Tuesday, June 19, 2012

Reply to SolarWriter

You can use my spreadsheet linked at the bottom. If you don't trust my spreadsheet you can track down Dr. Alfred Körblein's model (in German) and use that. I haven't looked at his model in over a year so I don't know how he's treating self-consumption these days or even if he's kept it updated. I recently saw a comment of his on PV Magazine and he thinks the new FiT rates in Germany are fine. That tells me our models are kicking out similar results.

To use the model go to the Input Parameters page and enter in the current system prices, O&M, kWh/kWp, interest rates, discount rate, etc in the gray fields. The input data needs to be in per KWp increments. You have to be careful but it's hopefully intuitive - if not I'll write up some more in depth instructions. The default values are all referenced and are specifically set to model the current situation in Germany. The results pop up in the Orange box on the right hand side. 

The most under-appreciated parameter is the self-consumption rate. You can vary that from 30% to 50% and see what I mean.

We often hear that FiTs are set to deliver an 8% return on investment. You can play with the model yourself to see how system prices and FiT rates conspire to deliver X% rate of return or Y net present value based on the inputs.

When I play with the model it's clear to me the FiT rates for the sub-10 kW tranche can come down significantly. The FiT rate is actually a secondary concern - you could set it at 10 cent/kWh and still clear the economic hurdle tests. The FiT used to be about making money - now it's about saving money. A counter argument here is that retail rates may come down in the future and this would impact the profitability of your system. That's absolutely true but there's a hedged risk here. If electricity prices go up you save money with PV. If they go down you lose money on the PV investment but you save money on utility bills. The showstopper would be if electricity rates dropped sharply over a short time period but that seems unlikely to me.

I'm guesstimating that prices for small and medium sized systems come down to 1500 Euro/kWp in the near term and stabilize around there. If system prices get down to this level your production costs (the LCOE) are at 10 ct/kWh. This gives you a lot of room to chop the FiT rates. As mentioned previously, things very much depend on your self-consumption profile. 

An additional thought here is that the FiT shouldn't necessarily be based on installed kWs. Another way to go about it would be to base the rate on total backfeed. This structure would encourage a balance between economies of scale and overall system integration (generation matched to load) at the same time. I like that. We shouldn't unnecessarily punish a roof that's good for 12 kW when a 10 kW system may actually back feed more. Make the top FiT tranche apply to the first 10 MWh of backfeed per year. The next tranche would apply to the next 90 MWh and so on.

It's my belief that the BSW, DECC, GEA etc should be putting out a standardized model like this themselves - a better cleaner model of course. Things need to be transparent. The Government should be using the exact same model to set FiT rates so we're all on the same page and everybody is held accountable. People will still complain but at least we'll be clearer on what's being debated.

Disclaimer: I think my model works but some bugs and brain farts may have slipped in/out.

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