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SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.48The basis to calculate feed-in tariffs is the approach of net present value (NPV). NPV calculationis a standard method to consider whether a potential investment project shouldbe undertaken or not. The interest rate is used to establish what the value of future cashflows is in today’s money. A project is considered viable whenever the present value ofall cash inflows minus the present value of all cash outflows (which equals the net presentvalue), is greater than zero. This method is described in the following equation:NPV = ∑* [(INCOME/year – COST/year) / (1+ r) t ] - INVESTMENT COSTS*∑ running over the duration of the support scheme.Income/yearThe feed-in tariff is considered to be the only form of income: 41500 (kW) * 2000 (hrs) * FIT (€/kWh)Cost/yearAs costs, the operation and maintenance cost are considered: 1500 (kW) * 40 (€/kW) = 60,000 €Investment cost 1500 (kW) * 1100 (€/kW) = 1,650,000 €Calculation of the feed-in tariff∑ [(3,000,000 * FIT – 60,000) / (1.065) t ] – 1,650,000 = 0FIT = 0.095 €/kWh = 95 €/MWhThe calculated FIT is slightly higher than could normally be expected for a typical windenergy project. This is mainly due to the fact that no other income than the feed-in tariffwas considered in the simplified calculation. Usually investment subsidies, tax credits orthe physical electricity sold to the market provide additional income. Also higher full loadhours can significantly decrease the feed-in tariff. For instance coastal or typical hilly areascan reach up to 3500 full load hours.4Depending on the case, additional income can be provided by investment subsidies or tax credits.The selling of the physical electricity to the electricity market needs to be taken into account as aform of income, depending on the design of the feed-in tariff scheme. For instance in Germany thefeed-in tariff includes the value of the physical electricity, whilst in the Netherlands the feed-in tariffis calculated without taking into account the income from the selling of the physical electricity. InSpain, a green electricity producer can choose between a fixed premium per kWh and a premium thatis calculated as a percentage of the average electricity price.
MODULE 9: RENEWABLE ENERGY: REGULATORY AND POLICY OPTIONSpage 9.49Photovoltaic energy—autonomousA typical example is considered below:Capacity (kW p) 2Full load hours/year 1250 5Investment cost (€/kW p) 10.000 6Operation and maintenance 0 7cost (€/kW e/year)Interest rate r (per cent) 6.5Duration of support t (years) 20Feed-in tariff (€/kWh) ?Income/yearFollowing the same approach in the wind energy case, the income is:2 (kW) * 1250 (hrs) * FIT (€/kWh)Investment cost 2 (kW) * 10,000 (€/kW) = 20,000 €Calculation of the feed-in tariff∑ [(2,500 * FIT) / (1.065) t ] – 20.000 = 0FIT = 0.72 €/kWh = 720 €/MWhPhotovoltaic energy—grid connectedThe same example considered as a grid-connected system (instead of an autonomous system8 ) offers the following result.5An average of 800 full load hours is typical for a country such as Germany. In Morocco full loadhours can be as high as 1500, and in some specific regions in the world (like deserts), even 2000full load hours are possible. See “Energy from the Desert”, www.iea-pvps.org. The maintenance costis very low for a PV installation, and is therefore neglected in the example.6The investment cost can vary significantly depending on the specific situation, on the use of batteriesor a diesel generator to decrease intermittency. For more details on costs of PV systems, seeEuropean Roadmap for PV R&D, PVNET, paris.fe.uni-lj.si/pvnet/files/PVNET_Roadmap_Dec2002.pdf#search=%22PVNET%22.7The maintenance cost is very low for PV installations, and is therefore neglected in the example.8A grid-connected system does not need a battery and battery charger.
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