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There are several factors influencing a business- or home-owner’s decision to install wind or solar PV (Photo-Voltaic or other. “clean” or “green” energy) generators, and making such investments attractive. Some of factors or parameters influencing the economics are listed as inputs for the “Green Energy Return-on-Investment (ROI) Calculator”*[1]. Other factors such as noise (windmill rotation or humming of central inverters), safety are not. But the effect of escalation of fuel and electricity rates in future years should and will be added shortly. We here take a closer look at how the minimum monthly charge (MMC) on Net-Energy Metering (NEM) electricity bills detracts clean energy investments in Hawaii County.
In a previous article, we graphed the influence of interest rate on annualized and averaged ROI (AAROI) and payback time [2], with and without Federal and State refundable tax credits. Another parameter of interest to homeowners, industry and government would be the effect of the "clean energy generator" capital cost on AAROI[3] and payback time, which may be provided in a future article. All these are intended to help pave our path toward achieving sustainable energy independence [7,8].
In Fig.1 below, we graphed and quantified the influence of the presently remaining MMC of $22.16 on HELCO’s utility bill, which remains in effect even in cases of the annual balance shows energy generated in excess of energy consumption or consumption of zero net energy from HELCO's grid, and is in line with the Public Utility Commission (PUC) -approved Rule 18[4]. We envision a scenario in which a future and updated version of above Rule 18 allows such MMC to also be paid, not in dollars, but with “clean” kWh equivalents, generated by home or commercial wind or solar PVs.
Under the reference input conditions of the above calculator*, corresponding to a net PV cost of 3.62 $/W (after tax credits), Fig.1 below shows that the small-appearing MMC = $22.16 per month has a significant long-term effect, which negatively affects the attractiveness of investing in clean-energy generation, and should thus be modified as envisioned above, because:
1. Its cumulative cost over a 25-year warranty of today’s PV panes, is 22.16 x 12 x 25 = $6,648, or $7978 for a 30-year panel life, i.e. it can amount to more than the whole installed PV system cost
2. At the presently effective, average residential tariff of 0.40 $/kWh in the Big Island (including all fees, taxes and surcharges), the MMC increases payback time from 8.21 to 11.72 years, while reducing the annualized, average ROI (AAROI) from 9.76 to 5.77 %/year. This assumes no escalation in MMC or electricity price.
3. The above results are still valid if, after eliminating all subsidies, clean electricity generator systems were to be installed for 3.62 $/W (I.e. my PV system installed cost of 7.95 $/W before tax credits, in Nov.’09[5]), which is within reach, given that the manufacturing cost (not sell price or installed price!) of PV panels dropped below 1 $/W in 2009.
One might guess, and the calculator[1] confirms it, that the above statements do not change if in future years, the MMC, the electricity cost and the net PV capital costs to the user were to simultaneously change or escalate at the same rate. Because solar PV costs have dropped significantly in the past few months, maybe enabling installation costs of 6-7 $/W, a good time to invest in PVs is now.
The dashed curves in Fig.1 represent two additional scenarios (a variation of the reference inputs*), whereby, with the MMC in force, the state tax credit was reduced from 35% to 24.5%, representing new PV owners without a Hawaii state tax liability, which increases payback and reduces the AAROI, relative to the solid curves with the “full” points. For those lucky owners located in areas benefiting of more sun, a higher capacity factor, F, of F = 19% (rather than the reference input of 15%), is seen to over-compensate for the loss in the amount of tax credit.
The data shown in Fig.1 assume that the annual electricity generated exactly equals the amount consumed, and are thus valid for NEM and FIT contracts with equal MMS. For residential PV systems in Hawaii County, the NEM contracts call for balancing the books annually, whereby the utility customer pays for any excess kWh consumed or loses any excess generated and fed into the grid. The same annual balancing may hold with an FIT contract, except a still to-be-agreed-on electricity rate (which may be higher or lower than the residential rate) is applied for the excess generated.
Conclusions
To increase the business incentives to install wind and solar PV generators, residual or minimum monthly charges (MMC) remaining with Net Energy Metering (NEM) and/or Feed-In-Tariff (FIT) contracts by the utility to the distributed generators (DBs) should be substantially reduced, eliminated, or allowed to be paid with excess kWh generated, because even small amounts like HELCO’s present NEM MMC of $22.16/month are significant economic inhibitors, to the detriment of making progress towards Hawaii’s goal of using 70% clean, renewable energy by the year 2030 (40% from renewables and 30% from energy efficiency). Maybe the new Building Code, rather than focusing much on insulation, should also focus on local PV or wind generation?
Note that the validity of Fig.1 values of payback time and AAROI are unaffected by simultaneous relative changes in electricity cost, MMC and PV capital costs (after tax credits). Recent drops in the latter indicate that this is a good time to invest in PVs. For potential buyers, a list of points to consider was posted on the same “Friends of NELHA” (FON) website[6].
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* Peak generator output: 2 kW (AC)
Capacity factor: 15 %
Generator product life: 25 years
Loan Interest: 4 %/year
Fuel-based electricity cost: 0.40 $/kWh
Capital investment: 15,895 $
Fed tax credit/refund: 30 % of capital investment
State tax credit/refund: 35 % of capital investment
Crude oil cost: 80 $/barrel
Monthly minimum utility bill: 22.16 $/month
References
[1] U. Bonne, “Green Energy ROI and Electricity Cost Calculator,” Friends of NELHA (FON) website, Hawaii, 21 March 2010
[2] U. Bonne, “Solar PV Economics for Home, Industry & Government,” FON website, Hawaii, rev. 17 April 2010
[3] AAROI = Annualized, Average Return of Investment in %/year. This should be larger that the %/year earned in a bank savings account or with other very conservative investments.
[7] Robynne Boyd, “Hawaii Says Aloha to Clean, Renewable Energy Scientific American (website) June 1, 2009. By 2030, it plans to obtain 70 percent of its power from clean energy (40 percent from renewables and 30 percent from energy efficiency).
[8] Gov. Lingle signs 4 key energy bills as part of the Hawaii Clean Energy Initiative,” June 2009. For questions call Margaret Carlstrom, DBEDT Energy Division, 808-587-3813.
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