Energy and Buildings 55 (2012) 208217

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Energy and Buildings

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Renewable energy options for buildings: Performance evaluations of integrated photovoltaic systems
Federica Cucchiella a, , Idiano DAdamo a , Massimo Gastaldi a , S.C. Lenny Koh b,1
Department of Electric and Information Engineering, Faculty of Engineering, University of LAquila, Via Grochi 18, 67100 LAquila, Italy Logstics and Supply Chain Management (LSCM) Research Centre, Centre for Energy, Environment and Sustainability (CEES), The University of Shefeld, Management School, 9 Mappin Street, Shefeld S1 4DT, UK
b a

a r t i c l e

i n f o

a b s t r a c t
Photovoltaic (PV) connected systems are experiencing rapid market growth. This is due to the continually downward trend in PV cost together with government support programs. A scenario has been assumed to analyse the geographical market of PVs. The results provide clear evidence of the inuence that some variables have on the protability of PV investments. This study presents a model for minimising investment risk and maximising the return of a renewable energy portfolio in Italy. The value of the paper is in showing that the energy and CO2 reduction potential that can be reached through consumer-oriented policy measures, but the paper also looks at the effectiveness and social implications of such measures. Private households possess immense unused potential for energy reductions (and climate protection) that could be realised through gains in energy efciency, behavioural changes, and extended use of lowemission energy. The focus of energy policy has been on businesses rather than on private households, which are only partly captured by direct policy measures. To achieve the goals of climate policies, the current political and scientic discussion increasingly considers measures that aim to reduce energy consumption in the private sector. Quantitative estimates are presented for economic indicators and will show the various effects of policy measures on the implemented household types. 2012 Elsevier B.V. All rights reserved.

Article history: Received 30 January 2012 Received in revised form 14 June 2012 Accepted 21 August 2012 Keywords: Energy Renewable Building Photovoltaic Investment return Economic analysis Environmental impact

1. Introduction The evaluation of investments in the renewable energy sources sector is a leading topic that has attracted the attention of several gures: central governments are interested in this topic because of the requirements of the Kyoto Protocol and because consumers can benet economically from speculative investment opportunities. Given the increasing level of environmental pollution and the reduced availability of renewable resources, the international community needs to individualise future strategies that permit an increase in the amount of energy derived from renewable sources [1,2]. To address such demand, different sources of public nancing have been proposed; these represent the rst improvement project aimed at reducing atmospheric pollution [3]. From the consumer point of view, there are contextual necessities: reducing the electric energy bill and controlling the initial investment and its protability over time [4,5].

In this paper, a model is presented to evaluate the optimal PV capacity that customers adopt with their electricity requirements. Using this model, an investigation is performed on economically optimal PV investments under several conditions for a typical residential building [6,7]. The general characteristics of the chosen renewable source are illustrated in Section 2; in Section 3, a photovoltaic system is selected and a technical analysis is presented. The potential system complexities are described, and the inputs necessary for the environmental and economic analyses are detailed. Section 4 analyses the anhydride carbonic reduction derived from the real use of the PV system under examination. The economic analysis is divided into two different cases. In Section 5, the hypothesis of self-nancing is examined, whereas in Section 6, the system is nanced with partial nancing or complete nancing. A sensitivity analysis is nally implemented on the key parameters, analysing the robustness of the presented results (Section 7). In Section 8 a few concluding remarks close the paper. 2. A photovoltaic system A PV system uses solar cells to convert light into electricity, and it has multiple components, including cells, mechanical and

Corresponding author. Tel.: +39 0862 434464; fax: +39 0862 434403. E-mail addresses: federica.cucchiella@univaq.it (F. Cucchiella), idianodadamo@univaq.it (I. DAdamo), s.c.l.koh@shefeld.ac.uk (S.C.L. Koh). 1 Tel.: +44 114 222 3395; fax: +44 114 222 3348. 0378-7788/$ see front matter 2012 Elsevier B.V. All rights reserved. http://dx.doi.org/10.1016/j.enbuild.2012.08.029

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electrical connections and mountings, as well as equipment for regulating and/or modifying the electrical output. Due to the low voltage of an individual solar cell (typically approximately 0.5 V), several cells are combined into photovoltaic modules, which are in turn connected together in an array. The electricity generated can be stored, used directly (standalone plant) or fed into a large electricity grid that is either powered by central generation plants (grid-connected) or combined with one or many domestic electricity generators to feed into a small grid (hybrid plant). Depending on the type of application, the rest of the system (balance of system or BOS) consists of different components. The BOS depends on the load prole and the system type. Systems are generally designed in order to ensure the highest energy yield for a given investment [8]. A grid-connected system is linked to a large independent grid (typically the public electricity grid) and feeds power into that grid. The grid-connected systems vary in size from residential to solar power stations. This is a form of decentralised electricity generation. In the case of residential- or building-mounted grid-connected PV systems, the electricity demand of the building is met by the PV system. Only the excess energy produced is fed into the grid. The feeding of electricity into the grid requires the transformation of direct current (DC) into alternating current (AC) by a special, grid-controlled inverter [9,10]. A solar module produces DC electricity. The DC output of solar modules is rated by manufacturers under standard test conditions (STC). These conditions are easily recreated in a factory but need to be modied to estimate output under common outdoor operating conditions. The STC require a solar cell temperature equal to 25 C, a solar irradiance (intensity) equal to 1000 W/m2 (often referred to as peak sunlight intensity, comparable to clear summer noon time intensity), and a solar spectrum that is ltered by passing through an atmosphere thickness of 1.5 (ASTM Standard Spectrum). A manufacturer may rate a particular solar module output at 100 W of power under STC and may call the product a 100-W solar module. This module will often have a production tolerance of 5% of the rating, which means that the module can produce 95 W and still be called a 100-W module. To be conservative, the low end of the power output spectrum is suggested for use as a starting point (95 W for a 100-W module [11]). The majority of the photovoltaic cells that are in the market at the moment are constituted by silicon semiconductors for the following reasons [12]: Unlimited availability (natural resources); Great use in the electronic industry (technological processes of rening, processing and doping well rened); and Possibility of recycling the electronic industry scraps because the photovoltaic industry allows impurity concentrations of 10 5 10 6 (compared to the 10 8 10 9 values related to the electronic industry). The other types of silicon cells are cells of monocrystalline silicon, cells of polycrystalline silicon, and cells of shapeless silicon. The construction of a photovoltaic generator starts with connecting several modules electrically in series, forming a string. Several strings, normally connected in parallel to supply the required power, compose the photovoltaic generator. Therefore, from an electrical point of view, there are practically no limits to the production of power by photovoltaic systems because the parallel connection of several strings allows different levels of electrical power. The energy from the photovoltaic system is passed through the public grid to the nal consumer. This operation is performed through additional equipment, which is required to transform the DC into AC via an inverter and to adapt it to the nal needs of the user.

Fig. 1. Cumulative installed PV capacity in EU 27 and in the world.

The advantages of a photovoltaic system are its ease of use, low environmental and landscape impact as well as its low operating costs. Due to the modularity of the solar panels, a PV system is allowed to integrate the panels on the existing surfaces of the residences, ultimately resulting in no environmental impact. The adoption of the photovoltaic system itself is also an environmental benet because it replaces the energy provided by conventional sources [13,14]. The disadvantage of this system is that it requires a large initial investment. For the evolution of the PV sector, based on a study conducted by the European Photovoltaic Industry Association (EPIA), three possible PV deployment scenarios are determined by a series of conditions [15]. The baseline scenario foresees 4% penetration of PVs by 2020. This is the business as usual scenario and does not require changes to the existing electricity system, but it requires full dedication from the PV industry to achieve cost reductions, marketing efforts and wider policy support of PVs in Europe. The accelerated growth scenario aims for 6% of the market, largely within the current infrastructure limits. In addition to the baseline requirements, accelerated growth requires minor changes to the existing electricity system, optimised PV supply chains, greater cooperation with utilities and a compelling product and service offering. The paradigm shift scenario sets a target of 12%. In addition to the above conditions, this requires the rapid and widespread adoption of power storage and smart grid technologies, and it requires further improvements in the supply chain, operations and marketing strategies of the PV industry. The EPIA vision exceeds the 2020 target, with a PV penetration that surpasses this 12% target. The PV benets explain why this technology is experiencing rapid growth in the EU and in the world (Fig. 1). Investment competitiveness describes the opportunity to invest in a PV installation that will deliver electricity for 20 years when it is protable compared to the price of a grid contract for 20 years and when in the absence of any form of external price support or subsidy. The investment competitiveness will be reached in some regions of Europe as soon as 2010. By the end of 2020, PVs can be competitive in almost 76% of the European electricity market [16]. As shown in Fig. 2, the faster the penetration of PVs, the greater the accessible market, and the faster costs will decline [1720]. Italy, despite its abundance of sunlight, currently has a modest PV market (Fig. 3). For this reason, the public support to sustain the sector is necessary until such a time that electricity produced by the photovoltaic panels is competitively priced [21]. In the next section, an analysis is presented where all of the technical parameters that characterise the photovoltaic system are described. These parameters are the inputs for the elaboration of the environmental (Section 4) and economic analyses (Sections 5 and 6).

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According to the available data, the AC electricity produced in a year (EP, Table 1) can be estimated by: EP = IMA EM EB AMU NM After dening the electricity produced, the electricity demand must be dened. Estimated from the available data, for a family of 34 people, the average annual electrical energy consumption is 4370 kWh/y, and for a family of 12 people, the consumption is 2840 kWh/y [25,26]. The analysed case is related to a condominium of 4 families, of which 3 families consist of 34 people, and the fourth family consists of 12 people. The energy demand (EC ) for such a condominium is estimated to be 15,950 kWh/y. With the proposed technology, the energy produced exceeds the demand only during the rst 3 years. Because the hypothesis is that the plant should be able to satisfy the demand of energy for the entire project lifetime (N), the plant capacity must be modied (Fig. 2). For this type of plant, the lifetime of the project is 1525 years; in the case under examination, the project lifetime is 20 years, which is also the number of years during which public funds can be received. The hypothesis of environmental maximisation requires redefinition of the plant capacity because a larger photovoltaic plant equates to greater CO2 reductions [27]. The plant size is dened by resolving an equation in which the amount of produced energy satises the demand of consumer energy for the entire useful life of the plant. The value of annual produced energy EP,T is reduced because there is a reduction efciency of the generator (annual decrease of 0.70%), and at the same time, the consumed energy EC,T increases every year due to an increase in the consumer consumption (annual increase of 1%).
EP,N EC,N EP,T = EP,T-1 EP,T-1 DPA EC,T = EC,T-1 + EC,T-1 IPA DPA = 0.0070 IPA = 0.01 with T = 1,. . .,N

Fig. 2. Evolution of the investment competitive end-user market for PV.

Fig. 3. Italian annual incentives and incentivised cumulative power.

3. Technical analysis The amount of electric energy produced by a photovoltaic system depends on different factors: the plant surface, the positioning of the PV panels, the values of solar radiation present at the site of installation, the efciency level of the PV panels and the BOS efciency of the operating temperature. In the present paper, attention is focused on a grid-connected PV system that can be also used to produce electrical energy for internal use [2224]. The PV system is composed of 72 cells ((NM ) divided into 12 groups), and every cell has a peak production watts (Wp ) of 160; hence, the system can generally produce 11,520 Wp . Each PV cell has an area of 1.26 m2 (the real area is equal to 1.16 m2 (AMU )), and the area occupied by the system is 83.52 m2 . The percentage efciency must also be analysed. The efciency of the cells is 13.5%, and the BOS efciency is 85%; the BOS efciency includes the estimation of the efciency of the inverter (95%) and other factors such as the losses of electric connection cables (90%) [23]. For the city of Rome, the PV panels are hypothesised to be directed toward the south and to have a slope of 30 .

To resolve this equation, the number of modules needs to be increased. The number of required groups is 16, for a total of 96 modules; the energy produced during the rst year is 22.201 kWh/y. In the next section, a life cycle assessment (LCA) will evaluate the environmental aspect of PV cells. 4. Environmental analysis According to the Kyoto Protocol, governments have to limit their dependence on non-renewable energy sources between 2001 and 2012. The major feature of the Kyoto Protocol is that it sets binding targets to reduce greenhouse gas emissions for 37 industrialised countries and for the European community. The Clean Development Mechanism allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable certied emission reduction (CER) credits, each equivalent to one ton of CO2 , which can be counted towards meeting the Kyoto targets. To this end, the central governments have reciprocally committed themselves to reducing the production of CO2 , thereby increasing the quota of energy from renewable sources. The extraordinary development of the photovoltaic market during recent years has emphasised the need for a sustainable disposal method for PV modules once they reach the end of their life. The industry has developed strategies and techniques to recover valuable materials contained in PV products and to simultaneously have a positive environmental impact [28].

Table 1 Annual electricity production. Place Annual hourly electricity load (kWh/y) Cell efciency (%) BOS efciency (%) Unitary electricity produced (kWh/m2 y) Real cell area (m2 ) Electricity produced (kWh/y) Rome 1737.4 13.5 85 199.4 83.52 16,653

IMA EM EB AMU NM

F. Cucchiella et al. / Energy and Buildings 55 (2012) 208217 Table 2 Annual CO2 emissions avoided. Electricity produced (kWh/y) Italian electrical correction factor (kg CO2 /kWh) Avoided emissions (kg CO2 /y) 16,653 0.53 8826 Table 4 Investment costs. Element Module cost (D) Flat roof supports cost (D) Inverter and wiring (D) Transport/mounting (D) Total investment (D) D 59,670 9945 10,710 18,350 98,675

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The PV modules can replace the nished materials of buildings (e.g. tiles, undulated plates) and not necessarily produce any environmental waste. The use of energy derived from fossil fuel is the main pollution source on our planet, and the availability of fossil fuels is decreasing. The utilisation of renewable energies can represent a path toward continued development of our civilisation without damaging the environment and that ensures we have an inexhaustible source of energy. To produce 1 kWh electricity, the equivalent of 2.56 kWh of fossil fuels must be burned, which emits 0.53 kg of CO2 into the atmosphere [29]. This means that every kWh produced by a photovoltaic system avoids the emission of 0.53 kg of carbonic anhydride. The amount of CO2 emission avoided in one year (Table 2) is calculated by multiplying the amount of electric energy produced for a given factor by the Italian electrical correction factor. The LCA performed here has helped to estimate the positive environmental contribution derived from the construction of a photovoltaic plant; this plant allows for the reduction of CO2 because the produced energy does not derive from fossil fuel sources. However, the issue of pollution from the photovoltaic plant must be analysed [30,31]. The photovoltaic solar panels are recyclable, so their impact at the end of their lifetime is not examined; moreover, among polluting substances, only CO2 is quantied because the impacts of the other substances are so low that they can be ignored. The amount of CO2 produced by the PV systems during the exercise is dened by a recent study [32] as being equal to 0.063 kg/kWh (51% greater than the value presented in Table 3). For uniformity, the same percentage increase is applied to the value of the manufacturing process; therefore, the calculated value is 2.103 kg/kWp . The emissions deriving from the production of photovoltaic modules are equal to 32,302 kg of CO2 , and the issues deriving from the 20 years of PV exercise are 26,189 kg of CO2 . Due to these emissions, the environmental advantages deriving from the rst ve years are avoided. It is therefore now possible to economically quantify the inputs and to estimate the protability of the green investment. In the following sections, the economic convenience of the investment is analysed under various nancing conditions. The rst hypothesis is related to self-nancing (Section 5), while in the second hypothesis, there is external nancing (Section 6). In this last hypothesis, two cases will be examined: the rst one is related to total external nancing, the second to partial external nancing.

5. Economic analysis with self-nancing PVsyst is a PC software package for the study, sizing, simulation and data analysis of complete PV systems. Using this software, the investment costs of the PV system and of each system component can be dened. For the PV sizing, several steps are necessary: dene the system type; in this case, it is grid-connected; choose the location (the system under analysis is located in Rome); dene the array specication: it is necessary to furnish a value among the real system area, the peak power (in this case, 11.52 kWp ) and the annual power output; select the collector plane orientation, which must dene the irradiation available on the collector eld for the xed tilted plane, tracking planes, double-orientation and shed/sun-shields mountings; and dene the system specication; for standard modules, the technology used is based on monocrystalline cells, the module disposition is on a roof, and the system is ventilated. The software conrms that the electricity produced is equal to 16.5 MWh/y; moreover, the monthly distribution of electric power produced by the system (Fig. 4) can be dened. The initial investment cost (I0 ) is equal to 98,675D (Table 4), and the VAT value of the initial cost is equal to 10%; thus, ITOT = 98,675 + 0.10 (98,675) = 108,542D. The management cost (CM ) is estimated to be equal to 50D for kWp . The maintenance cost (CM) is estimated to be equal to 50D for kWp ; the insurance (CA) is 0.4% of the general initial investment. Also to be analysed are the taxes (CT) derived from the sale of electric energy not consumed. Because the income of the consumer is not dened, the average value among the 2343% of consumers is used. The incentive rates of the ContoEnergia are considered contributions to the lost fund; thus, they are not subject to direct taxes. The service life of the system is 20 years, and the cost of capital it is set to 5% in the case of entirely external nancing. The discount rate for the equivalent cash is 3.20%. In the case of mixed nancing, an average value is used (4.10%) [33]. At the end of the 20th year, the nal salvage value (SV) of the PV modules is 10% of the initial cost [34]; thus, SV = 5967D. After the cost analysis and before the estimate, the savings in the electric bills that the families can obtain following the PV system adoption, it is necessary to proceed with a comparison of the supply and demand of electricity. For simplicity, the electricity demand of the four families is assumed to have the same statistical distribution during the solar year [35] (Fig. 4). Italy activated the ContoEnergia incentive program to promote the production of electrical energy with photovoltaic systems. ContoEnergia originates from the Ministerial Decree of February 19, 2007, and is an incentive program for photovoltaic electricity production. The ContoEnergia program identies those who may benet from the incentive; it incentivises photovoltaic plants with an installed capacity greater than 1 kW and provides incentives for energy production (by kWh) derived from the use of the

Table 3 Emissions evaluation. Emissions in the fabrication process (kg/kWp ) CO2 SO2 NOx Particles 1392.1 18.1 4.6 0.6 Emissions for the energy produced by the PV system (g/kWh) 41.7 0.54 0.14 0.02

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Fig. 4. Supply and demand statistical distribution.

photovoltaic plant. Moreover, it allows users who have their own photovoltaic plant or have access to a plant to be compensated for the value associated with the electrical energy produced and fed into the network, as well as the value associated with the electrical energy withdrawn and consumed during a previous year of production [36]. The energy generated by a photovoltaic plant is converted by an inverter and fed into the local network. All of the energy produced by the plant allows the producer, for a period of twenty years, to take advantage of incentive rates (T1 ) that vary according to the type and capacity of the plant. Photovoltaic plants can be characterised as one of multiple types: non-integrated (e.g. a ground-installed photovoltaic plant); partially integrated (e.g. a photovoltaic plant with a co-planar roof-to-surface coverage); and integrated (e.g. a canopy with photovoltaic module coverage). The value in D (incentive rates T1 ) allowed for each single kW produced changes according to the variations in the power and plant type; the values in the present case are non-integrated, 0.38D; partially integrated, 0.42D and integrated 0.46D. The PV system under examination is installed in 2010 because in 2008, the contribution was 0.42D/kWh, and every year, the incentive rates are reduced by 2%; the value of unitary incentives can be quantied as presented in Table 5. The specied rates can be further increased (by a maximum of 30%) when a photovoltaic plant is accompanied by an action plan to improve the energy performance of a building. For example, if the owner of the photovoltaic plant is the sole producer, a +5% rate increase can occur if the owner uses 70% of the energy produced and has a non-integrated photovoltaic plant. The PV owner has a bill saving on both the produced and the used energy (EPU ); the produced energy is sold at a price greater than what the manager will charge the consumer for personal use (SBILL ), and the electric rate saved is 0.18D/kWh. The owner of a PV system may transfer the self-produced energy that is not consumed to the network operator, thereby becoming an energy producer. Through the electrical service provider, ContoEnergia allows the producer to receive money in proportion to the amount of electricity produced by the PV solar system. The PV

Table 6 First-year revenues. EPU = Energy for personal use (D) SBILL = Savings of electrical bill (D) ENTW = Energy transfer to network operator (D) Total (D) 8947 2926 648 12,521

owner receives 10.18D cent/kWh (ENTW ). During the rst year, the entries of Table 6 are recorded by the owner. The annual ination rate used is 1.5%, and the annual energy ination rate is equal to 1.9% [35]. It is then possible to identify the business plan required to dene the investment protability (Table 7 and Fig. 5). Multiple indexes have been used in the economic analysis. The net present value (NPV) of a time series of cash ows, both incoming and outgoing, is dened as the sum of the present values of the individual cash ows. The discount payback period (DPBP) is the time required for the return on an investment to repay the sum of the original investment. The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the protability of investments. The discount costbenet (DCB) ratio should be greater than 1 [37]. Switching from a nancial analysis to an economic one, the benets of the pollution reduction can be considered an investment return. The cost of CO2 emissions is 15D/t, with an annual growth rate of 1D/y [38,39]. If there is no external funding, so that the investment is selffunding, the economic results are as follows: Internal rate of return (IRR) of 8%; Net present value (NPV) of 50,618D; Discounted payback period of 13 years and 9 months; and

Table 5 Unitary incentive for each kWh produced. Nominal power of system (kWp ) 320 Partially integrated system 0.4032D/kWh Fig. 5. Discounted cash ows for self-nancing.

F. Cucchiella et al. / Energy and Buildings 55 (2012) 208217 Table 7 Business planself funding. Yr I0 CM CA CT SV EPU SBILL ENTW CF NPV DCF
self nan

213

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

10,8542 1045 997 947 898 847 797 746 694 642 589 536 482 428 373 317 261 204 146 88 29 780 791 803 815 827 840 852 865 878 891 905 918 932 946 960 975 989 1004 1019 1034 401 407 413 419 425 432 438 445 451 458 465 472 479 486 493 501 508 516 524 532 8947 8884 8822 8760 8699 8638 8578 8518 8458 8399 8340 8282 8224 8166 8109 8052 7996 7940 7884 7829 2926 3011 3099 3189 3282 3378 3477 3578 3683 3790 3901 4015 4132 4253 4377 4504 4636 4771 4911 5054 648 627 605 582 558 532 506 478 448 417 385 352 316 280 241 201 160 116 71 23

5967

10,8542 10,296 10,328 10,363 10,400 10,439 10,481 10,524 10,570 10,617 10,668 10,720 10,775 10,833 10,893 10,956 11,021 11,090 11,161 11,235 17,279

10,8542 9976 9698 9429 9169 8918 8676 8441 8215 7997 7785 7581 7384 7193 7009 6831 6658 6492 6331 6175 9203

108,542 98,566 88,868 79,439 70,270 61,352 52,676 44,235 36,020 28,023 20,238 12,657 5273 1920 8929 15.759 22,418 28,909 35,240 41,415 50,618

CF, cash ow; DCF, discounted cash ow.

Discounted aggregate costbenet of 1.39. A detailed analysis of incoming cash ows and outgoing cash ows related to the PV system shows that the 67% of incoming is from the electrically produced energy (Fig. 6) that is fed into the network and 29% is from the savings derived from the electrical bill reduction. Regarding the project costs, 45% is related to the PV modules. The other costs, except for the maintenance costs, insurance costs and taxes (which are 18%), are all related to the initial cost (which is equal to 82%) (Fig. 7); the taxes component in Fig. 7 is the tax due for the revenue derived from the sale of energy produced in excess over the family need. The analysis shows that domestic PV investment is protable under current cost, market and regulatory conditions. The initial capital costs are too high, and the current policy framework is inadequate to make PV system nancially protable. The low-interest loans are an additional incentive to support photovoltaic system installations. The state-subsidised reduction in the interest rate ranges from 1 to 2 percentage points below the market rates, while the duration of the loans usually extends up to 10 years. In some cases, long-term loans are available for 20 or 30 years at a xed rate. The low-interest loans have been adopted in Japan, some European

countries and the USA [4042]. The effect of interest loans will be investigated in the next section.

6. Economic analysis with external nancing This section analyses the protability of the same PV system, presented in the previous section, in the case where the investment has external nancing. More specically, two situations are hypothesised: the rst one is under total external nancing; and the second case is under both external and self-nancing [43,44]. The data of the present analysis are the same of previous section. The only difference is related to the family expenditure because the investment cost is paid during the loan lifetime and not only in the rst year. The family expenditure in the rst year is 29,313D for the three families of 3/4 people and 20,601D for the smaller family. If the project is totally or partially nanced with external funding, it has to dene a variable interest rate. The EURIBOR rate will be used. To decide whether to opt for 3 or 6 months (equal to 0.67% and 0.97%, respectively), such values must be compared with the theoretical case of a project 100% nanced for a duration of 12 years and with a 1.75% spread. Applying a quarterly loan, the nal rate amount that has to be paid is 125,376D (87% due to capital expenditure and 13% due to interest amount); instead, with a semestral loan, the nal import to be paid is 125,712D. Thus, a 3-month interest rate has been selected.

Fig. 6. Photovoltaic system benets.

Fig. 7. Photovoltaic system costs.

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F. Cucchiella et al. / Energy and Buildings 55 (2012) 208217 Table 8 Project alternative. Project alternative Total self-nancing A1 Both self that external nancing A2 Total external nancing A3 Benets 189,988 175,072 161,851 Costs 137,057 131,444 121,804

Table 9 Costs benets incremental analysis. Incremental ows A3 A0 A2 A3 A1 A2 Fig. 8. Discounted cash ows for total external nancing and total self-nancing. Benets 161,851 13,221 14,916 Costs 121,804 9641 5613 Benets/costs 1.33 1.37 2.66 Decision Accept A3 Accept A2 Accept A1

Under the hypothesis of 100% nancing, the initial investment is not sustained during the rst year, but it begins in the rst year and nishes after 12 years. The advantage of such a choice, due to actualisation, derives from the payment delay, and the disadvantage is due to the interest (Fig. 8). The ratios of the total external nancing case are the following: Internal rate of return (IRR): 16%; Net present value (NPV): 37,732D; Discounted payback period: 13 years and 9 months; and Discounted aggregate costbenet: 1.33.

Table 10 Economic results. Incremental ows A1 A2 A3 IRR 8% 10% 16% NPV 50,618D 41,315D 37,732D DPBP 13 y 9 m 14 y 1 m 13 y 9 m DACB 1.39 1.33 1.33

The second scenario supposes that the consumers proceed with a mixed solution: 50% of self-nancing and 50% of external nancing. The nancial conditions are the same as in the previous case. The cash ows are illustrated in Fig. 9, and the obtained results are the following: Internal rate of return (IRR): 10%; Net present value (NPV): 41,315D; Discounted payback period: 14 years and 1 month; and Discounted aggregate costbenet: 1.33.

(A0 ) and classifying the alternatives in increasing order according to the denominators (i.e. the costs) (Table 10). The results from the NPV and IRR are different. According to the IRR index, the better choice is A3 , but according to the NPV, the better choice is A1 . Really, the IRR cannot be applied to incremental ows because this index requires that the riskiness of the compared projects be the same (the discount value for the three investment cases is not the same). An increase in external nancing leads to an increased portfolio return due to the reduction in the initial investment and due to the fact that the cash ows in different periods are generally positive, leading to a marked increase in the internal rate of return for each renewable technology. 7. Sensitivity analysis The sensitivity analysis is nalised to identify the existence of a critical variable in the project. The project inputs need to be varied for a dened percentage rate, and the consequent changes of the economic indicators need to be observed. Varying one variable at a time and maintaining constant the other parameters, a variable is considered relevant when a 1% variation (positive or negative) involves a 5% change in the basic value of the NPV (Table 11). The analysed situation is related to the total nancing case constantly required total nancing due to the high initial investment required. Because the investment under analysis is nanced with a 12year loan, varying the value of the connected interest rate can underline the inuence of the interest rate on the NPV value; an
Table 11 Sensitivity analysis. Variable ContoEnergia energy incentive Self-consumption savings Energy selling Recovery value Energy ination rate Ination rate Maintenance Assurance Tax rate VAT Initial investment NPV variation (%) 2.64% 1.24% 0.10% 0.07% 0.24% 0.06% 0.29% 0.14% 0.21% 0.01% 2.66%

To individualise the economically more protable investment, the NPV, IRR and discounted payback period (DPBP) ratios can be compared [4547]. A comparison with the discounted united costbenet is not possible because an incremental analysis is required. The values of benets and costs related to the hypotheses of investment without nancing (A1 ), with mixed nancing (A2 ) and with total external nancing (A3 ) are summarised in Table 8. The investments comparison can be performed through the incremental analysis (Table 9) considering the no invest alternative

Fig. 9. Discounted cash ows for 50% external nancing and for total self-nancing.

F. Cucchiella et al. / Energy and Buildings 55 (2012) 208217

215

Fig. 10. NPV for different rate variations (loan).

Fig. 11. NPV for different discount rate variations.

increase in this rate determines a reduction of the investment profitability (Fig. 10). In Fig. 11, the impact of the risk-free rate on the NPV is illustrated; by reducing the denominator value, the NPV has a negative trend. The lifetime variable is never set at less than 20 years. Otherwise, the energy incentive funding cannot be obtained. For this reason, with this variable, only an extension of 25 years can be hypothesised, and in this case, the recovery value is reduced by 50%. Under this new hypotheses, the NPV is 44,342D (with an increase of 18%), and the new IRR value is 16.2% (with an increase of 3%). Finally, a scenario analysis has been performed by simultaneously varying the four variables previously selected. In Fig. 12, ten cases are presented (cases A+ to E+ and A to E in Table 12); for example, case D shows that a positive increase (20%) of the incentive rate, supply and demand energy with an equal simultaneous decrease of initial investment determine a positive NPV (111,575D).

Notice that also the pessimistic scenario produces some protable results (Table 13). The optimisation of building-integrated PV applications, as demonstrated, is a function of many variables (e.g. construction, methods and materials, photovoltaic technology and module fabrication, insolation levels and orientation, and electrical costs). Using these variables, the optimal PV system has been dened. The case study was designed to evaluate the architectural and environmental implications of integrating a PV system into the roof of a residential building, and this choice has relevant implications for the system denition. In the present paper, if the priority of the project is the quantity of energy to be produced, then the unknown variable of the problem is represented by the area required to produce it. If, on the contrary, there are prevailing economic considerations, the priority is to determine the size of the system by considering the unit costs and rated power that can be produced with the nancial investment objective. Generally, three different perspectives of analysis can be adopted: environmental maximisation, economic maximisation, and rst year. By adopting the environmental maximisation principle, the productive capacity of the system is maximised, regardless of the actual end-user needs. Additionally, under such conditions, the energy produced by the photovoltaic system is greater, while the energy produced by fossil fuel sources is lower; thus, the carbon dioxide emissions into the atmosphere are reduced. This principle requires that the system design be structured so that the supply of electricity meets demand for the entire lifetime of the project. If instead the end user opts for the economic optimisation, then the main objective is to get the most useful investment rather than to receive as much as possible to minimise the emissions of CO2 . By adopting the principle of economic maximising, the crucial variable is the electricity supply and will be greater than that demanded not necessarily for the lifetime of the project but for a predetermined number of years, which is chosen iteratively so as to maximise the net present value of the investment. The design companies of photovoltaic systems often apply the rst-year principle, which tends to consider a static rather than dynamic scenario. For sizing, photovoltaic systems are analysed based on an estimation of annual energy consumption, which is constant for the lifetime of the plant. Once the annual consumption is determined, an amount of energy equal to this amount is produced. The data related to the loss of productive capacity that the system could record during its life are overlooked. This mode of design then requires that the energy supply be greater than the demand, at least during the 1st year. The maximisation principle has signicant consequences for the parameter denition of PV systems, especially for the optimum sizing of solar panels. The future steps of the present paper are geared

Fig. 12. Scenario analysis.

216 Table 12 IRR sensitivity analysis. Incentive rate % x* ( x/x) 10% 20% 30% 39% 47% 11% 24% 37% 51% 66%

F. Cucchiella et al. / Energy and Buildings 55 (2012) 208217

Initial investment % +5% +10% +15% +20% +25% 5% 10% 15% 20% 25% x* 13.6% 11.7% 10.2% 8.8% 7.6% 18.3% 21.5% 25.5% 30.5% 36.9% ( x/x) 13% 25% 35% 44% 52% 17% 37% 62% 94% 135%

Energy supply % 5% 10% 15% 20% 25% +5% +10% +15% +20% +25% x* 14.8% 13.9% 13.0% 12.2% 11.3% 16.7% 17.6% 18.6% 19.5% 20.5% ( x/x) 6% 11% 17% 22% 28% 6% 12% 18% 24% 31%

Energy demand % 5% 10% 15% 20% 25% +5% +10% +15% +20% +25% x* 14.2% 12.7% 11.2% 9.7% 8.1% 17.0% 19.1% 21.0% 23.0% 25.1% ( x/x) 10% 19% 29% 38% 48% 8% 22% 34% 46% 60%

Pessimistic scenario 14.10% 5% 12.50% 10% 15% 11.00% 20% 9.60% 25% 8.30% Optimistic scenario 17.5% +5% +10% 19.4% +15% 21.5% +20% 23.7% 26.0% +25%

Table 13 NPV sensitivity analysis. Incentive rate % Pessimistic scenario 5% A B 10% C 15% D 20% E 25% Optimistic scenario A* +5% B* +10% C* +15% D* +20% E* +25% y* 32,766 27,797 22,829 17,860 12,892 42,703 47,671 52,639 57,608 62,576 ( y/y) 13% 26% 39% 53% 66% 13% 26% 40% 53% 66% Initial investment % +5% +10% +15% +20% +25% 5% 10% 15% 20% 25% y* 32,702 27,671 22,639 17,608 12,576 42,766 47,797 52,829 57,860 62,892 ( y/y) 13% 27% 40% 53% 67% 13% 27% 40% 53% 67% Energy supply % 5% 10% 15% 20% 25% +5% +10% +15% +20% +25% y* 34,862 31,989 29,117 26,244 23,372 40,519 43,131 45,565 47,824 49,903 ( y/y) 8% 15% 23% 30% 38% 7% 14% 21% 27% 32% Energy demand % 5% 10% 15% 20% 25% +5% +10% +15% +20% +25% y* 33,048 28,158 23,027 17,603 11,827 42,328 46,922 51,516 56,111 60,705 ( y/y) 12% 25% 39% 53% 69% 12% 24% 37% 49% 61%

NPV reversal values: Van = 0; T.i. = 38%; I.i. = 37.5%; Off = 65.7%; Dom. = 36.2%.

toward the optimal sizing of PV systems under all maximisation principles. 8. Conclusions In this article, an analysis of environmental and economic evaluations has been conducted for a project related to renewable energy sources. The rst result shows that the use of a grid-connected PV module in urban contexts does not produce any pollution during its life cycle. The project economic feasibility has been demonstrated in all of the nancing scenarios analysed. Independent of the kind of nancial source (from total self-nancing to total external nancing), there is always an economic advantage to proceeding with the project. The second result demonstrates the economic feasibility in all nancing situations analysed (0%, 50% and 100%). The net present value of the self-nancing case is 18% greater than with mixed nancing and 25% more than with total nancing. The discounted payback period is approximately 14 years, and the IRR is between 8% and 16%. This paper shows the robustness of the results. Additionally, after a sensitivity analysis, the NPV is equal to zero only when the incentive rate is 38%, the investment cost increases 38%, the energy demand decreases 66%, and the energy produced by the plant decreases 36%. Self-nancing is the most desirable solution, but it is not simple to implement due to the high initial investment.

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