IDEAS home Printed from https://ideas.repec.org/a/eee/rensus/v74y2017icp1394-1404.html
   My bibliography  Save this article

Revisiting the techno-economic analysis process for building-mounted, grid-connected solar photovoltaic systems: Part two - Application

Author

Listed:
  • Sommerfeldt, Nelson
  • Madani, Hatef

Abstract

Part One in this two part paper identified Monte Carlo analysis as an improved approach over traditional deterministic techno-economic methods for solar PV prosumers in deregulated markets. In this paper a novel Monte Carlo methodology is described and demonstrated through a case study for the Swedish residential sector, which includes a review of relevant market, climate, and policy conditions, their use in determining inputs, and the probabilistic results. The probability of profitability (PoP) is introduced as an indicator in conjunction with result distributions. The results show that under current policy conditions, Swedish PV investors with well positioned buildings have a 71% chance of making a 3% real return on investment, and virtually no chance of losing their original investment. Without subsidies the PoP drops to 8%. In none of the simulated cases was any of the original investment lost. The PoP is most sensitive to the capital subsidy and the uncertainty of market based, long-term support is less critical to the chances of a successful investment. Given the current market conditions, Swedish PV prosumers can expect a return on investment. The decision to install will also depend on the probability of achieving their desired profitability, which Monte Carlo analysis quantifies well.

Suggested Citation

  • Sommerfeldt, Nelson & Madani, Hatef, 2017. "Revisiting the techno-economic analysis process for building-mounted, grid-connected solar photovoltaic systems: Part two - Application," Renewable and Sustainable Energy Reviews, Elsevier, vol. 74(C), pages 1394-1404.
    • Handle: RePEc:eee:rensus:v:74:y:2017:i:c:p:1394-1404
    DOI: 10.1016/j.rser.2017.03.010
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S136403211730326X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.rser.2017.03.010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Pereira, Edinaldo José da Silva & Pinho, João Tavares & Galhardo, Marcos André Barros & Macêdo, Wilson Negrão, 2014. "Methodology of risk analysis by Monte Carlo Method applied to power generation with renewable energy," Renewable Energy, Elsevier, vol. 69(C), pages 347-355.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Martínez-Ceseña, E.A. & Mutale, J., 2011. "Application of an advanced real options approach for renewable energy generation projects planning," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(4), pages 2087-2094, May.
    4. Fleten, S.-E. & Maribu, K.M. & Wangensteen, I., 2007. "Optimal investment strategies in decentralized renewable power generation under uncertainty," Energy, Elsevier, vol. 32(5), pages 803-815.
    5. Zeng, Yaxiong & Klabjan, Diego & Arinez, Jorge, 2015. "Distributed solar renewable generation: Option contracts with renewable energy credit uncertainty," Energy Economics, Elsevier, vol. 48(C), pages 295-305.
    6. Fernandes, Bartolomeu & Cunha, Jorge & Ferreira, Paula, 2011. "The use of real options approach in energy sector investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4491-4497.
    7. Jung, Jinho & Tyner, Wallace E., 2014. "Economic and policy analysis for solar PV systems in Indiana," Energy Policy, Elsevier, vol. 74(C), pages 123-133.
    8. Jeon, Chanwoong & Shin, Juneseuk, 2014. "Long-term renewable energy technology valuation using system dynamics and Monte Carlo simulation: Photovoltaic technology case," Energy, Elsevier, vol. 66(C), pages 447-457.
    9. Greene, David L., 2011. "Uncertainty, loss aversion, and markets for energy efficiency," Energy Economics, Elsevier, vol. 33(4), pages 608-616, July.
    10. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    11. Remer, Donald S. & Nieto, Armando P., 1995. "A compendium and comparison of 25 project evaluation techniques. Part 2: Ratio, payback, and accounting methods," International Journal of Production Economics, Elsevier, vol. 42(2), pages 101-129, December.
    12. Biondi, Tommaso & Moretto, Michele, 2015. "Solar Grid Parity dynamics in Italy: A real option approach," Energy, Elsevier, vol. 80(C), pages 293-302.
    13. Awerbuch, Shimon, 2000. "Investing in photovoltaics: risk, accounting and the value of new technology," Energy Policy, Elsevier, vol. 28(14), pages 1023-1035, November.
    14. Spinney, Peter J & Watkins, G Campbell, 1996. "Monte Carlo simulation techniques and electric utility resource decisions," Energy Policy, Elsevier, vol. 24(2), pages 155-163, February.
    15. Remer, Donald S. & Nieto, Armando P., 1995. "A compendium and comparison of 25 project evaluation techniques. Part 1: Net present value and rate of return methods," International Journal of Production Economics, Elsevier, vol. 42(1), pages 79-96, November.
    16. Bergek, Anna & Mignon, Ingrid & Sundberg, Gunnel, 2013. "Who invests in renewable electricity production? Empirical evidence and suggestions for further research," Energy Policy, Elsevier, vol. 56(C), pages 568-581.
    17. Falconett, Irina & Nagasaka, Ken, 2010. "Comparative analysis of support mechanisms for renewable energy technologies using probability distributions," Renewable Energy, Elsevier, vol. 35(6), pages 1135-1144.
    18. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    19. Bruderer Enzler, Heidi & Diekmann, Andreas & Meyer, Reto, 2014. "Subjective discount rates in the general population and their predictive power for energy saving behavior," Energy Policy, Elsevier, vol. 65(C), pages 524-540.
    20. Alvaro Escribano & J. Ignacio Peña & Pablo Villaplana, 2011. "Modelling Electricity Prices: International Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(5), pages 622-650, October.
    21. Linnerud, Kristin & Andersson, Ane Marte & Fleten, Stein-Erik, 2014. "Investment timing under uncertain renewable energy policy: An empirical study of small hydropower projects," Energy, Elsevier, vol. 78(C), pages 154-164.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ma, Weiwu & Xue, Xinpei & Liu, Gang, 2018. "Techno-economic evaluation for hybrid renewable energy system: Application and merits," Energy, Elsevier, vol. 159(C), pages 385-409.
    2. Castellini, Marta & Di Corato, Luca & Moretto, Michele & Vergalli, Sergio, 2021. "Energy exchange among heterogeneous prosumers under price uncertainty," Energy Economics, Elsevier, vol. 104(C).
    3. Roberts, Mike B. & Bruce, Anna & MacGill, Iain, 2019. "Impact of shared battery energy storage systems on photovoltaic self-consumption and electricity bills in apartment buildings," Applied Energy, Elsevier, vol. 245(C), pages 78-95.
    4. Bertolini, Marina & D'Alpaos, Chiara & Moretto, Michele, 2018. "Do Smart Grids boost investments in domestic PV plants? Evidence from the Italian electricity market," Energy, Elsevier, vol. 149(C), pages 890-902.
    5. Poppi, Stefano & Sommerfeldt, Nelson & Bales, Chris & Madani, Hatef & Lundqvist, Per, 2018. "Techno-economic review of solar heat pump systems for residential heating applications," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P1), pages 22-32.
    6. Tomasz Sikorski & Michał Jasiński & Edyta Ropuszyńska-Surma & Magdalena Węglarz & Dominika Kaczorowska & Paweł Kostyła & Zbigniew Leonowicz & Robert Lis & Jacek Rezmer & Wilhelm Rojewski & Marian Sobi, 2019. "A Case Study on Distributed Energy Resources and Energy-Storage Systems in a Virtual Power Plant Concept: Economic Aspects," Energies, MDPI, vol. 12(23), pages 1-21, November.
    7. Sommerfeldt, Nelson & Lemoine, Ida & Madani, Hatef, 2022. "Hide and seek: The supply and demand of information for household solar photovoltaic investment," Energy Policy, Elsevier, vol. 161(C).
    8. Malinina, Tatiana (Малинина, Татьяна) & Gromov, Vladimir (Громов, Владимир), 2016. "Directions of Perfection of the Russian Tax Legislation on Topical Issues of Taxation of Income from Transactions with Financial Instruments [Направления Совершенствования Российского Налогового За," Working Papers 544, Russian Presidential Academy of National Economy and Public Administration.
    9. Yang, Ying & Campana, Pietro Elia & Stridh, Bengt & Yan, Jinyue, 2020. "Potential analysis of roof-mounted solar photovoltaics in Sweden," Applied Energy, Elsevier, vol. 279(C).
    10. Castellini, Marta & Menoncin, Francesco & Moretto, Michele & Vergalli, Sergio, 2021. "Photovoltaic Smart Grids in the prosumers investment decisions: a real option model," Journal of Economic Dynamics and Control, Elsevier, vol. 126(C).
    11. Vakilifard, Negar & A. Bahri, Parisa & Anda, Martin & Ho, Goen, 2019. "An interactive planning model for sustainable urban water and energy supply," Applied Energy, Elsevier, vol. 235(C), pages 332-345.
    12. Feldman, David & Jones-Albertus, Rebecca & Margolis, Robert, 2020. "Quantifying the impact of R&D on PV project financing costs," Energy Policy, Elsevier, vol. 142(C).
    13. Lee, Minhyun & Hong, Taehoon & Jeong, Jaewook & Jeong, Kwangbok, 2018. "Development of a rooftop solar photovoltaic rating system considering the technical and economic suitability criteria at the building level," Energy, Elsevier, vol. 160(C), pages 213-224.
    14. Lee, Minhyun & Hong, Taehoon & Jeong, Kwangbok & Kim, Jimin, 2018. "A bottom-up approach for estimating the economic potential of the rooftop solar photovoltaic system considering the spatial and temporal diversity," Applied Energy, Elsevier, vol. 232(C), pages 640-656.
    15. Thebault, Martin & Desthieux, Gilles & Castello, Roberto & Berrah, Lamia, 2022. "Large-scale evaluation of the suitability of buildings for photovoltaic integration: Case study in Greater Geneva," Applied Energy, Elsevier, vol. 316(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sommerfeldt, Nelson & Madani, Hatef, 2017. "Revisiting the techno-economic analysis process for building-mounted, grid-connected solar photovoltaic systems: Part one – Review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 74(C), pages 1379-1393.
    2. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    3. Wu, Zhongqun & Sun, Hongxia, 2015. "Behavior of Chinese enterprises in evaluating wind power projects: A review based on survey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 43(C), pages 133-142.
    4. Häckel, Björn & Pfosser, Stefan & Tränkler, Timm, 2017. "Explaining the energy efficiency gap - Expected Utility Theory versus Cumulative Prospect Theory," Energy Policy, Elsevier, vol. 111(C), pages 414-426.
    5. Schleich, Joachim & Gassmann, Xavier & Meissner, Thomas & Faure, Corinne, 2019. "A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies," Energy Economics, Elsevier, vol. 80(C), pages 377-393.
    6. Assereto, Martina & Byrne, Julie, 2021. "No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    7. Àlex Alonso-Travesset & Diederik Coppitters & Helena Martín & Jordi de la Hoz, 2023. "Economic and Regulatory Uncertainty in Renewable Energy System Design: A Review," Energies, MDPI, vol. 16(2), pages 1-30, January.
    8. Morgan Bazilian & Debabrata Chattopadhyay, 2015. "Considering Power System Planning in Fragile and Conflict States," Cambridge Working Papers in Economics 1530, Faculty of Economics, University of Cambridge.
    9. Chen, Siyuan & Zhang, Qi & Wang, Ge & Zhu, Lijing & Li, Yan, 2018. "Investment strategy for underground gas storage facilities based on real option model considering gas market reform in China," Energy Economics, Elsevier, vol. 70(C), pages 132-142.
    10. van den Bergh, J.C.J.M. & Botzen, W.J.W., 2015. "Monetary valuation of the social cost of CO2 emissions: A critical survey," Ecological Economics, Elsevier, vol. 114(C), pages 33-46.
    11. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    12. World Bank Group, 2024. "Poland Country Climate and Development Report," World Bank Publications - Reports 42286, The World Bank Group.
    13. Thomas Epper & Helga Fehr-Duda & Adrian Bruhin, 2011. "Viewing the future through a warped lens: Why uncertainty generates hyperbolic discounting," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 169-203, December.
    14. Manel Baucells & Silvia Bellezza, 2017. "Temporal Profiles of Instant Utility During Anticipation, Event, and Recall," Management Science, INFORMS, vol. 63(3), pages 729-748, March.
    15. Ivan Moscati, 2022. "Behavioral and heuristic models are as-if models too — and that’s ok," BAFFI CAREFIN Working Papers 22177, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    16. Schleich, Joachim & Gassmann, Xavier & Faure, Corinne & Meissner, Thomas, 2016. "Making the implicit explicit: A look inside the implicit discount rate," Energy Policy, Elsevier, vol. 97(C), pages 321-331.
    17. Heutel, Garth, 2019. "Prospect theory and energy efficiency," Journal of Environmental Economics and Management, Elsevier, vol. 96(C), pages 236-254.
    18. Kontek, Krzysztof, 2010. "Linking Decision and Time Utilities," MPRA Paper 27541, University Library of Munich, Germany.
    19. Miklós Antal & Ardjan Gazheli & Jeroen C.J.M. van den Bergh, 2012. "Behavioural Foundations of Sustainability Transitions. WWWforEurope Working Paper No. 3," WIFO Studies, WIFO, number 46424.
    20. Dorian Jullien, 2018. "Under Risk, Over Time, Regarding Other People: Language and Rationality within Three Dimensions," Research in the History of Economic Thought and Methodology, in: Including a Symposium on Latin American Monetary Thought: Two Centuries in Search of Originality, volume 36, pages 119-155, Emerald Group Publishing Limited.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:rensus:v:74:y:2017:i:c:p:1394-1404. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.