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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 electrification.

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 energy-efficient, 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 systems.

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 over time.

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 "on-demand" 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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