Grid-Tie:  a Win Win Investment Vehicle

 

PD Collar

July 19, 2012

 

 

Introduction

 

In spite of the challenging investment environment, solar and hydroelectric grid-tie in Costa Rica promises a risk-free return on investment of around 10%.  Aside from a raft of non-economic factors that favor grid-tie as a rational power management strategy for both homes and businesses, it makes financial sense to capitalize on such consistent favorable returns from a relatively modest investment.  A variety of factors makes grid-tie in Costa Rica more economically favorable than in the United States and many other developed countries.

 

Why Costa Rican Grid Tie is an Attractive Costa Rican Investment

 

1.  High cost of electrical power.  Power costs in Costa Rica average $0.28 per kilowatt-hour (kw-hr) for routine power demands but can exceed $0.38 per kilowatt hour for high consumers or for higher demand during peak hours.  Compare this to the average US-wide cost of $0.11 per kilowatt-hour.  This factor alone makes solar power three times more economically attractive in Costa Rica than on average for the United States.

 

2.  Import duty exemption.  Costa Rica does not have import tariffs on alternative energy equipment.  Other than 13% sales tax and modest international shipping and customs brokerage fees, equipment costs are approximately comparable to costs than in the US, Canada, and Europe.

 

3.  Fixed-tariff rate parity.  ICE's Distributed Generation, a pilot program that kicked off in October 2010, trades home power production at the same rate as it sells power.  While fixed-tariff is a use-or-lose program, meaning that ICE will not yet cut a check for excess power production, the program allow credits for excess power production in some months to be drawn against in months in which more power is used than produced across yearly intervals.

 

4.  No permits required.  There are no environmental or building permits required for solar power systems, only an approval from ICE based on an application that details system design according to accepting engineering standards and certification that all equipment to be used meet applicable industry standards.  Grid-tie approval carries no fees from ICE and typically has a three-week approval period.  This means that once a decision to proceed is made, a final grid-tie installation can take as little as three months from decision to commissioning.  Credits apply to the first billing cycle following final ICE inspection of the commissioned installation.

 

5.  No lower limits.  Upper limits on fixed-tariff grid tie systems are intuitive.  It makes no sense to produce more than you consume on average, since under the current fixed tariff system, there is no compensation for excess production.  However, a homeowner can install a smaller system of any size and simply offset the power bills of the capacity installed, reducing monthly bills accordingly and at parity.  Since solar is modular, arrays are expandable according to changes in capital availability or changes in power demands.  There is no restriction on such changes at ICE and no duplication of costs in making modular additions at a later time. 

 

6.    Energy Inflation.  The economic models for ROI and payback period are predicated on current power costs.  However, the cost of electricity rises continually due to inflation and other factors.  Sunk system costs are cemented in the dollar value at the time of installation, and since no operation or maintenance costs are involved, these sunk costs are immune from inflation.  The economic effect is that actual ROI for these systems grows whenever power costs increase, so that the increase in relative profitability, year on year, is an intrinsic feature of this investment dynamic.

11.2 kilowatt mast-mounted solar array (OPW)

 

Case Study

 

Got your attention?  Let's run the numbers to see in real terms how this works.  Let us assume that you have an average monthly power consumption of 1200 kw-hr and pay a monthly bill of $336. 

 

To offset this bill entirely, we need a solar system that will generate this much NET power per month.  With solar, there are sunny days and rainy days, and it is best to be conservative with projected average insolation rates.  Barring unusual circumstances, I use a 6 hour solar day as a Costa Rican average.  Chirripo would be a bit less, Tamarindo a bit more.

 

To offset the power used, we must produce on average 40 kw-hr per day (1200 kw-hr / 30 days).  Assuming six hours of insolation this presumes an effective charging source of 6.7 kw (400 kw-hrs / 6 hrs).

 

System inefficiencies can arise in a number of ways and must be projected for best design.  Factors to take into consideration include:

  • Inverter:  Figure 5% loss.
     

  • Angle and Orientation.  Any divergence from 12 degrees facing due south will introduce losses, which can be dramatic.  These losses can range up to 30% and are easily projected.
     

  • Line Losses.  Electrical transmission efficiency varies as a function of cable size, line length, and amperage and barring long runs can be typically be held to beneath 1% with reasonable cable sizing.
     

  • Shading.  In some locations shading cannot be avoided at certain times of the day.  Both the daily sun track and its seasonal variation should be taken into account if shading is a factor that must be compensated.

For our example, I will assume a total of 7% losses and must boost the charging source accordingly to 7.2 kw (6.7 kw / 0.93).

 

Optimal system design presumes an array symmetry to allow for parallel wiring to boost voltage and reduce losses.  I try to work in multiples of four to achieve 96 volt transmission between the panel array and inverter.  In our case study case, division by four presumes four series of 1800 watts each.  Market forces play in at this point to influence the decision on panel wattage, but in our case, 180 watt panels would imply ten panels per series, for instance, 40 in all, while 300 watt panels would satisfy our needs with only 6 panels per series, 24 in total.  These are design variables that are important but not relevant to the economics, since panels and installed systems are typically marketed on a per-watt basis anyway.

 

Roof-mount systems are presently running around $5.25 per watt installed.  Mast-mount systems are more costly, $7.50 per watt with the cost of the masts and housing for equipment and controls.  These costs vary according to the circumstances of each installation.  For our purposes we shall assume a roof-mount 7200-watt system at $5.25 per watt for a total installed cost of $37,800.

 

The economic analysis is now quite simple.  The system offsets $336 in power costs per month, or $4,032 per year.  Therefore, the payback period is ($37,800 / $4,032) or 9.4 years.  The baseline return on investment, assuming current electrical rates, is therefore ($4,032 / $ 37,800) or 10.7%.

 

These projections presume static electricity costs.  In practice electricity costs are not static and increase due to inflation and other factors.  So, the numbers presented are conservative.  In reality, your system will pay for itself more quickly because of inevitable energy inflation.  And since the equipment is long-lasting (25 year life span for panels is typical) the longer your system is in place, the more the overall ROI will increase with time.

 

3.2 kilowatt roof-mount array (OPW) 10 kilowatt roof-mount array (OPW)

 

 

So, What's the Catch?

 

There's no catch.

 

It is necessary to apply for the grid-tie agreement through ICE's Distributed Generation department.  Download the application form here.  Or pay me or a competitor to steward your application through the process. 

 

This won't give you power during outages.  In fact, for protection of linesmen against electrocution, grid-tie power systems are required to shut down when the power goes out and all systems tested by ICE to ensure conformance with this.  You can install a separate battery backup for uninterrupted power supply during power outages, but this capacity is not intrinsic to grid-tie systems themselves.

 

Micro-hydro grid tie requirements more cumbersome than solar.  Hydro requires a D-1 environmental permit from SETENA and a water concession specifically designated for hydro from MINAET.  Only with those documents in hand witll ICE grant a grid-tie agreement for hydro.  These permits add 1-2 years in lead time to getting started.  Owing to this and to falling solar panel prices, micro-hydro rarely competes economically at the residential scale, even with a great stream and plenty of head nearby.

 

ADDITIONAL BENEFITS

 

Aside from the immediate economics, there are other factors that favor the grid-tie model in Costa Rica.

 

1)  Net-Netering.  Costa Rica's pilot fixed-tariff program is in place to guide the nation in its adoption of a net-metering law in which excess power generation will in fact be purchased by ICE, though not necessarily at parity with sales price.  Those with grid-tie systems in place will be poised to ramp up with modest modular additions and achieve returns likely in excess of those calculated here, though subject to final trading rates negotiated between ICE, ARECEP, and the Costa Rican legislature.  The current study period closes October 2012, so expect a net-metering law in 2-5 years time.

 

2)  Carbon Offsets.  Costa Rica produces around 7% of its power with oil-fired plants.  Still, for every 100 units of power generated by solar, that offsets 7 units that would otherwise be generated by oil with its corresponding carbon dioxide and particulate pollution.  About 82% of the nation's power is generated by large hydroelectric, and while many assume this is environmentally friendly, hydroelectric reservoirs have substantial greenhouse gas outputs from the decay of organic material and offgassing of carbon dioxide and worse, methane.  Compounding CO2 emissions the absence of trees and plants where reservoirs are means that native sinks are not present for CO2 uptake.  Solar power (and micro-hydro, which does not depend on reservoirs) is a 100% carbon-free technology, so in real terms every unit of power produced by residential grid-tie solar offsets power production at the national scale that contributes to climate change.

 

3)  Go Costa Rica!  Costa Rica is one of only a handful of nations (Norway, Iceland, Maldives, Tuvalu, New Zealand, Vatican City, Bhutan)  competing to become the first carbon-neutral nation.  Costa Rica's goal, a declaration of national policy, is to achieve the goal by the year 2021.  With its considerable forestry reserves as carbon sinks and minor reliance on fossil fuels it has a real shot at the title of the World Carbon Cup, but only if it is able to boost the national percentage of carbon-free solar, wind, and micro-hydro. 

 

 

Conclusion

 

To see a grid-tie system in place, come and visit my office in Puerto Jimenez.  I have a 5 kilowatt roof-mount system that shaves $250 from the monthly bill of Osa Corcovado Tour and Travel.  Ironically, the ROI from power supply exceeds the profit margin of the business itself, despite the fact that business management requires time and effort whereas the power system operates itself without intervention or maintenance.  My plans include a second grid-tie solar system and rainfall capture system to offset my power and water bills from my apartment and office upstairs.  After two years of installing such systems under the new law around the country, it is apparent to me that the only reason the practice is not more widespread is that most people are not aware of how favorable this is as an investment vehicle. 

 

Wanna learn more?  Write me and tell me about your circumstances and grid-tie solar ambitions.  

 

Paul Collar

Osa Power & Water

Puerto Jimenez Costa Rica

www.osapower.com

www.osawaterworks.com

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