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Life Cycle Costing 102
Life-cycle cost analysis represents a paradigm shift
in energy system cost analysis, which had its roots in the energy
crisis of the early seventies. Even in the year 2007, there is
still much discussion, in terms of quantifying "all"
costs of procurement, operation, maintenance, and even disposal
of systems for cost comparison purposes. A typical case for life
cycle cost comparison is any rural or remote solar photovoltaic
installation compared to a remote diesel system for critical use
Costs are calculated separately for any specific case, though
the basic principles underlying life cycle cost calculations are
the same in all instances. The actual comparison values will vary
from site to site.
In general, total costs are calculated at the discounted present
value of the cost of components, measured in constant dollars,
for providing the end-use service to a customer for 15 to 30 years.
Such time horizon and discount rate are commonly used in any planning
for the supply of electricity.
The focus of analysis is on the total costs of providing the end-use
service that customers want, rather than the cost of electricity
alone. This approach is particularly important in a comparison
of the costs of solar PV and diesel systems because of the dissimilar
cost structures and energy efficiencies for appliances and power
needs that customers use with solar electric systems (i.e. DC,
direct current power plus AC power) vs diesel systems (generally
AC power only). DC appliances are often relatively more
and also cost more than comparable AC appliances. For the purpose
of analysis, it is assumed that the both solar PV and diesel systems
are properly designed, installed, and maintained.
Three broad categories of costs apply:
1) Customer appliance costs. These
reflect the costs
of the appliances used by customers. For simplicity, a linear
depreciation schedule is assumed, so that the residual value at
the end of 15 years is based on the fractional remaining life
of the equipment.
2) Generation equipment costs
reflect the costs of the hardware
needed to provide a reliable supply of electricity to the customer.
Both initial and replacement costs are taken into account, and
a linear depreciation schedule is used to calculate residual values
at the end of the useful life of the equipment. Included are engine
and generator overhauls, which are assumed to take place every
five years for diesel systems but are not needed for solar PV
3) Operational and maintenance costs
reflect ongoing, daily, monthly,
and annual costs the generation equipment installed at the customer's
site. These costs are generally based on the wages and travel
costs of the installing contractor's agents who must periodically
visit the customer's site, the costs of outside system operators
and maintenance personnel, and the associated costs of stocking
parts and equipment. Site visit-team overhead costs are also included.
On a 15-20 year basis, the future costs of generation equipment,
end-use appliances, and operations and maintenance over such time
periods come into play, though for simplicity it is often mistakenly
assumed that these costs will remain unchanged in constant dollars
There is more than one way to configure a photovoltaic system.
Stand-alone systems have no mechanical backup charging and all
energy is provided by the PV array. Energy is stored in a battery
bank and the solar array is designed to meet the load requirements
for the month with the least sunshine. Life cycle cost analyses
generally project that this category of system will produce power
at $.30 to $.50 (U.S.) per KWh.
For applications where the daily energy load is very large or
in areas where winter sunlight is scant, the PV array and batteries
required to maintain the entire energy load may render a stand-alone
PV system too costly. In such cases a solar-diesel hybrid system
can help reduce the initial system cost while maintaining low
operating costs and required reliability. This capability allows
the diesel genset to serve as a reliable back-up battery charging
source, when coupled with a high output industrial charger. By
integrating a back-up charging system into the design, the photovoltaic
array can be sized so that its output is used by the load for
most of the year. When this smaller array occasionally falls short
of the load requirement, or if the load were to expand, this
back up charging system will operate intermittently to supply
the required generation. The charger loads the genset to its optimum
level; when the genset runs, it is producing power at its lowest
possible cost per KWh.
Systems of this sort allow the solar array and the battery bank
to be reduced substantially. Properly designed, the back-up genset
in a PV hybrid will need to run less than an hour a day, averaged
annually. At this small usage, a good diesel system will require
basic maintenance and fuel deliveries only once per year and an
overhaul won't be necessary for decades. Additional photovoltaic
modules can always be added at a later time to even further reduce
its run time.
Typical of many sites is the solar-diesel hybrid power system
for Onyx Peak Microwave Link in California. It is a completely
automated photovoltaic system with a backup charging subsystem.
(Photocomm Inc.) Users include emergency service units of the
Sheriff and Forestry departments. The previous power system at
Onyx Peak used three 7.5 KW diesel generator sets. Two were always
on site; one at 100 percent duty cycle, the other rotated weekly
with the one on line. The third rotated out for maintenance. Battery
backup was limited to eight hours of operation and fuel consumption
to drive the generators amounted 7,000 U.S. gallons annually.
By integrating a backup diesel generator set with the primary
photovoltaic array, the solar plant size could be reduced over
an initially more expensive stand-alone photovoltaic station.
Fuel consumption was dramatically reduced from 7,000 gallons to
156 gallons annually.
Life cycle energy analysis requires that any small internal combustion
engine, under the best of conditions, will require a major overhaul
at around 5,000 hours of operation. For a power system operating
6 hours a day, the need for an overhaul will occur in less than
three years; for a system operating 24 hours a day, the period
is about seven months. Thus, a conservative assumption is that
the diesel engines and generators will require a major overhaul
every five years.
Life-cycle Costs for Solar PV and Diesel hybrid systems assuming
that the load remains constant over the entire 15-20 year assessment
period, show a significant advantages for the PV portion of the
energy delivery system, which is virtually maintenance free, with
zero fuel costs. Life cycle cost analysis for the diesel portion
of the hybrid system shows significant cost savings by reduced
operational times and associated fuel and maintenance savings.
Embraced internationally beginning in the early 1990s, review
of the entire life cycle for equipment procurement, operational
and maintenance costs as well as infrastructural requirements
(such as road maintenance or helicopter delivery of fuel and/or
trained maintenance personnel), is the current paradigm. Life
cycle cost analysis shows PV gaining ever-widening market shares
against conventional on-site thermal electric and diesel generation.
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copyright S.K. Lowe 1995-2007