Feasibility Analysis Of On-grid Solar Power

Study Case FEASIBILITY ANALYSIS OF ON-GRID SOLAR POWER PLANT INVESTMENT USING PVSYST SOFTWARE FOR RESIDENTIAL HOMES WITH 2200 VA POWER Michael Kurniawan (2018123456) University of Cincinnati, 2600 Clifton Ave, Cincinnati, OH 45221, United States kurniaml@mail.uc.edu Abstract The planning of an on-grid Solar Power Plant (SPP) system with a total capacity of 1,885 Wp using PVsyst software shows a potential clean energy production of 2,567 kWh per year. This system can reduce annual electricity consumption by 33.83%, from the initial requirement of 7,586 kWh to 5,019 kWh. From a financial perspective, the annual electricity bill savings reach $240 per year. Economic feasibility analysis shows that the initial investment for this SPP installation requires $1,730, with annual operating and maintenance costs of $195. The analysis results show a positive Net Present Value (NPV) of $1,215, a Profitability Index (PI) of 1.7 (>1), and a Discounted Payback Period (DPP) of 10.6 years, which is shorter than the project's 25-year operating period. In addition, the Break Even Point (BEP) is reached in the 8th year. Based on these parameters, the on-grid SPP project is declared economically feasible. Keywords: Investment feasibility, On-grid Solar Power Plant, PVsyst. INTRODUCTION Electricity is a vital need for modern society, but increasing energy consumption poses serious challenges such as high carbon emissions and limited fossil fuel resources, especially oil and coal. To address these challenges, Renewable Energy (RE) has emerged as an environmentally friendly and renewable solution, including solar, wind, water, and geothermal energy. One of the most developed technologies is solar energy, which converts sunlight into electricity using photovoltaic (PV) panels without producing greenhouse gas MICHAEL KURNIAWAN 1 Study Case emissions and with relatively simple installation [19]. Solar Power Plants (SPPs) work by converting solar radiation into electricity through solar modules. To function optimally, this system requires key components such as solar modules, solar charge controllers, inverters, and grid connection devices. With proper installation, solar modules can generate ready-to-use electricity [19]. According to a 2023 report by the U.S. Energy Information Administration (EIA), the potential for solar energy in the United States is enormous, especially in the southwestern region, which has high solar radiation, with a potential of more than 3,000 GW. This makes solar energy one of the main pillars of the national energy transition [19]. One variation of solar systems is the On-Grid Solar Power Plant, a system that does not use batteries but instead directly channels electricity to the load or to the utility grid when there is excess production. This system allows users to reduce their monthly electricity costs [19]. The implementation of rooftop solar in the US is in line with the U.S. Department of Energy (DOE) target of achieving a 25% contribution from renewable energy by 2025. According to DOE data, rooftop solar systems have a technical lifespan of around 20–30 years, with the need to replace the inverter only once during the operational period [19]. ETICAL FRAMEWORK Solar Power Plant (SPP) SPP is a renewable energy technology that relies on solar radiation as its main energy source. This energy is converted into electricity through photovoltaic (PV) modules [9]. Figure 2.1. Solar Power Plant System Diagram MICHAEL KURNIAWAN 2 Study Case On-Grid Solar Power Plant An on-grid SPP is a power generation system that is directly connected to the utility distribution network. Its main characteristic is that it does not use batteries, so the energy produced can be consumed directly or exported to the grid when production exceeds demand [12]. Figure 2.2. On-Grid SPP System Configuration Main Components of an On-Grid SPP 1. Solar Modules Solar modules convert sunlight into electrical energy. Solar cells made of ntype (negative) and p-type (positive) semiconductors form an internal electric field. When sunlight hits the surface of the module, the energy of the photons frees electrons, producing electron-hole pairs that then create direct current (DC) [15]. Figure 2.3. Working Mechanism of Solar Modules MICHAEL KURNIAWAN 3 Study Case 2. Inverter An inverter converts the DC current from the solar module into alternating current (AC) that can be used by household appliances. PVsyst Software PVsyst is software for planning, simulating, and analyzing PV systems. This software can model both on-grid and off-grid systems and is equipped with a meteorological database such as Meteonorm. PVsyst enables technical analysis (radiation, panel orientation, losses) as well as economic analysis (installation costs, efficiency, and potential return on investment). Figure 2.4. PVsyst Software Interface Economic Analysis Economic analysis is conducted by applying economic principles and technical approaches to support the decision-making process, particularly in assessing the costs and benefits of an investment project. This calculation uses a reference interest rate of 5.75% with a planned project operational period of 25 years. Operational and Maintenance Cost (O&M) The costs required each year to keep the system functioning properly are referred to as operational and maintenance (O&M) costs. The value can be calculated using the following equation: Explanation: MICHAEL KURNIAWAN 4 Study Case To calculate the present worth of operational and maintenance costs over the life of the project, the following formula is used: Explanation: Life Cycle Cost (LCC) Life Cycle Cost (LCC) is the total cost incurred over the life of the system, from the initial investment to long-term operating and maintenance costs. The equation is calculated as: Explanation: Discount Factor (DF) The Discount Factor is used to determine the present value of future cash flows by taking into account the time value of money. The equation is: Explanation: • DF : Discount factor • i : Discount rate • n : Time period (years) Capital Recovery Factor (CRF) The Capital Recovery Factor (CRF) calculates the amount of annual payments required to recover the initial investment costs plus interest over a certain period. The formula is as follows: MICHAEL KURNIAWAN 5 Study Case Explanation: • CRF : Capital recovery factor • i : Discount rate • n : Time period (years) Investment Feasibility Analysis Net Present Value (NPV) Net Present Value (NPV) is a method that assesses the feasibility of an investment by calculating the difference between the present value of cash inflows and cash outflows. The equation is: Description: • NPV : Net present value • NCFt : Net cash flow at year tt • Ia : Initial investment • i : Discount rate • n : Project lifetime (years) Profitability Index (PI) The Profitability Index (PI) is used to assess the profitability of a project by comparing the present value of all cash inflows to the initial investment cost. The equation is: Explanation: • PI : Profitability index • NCFt : Net cash flow at year tt • Ia : Initial investment • i : Discount rate • n : Project lifetime (years) Discounted Payback Period (DPP) Discounted Payback Period (DPP) indicates the time required to recover the initial investment value after taking into account the discount factor. The calculation is as follows: MICHAEL KURNIAWAN 6 Study Case Explanation: • DPP : Discounted payback period • YearBeforeRecovery : Years before investment recovery • Ia : Initial investment • NPVkumulatif : Accumulated NPV until the year before investment recovery • NPVt : NPV in the year of recovery Break Even Point (BEP) Break-even point (BEP) is the point at which total revenue equals total costs, so that the project neither incurs a loss nor a profit. The formula is: Explanation: • BEP : Break-even point (years) • C : Initial investment cost • W : Annual electricity production (kWh) RESEARCH METHODOLOGY General This study uses a quantitative approach, which is a method that relies on numerical data for systematic analysis. In its application, this approach involves several variables: a residential house with 2200 VA power as the dependent variable, the use of PVSYST software as the independent variable, and electricity load data as the control variable. The research process was carried out through several stages as shown in the following diagram. MICHAEL KURNIAWAN 7 Study Case Figure 3.1 Research flow chart Data Collection Data collection is an important stage in the planning of an On-grid Solar Power System, because the results determine the accuracy of the analysis and calculations. Data collection methods include: 1. Potential solar radiation intensity. 2. Electricity consumption survey. 3. Power demand measurement. 4. On-grid system data collection. 5. Simulation using PVSYST software. 6. Economic feasibility and investment analysis. Data Analysis This study focuses on evaluating economic analysis steps related to construction financing and investment feasibility in On-grid Solar Power Systems. The aspects analyzed include: MICHAEL KURNIAWAN 8 Study Case 1. Solar energy potential. 2. On-grid system components. 3. Generated electrical energy. 4. Initial investment. 5. O&M costs. 6. Feasibility analysis using an economic engineering approach. RESULTS AND DISCUSSION General MICHAEL KURNIAWAN 9 Study Case Figure 4.1 Block diagram of an on-grid solar system connected to the public electricity grid Research Data Residential Electricity Load Data To determine the required capacity, household electricity consumption data with a power of 1,896 W and energy usage of 632,259 kWh in December 2024 was used. Thus, the annual energy consumption is 7,586 kWh. Table 4.1 Electrical load capacity data Data Processing Results Energy Generated by the Solar System (PVSYST) The On-grid Solar Power System with a capacity of 1,855 Wp is estimated to generate 2,567 kWh of energy per year, as shown in the following graph. Figure 4.2 Energy generated by the on-grid solar system using PVSYST MICHAEL KURNIAWAN 10 Study Case Solar System Investment Costs The initial investment cost is calculated based on all system components, with a total of $26,740,662. Table 4.2 Costs of on-grid solar system components Operational and Maintenance (O&M) Costs Annual O&M costs are calculated using a discount rate of 5.75% over 25 years: The calculation results in a total O&M cost of $3,010,803. Table 4.3 O&M Costs Life Cycle Cost (LCC) The LCC calculation is obtained from the sum of the initial investment cost and MICHAEL KURNIAWAN 11 Study Case MPW: LCC=C+MPW =26,740,662+3,010,803=29,751,465= 26,740,662 + 3,010,803 = 29,751,465 Thus, the LCC value of this solar system is $29,751,465. The Discount Factor (DF) for an interest rate of 5.75% with a project life of 25 years is 0.247. Capital Recovery Factor (CRF) The Capital Recovery Factor is calculated using the equation: With i=5.75%i = 5.75\% and n=25n = 25, the CRF value is 0.077. Annual electricity cost without a solar system: Annual Electricity Cost 7,586×1.4447=10,959.494 Revenue from solar energy: 2,567×1.4447=3,708.545 Electricity cost after solar system installation: 10,959.494−3,708.545=7,250.94910,959.494 - 3,708.545 = 7,250.949 Economic Feasibility Analysis 1. Net Present Value (NPV) With a total Net Cash Flow in the 25th year of 45,539,689 and an initial investment of 26,740,662, the NPV is obtained: NPV =45,539.689−26,740.662=18,799. A positive NPV indicates that the project is financially feasible. 2. Profitability Index (PI) Because PI>1PI > 1, the project is considered profitable. 3. Discounted Payback Period (DPP) MICHAEL KURNIAWAN 12 Study Case The payback period is shorter than the project life (25 years), so the investment is feasible. 4. Break Even Point (BEP) This means that the project reaches the break-even point after 8 years. CONCLUSION AND RECOMMENDATIONS Conclusion 1. A positive NPV of 18,799,027 proves that the On-grid Solar Power System investment is feasible. The PI value of 1.7 (greater than 1) also reinforces the feasibility. With a DPP of 10.6 years, this project meets the feasibility criteria because the return is faster than the 25-year operational period. 2. Before the solar system was installed, annual electricity consumption reached 7,586 kWh with an annual cost of 10,959,494. After installing a 1,855 kWp solar system, the 2,567 kWh of clean energy per year reduced electricity costs to 7,250,949. 3. The BEP analysis shows that the investment capital will be recovered after 8 years, confirming that the project is economically feasible. Recommendations The on-grid solar system has been proven to reduce energy consumption from the public electricity grid, although it is only optimal during peak production hours (10:00– 16:00). For higher efficiency, it is recommended to use a Hybrid Solar Power System that can be combined with other renewable energy sources, such as wind power, to ensure a more stable energy supply outside of daytime hours. MICHAEL KURNIAWAN 13 Study Case REFERENCE MICHAEL KURNIAWAN 14 Study Case MICHAEL KURNIAWAN 15