Try This! SAM Financing, Incentives and Utility Rate
We just talked about all these things that affect the cost of an energy system, and now let's take a look to see how the real data can fit into our simulation software for project design. Time to break out SAM again and do some exploration!
Software: SAM from NREL
- You can open up SAM at this point and click the button "Create a New File."
- Click on "Photovoltaics (Detailed)" on the left of the pop-up window ("Choose a performance model").
- Click on "Residential (Distributed)" on the right of the pop-up window ("then choose from the available financial models").
- Hit "OK."
- You will now have a default residential PV project, based in Phoenix, AZ, just like the last example we tried.
- Next, we are going to explore three tabs: Financial Parameters, Incentives, and Electricity Rates.
- Click on the shortcut tab called "Financial Parameters."
- This opens a field of data entry for "Loan Type," "Residential Loan Parameters," "Analysis Parameters," "Tax and Insurance Rates," "Property Rates," and "Salvage Value."
The first few things to notice is that the Loan Term (and Analysis Period) is 25 years as a default. This is the standard period of covered life for a PV module. Much like your computers, the actual life will be longer than the warranty, but 25 years is the most risk that the manufacturers will currently take on to guarantee their products. In general, all the SAM defaults are going to be conservative, and you can indeed adjust them for your own projects.
You want to enclose your period of loan or mortgage ( ) within the full period of evaluation ( , years of analysis), so that . The loan rates are assumed to be a bit high, but you could change it to a lower rate if appropriate.
Tax, insurance, and property rates can be left at the defaults unless you know better from practical experience. When working with a full team in industry, you will need to be working with an expert knowledgeable in these areas to accurately represent them for the client.
The salvage value will almost never be zero in a real project. Just think, a PV system at the end of 25 years may be operating at 60-80 percent of its original peak performance, but will not catastrophically fail that year. In fact, it will likely keep on truckin' for decades more. Even a 20-year-old operational truck has a resale value that is a significant percentage of the original value. So, change it to something greater than zero, but less than 100, and you can still be conservative.
- Now, click on the tab for "Incentives." You can see at the top that there is a direct link for the DSIRE website.
- There are five types of incentives listed, each with Federal and State entries. Some also have open fields to enter utility incentives or space for an alternative incentive from another source. They also have time horizons within which the credits or incentives are valid. Check the DSIRE site for the credits and incentives in your locale!
- Investment Tax Credit (ITC): this is the standard federal tax credit of 30% for installed solar systems, for both residential and commercial properties.
- Production Tax Credit (PTC): has been a common inscentive for wind farms, hydro, geothermal, biomass and now has been reinstated for solar generation projects under the Inflation Reduction Act (2022). This is per-kWh-generated tax credit that reduces the tax liability of solar projects. It is inacted for the first 10 years of system operation (Energy.gov, accessed 2023).
- Investment Based Incentive (IBI): an incentive to reduce annual expenditures of a project for Year One cash flow (see help menu in SAM).
- Capacity Based Incentive (CBI): similar to an IBI, in that it is an incentive to reduce annual expenditures of a project for Year One cash flow. However, the CBI can be expressed as a function of the system's rated capacity in Watts (see help menu in SAM). This is a direct cash incentive.
- Production Based Incentive (PBI): This is another direct cash incentive, and a PBI reduces the project's annual tax liability from years one through the period of valid application (which you can specify). The PBI is a dollar amount per kilowatt-hour of annual electric output. You can use the PBI inputs for SRECs that are paid on a $/MWh basis. The PBI can also accept Performance Based Incentives such as a Feed-In Tariff.
- Now, click on the "Electricity Rates" tab. You will see whether or not "Net Metering" is occurring in your model. In most cases, this will be "Enabled" with a checkbox and a Year end sell rate (this is low, not the rate that you pay).
- The top left box is a handy link to search for electricity rates in the USA from the OpenEI utility rate repository. The Open Energy Information (OpenEI) provides powerful centralized access to the latest data and energy information, and an opportunity to make new tools to interpret those data and dynamic information sets.
- There is a middle hidden box (Blue plus sign) for "Description and Applicability" that is for your own record keeping, to assign the locale information for your client's site.
- You can select "Net Metering" if the locale permits electricity from a SECS to enter the grid. The Solar Energy Industry Association has a good site describing net metering in the USA. Obviously, this is important to a residential or commercial PV system, but has to be adapted for a solar thermal hot water scenario (all SAM inputs are in terms of electricity).
- The electricity rates can either be "Flat" (same $/kWh charge in a month, regardless of time of day) or "Time of Use (Energy Charge)." The local electricity provider will be able to specify the selection.
- On top of electricity rates, there are charges for services, bundled as "Fixed Monthly Charges."
- Some utilities will specify "Peak Demand Charges" for high demand blocks of time (high LMP periods for the locale), and "Tiered Rates (Energy Charge)" for various scales of electric demand in kWh.
- Finally, notice that little box in the upper right called "Annual Electricity Cost Escalation". The default is for SAM to assume that the price of electricity will not go up in the next 25 years. The rate is set to zero. I will pose that this is not really an appropriate guess given our future in energy demand. A conservative increase of 1-3% is probably a better estimate.
If you have any questions or comments, please post them to the Lesson 6 General Questions and Comments Discussion Forum. I will check the forum regularly to respond. While you are in a discussion, feel free to post your own responses if you, too, are able to help out a classmate.