250 kw Photovoltaic Solar Panels

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1 Business Plan: 250 kw Photovoltaic Solar Panels Contributors: Students: Mojtaba Akhavantafti 15 Grace Kelley 13 Philip Mulder 15 Tyler Nichols 15 Faculty: Tom Askew, Department of Physics Eric Barth, Department of Mathematics Anili Bruno, Department of Political Science Peter Erdi, Department of Physics Ahmed Hussen, Department of Economics Maksim Kokushkin, Department of Sociology Thomas Smith, Department of Chemistry Chuck Stull, Department of Economics Jan Tobochnik, Department of Physics Thanks to: Michael McDonald--Provost Trace Redmond 13--Sustainability Intern Haukur Asgeirsson DTE Energy Dr. Harold Glasser WMU Sustainability Director Jesse Sutton Consumers Energy EARP Coordinator Keith Troyer-- Consumers Energy EARP Coordinator J. Ward and Mary Greiner Grant Funding Guilherme T. Guedes Fall 2013

2 All nations have a responsibility to curb global warming, consistent with their respective contribution to emissions and capacity to act. --The UN Framework Convention on Climate Change Introduction: According to a new study by the United Nations Intergovernmental Panel on Climate Change (IPCC), renewable energy is likely to become the world s dominant climate change solution by the middle of the century. This IPCC report makes it clear that renewable energy has tremendous potential to meet our energy needs and confront the challenge of climate change. In addition, many renewables are already economically competitive with fossil fuels and nuclear energy, especially when you take into account all the hidden costs of conventional energy such as public health risks, air and water pollution, global warming emissions, and security risks. We, the members of Kalamazoo College, are deeply concerned about the unprecedented scale and speed of global warming and its potential for large-scale, adverse health, social, economic and ecological effects. Roughly 84 percent of current carbon dioxide emissions are energy-related and about 65 percent of all greenhouse gas emissions can be attributed to energy supply and energy use. We believe that we have a responsibility to practice sustainability leadership and train the members of the college community to be environmentally good citizens. According to the American College & University Presidents Climate Commitment, higher-education institutions are one of the most vital channels of modeling and implementing ways to minimize global warming emissions to achieve climate neutrality. The Kalamazoo College s "learning laboratory" promise provided the Complex Science Society members the opportunity to, in collaboration with the faculty, staff, alumni, and Kalamazoo community, explore sustainability theories and practices. Through a broad range of research and meeting with the energy and sustainability experts, we investigated the environmental, social, and financial aspects of installing photovoltaic solar panels. In this proposal, we complete a cost benefit analysis of installing photovoltaic solar panels on our campus and discuss the social and environmental benefits of this investment. Energy usage data shows that Kalamazoo College purchases average capacity of 1400 kw electricity. We consume 23,000 kwh/day, thirty percent of which is used when the electricity has its highest price (on-peak period). Conveniently, photovoltaic solar panels have the advantage of generating electricity during this high-demand period. The sun shines on the solar arrays and enforces electrons to move. These streams of electrons are adjusted and sent directly to the distribution system. The generated power replaces the power generated by using fossil fuels and it is free! According to the Kalamazoo College s Climate Action Plan, we are committed to annually reduce 200 metric tons (MT) of carbon emission using on-site renewable energy systems by the year Installing 250 kw photovoltaic solar panels on our campus will empower our community to decrease carbon emission by 125 MT/year. This reduction neutralizes the carbon emissions of 18 homes and it is equal to the amount of carbon that 3,137 trees absorb and store

3 every day. Although the environmental benefits of this investment are clear, we must also consider its long-term impact on school finances. The Economic Costs and Benefits of a Photovoltaic Array System Evaluating the economic impact of new solar panels on K s campus requires estimating several unknown parameters how much electricity a PV array will generate, the future price of electricity, and the installation costs for the panels. We have done our best to predict these values by extrapolating past trends and researching predictions of future changes. In acknowledgement of the high degree of uncertainty inherent in this exercise, we provide the economic outcome of a solar panel installation under three different sets of assumptions: a best-case, worst-case, and best guess scenario. The Three Scenarios Best Guess Best Case Worst Case Electricity Prices Real annual inflation: 0.2% Real annual inflation: 1.2% Real annual inflation: -0.8% Solar Panel Prices Real annual inflation: -10% Real annual inflation: -15% Real annual inflation: -5% Yearly Electricity Generation 1150 kwh/kw 1315 kwh/kw 970 kwh/kw Proportion of Energy Generated During On-Peak Hours 5/7 6/7 4/7 Electricity Prices The direct economic benefit of a PV array to the college is avoided electricity costs. How much money the college saves for every kwh its solar panels produce depends on when the energy is produced and the price of electricity. Kalamazoo College pays two different electricity prices one for on-peak electricity usage during the busiest hours of the day and another, cheaper rate for off-peak usage. Anywhere from 4/7 to 6/7 of the electricity generation of solar panels will be during on-peak hours, and these ranges are factored into the three different scenarios (Sutton, and Troyer). Electricity prices also vary by month, tending to be more expensive during the summer. The online PV Watts calculator produced an estimate of how many kilowatt-hours of electricity a 250- kilowatt PV array would produce per month in a typical year in the Grand Rapids area ( PV Watts calculator ). The on-peak and off-peak price was calculated for each month by looking through K s energy bills from and adding up the various fees and rebates. In months where no bill was available, the price was estimated by setting it in the middle of the two most recent months for which data was available. These monthly on-peak and off-peak prices were then put into a weighted

4 average determined by the proportion of electricity production that occurred during each month. This gives the average amount that will be saved by any single kwh the solar panel produces during an on-peak or off-peak period. In determining yearly savings, either 4/7, 5/7, or 6/7 of the electricity produced would be assumed to be during on-peak periods, depending on the relevant set of assumptions. A major part of K s monthly electricity bills is the peak demand charge. This charge is assessed based on the largest number of kilowatt-hours the college consumes in a single hour over the billing period. Solar panels are unlikely to have a significant impact on this charge. Although solar panels are likely to produce electricity during periods of peak consumption, all it takes is a single cloudy hour for peak demand to rise back to its usual level, resulting in the same fee. Thus, the average amount saved per kwh produced by solar panels will likely be less than the average price the college pays for electricity in any given month. As these solar panels represent a 25-year investment, changes in electricity prices over time will impact revenues. In their 2013 Annual Energy Outlook, the US Energy Information Administration predicts that real electricity prices for commercial consumers (the category K falls under) will grow by 0.2% annually (John 139). This is approximately consistent with an extrapolation of electricity trends from These predictions are associated with a large degree of uncertainty. To account for this, inflation one percent higher or lower than the expected trend is considered in the optimistic and pessimistic scenarios. Installation Costs Solar panel prices, once prohibitively expensive, have fallen dramatically over the past fifteen years. The US Department of Energy reports that, installed prices of U.S. residential and commercial PV systems declined 5% 7% per year, on average, from , and by 11% 14% from (Feldman, Barbose, Margolis, Wiser, Darghouth, and Goodrich v). The report notes that 2012 installation prices for systems greater than 100 kw is $4.6 per Watt. It is difficult to know how the market for photovoltaic panels will change going forward, but given the accelerating trend of price decreases in recent years, expecting a ten percent annual decline in prices from is reasonable. To account for uncertainty, changes in price at a five percent higher or lower rate are considered in the other scenarios. Electricity Generation Another area of uncertainty is how much electricity solar panels will generate on K s campus. Using the aforementioned PV Watts calculator, an estimate of the monthly electricity output of a 250 kw PV array in Grand Rapids was produced using the specifications suggested by the calculator ( PV Watts calculator ). Over any given year, the electricity output of a solar panel can vary widely, and the output over the lifespan of the system is also uncertain. To capture this, an electricity output fifteen percent higher and lower than the expected total is considered in the optimistic and pessimistic scenarios.

5 One assumption made is that the solar panels will produce the same amount of electricity over their entire lifetime. It is expected that solar panels will have some degree of degradation in their efficiency, so it is likely that the total amount of electricity produced will be less than that shown in the analysis. Construction Process We consider several construction scenarios for a PV array. Given the expected trends of falling solar panel prices and rising electricity costs, delaying constructions generally leads to a more favorable cost-benefit analysis. However, delaying construction delays the project s environmental benefits and jeopardizes the completion of the college s Climate Action Plan. Cost benefit analyses of construction of 50 kw per year from , 250 kw all built in 2015, and 250 kw all built in 2020 are considered. Although other building patterns between 2015 and 2020 can be imagined, they likely would not differ significantly in their cost benefit analysis from the three examined here. Environmental Benefits Economic factors aside, the main reason Kalamazoo College is pursuing renewable energy is to promote responsible environmental stewardship, as outlined in the college Climate Action Plan and Mission Statement. Climate change caused by carbon emissions imposes costs on the society through erratic weather, poor harvests, and disease ("Social Cost of Carbon"). In an attempt to quantify this damage, the EPA has developed a social cost of carbon. This value represents the cost one metric ton of carbon does to members of the global community through climate change. Thus, for every ton of carbon Kalamazoo College avoids emitting by building solar panels, the benefit it yields for society is equal to the social cost of carbon. If Kalamazoo College is committed to its stated environmental and social justice objectives, it may want to invest in solar panels even if the private economic outcome for the college itself is unfavorable. By considering not just the private benefit to Kalamazoo College financially but also the social benefit of reduced carbon emissions, the college can have a better idea of whether incurring some private losses on this project is worthwhile for a larger social gain. There is a large degree of uncertainty in the EPA s estimate of the social cost of carbon. The estimates for the social cost of carbon used are a middle ground between the EPA estimates of the social cost of carbon using a 3% and 5% discount rate. Discount Rate Completing a cost-benefit analysis also requires choosing a discount rate to determine the present value of future cash flows. Four percent is used here, a reasonable rate for institutions such as K College, although the same cash flows can be analyzed using different rates (Hussen ).

6 Limitations There are several financial and non-financial aspects of constructing a PV array on campus that this analysis does not consider. The cost of panel upkeep and connecting to a net metering program with Consumer s Energy are not added in, as these costs would likely be minor in comparison to the scope of the project. Generating and using solar energy on campus could be positive for the school s image among prospective students and alumni, yielding financial benefits for the school not considered here. Although this analysis does consider the social cost of carbon, there are other social costs associated with traditional fossil fuels in areas such as air and water quality that are not included. On the other hand, the pollution from producing the solar panels is also not considered. Cost Benefit Analyses Solar panel installations generally come with a 25 year warranty, making this an appropriate window over which to consider the returns on an investment. The cost benefit analyses are not favorable for constructing a PV array between 2015 and The only scenario under which a solar panel project pays off financially for the school is under optimistic assumptions with all construction in 2020 (table 3B). However, under moderate assumptions construction in 2020 doesn t even yield a positive internal rate of return, let alone beat the 4% discount rate (table 3A). Starting construction in 2015 has even dimmer prospects. Under no set of assumptions does starting construction in 2015 yield a positive present value for the school, regardless of whether construction is completed in one year or spread over five (tables 1A-1C and 2A-2C). Considering the social benefits of carbon reduction is important for this project, but generally they are dwarfed by the private costs. Only in one scenario is there a net social benefit thanks to the social cost of carbon but still a net private cost for the school (table 3A). Conclusion Given that a PV array constructed between 2015 and 2020 will most likely yield negative net private and social benefits, the college could probably invest its money more effectively in other ways. We recommend further research into alternative cost effective green investments for the campus. It is important to remember the high degree of uncertainty in these predictions. It is likely that the actual costs and benefits of a solar panel array will be different from our best guess. Any outcome between the best and worst case scenarios is plausible, and it is not unthinkable that the outcome could even fall outside of this range. Thus, the school should not entirely turn its back on solar panels. Given the uncertainty in our analysis and the rapidly falling price of solar cells, it is likely that time will continue to make solar panels a more attractive investment. It s worth regularly examining whether a PV array is a feasible green investment for the K College community and expanding that consideration beyond

7 purely financial factors. Our Climate Action Plan outlines the importance of Greenhouse Gas Reduction; Resource Conservation; and Academics and Civic Engagement, only the first of which is calculated into our cost benefit analysis. There are a few avenues we discovered throughout the research process that we recommend to be explored by K in future sustainability efforts; if we had the resources, we might have researched them ourselves. First, we implore our fellow students and the greater K community to further investigate the academic and moral value of implementing solar panels on campus. With some effort, a meaningful program centered around the science of photovoltaics and the power needs of our community might be crafted. Second, Western Michigan University has expressed a desire to partner with K on sustainability efforts. In our research, Western proved to be an invaluable resource with lots of knowledge to offer and potential for future collaboration. Finally, Western Michigan University students have democratically chosen to impose a sustainability fee of 8 dollars per semester that students pay to support a more green campus. Something like this could be a good fit for Kalamazoo College as well. Though the negative financial return on solar panels may be disappointing news to a college community that concerns itself with environmental responsibility, plenty of less-than-traditional routes remain to be explored. With innovation, we can find the sensitive balance between private costs and social benefits. To strike this balance would not only be a tremendous benefit to our own community; it would also exert a greater positive influence by serving as an example of effective environmental stewardship for our global community. We challenge our peers to think critically and extensively about our climate impact and work to find sustainable methods that take care of our environmental, fiscal, and social needs.

8 Sources United States. National Renewable Energy Laboratory. PVWatts Calculator Web. John, Conti. United States. Energy Information Administration. Annual Energy Outlook 2013 with Projections to Washington DC, Web. < Feldman, David, Galen Barbose, Robert Margolis, Ryan Wiser, Naim Darghouth, and Alan Goodrich. United States. Department of Energy. Photovoltaic (PV) Pricing Trends: Historical, Recent, and Near-Term Projections. Oak Ridge, Web. < United States. Environmental Protection Agency. Social Cost of Carbon Print. < Hussen, Ahmed. Principles of Environmental Economics and Sustainability: An integrated economic and ecological approach. 3rd ed. New York: Routledge, Print. Sutton, Jesse, and Keith Troyer. Personal Interview. 05 Sep 2013.

9 Appendix Year 1 = 2015 Moderate Assumptions Build over 5 years 50 kws per year Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-159, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table1A

10 Year 1 = 2015 Optimistic Assumptions Build over 5 years 50 kws per year Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-127, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table1B

11 Year 1 = 2015 Pessimistic Assumptions Build over 5 years 50 kws per year Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-198, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table1C

12 Year 1 = 2015 Moderate Assumptions Build in 1 year 250 kw Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-798, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table2A

13 Year 1 = 2015 Optimistic Assumptions Build in 1 year 250 kw Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-635, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table2B

14 Year 1 = 2015 Pessimistic Assumptions Build in 1 year 250 kw Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-991, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table2C

15 Year 1 = 2020 Moderate Assumptions Build in 1 year 250 kw Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-471, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table3A

16 Year 1 = 2020 Optimistic Assumptions Build in 1 year 250 kw Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-281, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table3B

17 Year 1 = 2020 Pessimistic Assumptions Build in 1 year 250 kw Year System Cost Avoided Electricity Cost Annual Cash Flow Present Value (PV) of Social Cost of Carbon PV of Social Benefit of Reduced Carbon Emissions Net Present Value (NPV) of Annual Cash Flow Private NPV Social NPV Internal Rate of Return 1-767, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Table3C

not for commercial-scale installations. Thus, there is a need to study the effects of snow on

not for commercial-scale installations. Thus, there is a need to study the effects of snow on 1. Problem Statement There is a great deal of uncertainty regarding the effects of snow depth on energy production from large-scale photovoltaic (PV) solar installations. The solar energy industry claims