10 year warranty, and the warranty can be extended for another 5-10 years.
·Replacement cost: PV modules are expected to last at least 25 years, and most system components are expected to last at least 20 years. Some system components may not be as durable as photovoltaic modules and will need to be replaced. The inverter’s warranty usually lasts for 5-10 years, but when it fails during this period, most of the cases can be repaired. It is not common for a properly installed inverter with reasonable capacity to eventually fail, but it is possible. The designer should ask the manufacturer about the expected life cycle of the inverter installed in the system. If it is less than the expected life of the system, the replacement cost should be included in the cost. Other components that may need to be replaced include monitoring equipment, bypass diodes, cables, plugs/sockets, etc. Protection against chemical elements and wild animals will extend the life of these devices, and therefore can reduce such costs.
1. Determine the value of photovoltaic systems
Determining the value of photovoltaic systems is an important process, which allows comparisons between systems. For the assessment of the capital cost of the photovoltaic system, the preferred method is USD/W as the unit, so that only the initial cost of the system is required. The following formula is used to calculate the cost (USD/W):
USD/W=[Preliminary Cost of Photovoltaic System (US$)]/[Rated Peak Power of Photovoltaic System (W)]
This method is only used for upfront costs. At present, this is a standard method for comparing system and equipment costs in Europe, and it is becoming more and more common in other parts of the world.
2. Static investment payback period and financial subsidies
Photovoltaic system is a kind of investment, usually need to calculate the recovery time, that is, the number of years for the system to recover its own cost. The following will discuss how to calculate the payback period and the financial subsidy policies that can shorten the payback time.
① Static investment payback period
The easiest way to test the economics of grid-connected photovoltaic systems is the static payback period. People are usually interested in the payback period of installation projects. This can be calculated using the following formula:
Time (year)=[Investment cost (USD)]/[Saved electricity cost (USD)]
The 1kWp grid-connected photovoltaic system has an annual output of about 1200kWh. The current system cost is $6000.00. The average cost of electricity for residents is US$0.15/kWh, so the annual electricity savings will be US$180 (1200 × 0.15). The static investment cost recovery time is T=6000 USD/180 USD=33 years.
② On-grid electricity price
Feed-in Tariff (FIT) is a kind of financial incentive for the electricity generated by photovoltaics to be fed into the grid. It is equal to the retail electricity price or greater than the retail electricity price (called enhanced FiT). FIT funding usually comes from surcharges in all electricity bills. Small photovoltaic systems generally have great success in places with FIT, such as Germany: However, in order to encourage the sustainable growth of the photovoltaic industry, the stable support of FT is very important. Recently in Spain and Australia, the government implemented FiT, but cancelled the policy a year later. There are two different ways of FIT:
·Total electric energy FiT: All electricity generated by photovoltaics is subsidized by FIT, regardless of whether it is used in the user’s residence or not.
• Net power FiT: Only the photovoltaic power output to the grid receives FT. Certain net electric energy FiT is FiT based on time of use, that is, when the user leaves the house during the day, when the photovoltaic system generates electricity, the user receives FiT subsidies (even if the user uses more electricity at night than the electricity generated during the day). Other net electric energy FITs are subsidized according to the total amount of electricity generated minus the total amount of electricity used, that is, it does not matter when the electricity is used.
③ Capital deduction
The capital offset is a financial incentive policy whose intention is to reduce the upfront cost of the photovoltaic system and is usually a one-time payment. Such incentive policies are often effective for small photovoltaic systems on the roofs of residential or urban buildings. Capital deduction can significantly shorten the recovery time of the system, but it generally only lasts for a short time. Therefore, it is very important to confirm whether the capital deduction policy is effective before the system is installed. Such information should be available from the power company or local government, state government, or federal government.
The capital deduction policy generally rewards installed capacity, which is calculated according to the installed price (USD/W). The Solar Energy Engineering Subsidy Program of the Tennessee Solar Energy Research Institute is a typical case. The price list for the deduction of funds applicable to photovoltaic systems is as follows. The plan has a budget of 9 million U.S. dollars. When the funds are exhausted, the program will be stopped, and the maximum subsidy amount is also limited to 245,000 U.S. dollars.
④ Tax incentives
In some regions (especially the United States) there are tax incentives, which include tax credits and tax exemptions, which can be based on investment costs (system and/or installation costs) or based on system power generation. Tax incentives may be related to many different taxes, including property taxes, sales or goods and services tax (CST), personal income tax, import tax, and corporate income tax. Tax incentives may be a preset amount, a percentage of the total cost, or a quota per unit of electricity output.
For the purchase of photovoltaic systems, many institutions provide interest-free or low-interest loans. Such loans are sometimes called green loans. The main cost of the photovoltaic system is the initial purchase cost. The loan program is set up to enable those who lack funds to become photovoltaic system owners. Such loans are generally provided by banks, public utilities, and the government. Loans are used in most parts of the world, including in developing countries.
4. Renewable energy quota system and renewable energy certificates
Renewable energy quota system (RPS) policy is a common government policy whose intention is to increase investment in renewable energy, especially for large-scale systems. In the renewable energy quota system policy, the government sets a renewable energy power generation target, generally in the form of a certain percentage of the power generated by renewable energy on a specific date. For example, California’s RPS target is to account for renewable energy power generation by 2020. Than 33%. In most RPS policies, large power generation companies are required to comply with and prove that they meet the targets, so they must issue a Renewable Energy Certificate (REC). Typically, a renewable energy certificate represents 1MWh of electricity generated from renewable energy. The renewable energy certificate is the most commonly used certificate in the federal states that implement the RPS policy in the United States; the renewable energy obligation certificate (ROC) is used in the United Kingdom; the large-scale power generation certificate (LGC) and the small-scale technology certificate are authorized to be used in Australia ( STC), the type of certificate depends on the scale of the renewable energy system, and the RPS policy is treated as LGC and STC separately. This requires public utilities to provide a sufficient number of RECs that can cover the renewable energy generation required in the year. In the RPS policy of some states in the United States, RECs can be traded on an open market, called a circulating renewable energy certificate (TREC), and public utilities may have a restriction on the number of TRECs. There is no such difference in other policies of countries such as Australia, and all LGC and STC can be traded on the open market. Some policies also allow some RECs to be retained for future use. Photovoltaic systems will produce RECs. If owners are not restricted by the RPS policy to provide RECs, they can sell RECs to public utilities. Sometimes this is called a Solar Renewable Energy Certificate (SREC). Small photovoltaic systems can only produce a dozen RECs per year, but for large-scale centralized photovoltaic systems, selling REC is a very important part of ensuring the profitability of the system. The price of REC will fluctuate in the open market. The higher the price of REC, the better the economics of investment.