ECONOMIC FEASIBILITY OF ROOF TOP PHOTOVOLTAIC

SYSTEMS IN BUILDINGS

Term Project Report

Submitted as a part of the course

CE709

Advanced Construction Management

by

Karan Gupta
(Roll. No. 120040062)

Under the Supervision of

Prof. Venkata Santosh Kumar Delhi

DEPARTMENT OF CIVIL ENGINEERING

INDIAN INSTITUTE OF TECHNOLOGY BOMBAY
April 2016
Acknowledgement

I would like to express my sincere gratitude and hearty thanks to my supervisor Prof. Venkata
Santosh Kumar Delhi for guidance and support. His encouragement and gracious support at
every stage proved very much helpful in successful completion of this report. I would also like
to thank my friends who have provided me support throughout the course.

_____________________________
KARAN GUPTA

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Abstract
Solar energy is currently considered as the foremost option for renewable energy which
can be implemented on a large scale. There have been a number of studies which have aimed
to find out the feasibility of installation of solar modules for electricity generation and other
applications. These studies have been spread throughout the timeline and have in general
pointed to the fact that the cost of installing PV is reducing because of technological
advancements. Along with this to compensate for the high investment costs various schemes
have been employed in different countries to make PV systems an economically attractive
option. This study is aimed at studying various costs which are involved in the installation of
PV reviewing the incentive schemes which have been adopted in different countries. Along
with this suggestions for future improvement of technologies and implementation of incentive
schemes are also presented so that the investment in PVs is economically attractive and
sustainable.

Keywords: Solar Energy, Photovoltaic modules, Economics of PV, Incentive Schemes for
Solar PV, Renewable energy

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Contents

Acknowledgement i

Abstract ii

Contents iii

List of Figures iv

List of Tables v

List of Abbreviations vi

Introduction 1

Solar Electricity 1

Performance of PV systems 1

Incentive strategies and policies 4

Solar Ready Buildings 6

Discussions 8

Conclusion 10

References 10

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List of Figures
Figure 1. Flow charts of costs associated with PV installation [3] ....................................................................... 3
Figure 2. Binomial Lattice for energy price paths[6] .......................................................................................... 6
Figure 3. Experience curve for PV modules from 1968 to 2006 [6]...................................................................... 7
Figure 4. Investment value of optimal delayed investment [6]........................................................................... 7

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List of Tables
Table 1. Costs of PV systems in 4 schools[2] ...................................................................................................... 2
Table 2. Results of Quantitative Analysis[2] ...................................................................................................... 3
Table 3. Summary of incentive schemes for PV systems in European countries [4] ............................................ 5

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List of Abbreviations

Abbreviation Full Form

NPV Net Present Value
FiT Feed in Tarrifs
GHG Green House Gases
IRR Internal Rate of Return
PV PhotoVoltaic
ROC Renewable Obligation Certificates

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Introduction
Due to increased demand of energy because of increased population and development, the
pressure on conventional sources of energy in increasing. This fact couple with the recent
awareness about environment and emphasis on reduction of Green House Gas (GHG) emissions,
has led people across the globe to think about alternative means of energy production. Solar
energy because of its abundant nature, is a source which has a high potential of being converted
into a major energy contributor in the modern world. This study discusses the use of solar energy
to generate electricity. Photovoltaic system is an installation of solar panels which is used for
generation of electricity by harnessing solar energy. These have been popular for quite some
time and many studies have to done to assess the economic and social acceptance of these
systems. This paper has been made after literature review of published articles which contain
case studies on installation of PV systems across the world. This paper also aims at developing a
view point on the current need of these systems and how can they be implemented in an
economically feasible manner

Solar Electricity
The use of solar electricity has been on the rise throughout the world because of the renewable
and sustainable nature of this resource. Production of electricity thorough PV systems leads to
virtually no pollution. PVs systems depend upon the sun light which is present in abundance and
unlimited amounts. Use of solar electricity will also reduce the burden on fossil fuels for
generation of electricity and hence not contribute to the depletion of fossil fuels.

Given the benefits of solar energy, it becomes essential that PV systems are used widely for
electricity generation throughout the world. However the PV systems are associated with high
initial investment costs and might lead to an electricity generation alternative which is not
economically feasible for the parties implementing them.

This paper discusses the life cycle cost of PV systems in different locations, we then move towards
various incentive schemes that have been devised to make this option economically attractive.
Towards the end of this study we circle back to the core question of the need of PV systems and
try to suggest some alternative methods to invest in them.

Performance of PV systems
Many studies have been focused on evaluating the economic performance of the installation of
PV systems in different scenarios. Otaibi et. al.[1] carried a 12 month long performance evaluation
of grid connected PV systems installed on the roof tops of two schools in Kuwait. This study also
highlighted to role of water based panel cleaning systems on the yield of the systems. It was
observed that without regular cleaning around 15% loss in efficiency per month occured. It was
also observed that the losses increase if the temperature of solar modules increases. The Kuwaiti
schools were not provided any incentives by the government for implementing solar modules. It
was also found that because the peak demand of electricity by the school is at a time which is
different from the time of national peak demand, therefore implementing solar panels on such

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buildings is particularly useful. During the national peak demand, the establishment can
contribute as an electricity producer, while consuming all of its electricity during its own peak
time. The installation of PV systems in schools is also very useful because these have open
rooftops and are present uniformly in an area. Thus they can serve as hubs of electricity
generation in a city.

Ghadge and Kim[2] carried out a qualitative and quantitative study on public schools in
Washington to determine the IRR and Payback Period for the solar panel investment projects.
The quantitative study was aimed at testing the effectiveness of the PV systems in compensating
the electricity demand. The costs of the PV systems has been shown in Table 1. Also the result of
analysis is summarized in Table 2. As we can see only one of the three schools has a positive IRR
and the magnitude is quite low. This scenario is in absence of appropriate benefits that should
be available to the schools, these include ROCs. Qualitative component of the study involved
surveying stakeholders (students and teachers) 17 schools which had PV installations on different
aspects of implementing PV in schools. It was observed that the installation of PV systems had a
led to changes in curriculum and it had a positive impact on the attitude of students towards
environmental conservation. It also helped in creating general environmental awareness of the
students. Although this qualitative benefit cannot be measured numerically is essential to the
sustainability of development and future of the world.

Table 1. Costs of PV systems in 4 schools[2]

PV installation Eastlake High Evergreen Redmond Hayes
details for School Junior High High School Freedom
each public School High School
school
Size of PV in 12 12 6.6 40.63
Kilowatt (KW)
Brand of (PV) 300W Schott 200W Sanyo 175W Sanyo HIT
modules ASE-300- Sharp Power 215N
DGF/50/300 HIP200BA3 NT – 175U1
Electricity (PSE-Rate 43) (PSE-Rate 25) (PSE-Rate 31) CPU – Second
charges of – tier schedule
Puget sound 134 (General
energy (PSE) / schedule 34)
Clarks Public
Utility (CPU) September
Year of July 2009 September 2008 September 2006 2010
installation & May 2009

Rate of
$10 per watt $10 per watt $10 per Watt $7.3 per Watt
installation
2 2 2 4
Inverters
Commercial Commercial Commercial Commercial
Category of
Building

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 Table 2. Results of Quantitative Analysis[2]

School East Lake Evergreen Redmond Hayes Freedom

NPV ($) -56793.49 73180.37 -45120.38 -141528
IRR (%) 1 8 -2 1
B/C 0.6 1.53 0.39 0.57
SP (Yrs) 30 13 NR 30
DP (Yrs) NR 19 NR NR

Hendrickson et. al.[3] did a life cycle cost analysis of installation of roof top PV systems. The effect
of purchasing suppliers from different countries was also taken into account. Along with LCCA a
life cycle environmental inventory analysis for suppliers from different countries was also
undertaken. The Figure 1 shows various costs associated with various stages of manufacturing,
installation and operation of PV systems. Further the optimal country for supply of PV systems is
based on best LCCA and LCI performance. Among the four suppliers( Chinese, Japnese, US and
Italian) the Japnese suppliers had the least costs and also superior environmental performance.
The higher performance of Japnese suppliers is because of the low fossil fuel intensity in their
electricity mix. The impact of lifetime increase in the reduction of costs and emissions is also
shown in the analysis. The multicrystalline silicon is shown to have higher economic and
environmental advantage. The paper gives an idea to consumers and producers of PV about the
factors they should take into account while selecting a system.

Figure 1. Flow charts of costs associated with PV installation[3]

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Incentive strategies and policies
Given the high initial investment costs for installation of PV, it is very important for the
governments to give out some incentives to the people installing PV so as to make it an
economically attractive option when compared to purchasing electricity from grid. A number of
schemes have been implemented all across the world and studied extensively in various
studies[4],[5]. These schemes can broadly be categorized into various groups:

 Self-consumption
Self-consumption is a scheme where the PV owner produces electricity for the use of its own
establishment and supplies the electricity produced over its personal demand to the electricity
grid. Thus the consumption of electricity produced happens in real time. In this scheme the user
thus contributes to the grid demand by becoming a producer of electricity when it produces more
than its own demand. This becomes a very favourable option if the operational cost of PV is less
than the retail price of electricity. Sometimes a monetary premium is also given for the electricity
consumed, but this cannot be continued in long run.

 Net Metering
The arrangement of net metering allows the PV owner to store the excess electricity produced in
the grid and use it at a later time. For example the excess electricity produced during the day can
be used up during the night. In this scheme the consumption of electricity happens over a long
period of time (months or year). This scheme also reduces the net demand of electricity and thus
leads to reduction in electricity bill.

 Feed in Tarrifs (FiTs)

Feed in Tarrifs referred to as FiTs are the mechanism by which the PV owner is given monetary
compensation for producing electricity. The excess electricity which the producer produces is
compensated at a rate which is less than the retail prize of electricity and is supposed to decrease
over the years. Different countries have different policy implementation for FiTs. The Rates of
FiTs generally are lesser for installtions with higher capacity.

 Tax credits
These are the arrangements where the state allows the party which has installed the PV to
subtract a specific amount depending on the cost of PV installation from their Tax that they owe
to the state. For example in the US, all the states deduct 30% of the installation cost as the Federal
Income Tax Credit.

 Renewable Obligation Certificates (ROCs)

These are the arrangements where the electricity suppliers are required by law to procure a
certain proportion of their total electricity from renewable sources. The electricity suppliers then
purchase electricity from solar production houses and sell them to customers and the customers
are charged a separate ROC charge in their bill. This sort of arrangement shifts the cost burden
of PV from the PV owner to the consumers of electricity.

 Tax exemptions

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These are schemes where the PV owners are directly exempted from the taxes like property tax
and sales tax

These schemes have been widely used in Europe across various countries[4]. Table 3 summarises
the PV incentive schemes in different countries. The profitability of these schemes was also
measure in the study[4]. It was found that in general Building Integrated PV systems were more
profitable than the Ground Mounted PV systems. This is because of high FiT rates in the former
case and the absence of provision of Net Metering and Self-consumption in the latter case. Also
it was found that the PV system installations were not very profitable in most of the countries
however, Italy had IRR of around 10% which is appreciable. It was primarily due to the high
electricity rates prevailing in Italy which made net metering a more attractive option.

Table 3. Summary of incentive schemes for PV systems in European countries[4]

Installation Supporting FiT range
Type measures (€/kW h) Additional information
France FiT (20 years) 0.0755–0.2969 PV systems below 12 MW are supported by FiTs
Tender programmes FiTs are subject to an annual digression
5–10% FiT increase for BIPV systems if all stages of the module
Tax credits production process are completed in the EEA
Doubling of the annual PV cap (from 500 MW to 1 GW) 5% FiT
Capital subsidies appreciation for simplified BIPV systems
Reduced VAT rate FiT cut of 20% per year
20% decrease of FiT for non-integrated PV plants

Germany FiT (20 years) 0.0974–0.1407 PV systems below 10 MW are supported by FiTs
Market premium Legal cap of 52 GW (in 2020)
Self-consumption Both FiTs and market premium are subject to a digression
A cap for FiT is established at 90% for PV installations between
Capital subsidies 10 kW and 1 MW

Greece Low-interest loans 0.095–0.125 FiTs are subject to an annual digression

FiT (20 years) PV systems above 10 kW must pay a tax between 25–42%
Special FiT (25 years)
Net-metering

Net-metering ( < 200

Italy kW) Not active The tax deduction of 36% can be cumulated with net-metering
Under the ritiro dedicato regulatory system the PV energy can
Tax deduction (36%) be sold directly to GSE at guaranteed fixed prices

United Ritiro dedicato

Kingdom regulatory system 0.0818–0.1779 FiTs are subject to an annual digression
Reduced VAT rate For PV system below 30 kW, the producer receives a feed-in
FiT (20 years) premium above
Quota system with the FiT (export tariff).For PV system above 30 kW, the surplus of
ROCs energy can be sold directly on the electricity market at
Self-consumption wholesale prices
Export tariff PV installations must undergo an accreditation process in order
Tax breaks to be eligible for FiTs

Given these strategies for investment, we now discuss a new concept call as solar ready buildings

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Solar Ready Buildings
As seen in the previous sections, the cost of PV systems is quite high and it is almost impossible
to generate positive returns without external incentives. Ashuri and Kashini[6] have discussed the
concept to gain advantage of the fact that the cost of PV is decreasing. Given the high current
cost of PV, if my be more attractive for the investors to delay investment in PV so that the solar
technology are actually installed when it is economically feasible to install them. This would mean
that the buildings currently are constructed in such a manner that PV technologies can be easily
adopted future when the prices lower and the cost of grid electricity increases. Solar ready
buildings are constructed so as to keep into account the roof area required for PV installation,
orientation of the building and wiring and ducting arrangements so that the installation of PVs is
easy in future. The study[6] aims to develop a model which would help the investors to decide the
optimal time of investment so that they do not under or over invest in a project.
The concept is based on two basic expectations:
 It is expected that due to technological advancements and economies of scale, the cost of PV
systems will decrease.
 It is also assumed that due to shortage of resources, the price of grid electricity will increase

The investment model consists of the following three components:

Building energy simulation

This component simulates the energy consumption of the solar ready building before and after
the installation of PV panels and this data is used as an input for analysis.

Retail energy price modeling module

This component is used to model the probabilistically, the future prices of retail energy. This is
done by creating a bimomial lattice model (Figure 2) to model the price uncertainty. As per this
model, the if the price in the current period is So then it can either be uXSo or uXSo at the end of
the current time period(with u>1 and d<1). The probability of price increasing is p and price
decreasing is 1-p. This binomial lattice can then be used to generate random energy paths.

Figure 2. Binomial Lattice for energy price paths[6]

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Experience curve modeling
This component is used to model the price variation of PV with time. This is done by incorporating
the effects of marginal reduction in cost due to improvements in technology. The empirical
formula used for the curve is Pt=PoX-a where Po is the initial price and X is the total cumulative
production in Megawatt till time t and 2-a is the Performance Ratio (PR). Figure 3 shows the
Experience curve of PV modules from 1968 to 2006.

Figure 3. Experience curve for PV modules from 1968 to 2006[6]

Figure 4. Investment value of optimal delayed investment[6]

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Using the above model and sample data an analysis was done considering various investment
times and optimal time for investment in PV was obtained. The expected NPV of solar building
was $-11,772 and for solar ready building was $5,480 as shown in Figure 4. Thus giving a flexibility
of $17,252. Also due to the delayed investment the 75% chance of failure of investment is
reduced to a 35% chance of failure because of delayed investment. This model can thus be used
to decide on the appropriate time for PV installation.

Even though this method seems promising, it uses expected value of NPV to show the feasibility
of installation. There is a quite large chance that the solar panels are not installed throughout the
lifetime therefore defeating the purpose of implementing solar ready mechanisms in the
buildings. The approach is also based on an assumption that the price of solar electricity is going
to decrease in the coming years, however since it is evident from the experience curve the price
decrease is not expected to be of very substantial amount and since the materials used in
formation of solar Panels are also not abundant, it is quite possible that the price of solar panels
might increase in future. If the possibility of price increase is also taken into consideration, then
immediate investment might be the best option. Moreover, this approach does not take into
account the environmental aspects of installation of PV systems, incorporating the reductions in
carbon emissions might also give results in favour of the approach.

Discussions
The different studies on performance evaluation show us that that it investment costs in PV is
very high and without external support, it is economically not feasible to implement these
technologies. These studies however have helped us to outline some factors which play
important role in enhancing the performance and reducing the external support required.
These factors can be summarized as:

 High solar irradiation which would ensure more electricity generation

 Locations where the rates of grid electricity are high tend to be more profitable when it comes
to investment in PV systems
 Locations which are remote and where the cost of setting up of electricity grid is too huge or
setting up of electricity grid is not feasible
 Technological advancements will definitely help in reducing the cost of the PV systems
 The economic and environmental performance would also depend on the place(country) from
which the PV modules are purchased
 Regular cleaning of the solar panels to remove dust from the surface is required to ensure
that the losses due to soiling do not take place

The general initial investment required for PV is around $10000 for a typical 5KW installation and
the payback period is around 10 years with and IRR of around 10%[7]. This payback period
duration is quite large when it comes to the comparatively small investment amount. The IRR is
also not very attractive. Therefore investing in PV is not a very attractive option for the parties.
They might prefer to invest in options areas like stock markets and other financial products which

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generally give higher returns and have lower payback periods. This issue would now force one to
think if it is a right option to invest in PV.

The incentive schemes devised to encourage investment in PV are not sustainable since the
government cannot pay for installation of PV all the time. Thus these incentive schemes are
bound to end in near future and only if the installation of PV becomes economically attractive
without external support, will it be undertaken by parties. In this direction, mechanisms to shift
the cost burden of PV to the consumers of electricity are sustainable. One such approach which
involves purchase of ROCs by power supplying company is followed in UK[4]. These schemes
however can only be implemented in special solar power stations the sole purpose of which is to
produce electricity.

The most ideal case would be the one where all the establishments install PV and use the
electricity generated for self-consumption, exporting the excess power to the grid without any
economic benefit. This sort of arrangement would require that the amortized cost of installation
of PV is less than the cost of grid electricity and the difference is high enough to get a reasonably
low payback period. One such scheme to shift the cost burden of PV to the consumers would be
to make it compulsory for all the real estate developers to install PV systems on the roof tops and
incorporate the additional cost that they incur into the rent of the apartments. This can be easily
done since most of the construction happening these days is by real estate developers and
consists of multi-storied apartments. This additional cost can be regulated by government to
prevent misuse. Also various government establishments like schools, offices and commercial
buildings can serve as an ideal place for installation of PV systems because of the largely open
roof tops and their uniform presence in an area. The installations in these establishments can be
utilized for non-profit purposes and can allow larger payback periods.

Since the major issue with feasibility of PV systems is the cost of raw materials, there should be
more research into finding alternative materials for harnessing solar energy and converting it to
electricity, or if alternative materials are not available, research should be done so that the
efficiency of the PV systems increases and technological advancements lead to reduction in
installation costs.

Another issue that exists with the solar power is that sunlight although abundant in nature, is not
present throughout the duration of the day or even the year, this essentially means that solar
power cannot completely substitute the conventional sources of electricity. The weather
dependence of solar power is thus a major hindrance full acceptance of solar modules for
generation of energy. One way by which this could be countered is by incorporating storage
mechanisms such that the electricity generated can be used during the non-productive hours.
This would also mean that the installed systems should have a power output which is not only
able to suffice the current demand but also the future demand. This would definitely reduce the
uncertainty in supply of electricity however it would also mean added investment costs which
can only be controlled by technological advancements.

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Since the main purpose of installing solar power is to reduce the GHG emissions it is also
important that the sustainable aspect is incorporated into the economic analysis. This would
need a shift from the ideology where people recognise environmental conservation as an
initiative which is profitable instead of viewing it as something which needs additional
irrecoverable investment. All the studies which carry our economic feasibility fail to incorporate
this aspect of solar energy. For such an ideology shift to take place, we must focus on monetary
value of GHGs prevented from emitting with the use of PV technologies. This calls for a metric to
convert GHG emissions into money followed by adequate awareness drives among the people so
that they are informed about the monetary benefits of using PV.

Conclusion
This paper discusses various issues that prevail while considering investment in PV systems. Life
cycle performance has been discussed through case studies and various incentive schemes that
are present in the countries across the globe have been discussed. The concept of solar ready
buildings has been presented along with some of the drawbacks in the approach. We finally close
with some arguments derived from the ideas presented in the paper and some suggestions on
how to improve the economic feasibility of PV systems. We have found that technological
advancements along with shifting the cost burden to consumers of electricity can be a sustainable
way of implementing solar modules on a large scale.

References
[1] Al-Otaibi, A., Al-Qattan, A., Fairouz, F., & Al-Mulla, A. (2015). Performance evaluation of
photovoltaic systems on Kuwaiti schools’ rooftop. Energy Conversion and Management, 95, 110-
119.
[2] Ghadge, C., & Kim, Y. W. (2014). Testing Effectiveness of Solar Photovoltaic Systems for Public
Schools in Washington. In Construction Research Congress 2014@ sConstruction in a Global
Network (pp. 604-612). ASCE.
[3] Hendrickson, T. P., Horvath, A., & Madanat, S. M. (2012). Life-Cycle Costs and Emissions of
Pareto-Optimal Residential Roof-Mounted Photovoltaic Systems. Journal of Infrastructure
Systems, 19(3), 306-314.
[4] Dusonchet, L., & Telaretti, E. (2015). Comparative economic analysis of support policies for
solar PV in the most representative EU countries. Renewable and Sustainable Energy Reviews, 42,
986-998.
[5] Lee, M., Hong, T., & Koo, C. (2016). An economic impact analysis of state solar incentives for
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States. Renewable and Sustainable Energy Reviews, 58, 590-607.
[6] Ashuri, B. and Kashani, H. (2011) A Real Options Approach to Evaluating Investment in Solar
Ready Buildings. Computing in Civil Engineering (2011): pp. 768-775.
[7] Rodrigues, S., Torabikalaki, R., Faria, F., Cafôfo, N., Chen, X., Ivaki, A. R., ... & Morgado-Dias, F.
(2016). Economic feasibility analysis of small scale PV systems in different countries. Solar
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