Consider a hypothetical residential household in Tokyo with an average electricity consumption level. According to Enecho, the average electricity consumption in the Kanto area is 3,833kWh per year. Suppose that the family in question has no solar PV at the moment. They face the average electricity rate of 26.3 yen/kWh. Suppose the price level stays the same for the next 30 years. (This is a very strong assumption. There is large uncertainty about the price in the future.)

Consider the family’s investment in installing a rooftop solar PV system. Here is the specification.

System size: 5kW

Capacity factor: 13.7% Duration: 30 years

The electricity output of the solar panel drops by 0.5% (that is, half of one percent) every year.

Based on the household electricity usage, 30% of the solar panel output is used by the household; it sells the remaining 70% back to the electric utility. The household can sell the electricity at 17 yen/kWh for the first 10 years; and at 9.5 yen/kWh for the rest of the following 20 years.

Suppose the initial cost of solar PV equipment and installation is 280,000 yen per kW (so the 5kW system costs 5 times 28 man yen). Every 4 years (that is, in year 4, year 8, year 12, …), there will be maintenance costs equal to 29,000 yen every time. In year 20, the “power conditioner,” a device that controls the management of the solar system, must be replaced at the cost of 224,000 yen.

• (1) Compute the net (private) present value of investment in solar PV for this average household. Consider three scenarios with discount rates at 2%, 3%, and 5%. For this cost-benefit analysis, the base (reference) case is the status quo with no solar PV; the project to be evaluated is the investment in solar PV as described above.
• (2) Is the (private) net benefit positive or negative? Explain.
• (3) Compute the levelized cost of electricity of solar PV under the discount rates at 2%, 3%, and 5%.
• (4) The above computations address the private benefits and costs of solar PV installations. What about the social benefits and costs? Explain how they affect the net present value of solar PV investment and its levelized cost.

Apply a spreadsheet application (either MS Excel or Google Sheets) to answer the questions. Submit your spreadsheet (either the file or the url of the Google Sheet). You can add your answers to (2) and (4) on the same spreadsheet.

Answer rating: 100% (QA)

1 To compute the net present value NPV of investment in solar PV we need to calculate the present value of the costs and benefits over the 30year period Lets calculate the NPV for each discount rate D... View the full answer