www.palangthai.org/docs/MORE opalco PV feedin cashflow5Aug10.xls
Above is a link to a discounted cash-flow spreadsheet tool I've put together to help
determine:
1. what the OPALCO production incentive cap should be ($/kWh)
2. what the floor should be ($/kWh)
3. what the duration of the incentive (years) should be
The spreadsheet includes consideration of federal tax credit, interest
rate on loan, inflation of OPALCO's retail rates, and time value of
money (discount rate). The graphs shows cumulative cashflow each year
after installation. One graph is in nominal dollars. The other is
discounted (reflecting the time value of money -- cash in your pocket
today is worth more than a cashflow in the future). An economist would
consider the discounted graph more reflective of reality...
While the spreadsheet calculates simple payback period and the IRR (10
year, 15 year, 20 year), I think it's most instructive to watch the cash
flow and look at the year in which it becomes positive. That is, the
year in which the system has 'paid for itself'. I think it's reasonable
to aim for financial break-even by year 2020. With the assumptions i
used (capital cost $7.00/watt installed cost, loan interest rate 5%,
discount rate of 4%) this implies an OPALCO production incentive of
about $0.40/kWh.
If the OPALCO incentive is lowered to lower than about $0.25/kWh then
the system only pays (using discounted cashflow) for itself in 2028.
I would suggest these two make for useful cap/floor:
Cap = $0.40/kWh
Floor = $0.25/kWh
Duration: 10 years from installation
Of course, all this changes as you adjust assumptions. In the
spreadsheet, assumptions are highlighted with color. Yellow color are
more general assumptions. Red highlit cells are specific to the
production incentive amount and duration.
It's worth remembering that this spreadsheet represents somewhat of an
optimistic case in which the PV is installed in year 2011. Installs
after this have fewer years of the $0.15/kWh WA Dept of Revenue
production incentive to recapture the initial investment.
I invite you to plug in your own assumptions and play with it.
Note - this assumes household PV system with non-Washington state
inverter/panels. Wind systems, biomass, hydro, community systems, and
systems with in-state components will be different.
Cheers,
Chris
From John Bogart:
ReplyDeleteChris,
Thanks for your analysis of tariffs and paybacks, excellent work!. I have a
couple of comments as an individual member of the co-op, not as a Board member.
1. I disagree with the concept of a floor in the incentive formula that will be
guaranteed by co-op members for several reasons: disincentive for contributions
/ unfair to tax members for individuals solar/wind installations / long term
financial burden on OPALCO and its members.
2. I do agree with the cap to keep reserve funds to smooth incentive payments
over the years.
3. I believe a "buy all, sell all" approach is appropriate rather than a net
metering arrangement as your spreadsheet implies ( retail offset contribution)
. Reasons ... OPALCO's customer charge covers only 1/3 of the cost of service
to members, the rest being embedded in the energy charge. If the producer
'offsets the retail energy charge with self generated energy then the rest of
the membership is paying for his/her cost of service. Buy-all sell-all , gives
the producer the benefit of the incentive for all kWh produced and an additional
wholesale rate for the energy put into the grid.
4.I think the installed cost for a solar system is low ... my research indicates
about $9-10 per watt. Also the production figure seems high ... 1200 kwh
annually per kw installed implies the optimum conditions (no shading, correct
angle to the sun at all times, clean panels, etc.)
Again, thanks for the analysis. I'd be interested to hear your reasons for
including a 'floor' in the incentive and also the reasons for net-metering vs
buy-all sell-all
Cheers,
John
po box 461
shaw island, wa
98286
360-468-4642