1 00:00:05,670 --> 00:00:07,100 Welcome back. 2 00:00:07,100 --> 00:00:13,240 So far you have seen the main PV system topologies, their design rules and some examples of specific 3 00:00:13,240 --> 00:00:15,300 PV systems. 4 00:00:15,300 --> 00:00:20,160 We shall now discuss the PV system economics and the environmental considerations. 5 00:00:20,160 --> 00:00:27,160 I shall first start with the basic ideas involved in discussing the economics of PV systems. 6 00:00:28,470 --> 00:00:33,690 The economics in the field of photovoltaics can be discussed at several levels, like at 7 00:00:33,690 --> 00:00:41,090 the levels of consumer, manufacturers, PV installers or technology level while compared 8 00:00:41,150 --> 00:00:44,140 to other sources at grid scale. 9 00:00:44,140 --> 00:00:48,920 In this block I'd mainly discuss the economics at technology level. 10 00:00:49,900 --> 00:00:56,960 At the consumer level, however, I'd briefly touch upon the idea of payback period. 11 00:00:56,960 --> 00:00:59,710 What is the payback period? 12 00:00:59,710 --> 00:01:06,250 The payback period in finance is simply defined as the length of time required to recover 13 00:01:06,250 --> 00:01:08,920 the cost of an investment. 14 00:01:08,920 --> 00:01:15,460 So how can this be translated at the consumer level, when a homeowner installs rooftop PV 15 00:01:15,460 --> 00:01:19,820 system and expects the system to pay itself back? 16 00:01:19,820 --> 00:01:27,800 In the case of a PV system user, the initial investment in terms of system cost is recovered 17 00:01:27,900 --> 00:01:33,060 over the years as the PV system offsets the electricity bills. 18 00:01:34,480 --> 00:01:38,979 We can understand this idea in a simple example. 19 00:01:38,979 --> 00:01:49,500 Let's say for instance, family Smith has installed a PV system of 1 kWp at an initial investment cost of €4000. 20 00:01:49,500 --> 00:01:56,900 The family's usual electricity consumption is such that on an average, it incurs an electricity 21 00:01:56,900 --> 00:01:59,720 bill of €2000 per year. 22 00:02:00,620 --> 00:02:06,660 After installation of the PV system, roughly €800 worth of electricity consumed by the 23 00:02:06,670 --> 00:02:10,530 family is provided for by the PV system. 24 00:02:11,540 --> 00:02:17,980 In this graph, we see a straight line, denoting the fixed investment costs in the beginning. 25 00:02:18,870 --> 00:02:24,330 As the family consumes more of the clean power produced by the PV system, it offsets the 26 00:02:24,330 --> 00:02:25,950 electricity bill accordingly. 27 00:02:25,950 --> 00:02:31,810 In this example, the amount saved is €800 per year. 28 00:02:31,810 --> 00:02:39,190 In other words, the family earns a return of €800 per year on the PV investment. 29 00:02:41,340 --> 00:02:47,989 As the years progress, the savings accumulate, and there comes a point in time when the accumulated 30 00:02:47,989 --> 00:02:51,730 savings are greater than the original investment. 31 00:02:51,730 --> 00:02:56,939 The period of time elapsed until that point is called the payback period. 32 00:02:56,939 --> 00:03:02,959 In this case, family Smith's PV system has a payback period of 5 years. 33 00:03:04,260 --> 00:03:11,480 Note that the payback period depends on the location of implementation of the PV system. 34 00:03:11,549 --> 00:03:17,129 Of course, the sunnier the location, the greater the PV yield and the faster the payback. 35 00:03:18,129 --> 00:03:26,469 Also, the savings by the PV system not only depends on PV yield but also the grid electricity costs. 36 00:03:27,520 --> 00:03:34,380 Finally, the initial PV system costs are also a major factor in deciding the payback period. 37 00:03:35,380 --> 00:03:42,520 Note that this calculation can become more complex as more parameters are factored in. 38 00:03:42,530 --> 00:03:49,280 For instance, if we are considering a significant period of time, usually it's a practice to 39 00:03:49,280 --> 00:03:53,239 also take into account the time value of money. 40 00:03:53,239 --> 00:04:00,939 That is, for example, €1000 today will have a different buying power 10 years from now. 41 00:04:02,200 --> 00:04:05,240 Then there are also policy based factors. 42 00:04:05,250 --> 00:04:12,250 For example, subsidies and feed-in tariffs can affect the initial investments and savings. 43 00:04:12,400 --> 00:04:18,970 Let us briefly discuss the concept of feed-in tariffs in PV systems. 44 00:04:18,970 --> 00:04:25,610 At the consumer level, feed-in tariff is the rate at which a consumer is paid for the electricity 45 00:04:25,610 --> 00:04:30,070 that the grid-connected PV system contributes to the local grid. 46 00:04:30,070 --> 00:04:34,330 There could be two kinds of feed-in tariffs, gross and net. 47 00:04:35,080 --> 00:04:41,300 Gross feed-in tariffs are paid for all the electricity the panels produce, irrespective 48 00:04:41,310 --> 00:04:44,690 of the domestic electricity consumption of the consumers. 49 00:04:46,200 --> 00:04:52,720 Net feed-in tariffs promise a higher rate for the surplus electricity fed into the grid 50 00:04:52,730 --> 00:04:57,830 after domestic use of the consumers is subtracted. 51 00:04:58,540 --> 00:05:04,540 Now we must not confuse the payback period of the PV system with the energy payback time, 52 00:05:04,540 --> 00:05:09,260 which is a different concept, and I shall discuss this in the next block with the environmental 53 00:05:09,260 --> 00:05:10,840 considerations. 54 00:05:10,960 --> 00:05:17,940 Now let us go to the concept of levelized cost of electricity, or LCOE. 55 00:05:17,950 --> 00:05:24,070 It is the cost per kWh of electricity produced by a power generation project. 56 00:05:24,070 --> 00:05:31,070 It is usually used to compare the lifetime costs of projects based on various power sources. 57 00:05:32,290 --> 00:05:39,290 The concept of LCOE allocates the costs of an energy plant across its useful lifetime, 58 00:05:39,910 --> 00:05:44,380 to give an effective price per kWh. 59 00:05:44,380 --> 00:05:51,380 It is similar to averaging the upfront costs of the production over a long period of time. 60 00:05:51,730 --> 00:05:58,520 The LCOE calculation could get very complex, depending on the various parameters considered. 61 00:05:58,520 --> 00:06:04,620 In the simplest of terms, if we know the annual PV yield for the system over its lifetime, 62 00:06:04,740 --> 00:06:13,200 and the accompanying system costs, the LCOE can be found out as shown by this formula. 63 00:06:13,700 --> 00:06:26,200 Here A_t is the total annual cost in year t, I_0 is the initial investment, and E_t is the 64 00:06:26,200 --> 00:06:29,360 annual energy yield or electricity. 65 00:06:29,360 --> 00:06:36,190 r is the discount rate, which is a factor used to discount future costs and translating 66 00:06:36,190 --> 00:06:38,310 them into present value. 67 00:06:38,640 --> 00:06:46,200 Based on the site of the PV generation and the cost of materials, the LCOE of the PV 68 00:06:46,210 --> 00:06:48,430 project could vary a lot. 69 00:06:48,430 --> 00:06:56,400 Also, the discount rates used for evaluation will have an impact on the LCOE value. 70 00:06:57,060 --> 00:07:04,360 For the power producer, the LCOE is a valuable indicator of the cost competitiveness of a 71 00:07:04,620 --> 00:07:06,150 certain energy technology. 72 00:07:06,150 --> 00:07:12,810 It is also a good price point indicator, that is, the power producer will have to sell the 73 00:07:12,810 --> 00:07:19,710 power at a price greater than the LCOE to make profit. 74 00:07:19,710 --> 00:07:26,060 Of course, the policies structured around PV energy like feed-in tariffs, subsidies 75 00:07:26,060 --> 00:07:32,040 and other incentives will all play a role in determining the grid power prices. 76 00:07:32,740 --> 00:07:39,140 Finally, we come to the much popular term grid parity. 77 00:07:39,140 --> 00:07:46,090 Grid parity is the situation at which the PV power can be generated at a levelized cost 78 00:07:46,090 --> 00:07:52,460 that is equal to the power price from the conventional electric grid. 79 00:07:52,460 --> 00:07:56,780 This could be generalized to other renewable energy technologies as well. 80 00:07:56,780 --> 00:08:02,780 But there is one significant difference between PV and other renewable technologies like wind 81 00:08:02,780 --> 00:08:05,340 turbines or hydro dams. 82 00:08:06,580 --> 00:08:12,900 Compared to these other sources, like wind turbines or hydro dams, PV can be scaled down 83 00:08:12,900 --> 00:08:15,310 to the level of a single module. 84 00:08:15,310 --> 00:08:22,310 This means that the PV power is now effectively competing with the retail grid price, which 85 00:08:22,870 --> 00:08:29,400 conventionally includes other costs like transmission, distribution, etc. 86 00:08:29,400 --> 00:08:37,300 Therefore, compared to wholesale price, PV grid parity for retail grid prices can be 87 00:08:37,300 --> 00:08:41,620 reached faster, as shown in the graph. 88 00:08:41,620 --> 00:08:49,000 The graph is depicting the volume of PV implementation on x axis, which can be directly correlated 89 00:08:49,000 --> 00:08:56,050 with time, as the past decade has seen the implemented PV volume rise tremendously. 90 00:08:56,110 --> 00:09:03,110 As capital costs decline with increasing volumes, PV power is expected to be cheaper. 91 00:09:03,230 --> 00:09:10,100 On the other hand, cost of fossil fuels, due to the availability and emission costs are expected 92 00:09:10,100 --> 00:09:14,220 to rise, thereby increasing the conventional grid costs. 93 00:09:15,129 --> 00:09:22,129 Also, as discussed before, the solar levelized costs will depend also on the site location, 94 00:09:22,399 --> 00:09:28,339 as sites having more sun hours will have a lower LCOE. 95 00:09:29,240 --> 00:09:34,460 Grid parity occurs when the solar and grid lines in the graphs cross. 96 00:09:34,920 --> 00:09:42,020 Of course, the grid parity could be reached faster with the help of incentives and subsidies. 97 00:09:42,029 --> 00:09:48,319 However, a school of thought disregards such a grid parity that has occurred with the aid 98 00:09:48,319 --> 00:09:49,600 of subsidies. 99 00:09:49,600 --> 00:09:55,120 It is said that the true grid parity is when the PV power prices would fall below the grid 100 00:09:55,120 --> 00:09:57,760 prices without any subsidies. 101 00:09:58,160 --> 00:10:05,220 Solar grid parity without subsidies is a much rarer phenomenon, at least right now. 102 00:10:05,230 --> 00:10:11,180 As an example, PV power producers already claimed true grid parity in the sunny country 103 00:10:11,180 --> 00:10:13,280 of Spain earlier in the year. 104 00:10:14,420 --> 00:10:20,959 The grid parity is a very important indicator of the usefulness of a renewable energy technology. 105 00:10:20,959 --> 00:10:28,100 The closer a technology is to the grid parity, the easier is its integration in the energy 106 00:10:28,100 --> 00:10:29,400 mix of the region. 107 00:10:30,260 --> 00:10:36,060 With the advancements in technology and the maturity of manufacturing processes, grid 108 00:10:36,069 --> 00:10:43,000 parity for solar is expected to be a more popular occurrence in several places around the world. 109 00:10:43,300 --> 00:10:50,310 I hope you now have a better idea of the economics involved around the field of photovoltaics. 110 00:10:51,300 --> 00:10:56,540 In the next block, we will focus on environmental considerations for PV systems. 111 00:10:56,820 --> 00:10:58,560 See you in the next block.