Realistic generation cost of solar photovoltaic electricity

Solar photovoltaic (SPV) power plants have long working life with zero fuel cost and negligible maintenance cost but requires huge initial investment. The generation cost of the solar electricity is mainly the cost of financing the initial investment. Therefore, the generation cost of solar electricity in different years depends on the method of returning the loan. Currently levelized cost based on equated payment loan is being used. The static levelized generation cost of solar electricity is compared with the current value of variable generation cost of grid electricity. This improper cost comparison is inhibiting the growth of SPV electricity by creating wrong perception that solar electricity is very expensive. In this paper a new method of loan repayment has been developed resulting in generation cost of SPV electricity that increases with time like that of grid electricity. A generalized capital recovery factor has been developed for graduated payment loan in which capital and interest payment in each installment are calculated by treating each loan installment as an independent loan for the relevant years. Generalized results have been calculated which can be used to determine the cost of SPV electricity for a given system at different places. Results show that for SPV system with specific initial investment of 5.00 cents /kWh/year, loan period of 30 years and loan interest rate of 4% the levelized generation cost of SPV electricity with equated payment loan turns out to be 28.92 cents /kWh, while the corresponding generation cost with graduated payment loan with escalation in annual installment of 8% varies from 9.51 cents /kWh in base year to 88.63 cents /kWh in 30th year. So, in this case, the realistic current generation cost of SPV electricity is 9.51 cents /kWh and not 28.92 cents /kWh. Further, with graduated payment loan, extension in loan period results in sharp decline in cost of SPV electricity in base year. Hence, a policy change is required regarding the loan repayment method. It is proposed that to arrive at realistic cost of SPV electricity long-term graduated payment loans may be given for installing SPV power plants such that the escalation in annual loan installments be equal to the estimated inflation in the price of grid electricity with loan period close to working life of SPV system. (author)