Financial Return of Investment on solar energy
Realize the financial return on the investment. Most areas of
the country have net metering which allows the customer to sell
electricity back to the utility. In all cases, daylight consumption
is reduced by production from your own source. Therefore, the rate
of return is dependent on electric rates and rebates in your area.
Stabilize your costs.
Currently, consumption of electric power by the U.S. is growing at
2% per year. Nuclear power represents 20% of our power production
today, and will be reduced in the next two decades. Hydroelectric
production (from dams) is no longer growing, and represents 10% of
our production. With some limitations on coal plants, we are
increasingly dependent on imported oil and natural gas. The future
cost of electricity is unpredictable.
Produce your own power? The impact of even a small electric
system is significant. Your system is sold on the basis of peak
power. This is the power produced during bright sunlight (note that
you will also obtain power during cloudy days). The power produced
from your individual solar electric system is partly dependent on
the weather pattern. A 1 kilowatt AC system will annually produce
about 1300 kilowatt hours in upstate New York, and over 2000
kilowatt hours in many areas of the south and southwest.
Initial Capital Costs
Modular plants are attractive from an initial capital
cost perspective. First, fewer capital
resources are tied up for a shorter period of time in
the plant as it is under construction. This reduces the possibility
that the firm building the plant will get into financial difficulty
and may result in a lower rate of return required by investors.
Second, modular plants have off-ramps so that stopping a project is
not a total loss.
Investment reversibility is the degree to which a
completed investment is reversible. A reversible plant will have a
high salvage value should the plant owner need to remove the plant
for some reason (e.g., if the plant’s value becomes low in the
particular application). Modular plants are likely to be more
reversible than non-modular plants because they can be moved to
areas of higher value or used in other applications.
Examples are used to illustrate how to apply the
methods listed above; the more detailed
examples are as follows.
Municipal Utility Invests in Wind
This example compares a municipal utility’s decision
to invest in a wind plant versus a natural gas plant. The wind
investment results in a reduction in fuel price uncertainty, a
reduction in environmental cost uncertainty, and enables the utility
to respond to demand uncertainty using the wind plant’s modularity
and short lead-time. The example demonstrates that the inclusion of
these attributes can make the wind plant an economically attractive
Utility Extends Grid Using PV
This example describes a utility’s use of
customer-owned PV to expand its grid to non-grid-connected areas
when there is uncertainty about whether there will be sufficient
demand to justify an expansion. The modularity of PV enables the
utility to change a loss situation with an immediate grid extension
to a profitable opportunity.
Utility Delays GC Expansion Using Distributed PV
This example illustrates how a utility can respond to
demand uncertainty on the GC system level using distributed PV
generation. It demonstrates how the PV can be combined with a system
upgrade to be economically attractive even when PV costs alone are