June 29, 2007
The following spreadsheet calculator is a work in progress. The workbook, or notebook in Corel terminology, contains three spreadsheets: BSi Calculator, Chabot PI Method, and Rate Calculation. The calculator determines the price or tariff per kWh necessary to arrive at the financial targets given.
The workbook or notebook was created in Quattro Pro and is converted to Excel. The formatting is lost during the conversion. Users of Excel will have to format to suit their tastes.
The first page contains cells for entry of the key assumptions. It also contains a summary of the results for each method or table used.
Note that though one tab in labeled “Rate Calculation”, the function used is that for determining the annual payment of an annuity. This table has evolved from one using the IRate function. This function is used in an accompanying table.
Note that all calculations are before taxes. This is critical to understanding the values produced.
BSi Solar Cost Calculator
The BSi is now the Bundesverband Solarwirtschaft or BSW, the German Solar Industries Association. The table was provided by Gerhard Stryi-Hipp to OSEA for use in calculating the solar PV tariffs needed in what has become Ontario’s Standard Offer Program.
With the help of a professional translator, I have converted the terminology to what we believe is the appropriate English equivalent. The table uses assumptions from page or tab 1. The approach described in this table is that used to determine the solar PV tariffs in Germany.
In the winter of 2004, OSEA invited ADEME’s Bernard Chabot to lead a pricing workshop in Toronto. The workshop included stakeholders from all the technologies in the Standard Offer Program. The purpose of the workshop was to determine the tariffs needed for profitable projects.
Bernard Chabot uses a technique that he calls the “Profitability Index Method” to arrive at a recommend tariff. I have adapted M. Chabot’s approach to my use here (any errors that result are mine). I will not explain the technique here. The formulas are contained in the cells and M. Chabot has written prolifically on the technique. Some of his papers can be found on this web site.
The Rate Method table here uses the internal function for calculating the annual payment of an annuity. The term “Rate” was the original description of this table when the internal function was IRate in Quattro Pro. For my purposes here the PAYMT function was better suited.
As in any economic calculation there are several key variables. Here they are the specific installed cost ($/kW), the yield (kWh/kW/year), the rate of return on equity desired, the interest on debt, and annual expenses.
Note that continental Europeans have more experience with actually operating renewable energy technologies than North Americans. This becomes evident when the value used for annual expenses used in Europe is compared to that proffered here. Thus, the Germans assume 1.5% of total installed cost will be paid annually in expenses for leased space, maintenance, and repairs. This is considerably higher than that suggested in North America and often comes as a shock to those unfamiliar with long-term operating costs.
For example, consider Fesa’s B31 project, a 365 kW PV array on a noise barrier in Freiburg, Germany. The expenses listed below total 1% of total installed cost. Note the inclusion of a charge for a dismantling fund, something often overlooked on this side of the Atlantic.
Profitability Index Target
The Profitability Index Target should be in the range of 0.2-0.3 to foster industrial growth. A Profitability Index of zero or 0.1 indicates that the project will be profitable, but not greatly so. For rapid growth of a new technology, projects must be more than just profitable. They must be financially attractive to compete for investment capital. This concept has yet to penetrate the thinking of renewable energy policy makers in North America and is one reason that the solar PV industry here has lagged that in Germany and Japan.
The Results box summarizes the tariff calculations using each method. The results vary somewhat and indicate that policy makers can arrive at slightly different results depending upon the method used.