Thursday, February 28, 2013

A Letter to Dr. Volker Quaschning

Greetings Dr. Quaschning,

I've attached an excel spreadsheet I built to help me study the economics of solar. It calculates standard metrics like Net Present Value, LCOE, IRR, MIRR and so on. See the Input page at the beginning of the worksheet for the calculator. I've followed the German market for many years and I've found that certain metrics tend to stay in bands. For example, you'd expect the NPV of a solar power system to be 1000 +/- 500 Euro per KW installed. The Modified Internal Rate of Return is another metric that tends to stay in a band around 10%. As you know, the FiT committees use these target bands to reset FiT rates when module prices change.

Interestingly, I've found that if you project the FiT forward from the current price down to 10 or even 5 cents/kWh that it's possible to maintain relatively attractive investment returns that stay in the required bands so long as the self-consumption rates can be pushed up to around 70% - my calculation assumes 30% displacing electricity and 40% displacing natural gas for heating. It's my understanding that 30% electrical self-consumption rates are rather normal. If there was trouble reaching this threshold an energy management system could easily do the job. As far as the 40% of generation used to displace fuel goes, I think the use of heat pumps for augmenting space and water heating would do the trick.

Do you think there's a problem with the conclusion that low FiTs can still be profitable if you have high self-consumption rates? I've used references for all my input data and I'm running two independent calculations to arrive at my conclusions.

If my conclusion is correct then I'm curious why organizations like BSW and people like Hans Josef Fell aren't shouting from the hilltops. I think it would be better to quickly transition away from relying on a politically charged Feed in Tariff and instead let the economics of PV support PV? You could set the FiT at the average day time wholesale rate or calculate a Value of Electricity Tariff. To me this would be very exciting - an engineering driven solution to a problem. No more political circus. The rest of the world would surely follow.

I have one other quick question for you. Do you know why BSW is promoting the coupling of PV with battery systems rather than heat pumps? My feeling is that batteries are much too expensive and not flexible enough. It seems to me that BSW is shooting themselves in the foot.


Dear Photomofo,

PV systems for heating purposes strongly compete to solar thermal systems.
BSW ist also the organization of solar thermal industry in Germany not only for PV.

Kind regards
Volker Quaschning
Hello Dr. Quaschning,

This is my conclusion as well. I understand the logic but if you have two horses in a race no good comes from handicapping the stronger. Thank you for confirming my suspicion. I believe BSW will be forced to change their stance within a matter of months.


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