Evaluating consumer investments in distributed energy technologies

Abstract

The adoption of key sustainable technologies by end-users, mainly solar photovoltaic or electrical energy storage, strongly depends on their economic attractiveness, which is typically assessed with metrics of future cash flow, especially Net Present Value (NPV). Yet analyses using NPV typically do not consider the time-dependent evolution of electricity systems in the short-and long-terms. We show this to be of critical importance toward accurately calculating the profitability of these technologies. By linking an energy system model with a power system model, we observe substantial differences between NPV estimates calculated with and without representing potential evolutions of the electricity system. Our results suggest that not accounting for short-and long-run changes in the electricity system could underestimate the NPV of an investment in photovoltaic and storage by around 20%, especially in scenarios with high levels of renewables, moderate flexibility, and high electrification in the system. Using system-dependent cash flow metrics can have a major impact on end-users' understanding of energy technology profitability.

Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security?

“…This understanding of NPV is used in capital budgeting and investment planning, enabling analysis of a projected investment or project [11]. The application of NPV in capital budgeting and investments is widely presented in the literature, e.g., [7,[12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27]. The researchers emphasise the importance of NPV for investment planning.…”

“…The researchers emphasise the importance of NPV for investment planning. Net Present Value enables the comparison between the money that must be paid to complete the planned investment with all the cash flows that the undertaking will generate in the future [7,[12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27].…”

Review of Different Methods for Siting and Sizing Distributed Generator

“…It can either be a renewable or a non-renewable energy source (Jain et al, 2011). Distributed generator (DG) is a possible substitute for installing a new centralized generation station, particularly in the era of deregulation and it has several benefits such as low investment risk and short installation period (Gissey et al, 2021;Khaligh and Buygi, 2020;Martinez-Bolanos et al, 2020;Moret et al, 2020;Yang et al, 2020), modules with small capacity that can monitor variations in load very closely (Jiang et al, 2020;Mahmud et al, 2020;Somefun et al, 2020), small physical size suitable for installation at proximity to users' end, and availability of a large range of DG technologies (Nagaballi and Kale, 2020;Yang et al, 2021). However, it is important to note that when DGs are to be introduced into a distribution network, consideration should be to optimally site and size DG units otherwise, there will be an increase in power losses and a decrease in reliability levels (Balu and Mukherjee, 2020;Deb et al, 2020;Farzinfar et al, 2020;Galgali et al, 2021;Kizito et al, 2020;Manna and Goswami, 2020;Shuaibu et al, 2020;Truong et al, 2020).…”

Two-Stage Stochastic Model to Invest in Distributed Generation Considering the Long-Term Uncertainties

“…However, a serious problem in energy generation planning at the household/building level is the lack of tools for decision makers or the consumers to assess the profitability of investments in DG. The adoption of solar photovoltaic (PV), wind turbines (WTs), or electrical energy storage by end users/consumers depends on the economic attractiveness, which is typically assessed through economics metrics such as Net Present Value (NPV) [4]. Ref.…”