Performance & Financial Analysis
|Prepared February 19, 2018 for|
|John And Jane Homeowner|
1 Rolling Hills
Rolling Hills, CA 90274
|Prepared by WILLIAM HOWE|
4135 228 TH. PLACE
TORRANCE, CA 90505
Phone: 310-373-9658 | Email: HOWETOBUILDSOLAR@AOL.COM
Electric Utility Savings: Anticipate a savings of approximately $6,315 in electric bills (93%) at current utility rates in the first year. Savings will grow as electric utility rates are expected to rise 4.25% a year. The purchase of electric energy (kWh) from your utility is expected to be reduced by 58%. Also, your electric rate has Tiered and Time-of-Use attributes, and this project will reduce your average utility electric cost from $0.27 to $0.04 per kWh.
Over 25 years, annual utility savings are anticipated to average $11,302, for a total utility savings of $282,552. In gross income (pre-tax) dollars, savings average $18,229 annually or $455,730 over the system life.
|Energy Efficiency Improvements:||Total Electric use will be reduced by 5,294 kWh/Year.|
See Energy Efficiency Summary page for details.
|Solar Electric (PV) System:||6.12 kW DC (5.875 kW AC, 5.361 kW CEC) producing 9,465 kWh/Year.|
- Property Value Appreciation: $131,660 (first-year utility savings x 20 years)
- CO2 Saved over System Life: 303 tons. Equivalent to driving 606,000 auto miles
The Cost of Doing Nothing
Your Hedge Against Utility Inflation: Your investment in this project will protect you from utility rate inflation.
Utility Cost by Month
Includes monthly Net-Metering "True-Up" to reconcile any net-meter credits accumulated in prior month(s).
Your Hedge Against Utility Inflation: Your investment in this project will protect you from utility rate inflation. Levelized Energy Cost (LEC) analysis provides us with a "hurdle rate" (the levelized energy cost) which can be compared to the expected change in utility rates (by way of utility rate inflation). LEC is the average lifetime cost of energy produced by a particular system. We can compare the LEC to the current utility rate and its expected change in price as time goes on. In this manner one can judge the investment as a "better bet" than utility rates to contain energy costs. Represented below is the average cost of utility energy versus the cost of energy produced (LEC) by your system over time.
Electric: Levelized Energy Cost (LEC)
Your carbon footprint will be reduced. Over the life of your system 303 tons of carbon dioxide (CO2) will be eliminated from your footprint. Equivalent to:
|Planting 7,060 trees.|
|Driving reduced by 606,000 auto miles, or 30,906 gallons of gasoline.|
|Recycling 957 tons of waste instead of sending it to landfill.|
|295,250 pounds (147.6 tons) of coal burned.|
|and you will help avoid the use of up to|
7,380,000 gallons of water by Thermoelectric Powerplants.
Energy Efficiency Summary
|Energy Efficiency Improvements|
|Change outdoor lighting from Incandescent to Compact Flourescent .|
Change outdoor lighting from Incandescent to Compact Flourescent .
Improve Replace Existing Pool Filter Pump With Hybrid efficiency by 75%.
Improve Use Hybrid Pump Off Peak efficiency by 5%.
|Category||Annual Energy Savings|
|Space Cooling||228 kWh Electric|
|Electrical Appliances & Equipment||5,066 kWh Electric|
|Contract Price Summary: Energy Efficiency Improvements|
|No cost for energy efficiency improvements.|
Solar Electric (PV) System Summary
|Tilt: 19° Azimuth: 180° 3" Air Gap|
Shade reduces production: 0%
|PV Panels:||24 x Canadian Solar, Model: CS6P-255M|
|Inverters:||24 x Enphase Energy, Model: M215-60-SLL-S2x|
|Total Panel Area:||400 sq-ft|
|System Peak Power:||6.12 kW DC (5.875 kW AC, 5.361 kW CEC)|
|Annual Production:||9,465 kWh. Supplying 37% of annual electric use (47% after efficiency)|
|Contract Price Summary: Solar Electric (PV) System|
|Contract Amount:||$28,145 ($4.60 per watt DC)|
|Incentives available to Customer in 1st Year|
|Federal Tax Credit (30% of Gross Cost at Installation):||($8,444)|
|Net Cost at Install (after incentives):||$19,701|
|Net Installed Price per Watt:||$3.22 per watt DC ($3.35 per watt AC)|
Sensitivity Analysis: Utility Rate Inflation Scenarios
Sensitivity Analysis is a process of analyzing possible future events by considering alternative possible outcomes.
The average change in utility rates (inflation) over the system life is perhaps the variable which may most affect the return on your investment. The following table summarizes how utility rate inflation may impact your investment. The project, as quoted, is compared to utility rate inflation that averages -5%, 0% and +5% over the system life.
|As Quoted||-5% Inflation||0% Inflation||+5% Inflation|
|Total Utility Savings:||$282,552||$86,494||$157,384||$315,282|
|Cash Gained over Life:||$436,029||$119,805||$234,143||$488,815|
|Return on Initial Cash Invested (IRR):||58.2%||44.1%||51.7%||59.3%|
|Wealth Created Over System Life (NPV):||$211,890||$68,969||$123,497||$234,146|
Utility Inflation, as Quoted: Electric Rates: 4.25%, Natural Gas Rates: 3.78%
How to Interpret Financial Ratios and Measures
A Measure of Security: Cashflow Payback: 1.8 years - 1.8 years (modified)
The most common measure of the security of a proposed investment is its payback, defined as the length of time until one gets one`s money back. Cashflow Payback is when cumulative cash flow stays positive for good. Modified Cashflow Payback is when the cumulative cash in-flows exceed the total of all cash out-flows over the system life; future maintenance expenses are accommodated.
Profitability Index: 11.8
What PI Means: Generally, if PI > 1 then accept the project. If PI < 1 then "qualitative" factors may justify the project.
Profitability Index (PI) is a measure of investment efficiency. It identifies the relationship of investment to its return. Profitability Index (PI) is calculated as: (Net-Present Value of the Returns plus the Initial Investment) divided by the Initial Investment. For example: $19,701 is invested and the NPV of the returns is $211,890, then the PI = ($19,701 + $211,890)/$19,701 = 11.8, or more generically, for every $1 invested you received $11.8 in return.
Net Present Value (NPV): $211,890
What NPV Means: NPV is an indicator of how much value (wealth) an investment adds to the customer. If NPV is positive then the investment would add value. If NPV is zero or negative then other "qualitative" factors may be of adequate value to justify the project (for example, lengthening a swimming pool season). Net Present Value (NPV) is one way to account for the time value of money. NPV calculates the current value of each future cash flow. For example, $1.00 received two years from now is equivalent to something less today, if it can be invested now at some interest rate. This allows us to "discount" the cash flows (whether positive or negative) that the proposed investment is expected to generate at various times in the future back to their equivalent value today (that is, their "present value"). If one then subtracts the cost of the proposed investment from the sum of the present values of the ongoing cash inflows, one obtains the net present value (NPV) of the investment.
Internal Rate of Return (IRR): 58.2%
Internal Rate of Return (IRR) is a common measure of investment efficiency. Equivalent to the yield to maturity of a bond. The internal rate of return (IRR) is the annualized effective compounded rate of return earned on the invested capital.
Modified Internal Rate of Return (MIRR): 17.6%
Modified Internal Rate of Return (MIRR), as the name implies, is a modification of the internal rate of return (IRR) and as such aims to resolve some problems with the IRR. First, IRR assumes that positive cash flows are reinvested at the same rate of return as that of the project that generated them. A more likely situation is that the funds will be reinvested at a rate closer to the cost of capital. For determining MIRR, we assumed a finance rate of 5.00% and a reinvestment rate of 8.00%.
Measures of Predictability: Using "hurdle rates" Levelized Energy Cost (LEC)
Solar Electric (PV): $0.14 per kWh
Another dimension of concern about a proposed investment is the predictability of its anticipated costs and returns, which requires measures of the uncertainty associated with them. Levelized Energy Cost (LEC) analysis provides us with a "hurdle rate" (the levelized energy cost). LEC is the average lifetime cost of energy produced by a particular system. We can compare LEC to the current utility rate and its expected change in price as time goes on. In this manner one can judge the investment as a "better bet" than utility rates to contain energy costs.
Assessing Option Value: The option value of a proposed investment represents the value of future opportunities that would be made available only if the investment were made. Like the ante in a poker game, the investment may promise no return other than the opportunity to look at the cards being dealt, at which point one can either fold or "exercise the option" by making additional investments in an attempt to win the pot. To realize future value here new investments are not necessarily required to "exercise the options" - ownership is enough. In the case of renewable energy systems in general, there are primarily two opportunities, or options, which may have future value: Property value appreciation, and Renewable energy certificates (RECs or SRECs):
Property Value Appreciation: $131,660
Installing a renewable energy system can result in increased property valuation. The (few) papers on this topic assume that by decreasing utility bills (operating costs) the property owner`s cash flow can accommodate higher loan-to-value ratios. In other words, by reducing monthly expenses, a property owner can afford to take on more debt. According to one report by the Appraisal Journal a home`s value can increase by $20,000 for every $1,000 reduction in annual operating costs due to energy efficiency improvements. This assumes a 5% cost of money ($20,000 x 5% interest = $1,000).
Property value appreciation is estimated to be:
$131,660 = 1st-year utility savings of $6,583 (post-tax) x 20 years
(Note: If system life is expected to be more than 20 years, then 20 years is used.)
The following factors should be kept in mind:
1. The annual savings will not be the same every year. Utility inflation rates, assuming the renewable energy system is grid connected, will alter the annual savings over time - more savings with utility rate inflation, less if utility rate deflation occurs..
2. At some point in the system`s life, its value as a "saleable" asset will start to reduce to zero as the system comes to its end of life.
3. Property valuations are based upon many variables (external factors), many of which are location-specific and/or contingent upon macro-economic and micro-economic factors such as interest rates, the economy, new developments, changing lifestyle and living patterns, etc. A property`s value can change by many percentage points as a result of these external factors and one needs to consider the amount of value a renewable energy system may add to a property vis-a-vis the overall property`s value.
Renewable Energy and/or Carbon Credits or Certificate (REC or SREC): Renewable Energy Certificates (sometimes called "solar renewable energy credits/certificates" - SRECs, S-RECs, or simply RECs) are a new and evolving method to ascribe future financial value to a renewable energy system. RECs represent the bundle of legal rights to the "green" part of each unit of energy produced by a renewable energy system. This green part can be sold for a value, which generates additional revenue for the seller. These certificates can be sold and traded or bartered and the owner of the REC can claim to have purchased renewable energy.
Utility Energy Summary: Electric
|Electric Utility Rates|
|Current Rate||Post Project Rate|
|Southern California Edison Co: Schedule D Domestic Service (Single Family, Reg 6)||Southern California Edison Co: Schedule TOU-D-TEV Domestic Tiered EV Charging (Single Family, Reg 6)|
|Average Cost:||$0.265 per kWh||Average Cost:||$0.041 per kWh|
|Tiered Rate:||Yes||Tiered Rate:||Yes|
|Time-of-Use Rate:||No||Time-of-Use Rate:||Yes|
|Demand Charges:||No||Demand Charges:||No|
|Summary of Utility & New Source Electricity|
|Electric by Month (kWh)||Jan||Feb||Mar||Apr||May||Jun||Jul||Aug||Sep||Oct||Nov||Dec||Total|
|Entered into Software (historical)|
|Estimated by Software at Current Rates (Includes any planned energy increases)|
|Baseline Use after Efficiency and Use Change||1,593||1,277||1,597||1,908||1,728||1,250||1,661||2,550||2,463||1,910||1,345||917||20,199|
|Baseline Cost after Efficiency and Use Change||$395||$306||$396||$496||$437||$293||$418||$695||$671||$494||$321||$202||$5,124|
|Post Project Use||994||693||786||930||808||300||639||1,588||1,684||1,255||726||331||10,734|
|Post Project Cost||$39||$31||$35||$37||$35||$24||$32||$52||$53||$45||$33||$25||$441|
|Production Self-Consumption Percent: (Non-bypassable charge of $0.02074 per kWh consumed from the grid, net of exports)|
|Net-Meter Credit Values: Amounts Accrued and Applied to Post-Project Cost|
|The Value of Net Meter Credits applied to the Post Project Cost totals take into account the value of annual net excess generation, less any meter fees and minimum bill amounts.|
|Value Accrued in Month at Utility Retail Rate less Non-bypassable charges of $0.02074 per kWh:|
Electric Utility: Tiered Pricing Attributes
Tiered electric rates change based upon how much electric energy (kWh) is purchased. The graph below displays the energy (kWh) portion of your electric bill by Tier. Costs shown assume retail energy (kWh) rates. Actual amounts will be different depending upon meter fees, taxes, net-meter credit methods and other billing specifics. See "Utility Energy Summary: Electric" for total estimated bills.
Time-Of-Use (TOU) electric rates change based upon when (the hour) electric energy (kWh) is purchased or credited ("sold") to the utility. The graph below displays the energy (kWh) portion of your electric bill by TOU.
Winter & Summer TOU Patterns: Here is how electric use is distributed across a typical day.
Utility Energy Summary: Natural Gas
|Natural Gas Utility Rates|
|Current Rate||Post Project Rate|
|Fixed Price per unit $0.0000 per Therm||Fixed Price per unit|
|Tiered Rate:||No||Tiered Rate:||No|
|Summary of Utility Natural Gas & New Source Energy|
|Natural Gas by Month (Therm)||Jan||Feb||Mar||Apr||May||Jun||Jul||Aug||Sep||Oct||Nov||Dec||Total|
|Entered into Software (historical)|
|Estimated by Software at Current Rates|
|Post Project Use||0||0||0||0||0||0||0||0||0||0||0||0||0|
|Post Project Cost||$0||$0||$0||$0||$0||$0||$0||$0||$0||$0||$0||$0||$0|
Minimum monthly meter fees may apply and are not included in this analysis.
Cash Flow Details for the System
|Cash Flows in Year||0||1||2||3||4|
|Gross Cost: Efficiency||0|
|Gross Cost: PV||(28,145)|
|Gross Cost: TOTAL||(28,145)|
|Reference: Utility Bill Savings with Inflation Applied||0||6,583||6,861||7,152||7,453|
|Utility Bill Savings as Gross Income Dollars||0||10,618||11,066||11,535||12,021|
|Solar Electric (PV) Incentives|
|Federal Tax Credit (30% of Gross Cost at Installation)||8,444||0||0||0||0|
|Net Annual Cash Flow||(19,701)||10,618||11,066||11,535||12,021|
|Cumulative Cash Flow||(19,701)||(9,083)||1,983||13,518||25,539|
Net Annual Cash Flow is the sum of values in gray lines.
|Cash Flows in Year||5||6||7||8||9|
|Reference: Utility Bill Savings with Inflation Applied||7,768||8,096||8,438||8,794||9,166|
|Utility Bill Savings as Gross Income Dollars||12,529||13,058||13,610||14,184||14,784|
|Net Annual Cash Flow||12,529||13,058||13,610||14,184||14,784|
|Cumulative Cash Flow||38,068||51,126||64,736||78,920||93,704|
|Cash Flows in Year||10||11||12||13||14|
|Reference: Utility Bill Savings with Inflation Applied||9,553||9,956||10,377||10,815||11,271|
|Utility Bill Savings as Gross Income Dollars||15,408||16,058||16,737||17,444||18,179|
|Net Annual Cash Flow||15,408||16,058||16,737||17,444||18,179|
|Cumulative Cash Flow||109,112||125,170||141,907||159,351||177,530|
|Cash Flows in Year||15||16||17||18||19|
|Reference: Utility Bill Savings with Inflation Applied||11,747||12,243||12,760||13,299||13,861|
|Utility Bill Savings as Gross Income Dollars||18,947||19,747||20,581||21,450||22,356|
|Net Annual Cash Flow||18,947||19,747||20,581||21,450||22,356|
|Cumulative Cash Flow||196,477||216,224||236,805||258,255||280,611|
|Cash Flows in Year||20||21||22||23||24|
|Reference: Utility Bill Savings with Inflation Applied||14,446||15,056||15,692||16,355||17,045|
|Utility Bill Savings as Gross Income Dollars||23,300||24,284||25,310||26,379||27,492|
|Net Annual Cash Flow||23,300||24,284||25,310||26,379||27,492|
|Cumulative Cash Flow||303,911||328,195||353,505||379,884||407,376|
|Cash Flows in Year||25||26||27||28||29|
|Reference: Utility Bill Savings with Inflation Applied||17,765||0||0||0||0|
|Utility Bill Savings as Gross Income Dollars||28,653||0||0||0||0|
|Net Annual Cash Flow||28,653||0||0||0||0|
|Cumulative Cash Flow||436,029||0||0||0||0|
Other Assumptions Used in this Analysis
Customer Type: Residential.
Tax Effects Applied to Utility Savings: As a residential customer, we have assumed Pre-tax (gross income) dollars are saved. This means the Utility Savings are divided by 1 minus the effective income tax rate (28.00% federal and 10.00% state).
System Life: PV System: 25 years. Inverters: 25 years. Appliance/Lighting: 10 years.
PV System Modeling Variables (PVWatts references): System Losses: 7%, DC-to-AC Ratio: 1.19, Module Type: Standard, Inverter Efficiency: 96.00%. Software`s suggested production adjusted by 91% for this estimate.
Performance Degradation and O&M Costs: We have assumed performance will degrade by 1.00% per year due to soiling and general wear. Annual operating and maintenance (O&M) costs are inflated 2.80% per year, and are estimated as a percent of gross system price, as follows: Solar Electric (PV): 0.00%. Efficiency measures: None.
Income Tax Rates: Federal: 28.00%, State: 10.00%
Annual Inflation Rates: Consumer price index: 2.80%, Electric Rates: 4.25%, Natural Gas Rates: 3.78%
Energy Metering Type: Net Metering
Net Excess Generation (NEG): Monthly NEG credited at Utility Rate less Non-bypassable charges of $0.02074 per kWh, which also apply to energy produced and not self-consumed (fed to grid). Monthly NEG may be carried forward to the next month for application to future utility bills. Annual NEG sold at $0.06000 per kWh.
Discount Rate: 5.00%. Used to estimate net present value of future cash flows. This is also assumed to be the finance rate, as used to calculate MIRR.
Reinvestment Rate: 8.00%. Used to calculate MIRR.
Carbon Dioxide (CO2) Calculations: The following assumptions are used to calculate carbon dioxide (CO2) reductions: Electricity: 1.64 lbs. CO2 per kWh. Natural Gas: 0.12 lbs. CO2 per cubic foot (12 lbs. per Therm). Fuel Oil: 22.29 lbs. CO2 per gallon. Propane: 12.17 lbs. CO2 per gallon. Trees Planted: 0.0429 tons CO2 per Tree planted (23.3 Trees/Ton CO2). Automiles Saved: 1 lb CO2 per mile for medium passenger car (2,000 Miles/Ton CO2). Gallons Gasoline: 0.009812 tons CO2/gallon (102 Gal/Ton CO2). Landfill Tons: 3.16 tons CO2 per ton of waste recycled instead of landfilled. Single-family Homes (electric use): 8.82 tons CO2/home (0.11 Homes/Ton CO2). Tons of Coal Burned: 2.0525 lbs. of CO2 per lb. of Coal (2,000 lbs. per ton). Source: www.epa.gov/cleanenergy/energy-resources/refs.html
Water used by Thermoelectric Powerplants: Depending upon the technology used, natural gas and coal power plants withdraw up to 20 gallons of water for every kWh of energy produced and consume (via evaporation) about 0.47 gallons per kWh produced. Sources: http://nrel.gov/docs/fy04osti/33905.pdf and http://www.wri.org/resources/charts-graphs/typical-range-water-withdrawals-and-consumption-thermoelectric-power-plants which summarizes the Electric Power Research Institue`s report Water & Sustainability (Volume 3): U.S. Water Consumption for Power Production - The Next Half Century
PV Production by Year
PV system production will vary according to weather patterns, changes in obstacles that may shade the PV panels, and the like. Over time system production may also "degrade" due to general soiling and other effects of aging. The table below provides a range (+/- 20%) of typical annual production values for the system, by year, with an annual performance degradation of 1.00% included. The "Typical" values were used to provide this report.
|Year||Low Typical||Typical||High Typical|
|1||7,572 kWh||9,465 kWh||11,358 kWh|
|2||7,496 kWh||9,370 kWh||11,244 kWh|
|3||7,421 kWh||9,276 kWh||11,131 kWh|
|4||7,345 kWh||9,181 kWh||11,017 kWh|
|5||7,269 kWh||9,086 kWh||10,904 kWh|
|6||7,193 kWh||8,992 kWh||10,790 kWh|
|7||7,118 kWh||8,897 kWh||10,677 kWh|
|8||7,042 kWh||8,802 kWh||10,563 kWh|
|9||6,966 kWh||8,708 kWh||10,449 kWh|
|10||6,891 kWh||8,613 kWh||10,336 kWh|
|11||6,815 kWh||8,519 kWh||10,222 kWh|
|12||6,739 kWh||8,424 kWh||10,109 kWh|
|13||6,663 kWh||8,329 kWh||9,995 kWh|
|14||6,588 kWh||8,235 kWh||9,881 kWh|
|15||6,512 kWh||8,140 kWh||9,768 kWh|
|16||6,436 kWh||8,045 kWh||9,654 kWh|
|17||6,360 kWh||7,951 kWh||9,541 kWh|
|18||6,285 kWh||7,856 kWh||9,427 kWh|
|19||6,209 kWh||7,761 kWh||9,314 kWh|
|20||6,133 kWh||7,667 kWh||9,200 kWh|
|21||6,058 kWh||7,572 kWh||9,086 kWh|
|22||5,982 kWh||7,477 kWh||8,973 kWh|
|23||5,906 kWh||7,383 kWh||8,859 kWh|
|24||5,830 kWh||7,288 kWh||8,746 kWh|
|25||5,755 kWh||7,193 kWh||8,632 kWh|
|Totals||166,584 kWh||208,230 kWh||249,876 kWh|
The following renewable resource assumptions were used to develop estimates for the project location. These are typical values based upon observed data over several decades. Actual values (and system performance) will vary from month to month, and from year to year, in accordance to weather and climate pattern changes.
Weather station referenced: "JACK NORTHROP FLD H" (California)
|Solar Resources: Flat-Plate, South-facing Tilted at Latitude|
|Ambient Temperature Data (Typical °F)|