# W4_SSD_Installation of Rooftop Solar Photovoltaic

1. Problem Recognition, Definition and Evaluation

With increasing electricity rate, I am planning to install a photovoltaic solar panels system on my house. I want to investigate which PV arrangement will provide me with a good investment. For that I use the tool mentioned in Engineering Economy Engineering Book, chapter 5, Introducing Concept of Minimum Attractive Rate of Return (MARR) and Internal Rate of Return (IRR), page 178-211,

The electricity price increases is shown at Figure 1.

Figure 1. Electricity rate increase (WA Gov. Department of Finance)

Electricity rate is currently at 25.9052c per kW, with supply fee of 43.2072c per day.

Typical electricity consumption in my house is following Table 1.

 Electricity Consumption Day (kWh) Night (kWh) Total (kWh) 3 7 10 Annually days Annually Nights Total (kWh) 1,095 2,555 3,650

Table 1. Electricity consumption

So, the electricity cost is as per Table 2.

 Annual fix electricity cost: \$ 157.71 Daily electricity cost \$ 2.59 Day time annual elect cost \$ 283.66 Night time annual elect cost \$ 661.88 Annual electricity cost \$ 1,103.25

Table 2. Electricity cost

In average the sun is shining 6 hours per day or 2,190 hours per year. As the PV system does not include batteries, so it only works during day time, where any excess of generated energy will be exported to the grid. The feed in tariff is 20c per kWh.

The MARR is selected at 13% per annum, which is equal to my credit card interest rate.

2. Development of feasible alternatives

The alternatives are as follow:

1. Install 1.5kW system
2. Install 2kW system
3. Install 5kW system

For each of the alternatives, the PV systems characteristic is as per Table 3.

 System Capacity (kW) 1.5kW 3kW 5kW No of panels (ea) 6 12 20 Panel capacity (kW) 0.25 0.25 0.25 Total panel capacity (kW) 1.5 3 5 Panel installation cost \$ 3,002 \$ 5,162 \$ 8,083 Daily PV Output (kWh) 9 18 30 Internal use (kWh) 3 3 3 Export (kWh) 6 15 27 Avg Annual PV Output (kWh) 3,285 6,570 10,950 Internal use (kWh) 1,095 1,095 1,095 Export (kWh) 2,190 5,475 9,855 Annual Maintenance Cost Checking panels \$ 150 \$ 150 \$ 150 Panel cleaning (ea) \$ 20 \$ 20 \$ 20 Total maintenance cost \$ 270 \$ 390 \$ 550

Table 3. PV systems characteristic

The PV system capacity is degraded by 0.05% each year. The PV life time is 30 years. The inverter needs to be replaced every 10 years. The inverter cost is about 25% of the overall installation cost.

3. Development of outcomes for each alternative

The cash flow for each of the alternatives is shown in Figure 2, 3, and 4.

Figure 2. Cash flow for Option 1

Figure 3. Cash flow for Option 2

Figure 4. Cash flow for Option 3

4. Selection of Criterion

Based on MARR of 13%, I like to see which PV systems will give me a good return with minimum investment. It means that with Feed-in-Tariff income, I can cover all my electricity cost. This can be seen from the system which give IRR > MARR.

5. Analysis and Comparison of the Alternatives

IRR can be calculated manually using formula IRR = i(1) + {(i(2)-i(1) x NPV(1)}/{NPV(1) + NPV(2)}, or using MS Excel IRR fuction. In this case MS Excel function is used.

The IRR for Option 1 is -12%. The IRR value for Option 2 is 22%, while the IRR for Option 3 is 34%.

6. Selection of the Preferred Alternative

As Option 2 and 3 are significantly bigger compare to the MARR = 13%, then it is either Option 2 or Option 3. As the investment required for Option 2 is cheaper than Option 3 than Option 2 should be selected.

7. Performance Monitoring and the Post Evaluation of Result

The simulation is based on a system where PV is only used during day time. Meanwhile most of the load is actually happen at night. Investigating application of energy storage to the system will be quite interesting.

References

Government of Western Australia Department of Finance. (n.d). Electricity prices. Retrieved from http://www.finance.wa.gov.au/cms/content.aspx?id=14703

Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2012). Engineering Economy (15th Ed.) (pp.180-185). New Jersey, United States: Prentice Hall.

Solar Choice. (September 8, 2013).Solar PV Price Index–September 2013. Retrieved from: http://www.solarchoice.net.au/blog/solar-pv-price-index-september-2013/

Blanch, C. (Aug 26, 2013). Hidden cost of rooftop solar: Who should pay for maintenance? In RenewEconomy. Retrieved from: http://reneweconomy.com.au/2013/hidden-cost-of-rooftop-solar-who-should-pay-for-maintenance-99200

Synergy. (n.d). Prices & fees. http://www.synergy.net.au/at_home/prices.xhtml

Filed under Sadat SD, Week 04

### 8 responses to “W4_SSD_Installation of Rooftop Solar Photovoltaic”

1. AWESOME case study Pak Sadat and you would have easily gotten 5 stars except for TWO very small but very critical MISTAKES…… Which is why I had to REJECT this weeks posting…..

#1) When you analyzed the electricity costs, you should have projected them into the future so that the the projected rates in the future (using your curve MATCHED EXACTLY with the time frame of your analysis._ (See Engineering Economy, Chapter 6)

Explained another way, assuming you were to purchase and install the solar panels on October 1st, and you expected a 30 year life, then you would have to project the increased electricity rates out for 30 years as well….. (Which should actually make your calculations even better!!)

#2) You used 13% as MARR when what the 13% really represents is the Weighted Average Cost of Capital or WACC. For a project of this kind, is using the WACC acceptable or are there other risks or opportunity costs you should take into account? For more on this, read over Pak Arif’s recent blog postings showing how he calculated MARR for a mining project, or go to the last classes blog and see the great work that Ibu Lita did in writing her CCC/E paper on what should the MARR be in Indonesia.

As this is such a great case study, what I would urge you to do is go back to Engineering Economy and read over Chapter 6, which talks about the importance of matching the expenses and cash flows over time against the revenues or savings. Then you need to turn to pages 310, 526 and 529-533 and understand the difference between WACC and MARR.

Then come back and using the same case study, RECALCULATE the IRR, NPV, ERR and simple payback period but this time, make sure you match the projected COST OF ELECTRICITY out over the life span of the Solar Panels.

IF you do all this, you should be able to claim credit for questions from Chapters 3 (for your cost estimating model) Chapter 5 (for IRR, ERR, NPV and Payback Analysis), Chapter 6 (comparison between alternatives) and perhaps even Chapter 13. (WACC vs MARR)

Bottom line- I really hate to reject such a great case study but there is so much more you could and should be doing with this. Try again but if you have any questions, PLEASE don’t be malu to ask for help or suggestions from your team…… Pak Arif in particular is very competent with all this and can help you.

BR,
Dr. PDG, Jakarta

• Dear Pak Paul,
Firstly, thank you for your prompt response.

For your first comment, I actually has incorporated the increase of electricity price in my calculation. I showed it in the calculation of PV internally used electricity. It is assumed that there is no increase on electricity usage in my household over the period (1,253kWh) of 30years, but the electricity price is increasing around 6% over the time (example: \$482 in year 0, \$600 in year5, \$2245 in year 30). The calculation can be seen in the table at Figure 2, 3, and 4 (which unfortunately is very small to read). Further, I also have to consider the decreased capacity of the PV, which reduced my ‘ addditional income’, because I need to fulfill my household’s need first before I can export my energy, and getting power from the grid is more expensive than the FiT.

For your second comment, I also used Pak Arif’s blog on LCHA and Pak Asyhad’s blog on Laundry Project as reference as well. I guess the most important part that I missed, which was Pak Arif got his investment fund from bank loan, while Pak Asyhad used his own money. When we get money from other source of investment fund beside our own pocket, that is is when the WACC should be considered (at least, this is how I see it after reading Pak Hadi’s and Pak Wirawan’s as well). So, I guess I’ll try to follow pak Arif’s foot step more closely then.

My intention is using this case study to calculate IRR, ERR, NPV, Payback Analysis, multi-attribute decission making (when selecting the PV system and installer). But I’m planning to do it in several blogs.

Again,
merci beaucoup, Monsieur

• Hi Pak Sadat, my concern was you didn’t show the calculations on your cost estimating model projected into the future……

How did you know it was 6%? Was that just an assumption or did you find a “best fit” curve and using that to determine the future cost of electricity?

Basically, what I want to see you being able to do is extrapolate data into the future using one of the “best fit” curve features of Excel. Not only will you see a problem like this on your AACE Exams but this is an incredibly useful tool to master for use in your real world working experiences…..

BR,
Dr. PDG, Jakarta

2. arifpermana

1. I just have b’Lita paper, i can send it to you. It shows the calculation for MARR
2. You can also go to you tube and see the video tutorial from mbabullshit.com…WACC topic

Bonne chance et neu peut pas attendre de voir ce blog finition
Arif Permana

3. Pak Sadat, I cannot find your W4.1 submittal. I got an email saying you had posted it, but when I go to the site, I cannot find it to comment on/grade….??? Can you repost please?

Thanks!!

BR,
Dr. PDG

• Dear Pak Paul,
Sorry for creating some confusion. I uploaded my 4.1 blog last Thursday, but I unpublished the blog not long after. I then republished my 4.1 blog on Saturday.

• OK, let me look for it again….

4. That is very interesting data, I will start researching about installing solar panels, my roof has 25 square meters… how many do you tink I have to spend to cover all roof?