THE ACTUAL VALUE OF SOLAR ELECTRICITY (PHOTOVOLTAICS) IN URBAN SETTINGS: REAL-TIME PRICING, SRECS, AND TAX CREDITS Lucas Witmer Department of Energy & Mineral Engineering The Pennsylvania State University 221 MRL Building University Park, PA 16802
[email protected]
Mesude Bayrakci Department of Energy & Mineral Engineering The Pennsylvania State University 221 MRL Building University Park, PA 16802
[email protected]
Babatunde D. Idrisu Department of Energy & Mineral Engineering The Pennsylvania State University 24 Hosler Building University Park, PA 16802
[email protected]
Jeffrey R. S. Brownson, Ph.D. Department of Energy & Mineral Engineering The Pennsylvania State University 224 MRL Building University Park, PA 16802
[email protected]
Seth Blumsack, Ph.D. Department of Energy & Mineral Engineering The Pennsylvania State University 124 Hosler Building University Park, PA 16802
[email protected] ABSTRACT Grid connected photovoltaic (PV) systems range from large-scale utility systems to small distributed PV systems. Capital costs and operating revenues vary significantly from system to system. The payback period for any PV system is highly dependent on the location and the financial model. Electricity pricing structures used today do not typically use a real-time pricing structure. At best, a pricing structure sometimes includes seasonal variation that remains constant during the day. The real value of PV is demonstrated by using an hourly pricing tariff where the correlation between peak electricity prices and PV output is considered. Neglecting the variability in location by focusing on systems located in the Philadelphia region, this paper analyzes the economic payback model for PV systems based on different electricity pricing structures, solar renewable energy certificate (SREC) markets, and tax incentives offered by local, state, and federal governments. Scenarios have been developed that demonstrate the impact of a wholesale, real-time, market driven electricity price versus the average price of electricity. The real time
locational pricing values solar electricity as much as 24% higher than the same photovoltaics with retail pricing because solar electricity is generated during the day when peak demand and peak prices occur. Additionally, some SREC markets have experienced volatility as a result of supply-demand disequilibrium. A sensitivity analysis of these variables portrays critical targets for aspects of widespread PV deployment that help to inform potential policy makers. 1. INTRODUCTION In the Mid-Atlantic region, 47% of commercial buildings were built before 1960, and pose as a significant challenge to retrofit.[1] This research is in collaboration with the ongoing work at the Philadelphia Navy Yard for the Greater Philadelphia Innovation Cluster (GPIC) in collaboration with the U.S. Department of Energy (DOE). This group has been tasked with developing a road map for reducing the energy consumption of commercial buildings in the ten county region of Philadelphia by 50%.[2] In addition to the work performed to achieve 50% 1
energy efficiency, it is critical to have a holistic perspective and design the retrofits with a systems integrative design approach.[3] One key issue is congestion on the electricity grid in the Mid-Atlantic region of the United States. This study develops a model to better understand the role of the valuation of electricity in real time with respect to solar photovoltaic electricity. Solar energy conversion systems in strategic locations can have a significant impact. The Navy Yard will be studied as one case study to prove the feasibility of using solar as a congestion remediation tool for the Mid-Atlantic. Using a set of reasonable assumptions, the result of this project will be a tool to assist in narrowing down the areas that need to be studied in more detail. This model determines the payback period for a grid tied, net-metered, solar photovoltaic (PV) system in a commercial urban location that experiences periodic congestion. Electricity demand reaches the highest peaks during the day when solar energy generation is happening. This peak in electricity demand is correlated with peaks in real time locational marginal prices, which represent the wholesale value of electricity at that time. As such, particularly in congested regions where the locational marginal price can get very high, solar PV systems are valuable as a peak shaving technology to alleviate congestion. Precedent for this type of pricing structure exists for large scale, utility systems. However, this is not yet standard policy and is not easily attained for residential or commercial sites where time-of-use pricing is not available. Across the Mid-Atlantic region it is necessary to have policy in place that couples real time pricing structures to small PV systems, passing along the real value to the system owner. The aggregation of many small systems will result in very effective alleviation of congestion when demand peak shaving can occur in real time because of solar energy conversion systems. 2. BACKGROUND The main areas of solar energy incentives that are currently employed by state and federal governments in the U.S. are feed-in-tariffs, net-metering, SRECs, and tax credits. In Pennsylvania, net-metering, SRECs, and tax credits are all available for PV system owners. These three will be analysed and discussed in this paper. 2.1 Pricing Regional transmission operators (RTOs) have centralized markets for wholesale day-ahead electricity
purchase as well as wholesale real-time electricity purchase. On the day-ahead market, predictive models are used to schedule or commit certain power plants to run the next day. However, the prediction is not perfect, so the real-time market determines which power plants are actually dispatched to meet demand on a real-time basis. The price for electricity in this real-time market can be very volatile, but is an accurate portrayal of the expense of peak loads during hot days in the summer. Pennsylvania’s RTO is PJM. In the PJM region, most consumers do not pay for their electricity in real-time. Retail electricity prices may change over the course of a year from month to month, but do not get priced on an hourly basis. This is in part due to the lack of infrastructure that is necessary to do this, via “smart” meters. The cost to the utility companies of a flat retail price is easily remedied by an increase in the average price that covers the cost of the summer peaks and volatility that is seen in the real-time wholesale market. Besides the issue of a feedback loop that does not exist for the end user to reduce energy use at this peak time, a retail PV system owner does not see the benefit of producing energy at the peak of the day when prices are highest. 2.2 Solar Renewable Energy Certificates The Pennsylvania Alternative Energy Portfolio Standard (PAEPS) requires that each Electric Distribution Company (EDC) and Electric Generation Company (EGC) to supply 18% of their electricity sales by alternative sources by the year 2021. Compliance is achieved by means of alternative energy credits (AEC). One AEC is equivalent to 1 MWh of generation and for solar generation is also referred to as a Solar Alternative Energy Credit (SAEC) or Solar Renewable Energy Certificate (SREC). Eligible energy sources are divided into two broad groups: Tier 1 and Tier II. Solar PV is a Tier I resource, however the Pennsylvania Alternative Energy Portfolio provides a solar set-aside mandating EDCs and EGCs to supply 0.5% of electricity generation from photovoltaics. The requirement is met by retiring SRECs for compliance; the SRECs are tracked by the PJM-GATs system. The list of qualified Solar generation facilities is maintained on the Pennsylvania Alternative Energy Portfolio Standard website.[4] There are 7434 generating facilities registered on the site as of January 31, 2012. Of these, 5692 generating facilities are based in Pennsylvania while 1742 generating facilities are based outside of Pennsylvania. As of January 31st, there is an installed capacity of 138MW of Solar PV in 2
Pennsylvania. In order to estimate future supply of solar energy, the PJM construction queue is examined. About 25% of generators in the queue have been built from 2005-2009.[5] This percentage is assumed to hold for future years beyond 2009 in the following analysis. There are 562 MW of active generators in the queue. The prices of SRECs have consistently fallen for the last two years in Pennsylvania. Figure 1 shows the trend of SRECs from July 2010 to March 2012 for the 2011 compliance year.
2.3 Tax Credits Currently, the federal government offers an incentive to solar energy system owners in the form of a federal tax credit of 30% of the capital cost of the system.[8] This is set to expire at the end of the year 2016, but future legislation could extend this policy or set up a new structure for the future. In addition to this federal tax credit, many states offer grants or tax credits as well. In Pennsylvania, the PA Sunshine Program returned 35% of the capital cost of solar energy systems back to system owners.[9] This program started in 2008 and was structured to step the amount of the rebate down as more systems are brought online. The last step is now finished, but the program is still open in the “Waiting List” phase of the program. 3. DATA AND METHODS For this analysis, hourly real-time data sets for the whole of 2011 were required. Data for solar irradiation, electricity load, and electricity price were gathered for the Philadelphia region.
Fig. 1: Flett Exchange 2011 Pennsylvania SREC Settlement Price.[6] At the same time, the supply of SRECs has steadily increased and is projected to continue increasing based on the current capacity and generators in the queue. The Demand and Supply for SRECs in PA alone is shown in Figure 2 assuming that 25% of the generators in the queue are built. 4
5
x 10
3.5
Solar PV Supply vs Demand for PA Supply
Demand
Quantity (MWh)
3
PV production was calculated on an hourly basis using solar irradiation data from NOAA’s weather station in Avondale, PA for the 12-month period from January 2011 to December 2011.[10] This weather station is part of the U.S. Climate Reference Network and provides hourly irradiation values in addition to several other weather data. In order to obtain PV production, a 12% system efficiency value and the total area of several PV systems simulated across 20% of the total roof space (5,000,000 sq-ft) at the Navy Yard yielded solar energy generation for a large scale urban setting, as shown in Equation 1. PV Production =Solar Radiation × Total Area
2.5
× PV Roof% × PV Efficiency
2 1.5 1 0.5 0 2010
3.1 Solar Irradiation and Load Data
2011
2012
2013
Year
2014
2015
2016
Fig. 2: Solar Supply vs Demand for the Pennsylvania Marketplace Only.[7]
(1)
Hourly load data for customers located in the service territories of PJM was obtained for the same 12-month period spanning the whole of the 2011 year.[5] The load dataset is the total load for the PJM region and is assumed typical of the greater Philadelphia region. The load data is simply used as a weighting factor for the simulation of buildings at the Philadelphia Navy Yard. The weighted fraction of total peak demand provides an assumed hourly load profile for the Navy Yard that is based directly on the actual PJM load data for the whole of 2011.
3
3.2 Locational Marginal Prices Locational Marginal Prices (LMP) are the basis for payment to or from the regional transmission operators. LMP is the marginal cost of delivering an incremental unit of energy (one additional MWh) to any specific location in the network. As such, it encompasses both the generation and transmission of a unit of energy. The analysis on real-time pricing presented in this paper is based on the LMP for certain locations in the PJM Interconnection.[5] Six locations were searched and are listed in Table 1. The hourly LMP prices were found for each of these locations and examined for use in this analysis.
to be $4.50/Wp.[12] Also, PV system size (as determined by Equation 1) and SREC price were set to 11.148 MWp and $12/MWh, respectively. Total Installation Cost = Installed System Price × PV System Size Total Elec Bill no PV =
Type
PECO GreenlandGap Limerick Sunoil Tri County Catawissa
Zone EHV EHV Aggregate Aggregate Aggregate
In order to demonstrate the impact of the real-time pricing method in urban settings, a comparison was pursued that contrasted these locations against each other. The LMP of the PECO zone was very close to the LMP of SunOil which is geographically very close to the Navy Yard. As such, the PECO LMP was selected for use in this analysis. Limerick, about 40 miles outside of Philadelphia, was 3.5% lower than PECO’s price. Limerick represents a good comparison for average prices outside of a large city being lower than in the urban setting where congestion is a more serious issue. The other locations did not yield useful results or comparisons toward the purpose of this paper. 3.3 Payback Period Model Payback evaluation is done in order to determine if the PV system is sustainable and rational.[11] If the payback period (time) for a system is longer than that of an alternative system, the system is not rational. If it is longer than the life of the system, then it is not sustainable. In this part of study, the time needed for the net present value (NPV) to become zero was chosen to find the payback period by equations 2-7. Then, a graph was plotted for NPV with respect to time. From that graph, the payback period is determined to be the point where NPV is equal to zero. Several assumptions were made to calculate payback period. In these calculations, installation cost was set
(Loadi × LMPi )
(3)
i=1
Bill with PV =
8760 X
[(Load − P rodP V )i × LMPi ]
(4)
i=1
Annual PV Revenue = Total Elec Bill no PV
Table 1: Name and types of six locations Name
8760 X
(2)
− Bill with PV Annual SREC Revenue = SREC Price × Total PV Production
(5)
(6)
Net Present Value is calculated by Equation 7 where NPV is the Net Present Value, TPVC is the total PV capital cost, CCR is the capital cost rebate, ARPV is the annual revenue from real time wholesale PV electricity, ARSREC is the annual SREC revenue, r is the interest rate, and t is the PV system life time. Interest rate and PV system life time were assumed to be 5% and 25 years, respectively.
N P V = − (T P CV − CCR) + (ARP V + ARSREC)/r
(7)
t
× (1 − 1/(1 + r) ) 3.4 Calculations First, for each month, we must calculate the weighted average Locational Marginal Price based on percentage of the total annual load that is in that month. Based on the hourly PJM load data, the weighted average LMP is calculated by dividing the total revenue by the total load, as per Equation 8.
Weighted Average LMP =
T otalRevenue T otalLoad
(8)
Since PV production is dependent on the time of day and season, the weighted average PV LMP is obtained by Equation 9.
P8760 Wghtd Avg PV LMP =
(P rodP V ∗ LM P )i (9) T otalP V P roduction i=1
4
addition of this difference in price and a multiplication based on the percentage difference in the price. 100
2011 PECO Electricity Real−Time Wholesale Price
90 80 70
Fig. 3: 2011 PECO real-time locational marginal price. $/MWh
60 50 40 30 20 10
Fig. 4: 2011 Philadelphia real-time solar irradiance.
0 1
Weighted Avg. PV Price PECO Weighted Avg. LMP
2
3
4
4. RESULTS & DISCUSSION
LMP is the foundation that determines Residential prices. Weighted average PV price based on LMP is higher than LMP by as much as 24% in the summer, as shown in Figure 5. This is a weighted average difference of $9.34/MWh, or 18%, over the whole year. Under current policies that do not include real-time pricing for PV electricity generation, a residential PV system owner receives the same price for electricity sold back to the grid as they pay for electricity purchased from the grid. This is an undervaluation of the PV electricity. Since the PV price is worth nearly $0.01/kWh (18%) more at the LMP level, this benefit should be passed along to the system owner by some method. Two proposed methods are shown in Figure 6 as a simple
6
7
8
9
10
11
12
Fig. 5: 2011 PECO electricity wholesale real-time price and the load weighted average PV real-time price. 2011 PECO Electricity Retail Prices
260 240 220 200 180 160
$/MWh
Solar energy systems hit peak production during the middle of the day. Additionally, during the summer months, production levels are highest. Because of the heat that is typical during the early afternoons during the summer, electricity demand is highest during this time as well. Figure 3 shows the LMP for PECO for 2011. The peak prices during the summer are easily picked out in the middle of the day in the middle of the summer. There are some high prices at the end of January, which are likely due to extremely cold weather as well as a peak in the evenings throughout the year. However, the single largest grouping of higher prices, and the highest prices in red, in Figure 3 occur during the times that correspond with the peak solar irradiance times shown in Figure 4. There is a correlation between solar irradiance and peak electricity prices.
5
Month of the Year
140 120 100 80 60 40
Price*(1+%) Price+difference Retail Price
20 0 1
2
3
4
5
6
7
8
Month of the Year
9
10
11
12
Fig. 6: 2011 PECO reatil electricity price and two proposed alternative prices for PV generation. One cent per kilowatt hour may not be considered to be a large difference. However, payback period calculations show that this small incentive would decrease the payback period by about one year, from over 20 years to under 19 years. If the policy is more generous than the $0.01/kWh, and returns 18% more per kWh to the system owner, the payback period is 5
decreased by five years to under 16 years. This is portrayed in Figure 7. Additionally, based on the 194 MW of installed PV capacity in Pennsylvania, this is worth between $2.2M and $2.8M per year.[5] If Pennsylvania meets its RPS goal of 0.5% of generation supplied by PV systems by 2020, this grows to about $8M of revenue that is not seen by the system owners. 40
Net Present Value ($M)
30
Payback Period (SREC=$12/MWh)
As is discussed in Section 2.2, SREC prices change over time. There is current legislation under development that could move the RPS requirement for PA forward by several years to help demand “catchup” to supply sooner. This would likely result in a large increase in the SREC price. In order to see how the SREC price affects the payback time, various reasonable historic and expected SREC prices are shown in Figure 8. All other aspects of the NPV model were not changed.
NPV NPV−Adding Money Difference NPV−Adding Percentage Difference
20 10 0 −10
5. CONCLUSION
−20 −30 −40 0
5
10
Years
15
20
25
Fig. 7: Payback time calculation plot with $12/MWh SREC Price 40 30
Net Present Value ($M)
bulk of the electricity to consumers are earning this revenue for providing net-metering and taking care of the volatility inherent in the renewable energy generation. However, rather than simply ignoring where this revenue is going, since it could be used as an incentive that decreases the payback period for system owners, a better structure that includes this type of analysis for PV electricity pricing is necessary.
Payback Period with Different SREC Prices $150/MWh $100/MWh $50/MWh $12/MWh
20 10
It is a challenge to know the true value of electricity that is generated by renewable energy systems such as solar photovoltaics. There are factors that decrease the value, such as volatility and non-dispatchability, as well as factors that increase value, such as a low carbon footprint and inherent peak production. Incentives that are politically driven by artificial forces do not level the playing field and are typically designed to get a technology, such as photovoltaics, off of the ground and into the main stream. Incentives that are based on market driven principles and the reality of peak prices as well as real-time production do level the playing field. Real-time pricing is a strong proponent for more grid-tied photovoltaics that help with peak shaving. 6. ACKNOWLEDGMENTS
0
The Pennsylvania State University, the College of Earth and Mineral Sciences, and the John and Willie Leone Family Department of Energy and Mineral Engineering.
−10 −20
7. REFERENCES
−30 −40 0
5
10
Years
15
20
25
Fig. 8: Sensitivity of NPV and payback period with respect to SREC Price. This additional revenue from PV systems is not lost. The grid operators and companies that provide the
(1) Michaels, J. (2003), “Commercial Buildings Energy Consumption Survey,” URL http://www.eia.doe.gov/emeu/cbecs/. (2) GPICHUB (2012), “GPIC Goals,” . URL http://gpichub.org/about/gpic-goals (3) Meadows, D. (2008) Thinking in Systems, Chelsea Green Publishing Company. (4) Public Utility Commission (2012). URL http://paaeps.com/credit/ (5) PJM Interconnection (2012), “Monthly Locational 6
Marginal Pricing,” . URL http://www.pjm.com/ (6) FlettExchange (2012), Pennsylvania SRECs Flett Exchange, . URL http://flettexchange.com (7) PUC (2010) 2010 Annual Report Alternative Energy Portfolio Standards Act of 2004, Tech. rep., PA Public Utility Commission. (8) The United States Federal Government, “United States Code, Title 26, Section 25D. Residential energy efficient property,” URL http://www.dsireusa.org/. (9) The Commonwealth of Pennsylvania, “Pennsylvania Sunshine Solar Rebate
Program,” URL http://www.dsireusa.org/. (10) NCDC (2012), “US Climate Reference Network,” . URL http://www.ncdc.noaa.gov/ (11) Duffie, J. A. and W. A. Beckman (2006) Solar Engineering of Thermal Processes, 3rd ed., John Wiley and Sons, Inc. (12) Goodrich, A., M. Woodhouse, and T. James (2011) Solar PV Manufacturing Cost Model Group: Installed Solar PV System Prices, Tech. rep., National Renewable Energy Laboratory.
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