The Impact of PV Panel Degradation Rate, Initial System Efficiency, and Interest Rate on the Levelized Cost of Energy for PV Projects: Saudi Arabia as a Benchmark

Abstract

As nations worldwide strive for carbon neutrality, Saudi Arabia has set ambitious targets to increase its renewable energy capacity, aiming for 50% of its electricity production to come from renewable sources by 2030. To accurately assess the economic viability of these photovoltaic (PV) projects, it is crucial to consider the levelized cost of energy (LCOE). In this study, we developed a comprehensive model incorporating PV panel annual degradation rate, initial system efficiency, and interest rates to provide a more precise LCOE calculation. The results demonstrate that PV panel annual degradation, initial system efficiency, and interest rate all significantly influence LCOE. In the most favorable scenario with a 0.5% degradation rate, 0.95 initial system efficiency, and a 0% interest rate, the LCOE was USD 0.0156/kWh. However, under the least favorable scenario with a 2.5% degradation rate, 0.75 initial system efficiency, and a 4% interest rate, the LCOE increased to USD 0.0317/kWh, representing a 103.2% increase. These findings underscore the importance of considering these factors when evaluating the economic viability of PV projects. By understanding their impact, investors and policymakers can make informed decisions regarding renewable energy investments and policies.