4.1 Operational Hypotheses
1. The NPV and IRR of a residential SPV system in each state over 15 years is calculated and compared, and the highest of these is to have the most potent potential policy.
2. Cash flows from each SREC policy are computed and discounted, and then the highest Present Value per Watt of installed capacity (PV/ ) is used to measure which state’s policy has the highest potential.
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3. The same (PV/ ) for each SREC policy is then compared to California’s Feed-in-Tariff (FIT) PV/ , net metering, and state & federal tax credits to measure and compare SREC policies with other financial incentives.
4. After a thorough analysis of each state’s policy, a comparison of the problems and positives of each policy is presented.
4.2 Theoretical Framework
In this study, of the 33 states with RPS, the 8 states with SREC markets are evaluated. The comparative economic analysis is performed by calculating the cash flows, NPV, and IRR for each state’s package of policies. Then a present value for the cash flows from each separate individual policy is calculated to compare the potential for the SRECs against the other policies that make up the state incentive package.
Cash flows depend on many factors (average state energy price, solar radiation, SPV price, etc.), and various policies from the package of federal and state-level incentives (SREC income, net metering income, tax credits). The Cash Flows for each state is calculated the same as has been done in previous studies [7][8]. The cash flows are taken as the sum of all the costs and profits in any year t using the following:
(1)
where:
F is the SREC value in year t (for California’s FIT, this value is the series of payments under the terms of the FIT contract);
Et is the energy produced in kWh in year t;
30 ckWh,t is the energy price per kWh in year t;
C0 is the up-front cost of installation;
is the Federal tax credit (as a percentage of initial cost);
is the state tax credit (as a percentage of initial cost);
u is the maintenance fee, estimated as a percentage of initial cost;
Cadd is the insurance cost for the system over its lifespan
Then, these cash flows are discounted using the classical expression for discounted cash flows to get the present value of each year (to be summed later) as has been done in prior research [7][8]:
(2) where i is the discount factor or cost of capital.
Then the classic methods for calculating NPV and IRR are applied as follows:
(3)
(4)
where N is the lifetime of the investment.
The present value for each of the different portions of cash flow (as calculated in Equation 1, and discounted in Equation 2) are calculated. This helps give a clearer view of exactly which of the various policies have the largest impact on the NPV analysis, and to compare each different policy separately. Finally, each separate these present values is divided by the capacity of the system to get an accurate view of just how much value a residential SPV owner receives per Wp installed from each separate financial incentive.
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SREC or FIT PV/ :
(5)
Net Metering PV/ :
(6)
Federal Tax PV/ :
(7)
State Tax PV/ :
(8)
4.3 Operational Assumptions
Residential SPV systems range between 2kWp and 10kWp, so in this comparative analysis is based on a 4kWp BIPV residential system. Some studies use a 10kWp system, but that is larger than the average residential SPV. The following assumptions are taken when performing this analysis, in accordance with what has been used in previous journal studies [6][7][8]:
Different policies are enacted in different states, but this focuses on the effects of solar
targeted set-asides.
o Rebates are ignored, as they are paid on a first come, first serve basis, and tend to have lower caps, and are typically enacted at a municipal level or levied against specific utilities companies;
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o Grants, loans, and capital subsidies are also cast aside for the same reason.
Net metering exists with a strong degree of similarity in all states, so it is included;
State & Federal Tax credits are factored in, but discounted as the end of year 1;
Solar Renewable Energy Certificate markets are factored in at a percentage of the SACP
annually of 80%;
o Due to the highly speculative nature of Pennsylvania’s SREC market, any attempt at quantifying is not realistic, so it will not be evaluated;
Discount factor is the average inflation rate for the USA, and is 3%;
The mean operative efficiency of the SPV system is calculated based on the National
Renewable Energy Laboratory program PV Watts [32], whereby solar insolation for each point in the USA is calculated and used to determine operative efficiency for any point on Earth;
o The base stations in each state are averaged to form a state average level of annual solar output per 1kWp of SPV;
o The default PV Watts rates for energy loss and positioning are used [32];
The average residential electricity price is based on the 2009 state price [30];
The electricity price in each state increases at 3% [8];
The total costs of the SPV system vary by state, and are based on the 2009 price per Watt
for SPV systems under 10kWp [31]. Except Ohio, Delaware, and North Carolina which use the national mean price from 2009 of $7.50/Wp;
The annual maintenance price is between 0.5% and 2.4% of the price of the installed plant cost [41] – for this study, 0.5% is used;
The annual insurance cost is the same for all states, and is set at $20 per kWp [42];
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The SPV system is assumed to lose 0.8% efficiency annually [42];