U.S. Guidelines for the

Economic Analysis of

Building-Integrated

Photovoltaic Power Systems

February 2000 ï NREL/TP-710-25266

Patrina Eiffert, Ph.D.

Arlene Thompson

National Renewable Energy Laboratory

1617 Cole Boulevard

Golden, Colorado 80401-3393

NREL is a U.S. Department of Energy Laboratory

Operated by Midwest Research Institute • Battelle • Bechtel

Contract No. DE-AC36-99-GO10337
National Renewable Energy Laboratory

1617 Cole Boulevard

Golden, Colorado 80401-3393

NREL is a U.S. Department of Energy Laboratory

Operated by Midwest Research Institute • Battelle • Bechtel

Contract No. DE-AC36-99-GO10337

February 2000 ï NREL/TP-710-25266

U.S. Guidelines for the

Economic Analysis of

Building-Integrated

Photovoltaic Power Systems

Patrina Eiffert, Ph.D.

Arlene Thompson

Prepared under Task No. PV00.8201
NOTICE

This report was prepared as an account of work sponsored by an agency of the United States

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i

Acknowledgments

Funding for this project was provided by Photovoltaics for Buildings within the National

Center for Photovoltaics (NCPV) at the National Renewable Energy Laboratory. Support

for the NCPV is provided by the United States Department of Energy (DOE) Office of

Power Technologies. The project was also funded by DOEís Federal Energy

Management Program.

Much of this work is based on guiding principles already established by the National

Institute for Standards and Technology (NIST) within the U.S. Department of

Commerceís Office of Applied Economics. NIST pioneered the development of building

life-cycle cost analysis relative to energy usage and conservation in buildings. The

authors wish to acknowledge the valuable contributions of Rosalie Ruegg from NIST.
ii

Glossary

After-tax analysisóEconomic assessments that take tax effects into account.

Balance of system (BOS)óBOS is a term used to refer to those components other than

photovoltaic modules. BOS includes the power conditioning equipment (inverter and

rectifier), array foundation, support structure, sun-trackers (optional), backup power

(usually a battery bank), wiring, and electrical system protection devices.

Break-even analysisóA technique for dealing with uncertainty in cost and benefit

estimates; entails determining the minimum or maximum value that a variable can have

and still result in a project whose present value benefits (savings) will just cover its costs.

(Note: The time to pay back is a measure of break-even life.)

Energy savings performance contracting (ESPC)óAuthorized by the Energy Policy

Act of 1992 (EPAct), the ESPC option allows energy service companies to assume the

capital costs of installing energy and water conservation equipment and renewable energy

systems. In the ESPC process, the energy service company guarantees a fixed amount of

energy cost savings throughout the life of the contract (up to 25 years) and is paid directly

from those cost savings. Agencies retain the remainder of the energy cost savings for

themselves. (ìEnergy cost savingsî refers to any reduction in utilities for a federal

building.)

First-cost approachóSelecting among alternatives based on which has the lowest upfront costs.

Life-cycle cost (LCC)óThe sum of time-equivalent costs of acquiring, owning,

operating, and maintaining a building, system, or equipment over a designated study

period. Comparing LCCs of alternative building designs, systems, or equipment that

equally satisfy functional requirements is one way of choosing among them based on

economic grounds.

Low-E (low-emittance) coating or glazingóMicroscopically thin and virtually invisible

metal or metallic oxide layers deposited on a window or skylight glazing surface,

primarily to reduce the U-value by suppressing radiative heat flow. A typical type of

low-E coating is transparent to the solar spectrum (visible light and short-wave infrared

radiation) and reflective of long-wave infrared radiation.

Marginal (or added) costóThe difference between the total building system cost with

and without the added photovoltaic system.

Marginal cost of capitalóThe rate of return on the next-best available use of investment

funds. An investor typically uses this rate to establish the discount rate and the minimum

acceptable rate of return.
iii

Minimum acceptable rate of returnóThe minimum percentage return required for an

investment to be economically acceptable.

Net benefit analysisóThe net difference between two (energy) systems, taking into

account the relative benefits and costs, expressed in present or annual value dollars.

Payback periodóThe minimum time it takes to recover an investment. The ìsimple

payback periodî for an energy system is the total investment cost divided by the first

yearís revenues from energy saved, displaced, or produced.

Savings-to-investment (or benefit-to-cost) ratioóA ratio of savings to costs, or

benefits to costs, for one building design, system, equipment, or strategy versus an

alternative.

Time value of moneyóThe time-dependent value of money arising from price

inflation/deflation and from its real earning potential over time.
iv

Acronyms and Abbreviations

AIRR adjusted internal rate of return

BIPV building-integrated photovoltaic

BLCC Building Life-Cycle Costs (computer program)

BLM Bureau of Land Management

BOS balance of system

CO2 carbon dioxide

DOE U.S. Department of Energy

DOI U.S. Department of Interior

DSIRE National Database of State Incentives for Renewable Energy

EREC Efficiency and Renewable Energy Clearing House

FEMP Federal Energy Management Program

GDS Governmental Data Services

IPMVP International Performance Measurement and Verification Protocol

IREC Interstate Renewable Energy Council

kW kilowatt

kWh kilowatt-hour

LCC life-cycle cost

M&V measurement and verification

MARR minimum acceptable rate of return

NCPV National Center for Photovoltaics

NIST National Institute for Standards and Technology

NOX nitrous oxide

NPS National Park Service

NPV net present value

NREL National Renewable Energy Laboratory

O&M operations and maintenance

OSHA Occupational Safety and Health Administration

PUCs public utility commissions

PV photovoltaic

PV:BONUS Photovoltaics: Building Opportunities in the United States

PVI present value of investment costs

RWG Renewable Working Group

SBA Small Business Administration

SIR savings-to-investment ratio

SO2 sulfur dioxide

TMY typical meteorological year

TV terminal value

UPS uninterruptible power supply

UPVG Utility PhotoVoltaic Group
v

Executive Summary

Traditionally, electrical service for buildings has been provided by one predetermined supplieróthe utility company. An unexpected side effect of the privatization

and deregulation of the electricity industry, initiated during the late 1980s and early

1990s, is the opportunity for consumers to purchase electricity from a variety of energy

service companies or to generate electricity themselves. Concurrently, the U.S.

Department of Energy, national energy laboratories, universities, and photovoltaic (PV)

manufacturers have technically evaluated, tested, and demonstrated building-integrated

photovoltaics (BIPV) to be a viable technology.

Electricity industry restructuring and successful PV research and development

raise a dilemma for building owners: is it worth the investment and effort to engage in the

process of generating electricity with photovoltaics for individual buildings?

A BIPV power system operates as a multifunctional building construction

material; it generates energy as well as serves as part of the building envelope. The

objective of the U.S. Guidelines for the Economic Assessment of Building-Integrated

Photovoltaic Power Systems is to identify the economic parameters of BIPV systems.

Identifying these parameters will enable the decision-makers to appraise the economic

feasibility and implications of investments in such building systems.

Section 1 identifies general methods of assessing the economic performance of

BIPV power systems. A major barrier to analyzing renewable energy systems is

assembling and presenting the technical and financial data in forms that will help a client

determine if a BIPV power system would make economic sense. Economic methods of

investment analysis, including payback period, net benefit analysis, savings-toinvestment ratio, adjusted internal rate of return, and life-cycle cost analysis, are

presented for use by the owner-occupant, owner-investor, and owner-developer.

Section 2 describes the benefits of BIPV systems, which can affect the decisionmaking process. These benefits derive from such factors as energy cost savings, revenue

or credits from the sale of power, enhanced power quality and reliability, reduced

construction costs, reductions in environmental emissions, increased rents, tax credits,

rebates, and other incentives. Some of these benefits can be identified, evaluated in

monetary terms, and entered into the calculation of economic performance. Other effects

may be difficult to quantify and are considered qualitatively.

Section 3 characterizes the relative costs of BIPV power systems for the building

owner. Limited published data is available on BIPV power system costs. A preliminary

survey conducted in this study indicates that manufacturer marketing representatives

provide widely varying cost estimates. Consequently, a variety of vendor bids should be

gathered and reviewed prior to making an investment decision. There can also be hidden

or unexpected costs, which will be examined in this section.

Section 4 specifies measurement and verification (M&V) for BIPV power

systems. Prescribing an internationally accepted guideline for M&V can ensure that

generation and savings requirements in BIPV power systems will be accurately,

consistently, and objectively determined.
vi

Contents

Section 1 ñ Investment Analysis ................................................................................................... 1

Introduction...................................................................................................................................... 1

Economic Benefits and Costs .......................................................................................................... 1

Economic Methods of Investment Analysis .................................................................................... 2

Payback Period.......................................................................................................................... 2

Net Benefit Analysis ................................................................................................................. 2

Savings-to-Investment Ratio..................................................................................................... 3

Adjusted Internal Rate of Return .............................................................................................. 3

Life-Cycle Cost Analysis .......................................................................................................... 3

Using the Methods for Investment Decisions ........................................................................... 3

Building Ownership Issues .............................................................................................................. 6

Owner-Occupant ....................................................................................................................... 6

Owner-Investor ......................................................................................................................... 6

Owner-Developer...................................................................................................................... 6

Building-Integrated Photovoltaics and Building Ownership........................................................... 6

Summary of Investment Analysis.................................................................................................... 7

Building Life-Cycle Costs Model.................................................................................................... 7

Recommended Criteria for Cost Effectiveness................................................................................ 8

Section 2 ñ Benefits of BIPV Power Systems............................................................................... 9

Introduction...................................................................................................................................... 9

Direct Economic Impact .................................................................................................................. 9

Indirect Economic Impact................................................................................................................ 9

Qualitative Value............................................................................................................................. 9

Electricity Benefits .......................................................................................................................... 9

Utility Incentives ........................................................................................................................... 10

Utility Incentive Programs............................................................................................................. 10

Metering .................................................................................................................................. 10

Dual Metering................................................................................................................... 11

Net Metering..................................................................................................................... 11

Thermal Benefits ........................................................................................................................... 14

Demand Savings ............................................................................................................................ 15

Power Quality and Reliability........................................................................................................ 16

Security.......................................................................................................................................... 17

Remote Power Benefits ................................................................................................................. 17

Promotional and Educational Benefits .......................................................................................... 20

Environmental Benefits ................................................................................................................. 20

Tax Incentives................................................................................................................................ 21

Tax Credits.............................................................................................................................. 21

Tax Rate .................................................................................................................................. 21

Tax Basis................................................................................................................................. 21

Taxable Entity ......................................................................................................................... 22

Loan Incentive Programs............................................................................................................... 22
vii

Section 3 ñ Costs of BIPV Power Systems ................................................................................. 24

Introduction.................................................................................................................................... 24

Building-Integrated Photovoltaic System Costs ............................................................................ 24

Labor Costs.................................................................................................................................... 24

Maintenance Costs......................................................................................................................... 25

Utility Interconnection Costs......................................................................................................... 26

Costs Associated with Building Permits........................................................................................ 27

Replacement and Repair Costs ...................................................................................................... 28

Salvage Value/Costs ...................................................................................................................... 28

Section 4 ñ Measurement and Verification for Building-Integrated Photovoltaics............... 29

Introduction.................................................................................................................................... 29

Protocol Background ..................................................................................................................... 29

Objectives ...................................................................................................................................... 29

Options........................................................................................................................................... 30

Importance of Measurement and Verification ............................................................................... 32

To Obtain the IPMVP.................................................................................................................... 32

References..................................................................................................................................... 33

Appendix ñ Methods of Assessing Capital Budget Decisions................................................... 36
1

Section 1 ñ Investment Analysis

Introduction

This section identifies general methods of investment analysis and explains how

they may be applied to the assessment of building-integrated photovoltaic (BIPV) power

systems. A major barrier to analyzing renewable energy systems is assembling and

presenting the technical and financial data in ways that will help a client decide if a BIPV

power system would make economic sense. Economic methods of investment analysis,

such as payback period, net benefit analysis, adjusted internal rate of return, and lifecycle cost analysis can be used to evaluate BIPV systems from the standpoint of the

owner-occupant, owner-investor, and owner-developer.

Economic Benefits and Costs

Generally, most architects use some form of quantitative analysis such as net

benefit analysis, length of payback period, or internal rate of return as a financial criterion

to evaluate a building investment. However, there is a variety of barriers to the

widespread investment in BIPV systems according to a survey of American architects.

These architects were surveyed at a one-day workshop entitled ìBuilding-Integrated

Photovoltaics for Design Professionals,î which was sponsored by the National

Renewable Energy Laboratory (NREL) and the American Institute of Architects (Wenger

and Eiffert 1996). Many respondents indicated that a major barrier to analyzing

renewable energy systems is assembling and presenting the technical and financial data to

persuade a client that a BIPV system would make economic sense.

Investment evaluations of energy systems generally include an assessment of the

projected benefits compared to the estimated costs of the system. The direct financial

benefit of a BIPV system is primarily the value of energy generated. These direct

benefits may be viewed as:

Projected Benefits = Value of Electricity Generated

The direct economic costs of a BIPV system may be considered as:

Estimated Costs = Capital Costs + Periodic Costs + Replacement Costs

Quantitative analysis is a tool that facilitates ranking and choosing among

investment alternatives. As such, quantitative procedures appear to be straightforward.

However, numerous factors influence comparative evaluations. A building ownerís

economic expectations about future interest rates, inflation, and fuel costs directly affect

investment decisions, as can utility interface requirements, environmental regulations,

and tax incentives.

When photovoltaic (PV) technology is adapted and used as a building component,

as exemplified in BIPV, its economic costs and benefits may be shared between the

occupant and the utility company. For a building owner, the added costs of installing and

operating a system to generate electricity may be offset by the avoided costs of

purchasing electricity or by selling surplus electricity to the utility company.
2

Consequently, guidelines to identify the economic value of a BIPV system can be

used to help establish rate precedents and calculate an equitable rate structure for taking

electricity from or supplying it to the electricity grid. This can be assessed along with the

architectural value and performance expectations of PV as a building component. Then

the value of a BIPV system can also be weighed against the indirect economic benefits or

qualitative advantages and disadvantages associated with image, public perception, and

visual and environmental impact.

Economic Methods of Investment Analysis

Five relevant economic methods of financial analysis that are often used for

making building investment decisions are payback analysis, net benefit analysis, savingto-investment ratio (SIR), adjusted internal rate of return (AIRR), and life-cycle cost

(LCC) analysis. This study will assess the usefulness of these methods in evaluating the

economics of BIPV.

Payback Period

The payback period is the minimum time it takes to recover investment costs.

The payback period for an energy system is calculated as the total investment cost

divided by the first yearís revenues from energy saved, displaced, or produced. In

payback analysis, the unit of measurement is the number of years to pay back the

investment cost. Projects with short payback periods are perceived to have lower risks.

Simple payback analysis takes into account only first costs and energy savings at present

cost. This method omits several significant cost factors, including the cost escalation rate

and the cost of capital. Thus, simple payback analysis can overestimate the actual

payback period and, consequently, the length of time to recoup the investment.

The two main variations are payback after taxes and discounted payback.

Payback after taxes includes and evaluates marginal tax rates and depreciation schedules.

In the discounted payback method, future yearsí revenues are considered to have less

value than current revenues. Discounted payback is the time between the point of initial

investment and the point at which accumulated savings (net of the accumulated costs) are

sufficient to offset the initial investment costs. Costs and savings are adjusted to account

for the changing value of money over time.

For investors who seek rapid turnover of investment funds, the investment

increases in attractiveness as the payback period decreases. However, a shorter payback

period does not necessarily indicate the most economically efficient investment. An

investment with a longer payback period may be more profitable than an investment with

a shorter payback period if it continues to yield savings for a longer period. 

The payback measure is essentially a break-even measure of system life. Payback can be

used to determine the minimum time a system must last in order to recover the

investment costs.

The payback method is often used as a rough guide to cost effectiveness. If the

payback period is significantly less than the expected system life, the project is likely to

be considered cost effective.

Net Benefit Analysis

Net benefit analysis can be used to express the net difference between the benefits

and costs of one energy system relative to an alternative in present or annual value
3

dollars. Net benefits, also called net present value (NPV), is the difference between the

present value of benefits (revenues or savings) and the present value of costs of the

alternatives. A system is cost effective if the net saving or net benefit is positive.

Savings-to-Investment Ratio

The savings-to-investment ratio can be used to compare savings to costs of one

energy system relative to an alternative. The resulting unit of measure is an

undimensioned number. For positive net savings, the SIR must be greater than one. The

higher the ratio, the greater the savings realized relative to the investment.

Adjusted Internal Rate of Return

The adjusted internal rate of return is a discounted cash flow technique that

measures the annual compound yield from a project, taking into account reinvestment of

interim receipts at a specified rate. With this methodology, estimating the cost

effectiveness of a project involves comparisons of the calculated AIRR of a project to the

investorís minimum acceptable rate of return (MARR). The project is cost effective if

the AIRR is greater than the MARR.

The AIRR is calculated by taking the n

th root of the ratio of the terminal value

(TV) of all cash flows (except investment costs) to the present value of investment costs

(PVI) and then subtracting one [(TV/PVI) 1/n ñ 1]. The AIRR may be contrasted with

the internal rate of return, which computes the yield on original investment and is

calculated by a trial-and-error process that involves selecting compound interest rates and

discounting the cash flows until a rate is found for which the net value of the investment

is zero.

Life-Cycle Cost Analysis

In life-cycle cost (LCC) analysis, all relevant present and future costs (less any

positive cash flows) associated with an energy system are summed in present or annual

value during a given study period (e.g., the life of the system). These costs include, but

are not limited to, energy, acquisition, installation, operations and maintenance (O&M),

repair, replacement (less salvage value), inflation, and discount rate for the life of the

investment (opportunity cost of money invested). The unit of measurement is present

value or annual value dollars. A comparison between the LCC of an energy system to an

alternative determines if the system in question is cost effective. If the LCC is lower than

that for the base case and in other aspects is equal, and the project meets the investorís

objectives and budget constraints, it is considered cost effective and the preferred

investment (Ruegg 1990).

Using the Methods for Investment Decisions

Examples of decisions that may confront a building owner or operator are the

following: will a particular BIPV system be cost effective for a specific building?

Would other designs and/or sizes of the BIPV system be more cost effective? Given a

limited budget to retrofit a building for energy efficiency, 10 alternative modifications

(including a BIPV system) are available that together total four times the budget. Which

of the ten alternatives should be selected?

While the methods presented can be helpful in making a variety of investment

decisions, they are not equally well suited for all types of decisions. All of the methods,
4

in most cases, can be used to determine if a BIPV system is expected to be a costeffective addition to a building, other things being equal. For this purpose, the payback

method is the least reliable, but in many cases, will also provide a clear indication of cost

effectiveness.

For the purpose of designing and sizing BIPV systems, either the net benefits

method or the life-cycle cost method is recommended. As long as net benefits increase or

life-cycle costs decline as more expensive designs are chosen or as system size is

increased, it pays to go to the more costly design or larger system. The saving-toinvestment method and the adjusted rate of return method can also be used for designing

and sizing BIPV systems, but it is imperative that these methods be applied to

incremental amounts rather than to totals in order to serve as a reliable guide (Ruegg and

Marshall 1990).

For the purpose of ranking non-mutually exclusive investment alternatives, the

SIR method and the AIRR are the preferred measures. In most cases, choosing projects

in descending order of their SIRs or AIRR until the budget is spent will result in

maximum returns to the investor. Choice among projects and the designing and sizing of

the candidate projects can be combined in an overall optimization approach.
5

Example: PV Covered-Parking Systems (Lepley 1997)

One strategy for reducing the cost of PV systems is to use PV in applications where

there is additional value beyond electric power production. In the example of

covered parking, structural and land requirements for the PV system are eliminated.

For new construction, the PV modules can provide shade and weather protection,

resulting in an additional cost credit. In a few applications, the value of the shade

may be much higher than the value of the electricity, so the value of the PV

system/parking system combination may be as much as $5 per watt.

Assumptions:

• 18% of the full capital cost is needed each year for principal, interest, taxes,

and insurance.

• O&M cost of $0.01 per kilowatt-hour (kWh)

• Electricity generation of 1600-kWh/year per installed kilowatt (kW)

• Electricity value of $0.10 per kWh

• One kW covers 1.25 parking stalls.

• Shaded parking costs $2.00 per day per parking space.

• Utilization factor is 0.9. That is, assume a parking stall is used only 90% of the

time. Note that covered parking can be very popular at an airport where the

climate is extremely sunny and hot.

Based on the above assumptions, the annual value of a 10-kW PV covered-parking

system is:

Electricity value $1600

Shade/weather protection value 8212

Total annual value $9812

For comparison, the annual cost of a 10-kW installation at $5,000 per kW would be:

Capital costs $9000

O&M costs 160

Total annual cost $9160

A typical cost is about $600 for a covered-parking stall, or $0.75 per watt,

assuming 800 watts ac per stall.
6

Building Ownership Issues

Given the inherent high first cost and reduced operating costs associated with

BIPV power systems, investments are sensitive to and dependent on building ownership

issues. The three primary types of building owners (owner-occupant, owner-investor,

and owner-developer) differ in their investment criteria and time horizons.

Owner-Occupant

An owner-occupant expects to own a building for a long time. This positions him

or her to control the decisions related to the choice of the energy system. Minimizing the

operating costs is in that personís best interests. A higher initial capital investment may

be acceptable if it will reduce operating costs. The owner-occupant may make

investment decisions during the early stages of building design, construction, purchase,

and renovation, and directly experience financial savings, system reliability, and building

comfort. But more often, the occupant does not make initial building design decisions.

Owner-Investor

An owner-investor will purchase and develop property to rent or lease to a third

party. To maximize returns on investments, the owner-investor will be interested in

minimizing O&M costs unless the tenant is responsible for the user-energy costs. The

owner-investor may consider solar technologies, such as PV power systems, particularly

if there are federal, state, or local government tax incentives that provide the basis for an

enhanced return on investment.

Owner-Developer

In this case, ownership is assumed to be temporary, from purchase through

development and sale. Investment decisions will include energy-conscious design only if

the owner-developer perceives that it will help sell the property. Minimizing

development capital costs is important to the owner-developer. Operating costs are not a

primary consideration. Given the occasions of high initial capital costs and long-term

returns associated with energy investments, there is little incentive to consider energyconscious designs. The owner-developer may be able to capture tax incentives for

implementing solar energy systems, but these benefits may not provide sufficient

financial incentive to motivate the investment. In an even more negative scenario, the

owner-developer, rightly or wrongly, may perceive that this technology and its associated

costs will adversely impact the sale of the property and actively avoids the investment.

Building-Integrated Photovoltaics and Building Ownership

Speculative building developers often base design and investment decisions on

first costs only. Future operating costs, including energy costs, may be considered in the

financial decision-making process if the building is owner-occupied, or if a potentially

lower energy bill can be used as a marketing attraction.

Given that BIPV power systems are capital-intensive investments with low

operating costs, in most instances the long-term owner-occupant is best positioned to reap

benefits from a system and, therefore, is the most likely customer.
7

Summary of Investment Analysis

Investments in energy systems commit the building owner to current and future

cost expenditures. Appraisal methods should account for the relevant costs and compare

them on a common basis to the next-best option. Not all costs are factored into the

decisions of all building owners; investment decisions are a function of the building

ownerís time perspective, responsibility for specific cost items, and ability to realize

various benefits that may result from BIPV systems. In particular, speculative builders

are likely to emphasize first costs over future costs. Additionally, a building ownerís

ability to finance capital projects may be limited by the ability to borrow or raise equity,

or by strategic business objectives.

BIPV systems generally have low operating expenses because of avoided fuel

costs; however, the initial system purchase and installation costs make them capital

intensive and economically prohibitive when using first-cost analysis. Hence, economic

incentives (interest rate buy-downs, utility rebates, metering programs, and tax

advantagesincluding depreciation allowances and financial programs for financing new

BIPV construction and renovations) may be needed to encourage their use. Conventional

energy systems may initially be less expensive, but depending on recurring fuel costs,

may have higher long-term costs.

The evaluation of energy investment alternatives is often done using payback

period, NPV, SIR, or AIRR analysis. Primary distinctions among these methodologies

are the period over which the costs and benefits are calculated, the unit of measure, and

most importantly, their interpretation. Payback period is the minimum time it takes to

recover the initial investment. NPV is the net of savings over costs expressed as a timeequivalent value, usually as a lump sum at the present or as a series of annual amounts.

SIR is the ratio of savings to costs. AIRR is the annual rate of return assuming

reinvestment of interim earnings or savings at a specified rate. LCC is the time-adjusted

sum of all time-adjusted costs of a given system over the specified period, and must be

compared with the LCC of an alternative system in order to make an informed choice

between them. The nature of BIPV building productsto provide electricity in buildings

and to act as multi-functional building componentsrequires a large capital construction

cost but no operating fuel cost. BIPV power systems can also accrue non-energy

economic benefits over the lifetime of the system. Commonly used evaluation

methodologies for traditional buildings, which emphasize first costs or ignore non-energy

benefits of BIPV systems may underestimate their true and result in an unreliable or

inaccurate decision.

The appendix summarizes the commonly used methods for analyzing investment

choices and gives the formulas for their calculation. These formulas do not explicitly

include all of the various BIPV-specific costs and benefits that may be relevant to a

decision. However, they can easily be modified to incorporate these effects.

Building Life-Cycle Costs Model

The Building Life-Cycle Costs (BLCC) software program is an economic tool

developed during the 1980s by the Office of Applied Economics within the National

Institute for Standards and Technology (NIST), which in turn is within the U.S.

Department of Commerce. A copy of the BLCC Program Userís Guide and Reference
8

Manual is available at the Department of Commerceís Web site at www.nist.gov

(National Technical Information Service Order Number PB96:199229).

The BLCC software program is designed to evaluate and compare the cost

effectiveness of building energy conservation components and systems by quantifying all

project-related costs. The lowest LCC of the measured energy options is regarded as the

most cost effective. This program is regularly reviewed and revised. It complies with the

American Society for Testing and Materials standard practices for building economics

with performance measures, including E917 (Practice for Measuring Life-Cycle Costs of

Buildings and Building Systems); E963 (Practice for Measuring Benefit to Cost and

Saving to Investment Ratios for Buildings and Building Systems); E1057 (Practice for

Measuring Internal Rate of Return and Adjusted Internal Rate of Return for Investments

for Buildings and Building Systems); E1074 (Practice for Measuring Net Benefits for

Investments in Buildings and Building Systems); and E1121 (Practice for Measuring

Payback for Investments in Buildings and Building Systems) (NIST 1995).

The BLCC program is generally used to assess energy conservation strategies in

federal buildings in the United States. In addition, the Federal Renewable Working

Group (RWG) has developed the BLCC Preliminary Costing Guidelines for Renewable

and Conventional Technologies (RWG Draft). The guidelines are in the form of a

Microsoft Excel spreadsheet that includes costing guidelines for remote renewable

projects. Research into the BLCC model indicates that BIPV is relatively easy to

evaluate using the additional capital cost of the hardware other costs and benefits.

Recommended Criteria for Cost Effectiveness

Criteria for cost effectiveness can be subjective depending on the investment

decision-maker. Some general guidelines are to define cost effectiveness as any energy

project with a SIR greater than one, AIRR greater than the discount rate, LCC lower than

that for the next-best alternative energy system, and simple payback period less than the

life of the BIPV system.

Example: U.S. Federal Government Evaluation Criteria

Used to Establish a Cost Effective Energy Project

Evaluation Criteria Economic Measure

Payback Period Payback Period < Life of System

Savings to Investment Ratio SIR > 1

Adjusted Internal Rate of Return AIR > Discount Rate

Net Present Value Net Present Value > 0

Life-Cycle Costs Lower than LCC for Alternative
9

Section 2óBenefits of BIPV Power Systems

Introduction

The value of BIPV power systems can directly affect the decision-making

process. These benefits can be identified and evaluated based on direct economic impact,

indirect economic impact, and qualitative value.

Direct Economic Impact

An integrated building energy system is generally procured through a construction

budget. Electricity generated by the BIPV power system creates savings that reduce

operating budgets.

A BIPV power system can save the building owner money by reducing

construction material costs and electricity costs, providing education, enhancing power

quality and power reliability, and providing tax credits. The combined savings may

accrue in a variety of budgets that will affect the investorís entire fiscal portfolio

performance.

Indirect Economic Impact

Each building owner has a value related to strategic goals, business interests, or

organizational mission. With a multifunctional BIPV power system, additional costs and

benefits may accrue and may be hidden or not obvious, due to accounting methods and

the directly and indirectly affected budgets. An organization, for example, may be able

to assign a credit or value for BIPV technology for environmental emissions reduction if

they can be quantified, valued, and even traded. However, if an effect is irrelevant to, or

cannot be captured by, a decision-maker, it is generally not included in the investment

analysis. 

Qualitative Value

Some benefits of BIPV power systems are simply subjective and are difficult to

quantify. For the building owner, a noticeable value of a BIPV power system may be

associated with a positive image, public perception, or impact on the built environment

when the technology is installed. On the other hand, some may feel the systems detract

from the building appearance or constrain the design options due to requirements for

building orientation towards the sun. In this study, these benefits or drawbacks are

considered subjective considerations. No dollar value will be assigned to them.

Electricity Benefits

The value of electricity generated by a BIPV power system is determined by the

amount of electricity consumed plus the value of surplus electricity generated. Typically,

facility electricity bills are paid monthly out of annual operations budgets. The O&M

budget will decrease by using the solar energy source. The value of BIPV electricity

generation to the building owner is the difference of the estimated baseline energy bill

and the actual cost of the solar energy source. If a backup system is installed, the cost of
10

backup fuel must also be taken into consideration when determining the value of BIPV

electricity generation.

Utility Incentives

 A variety of utility incentive, energy conservation, and demand-side management

programs were successful during the 1980s. These arrangements provided a win-win

scenario in which the consumer reduced energy consumption and the utility controlled its

load growth. In the United States, the Utility PhotoVoltaic Group (UPVG) is a nonprofit

organization funded by the U.S. Department of Energy (DOE). The UPVG comprises

over 85 member utilities and is involved in a wide range of activities that supports the

development of PV as an energy supply. UPVG provides utility and customer incentives,

such as cost sharing, to accelerate the commercialization of PV technology.

As the utilities are faced with the uncertainties and competition associated with

deregulation, there is a strong economic incentive to maintain and build on its customer

base. Consequently, some utilities offer special customer services, such as ìgreen

powerî generated by PV. Under these programs, the consumer agrees to pay more for

electricity generated from environmentally friendly sources.

Some utility companies have rate structures with differing time-of-day rates.

Typically, a BIPV power system will produce electricity during the daytime peak rate

hours and provide a high value of avoided electricity costs. If a building is subject to

time-of-day usage rates, the economic benefit of PV-generated power during expensive

peak rate hours can be included as a direct fiscal impact.

Utility Incentive Programs

Utility incentive programs may provide innovative financing and contractual

mechanisms for energy conservation measures and the implementation of renewable

energy technologies. Incentives may include system buy-down or cost sharing, leasing,

financing, hosting systems, and net metering.

Metering

Metering can account for the electricity generated by BIPV power systems or by

paying the building owner retail electricity rates or utility avoided cost rates for surplus

energy generated by grid-connected BIPV systems. A commercial or institutional

building is occupied during daytime hours and generally will consume all the BIPV

electricity produced. However, for more than one-third of annual daylight hours, most

commercial office buildings and institutional buildings are unoccupied, and surplus

energy may be generated on weekends and holidays. If the energy generated by a gridExample: Rebates

Currently, a U.S. utility company, Wisconsin Public Service and Wisconsin Power &

Light, offers customer rebates for installing PV power systems. Rebates are available

for as high as $550 for installing grid-connected PV systems. It is more common for

utilities to offer rebates for solar thermal systems. In BIPV projects, utility rebates

can be calculated as a credit to the procurement capital cost of a BIPV system.
11

tied BIPV power system exceeds the requirements for the unoccupied building (power for

security, communication, or refrigeration systems) the utility company may purchase the

surplus electricity at an agreed upon rate. Net billing, then, bills for electricity provided

by the utility less the surplus sold back to the utility and credits the difference if the

surplus exceeds the electricity purchased. To encourage private investment in renewable

energy technologies, net billing may be mandated by state public utility commissions

(PUCs).

The economic value of BIPV metering can be easily identified and measured by

the annual or monthly dollar reduction of the facilityís energy bill. Net billing accounts

for the electricity generated by the BIPV power system by paying the producer for

surplus energy either at retail electricity rates or utility avoided cost rates. Retail rates

versus avoided costs can significantly affect the economics of BIPV power systems.

These two accounting methods, dual metering and net metering, are discussed below.

Dual Metering

In this accounting method, avoided cost accounts for the utilityís marginal cost of

fuel and is a relatively low electric rate compared to the retail rates. In practice, the value

of photovoltaic electricity is valued relative to coal-fired kWh power. This requires two

meters to be installed on the facility premises: one to account for electricity exported and

one to account for electricity imported. This form of metering requires additional

hardware and duplicate systems for accounting purposes only. This method does not

complement the multifunctional simplicity of BIPV technology.

Net Metering

Where retail net billing is permitted, the accounting method for importing and

exporting electricity uses standard electric meters that can run forward and backward.

When the BIPV power system produces more electricity than is consumed in the

building, the meter runs backward. The meter registers the net energy, consumed or

produced, and the occupant is billed or credited accordingly at the end of the monthly

billing period. Along with providing a more efficient accounting method, net metering

benefits the utility by reducing marginal energy costs and by using less hardware than

dual metering.

Net metering benefits the power generator by providing retail rates for surplus

electricity. Over the billing cycle, if the BIPV power system produces less power than

Example: Californiaís Emerging Renewables Fund (Buy-down)

The 1996 California restructuring law (AB 1890) provided $540 million into a

Renewable Resources Trust Fund supporting renewable generating technologies.

This fund is being used to provide rebates or ìbuy-downsî to customers who

purchase small-scale renewable energy systems. The amount of the buy-down will

decline over the life of the program, starting with a block of funds at $3 per watt

and ending with a final block of funds at $1 per watt. If just half of the funds go

toward grid-connected PV systems, then California is likely to have 15 megawatts

of new grid-connected PV generation in place within five years. This would

roughly double the total existing grid-connected PV generation in the

United States.
12

required, the retail rate is paid to the utility. If an excess of power is produced in the

billing cycle, the lower wholesale rate or the rate set by the Public Utilities Commission

is typically paid to the system owner.

In late 1995, DOE initiated a new programóthe National Database of State

Incentives for Renewable Energy (DSIRE)óthrough the Interstate Renewable Energy

Council (IREC) to survey each of the 50 states for available information on financial and

regulatory incentives. These incentives are designed to promote the application of

renewable energy technologies. This information is being developed into a database that

will detail the incentives on a state-by-state basis. Access is provided to much of the

database via the Internet. By providing this information on such a wide basis, it will be

much easier for other states to get needed information for analyzing and replicating

successful incentives in their own states.

The North Carolina Solar Energy Center is the principal subcontractor to IREC

for collecting and preparing the information. Some of the financial and regulatory

incentives are identified by state, end-use sector, technology, and incentive type. The

mechanics of financing and regulatory tools are available in the form of files and

documents pertaining to statutes, legislation, fact sheets, brochures, and reports.

In the rapidly evolving power industry, DSIRE can be the most effective method

of obtaining current information. DSIREís homepage can be found at http://wwwsolar.mck.ncsu.edu/dsire.htm. The following electronic resources are available: a table of

state financial incentives, a table of state programs and regulatory policies, a searchable

on-line database, a technical paper on DSIRE, and links for downloading.

Effects of Metering Options ñ Solar

$26.54

$20.22

$

$5

$10

$15

$20

$25

$30

$35

Dual Metering Net Metering

Purchases

Sales

Net Bill
13

Example: Effects of Net Metering on Utility Bill with Solar PV (Starrs 1999)

Net metering encourages direct customer investment in small-scale renewable energy

systems, simplifies interconnection by avoiding meter replacement, improves economics

of small-scale renewables, and reduces metering and administrative costs for the utility.

Assumptions for chart below:

• 2 kWp solar PV system

• PV system generates 263 kWh/month

• Residence uses 600 kWh/month

• Retail price is $0.06/kWh

• ìAvoided costî price is $0.02/kWh

• PV-to-load ratio is 0.40.
14

Thermal Benefits

The energy generated by the BIPV power system can be evaluated by assessing

the cost of surplus electricity generated plus the systemís energy contribution to the

buildingís thermal performance. As such, the BIPV power system can be designed

according to the buildingís heating, cooling, and daylighting loads. The system can also

be deliberately oversized to generate surplus energy, depending on how it is valued by

the utility and how much it costs to generate. The added costs associated with the

hardware and design of hybrid BIPV/thermal systems would necessitate a careful

economic evaluation. Empirical data on hybrid system performance and benefits are

currently limited.

Example: Net Metering

State: New York Incentive Type: Net Metering

Eligible Technologies: Photovoltaics Date Enacted: August 2, 1997

Applicable Sectors: Residential, Expiration Date: None

Investor Owned Utilities

Legislative Code: 1997 Assembly Bill 8660, Senate Bill 5400

In the summer of 1997, New York enacted a net metering law for residential PV systems

of 10 kW or less. A similar law was vetoed in November 1996 over concerns about

interconnection safety issues. New Yorkís new net metering law also includes an

income tax credit allowing residential customers to claim a credit of 25% of the cost of

a qualifying PV system. The maximum system size for a system is 10 kW and utilities

are obliged to accept customers into the net metering program on a first-come, firstserve basis until the capacity signed up for net metering equals 0.1% of the utilityís

1996 peak demand. Individual utilities, however, can choose to allow a greater

capacity to enroll in net metering. At the end of each month, net excess generation is

credited toward the following monthís bill. At the end of the annual billing cycle, if

there is any net excess generation by the customer, consumers are paid the utilityís

avoided cost for that generation.

Contact:

Jeffrey Peterson Corporate Plaza West

New York State Energy Research 286 Washington Avenue Extension

 and Development Authority Albany, NY 12203-6399

Energy Resources Phone: (518) 862-1090

Fax: (518) 862-1091
15

One of the ways BIPV power systems may contribute to a buildingís thermal

performance is through the thermal effect of the shading function on air conditioning

loads, which a BIPV awning system provides during the summer. In contrast to shading,

the heat cogeneration of a BIPV hybrid system in the winter provides another

contribution to a buildingís thermal performance. This heat is produced when ambient

air is vented behind the BIPV glass panels to cool the solar cells. (PV cells perform more

efficiently at lower temperatures.) The captured warm air may then be used to preheat

water or air for building services.

Demand Savings

Demand savings offers an opportunity to maximize the economic performance of

BIPV power systems. Utilities apply a demand charge relative to the peak energy load

for a building. A periodic average reading of the buildingís electrical consumption (e.g.,

every 15 minutes) determines the peak electrical demand. BIPV power systems are

subject to climate and weather conditionsóa passing cloud may diminish the systemís

performance in an instant and the demand savings would not be realized. Therefore,

having no backup storage system, such as a battery bank, causes the system to yield

uncertain savings. It should be noted that a backup system will also incur an additional

cost for design, hardware, maintenance, and battery replacement. At that point, the

demand savings benefit of the backup system must be weighed against its additional

costs.

Example: Cooling Panels and Preheating Water ñ Applebeeís Restaurants

DOEís PV:BONUS (Photovoltaics: Building Opportunities in the United States)

Program sponsored the development of a BIPV/thermal hybrid system for the

Applebeeís Neighborhood Grill and Bar in Salisbury, North Carolina. Innovative

Design engineered the system, and the North Carolina Solar Energy Center is

monitoring its performance. The BIPV overhead glazing system has fans operated by

the PV system that draws hot air off the back of the BIPV panels through an air-towater heat exchanger to reduce the restaurantís energy demand for producing hot

water. Preliminary estimates project less than a 10-year payback for this PV/solar

thermal system.

Example: Cooling Panels and Preheating Air ñ Aerni Fenster Factory

In Europe, the first documented building with a hybrid BIPV/daylighting/thermal

system is the Aerni Fenster Factory in Switzerland. In 1993, the hybrid BIPV system

produced 70% of the combined electrical and thermal requirements of the factory.

The BIPV system is composed of an 8-kW BIPV faÁade and a 53-kW BIPV skylight

system. By cooling the backside of the panels with ambient air, the equivalent of 

115 kW of thermal power is captured to heat the factory. This significantly increased

the economic performance of the PV/solar thermal system.
16

Under the PV:BONUS Program, the University of Delawareís Center for Energy

and Environmental Policy and the Applied Energy Group have developed a dispatchable

peak-shaving system with battery storage to reduce the time-of-day charges. This system

could also be designed and sized to reduce demand charges. It is currently being tested

and monitored in five locations throughout the United States.

Additionally, the cost analysis of the peak shaving system conducted by Kiss &

Co. Architects (1995) estimates that demand charges may be reduced by 20% of the PV

system capacity.

Power Quality and Reliability

The measure of value attributed to electric power quality and reliability are

dependent upon the operations of a facility. Power quality problems, such as equipment

incompatibility within the supply of electrical power reflect system disturbances that can

cause equipment malfunctions and power outages. A power quality problem most likely

exists if the power supplied to a piece of equipment is subject to high levels of

fluctuations, harmonics, sags, swells, dips, spikes, flickers, and outages, and the

equipment cannot handle these faults without shutting down or being damaged. BIPV

power systems can be designed to augment power quality by serving a dedicated load.

Unfortunately, the value of power quality may be difficult to quantify. It can be

increased to ride over a brownout if the PV system provides voltage support at the load

(Coles et al. 1995).

To achieve power reliability, uninterruptible power supply (UPS) systems are

designed and incorporated into building energy systems to protect specific equipment or

critical loads from power interruptions. The additional equipment required include

batteries, a storage area, controllers, and associated electronics. A BIPV power system

could similarly be designed and sized to serve an isolated load in the building that would

automatically separate from the utility grid if a line disturbance or power outage is

detected (Coles et al.). The benefit of such a system can be expressed as the avoided cost

of an emergency backup power source.

Studies have been conducted on the additional value of PV as an emergency

power supply for reliability (Byrne 1997, 1994). A device has been designed that can

shave peak electricity demand and switch to a UPS system when a power outage occurs

(Byrne). Power quality and reliability are the benefits of such a system. As with demand

savings and UPS, additional hardware must be purchased for a reliable power benefit of a

BIPV power system. The specific battery storage capacity would have to be engineered

and sized to meet the buildingís needs and energy loads.
17

Security

The concern for security can range from petty vandalism to international

terrorism. BIPV technology can play a role in preventing such crimes. The U.S. State

Department is responsible for maintaining U.S. embassies in more than 150 countries.

Often, frequent power outages or the threat of terrorism requires special security systems

in developing countries. Typical UPS systems operate within a brief three-second to

three-minute time frame. PV power systems with accompanying battery storage can

provide long-term backup power for days. The State Department is evaluating the

opportunity to install PV systems at embassy facilities around the world. The value of

the PV power system providing security, which would not be obtainable by any other

means, could offset the current market cost of the system.

Remote Power Benefits

In a remote power situation, the avoided cost of grid-line extension can be

evaluated as a benefit of a BIPV power system. The benefit is especially attractive if the

customer will bear the cost of the utility line extension. In this instance, BIPV power

systems will have greater avoided costs, depending on location.

Example: Security

PV power has enabled the U.S. Department of Interiorís (DOIís) Bureau of Land

Management (BLM) to dramatically increase security and reduce vandalism at

campsites in remote locations. Volunteer hosts typically care for the campsite and

ensure that campers pay a user fee for the facility. Without a volunteer host,

individual campers are left to the honor system to pay user fees. Because of the

convenience of electricity provided by the PV power systems, the hosts are staying

longer. When present more often, they can ensure collection of more user fees while

deterring vandalism.

The presence of a campground host saves the Moab District more than $8,000 a year

in the avoided costs of prevented vandalism in each of three campground sites along

the Colorado River corridor. BLM estimates this saving resulted in a one-year

payback period for each PV system (Duncan 1997).

Example: Standards

Having an infrastructure that supports quality hardware and skills standards may

reduce BIPV cost. Increased quality and reliability can provide financing

organizations with a means to more accurately assess their risk in supporting PV

projects. The Global Approval Program for Photovoltaics addresses standards for PV

systems based on existing component standards and includes a testing program to

certify the systems at qualified laboratories. The Institute for Sustainable Power, Inc.,

has been working to qualify the training resources for the human component of the

industry. More information regarding certification in the PV industry can be found on

World Wide Web at http://www.pvpower.com.
18

Often a small power generator can serve the remote facility load more cost

effectively than a utility grid-line extension. Diesel and propane power generators with

optional battery storage have typically been used at remote sites. The cost of transporting

this fuel to a remote area can be taken into consideration as well as the reduced costs of

the risk of environmental cleanup. Diesel generators often create noise proportional to

the power being generated. Sound transmission depends on the acoustical characteristics

of the generator building. The U.S. Department of Laborís Occupational Safety and

Health Administration (OSHA) provides guidelines (OSHA 1910.95) on acceptable

sound levels to protect against the effects of noise exposure (measured in decibels

determined by octave band analysis). Additionally, there is value in reducing noise

pollution where occupants and users desire a natural, quiet setting.

Example: Typical Cost Estimates for Grid Connections to Remote Locations

Service Fee

Installing a power line $1,000 to $2,000 fee (one-time installation fee

includes meter and service connections)

Each additional pole $500 to $1,000 every 150 feet (45.72 meters)

Transformer $400 to $800 each

Underground power line $3 to $10 per foot (per 0.30 meter) under asphalt

or concrete

Source: Urban Consortium Energy Task Force, 1995.
19

Example: Reduced Transportation Costs

The Currin studies found that the cost of fuel delivery for a small power generator in a

remote location was being passed on to the consumer in the form of a delivery charge

or operations charge. Often, because of the remoteness of the site, fuel might have to

be transported by boat or special vehicles. The cost of special delivery can be

calculated based on gallons delivered and transportation costs. The fuel delivery cost

was added on as a cost per gallon (per liter) then could be calculated to cost per kWh

based on the efficiency of the generator.

Example: Reduced Risk of Environmental Cleanup Costs

Two benchmark studies by the Currin Corporation compared a diesel generator to a

PV power system. These studies indicate that a solar generator may (1) present less

risk of environmental cleanup, (2) reduce fuel transportation costs, and (3) drastically

reduce noise pollution as compared with diesel.

In these studies, the risk of a minor or major diesel fuel spill on land or water was

identified along with the costs for fuel spill cleanup. In these studies, these costs were

identified and then averaged as a ìspill riskî cost per gallon of fuel delivered and

were included in the economic evaluations.

Example: Value of Reduced Generator Noise Pollution

The cost estimate for noise pollution can be calculated on the bases of fuel consumed

per season, number of visitors per season, and per diem expenses. A subjective

judgement on the negative impact on the quality of the visit can also be considered.

For the National Park Service (NPS) Windigo Ranger Station, the benefit was

determined to be $0.50/gallon ($0.13/litre) of fuel consumed.

Source: Currin Corporation, 1995.
20

Promotional and Educational Benefits

A BIPV power system may have promotional and educational benefits. In 1994,

a BIPV faÁade was used to renovate an office building in Berlin. The environmental

friendliness aspect of this building technology was used as a marketing tool that seemed

to enhance office space leasing. According to a May 1996 International Energy Agency

report, ìDespite surplus office area in Berlin, the Okotec-building was almost completely

rented immediately following several press publications referring to the PV faÁade.î This

benefit could be treated as lost-rent avoided in a dollar value LCC analysis, provided the

impact of the BIPV system on the probability of renting the space could be quantified.

As another example, a BIPV installation on the Digital Equipment Headquarters

in Geneva, Switzerland, may have been used as part of a promotional campaign by an

environmentally conscious company. The installation may have been funded directly out

of a public relations budget. If so, the value of the installation would then be identified as

the benefit to the companyís public relations. If this value could not be assigned a

monetary value, it could be carried as a qualitative benefit to be considered in addition to

quantitative effects.

Technology demonstration provides education and outreach that corresponds with

some agenciesí missions. If education is the primary purpose of the system, it is the

deciding factor in using the technology. The economics of the system performance

become ancillary. Cost justification, therefore, may not be a requirement when a

technology is used for demonstration.

Environmental Benefits

When generating electricity, BIPV power systems produce no harmful

environmental emissions. A stakeholder can account for avoided environmental cost

associated with not using fossil fuel-generated power. This value can be included in an

LCC analysis. However, this value should not be considered when assessing decisions in

which environmental effects plan no role (e.g., Energy Savings Performance Contracting

would not include qualitative environmental benefits that do not directly affect cash flow

in the economic analysis).

Example: Emissions Costs

According to DOI, NPS, Denver Service Center Guideline 82-1, in all LCC

assessments, environmental emission costs will be part of the analysis. This is

applicable to new construction, renovation, and power system replacement. NPS, DSC

Guideline 82-1, Amendment No. 3, quantifies the environmental emissions cost of

electrical power generation and the resulting emission releases.

The NPS has determined that the environmental cost associated with carbon dioxide

(CO2) emissions to be $0.004/lb ($0.0088/kg), sulfur dioxide (SO2) emissions to be

$0.75/lb ($1.65/kg), and nitrous oxide (NOx) emissions to be $3.40/lb ($7.48/kg).
21

Tax Incentives

It is government tax policy that determines whether there will be tax incentives.

Tax incentives are designed by public policymakers to encourage private capital

investments that might not ordinarily occur. Solar energy tax credit legislation is

designed to stimulate the social and institutional acceptance and accelerate the economic

development of the industry by encouraging private investments in PV power systems.

Solar energy tax legislation can influence the development of technical expertise

through industry and trade association labor certification, bonding requirements, product

quality, warranty and guarantee coverage requirements, and system certification to meet

building codes. This legislation can be technically specific and disseminate educational

and state-of-the-art information about BIPV power systems. Federal regulations can

reduce the investment risk to the lender and act as a financial incentive for the consumer

or manufacturer to invest in the technology.

 The four categories of U.S. taxation incentive programs that may apply to BIPV

power systemstax credits, tax rate, tax basis, and taxable entitywill be discussed in

this section.

Tax Credits

Tax credits permit a percentage of expenditures to be deducted from the net taxes

owed to the government. In the United States, the taxation parameter is divided into

federal, state, and local tax obligations. Currently, the federal government allows a

10% tax credit to offset the cost of PV power systems in commercial buildings. The

Federal Solar Energy Tax Credit is augmented by state tax policies, based on local

initiatives. There is a variety of tax legislation among the 50 states. For example, North

Carolina has instituted a 35% income tax credit allowance for commercial buildings with

PV power systems; however, South Carolina has no such legislation.

Tax Rate

A reduction to the tax rate can provide a financial advantage in three ways: (1) it

can exempt certain activities, products, or entities from taxation, or tax them at a lower

rate than their market substitutes; (2) entire entities (e.g., some publicly owned electric

utilities) may be exempt from federal income tax even though they compete with other

providers of the same service that are taxed; and (3) a lower tax rate may permit a

particular type of firm to pay a lower percentage tax on certain activities (e.g., lower tax

rates on capital gains).

Tax Basis

The tax basis can be reduced by decreasing the taxable income on which a given

percentage tax is applied. This is accomplished by either accelerating the timing of the

tax deduction or by excluding portions of income subject to taxation. Firms may be

allowed to deduct costs of PV investments from taxable income much faster than the

investments actually depreciate. The reduction in current taxes is greater than the

reduction in future taxes. The current tax savings (e.g., accelerated depreciation on plant

and equipment) can also be invested and earn interest.
22

Taxable Entity

Altering the taxable entity will affect the definition of a taxpayer. This change

may enable profits to be offset by losses and have a beneficial effect on tax calculations.

Exceptions to rules on consolidating tax returns can give rise to subsidies, which allow

profits to be shifted in a large, vertically integrated corporation (such as occurs in the oil

industry). For example, when the taxable entity is difficult to define and transactions

between divisions are done at artificially set transfer prices, profits can be shifted among

divisions and countries to minimize the tax burden.

Loan Incentive Programs

The federal government can act as a risk-absorbing agent to allow the private

sector loan recipient to benefit from the governmentís economy of scale in raising funds

and insuring risks. This reduces the capital cost by directly subsidizing interest rates, by

eliminating the premium charged by the lender for default risk, by allowing favorable

repayment terms, or by operating insurance programs at a loss.

The U.S. federal government has authorized several such financing mechanisms

for solar energy systems. These mechanisms are summarized in a 1998 booklet, The

Borrowerís Guide to Financing Solar Energy Systems: A Federal Overview, which has

been prepared by the DOE in collaboration with the U.S. Departments of Agriculture,

Housing and Urban Development, and Veterans Affairs, as well as the Environmental

Protection Agency and the Small Business Administration (SBA). Staff at the Federal

Examples: Tax Credits

Property Value

In California, a BIPV system does not add to the assessed property value until the

property is sold (Freedman 1995, SIJ 1993).

Sales Tax Recovery

In Connecticut, sales tax paid for a BIPV system can be recovered when filing an

annual tax return (SIJ 1993, Freedman 1995).

Accelerated Depreciation

In Texas, a commercial business may apply an accelerated depreciation of franchise

tax over five years for businesses that invest in the installation of a BIPV system

(Freedman 1995, SIJ 1994, SIJ 1993).

Reduction in Tax Basis

In Hawaii, the net income tax credit for BIPV systems is 35% or $1,750 maximum for

single family residence, and 35% or $350 maximum for multi-unit buildings, and 35%

for commercial buildings with no maximum (Freedman 1995, SIJ 1993).
23

National Mortgage Association (or Fannie Mae) and the Federal Home Loan Mortgage

Corporation (or Freddie Mac) also provided valuable input. This booklet provides an

overview of authorized programs that may make it easier and more affordable for

building owners to finance BIPV and other solar energy power systems.

In a few states (such as California), energy offices, bureaus, or commissions may

offer financial programs with low-interest loans to encourage the use of renewable energy

technologies. For example, a commercial business eligible for such a loan may receive a

sizeable financial advantage that offsets the systemís high capital cost. A lower interest

rate can reduce payments over the term of the loan. This affects the overall economic

performance of a BIPV power system investment.

An investor or financier may perceive a BIPV power system to have a greater risk

than traditional grid-supplied electricity. Legislation provides the means and opportunity

to (1) specify regulations that can minimize the risk associated with a new technology to

satisfy the risk assessment requirements of lending institutions and (2) provide a financial

incentive for building owners to make private investments.

Example: Loan Incentive Programs

Interest Rate Reduction

A one-eighth point reduction on a residential home loan is available through the

Environmental Protection Agencyís Energy Star

Æ Mortgage Program. A $20,000

BIPV roof system on a $200,000 home would result in a reduction of the interest rate

on the full $220,000 mortgage over the life of the loan. Hence, the BIPV installation

would reduce not only the home ownerís monthly utility bill, but also the mortgage

bill.

Increased Debt-to-Income Ratio ìStretchî

This ratio compares a borrowerís expenses and income to determine the borrowerís

ability to meet monthly financial obligations. The Veteranís Administration allows the

loan value to be increased up to $6,000 if the increase in the mortgage payment is

matched by the reduction in the utility bill. This allows the veteran to borrow more

money to install solar equipment.

Loan Guarantee

The U.S. Small Business Administration provides a loan guaranty program [7(a)],

which transfers the risk of borrower nonpayment, up to the amount of the guaranty,

from the lender to the SBA. The business applying for an SBA loan is actually

applying for a commercial loan with an SBA guarantee. The government will

reimburse the lender for any loss up to the percentage of SBAís guarantee. These

types of loan guarantees encourage lenders to provide funds for solar systems even

though the lenders are unfamiliar with the technologies.
24

Section 3 ñ Costs of BIPV Power Systems

Introduction

 This section characterizes the relative costs of BIPV power systems for the

building owner. Limited published data is available on BIPV power system costs. A

preliminary survey conducted in this research indicates that there is a wide variation in

cost estimates provided by various manufacturer marketing representatives.

Consequently, a variety of vendor bids should be gathered and reviewed prior to making

an investment decision.

The BIPV power system cost depends on the type and size of the system, on

current PV technology, and on whether a custom product or a standardized manufactured

product is used. Two primary types of commercial BIPV productsófaÁades and roof

materialsóare available for both new construction and renovation projects. BIPV faÁade

systems include laminated and patterned glass, spandrel glass panels, curtain wall glazing

systems, cladding systems, and awning systems. These products can displace traditional

construction materials. Roofing systems include BIPV shingles, tiles, metal roofing,

exterior insulation roof systems, and atrium or laminate roof systems. These products

can displace traditional construction materials or be sold as enhanced construction

materials. As such, the added cost for a BIPV power system should be used in economic

assessments rather than the full costs, including those that would be incurred regardless

of the BIPV system. If, after a preliminary screening, the economics are favorable for a

BIPV power system investment, a formal bid from the system supplier can be used to

evaluate the system cost and benefits in more detail prior to purchase. Subsequently, the

total BIPV system cost can be compared to conventional building component costs to

determine the added cost of the BIPV system.

Building-Integrated Photovoltaic System Costs

BIPV systems are composed of PV modules and balance of system components,

which include inverters, an electricity storage system and/or a grid-metered connection,

fault protection, cabling, and wiring. These costs, as well as the costs of integration

design and installation, should be evaluated in comparison to the traditional construction

products and systems in order to determine the added investment cost of the BIPV

system.

Currently, many U.S. BIPV manufacturers are in early stages of technology

development and do not have the capacity to take advantage of quantity purchases of

materials and of large volume production in order to offer lower-priced BIPV

components and systems; nevertheless, there has been a decline in the cost of PV

technology over time due to technical advances. In addition, the industry and

government foresee further cost as demand for PV technology increases internationally

and manufacturing economies of scale increase.

Labor Costs

Because of low demand and low manufacturer production volumes in the United

States, early BIPV power system demonstration projects have incurred high design and

final product costs. The time and money required for the electrical and mechanical
25

engineering and the installation methods have been relatively disproportionate to the total

cost of the system (Kalin 1994). The standardization of BIPV building products and the

simplification of system engineering, design, and installation methods will most likely

reduce labor costs of future BIPV power systems.

Currently, and until BIPV becomes a mainstream technology, there is an added

labor cost of architectural design, engineering design, and installation. However, with

technical supervision, traditional building tradesmen (including glaziers, roofers, sheet

metal workers, and electricians) can install BIPV power systems. A manufacturer may

supply the components of a BIPV system to the technical supervisor or a system

integrator may be contracted separately. The cost of additional, specialized technical

supervision over traditional craftsmen should be included when a BIPV power system is

evaluated.

Maintenance Costs

Maintenance costs can be significant in determining the long-term cost

effectiveness of an investment. In lieu of including a major capital replacement as a

standard item in the financial evaluation, the analysis may instead include maintenance

costs deemed sufficient to keep the system operational over the time horizon of the

decision-maker. Alternatively, system replacements may be included in the analysis. For

the purpose of this guide, it is assumed that all repairs and replacements will be treated as

part of maintenance costs. As in the case of other costs, maintenance costs should be

treated in terms of the added maintenance costs attributable to the BIPV system rather

than the total building maintenance costs. The BLCC model includes a provision for

maintenance costs.

Manufacturers recommend periodic system checks and cleaning as part of a

preventive maintenance routine. This includes regularly clearing away any debris and

cleaning the BIPV surfaces exposed to the environment, which should be completed

more often if the environment is particularly dirty. To determine the optimal cleaning

Example: Professional Review Costs

A homeowner in New Mexico recently asked his utility for the forms needed to interconnect his residential PV system and received a 36-page contract (not including the

requisite exhibits). Faced with the prospect of hiring an attorney and a licensed

engineer in order to get a small, 2-kW PV system interconnected, it is not surprising

that homeowners like this one frequently abandon their projects at this point. A review

by an engineer and an attorney can incur an additional $1,000 to the project cost.

The solution to the interconnection problem is uniform adherence to interconnection

standards developed by recognized national authorities, including the National

Electrical Code, Underwriterís Laboratories procedures, and the Institute of

Electrical and Electronic Engineers recommended practices. This can happen through

voluntary acceptance by utilities or by legislative or regulatory mandates (Starrs and

Wenger 1998).
26

schedule, the trade-off between the cost of cleaning the system to maximize power output

and the value of the lost electricity without cleaning the system can be assessed. In some

instances, particularly in high-rises or buildings with unusual geometric shapes, cleaning

the system may be more costly than the reduced power output. As a rule of thumb, visual

inspection of essential components, based on an inspection checklist provided by the

manufacturer, should be made every six months. The utility meter and bill can be

reviewed monthly to determine whether output from the system is dropping (adjusting for

seasonal and other mitigating factors). If this simple screening indicates poor system

performance, there should be further investigation.

Annual detailed electronic testing is recommended. The string voltage can be

tested with a voltmeter. (A string that shows low voltage relative to the others may have

a faulty module or connector.) A data logbook should be maintained by the facility

maintenance personnel to record system performance, maintenance, and string voltage.

Service adjustments and repair can be provided by the manufacturer, system integrator,

distributor, or potentially by the utility company.

The labor costs for maintaining the system should be included in the economic

analysis. Means Facility Construction Cost Data can be useful for estimating labor costs.

Using the current Means data, for example, will result in an hourly salary of $26.60 for a

facility services engineer to maintain the system. The projected maintenance costs will

be 8 hours per year ($212.80) for a small system (less than 5 kW), 16 hours per year

($425.60) for a medium system (less than 100 kW), and 24 hours per year ($638.40) for a

large system (over 100 kW). Some manufacturers offer complete turnkey systems as

well as optional service and maintenance contracts. Additionally, service contracts or

personnel training and maintenance schedules can be negotiated as part of the project

contract. Typically, training the facility engineer to service the system in-house will

minimize the cost for system maintenance. Maintenance costs may comprise a routinely

recurring part and a non-recurring part, each of which can be separately included in the

BLCC model.

Utility Interconnection Costs

Utility interconnection costs are associated with the specific requirements

determined by each state. State PUCs have widely varying attitudes toward additional

requirements, and their requirements vary. Costs can include large interconnection fees,

net metering tariffs, metering calibration charges, engineering study fees, and standby

charges. Additional requirements for liability insurance, property easement, legal

indemnification, record-keeping of all O&M, and additional protection equipment will

contribute to even greater utility interconnection costs. The relative cost of meeting these

requirements is much greater for small systems than it is for larger systems. The costs of

these requirements offset to some extent the incentive provided by net metering and may

deter customersóparticularly small power customersófrom participating.
27

A set of uniform interconnection standards can facilitate the implementation of

net metering nationwide and will hopefully reduce this barrier to grid-connected BIPV.

For example, two California investor-owned utilities originally structured net metering

contracts that set a substantial monthly customer charge and standby charge. This

essentially made net metering unattractive until the California PUC banned the

imposition of customer charges (Wan 1996). The renewable industry strives to work

closely with utilities and standard-setting organizations in developing such standards.

Costs Associated with Building Permits

A building permit is required before any constructing, adding, moving, or altering

any building. Electrical permits are required for new, remodeled, or up-graded structures.

Some of the costs include fees for land disturbance, residential or commercial building

permit fees, and reinspection fees. Building permit fees vary from county to county and

are based on the estimated cost of construction or square footage; therefore, permit fees

may be increased by the addition of a BIPV system. Contact local land use and building

design officials to identify specific project requirements, and use only added permit cots

in an economic analysis of a BIPV system.

Example: Public Utility Liability Requirements

Public Utility Commission Liability Requirement

Oklahoma, California, New York Not a requirement

Maryland, Nevada Prohibits

Idaho Requires $1 million liability insurance

Example: Permit Fees

Total Valuation Fee

 $0 to $3,000 $25.00

 $3,001 to $50,000 $25.00 for the first $3,000, plus $6.00 

 for each additional thousand or fraction

 thereof, to and including $50,000

 $50,001 to $100,000 $307.50 for the first $50,000, plus $5.00

 for each additional thousand or fraction

 thereof, to and including $100,000.

$100,001 to $500,000 $557.00 for the first $100,000, plus 

 $4.00 for each additional thousand or

 fraction thereof, to and including 

 $500,000.

$500,001 and up $2,157.00 for the first $500,000, plus

 $3.00 for each additional thousand

 or fraction thereof.

NOTE:

1. Construction cost estimated at $50.00 per square foot

2. Shell buildingsí fees calculated at 80% of fee schedule

3. Certificate of Occupancy at $10.00 each
28

Software by Governmental Data Services, Inc. (GDS), provides for complete

contractor management, including entering building permits and calculating permit fees.

Access to permits is given by address, legal description, owner name, water billing

number, water meter serial number, or contact name. (To learn more, visit the GDS Web

site at http://www.fastlane.net/~gdsinc/permits1.htm.)

Replacement and Repair Costs

Generally, the life of the BIPV power system is specified to last 25 years, and it is

presumed that none of the BIPV power system subparts will require major replacement or

repair during the study time frame, which is also often set equal to 25 years. (Minor

repairs and small replacements needed to keep the system operational can be included in

maintenance costs.) Of course, this is simply a modeling convention. In some instances,

a part (likely, the inverter) may require major replacement or repair prior to 25 years and

if preferred, these costs can be included separately in the BLCC model.

Salvage Value/Costs

As another modeling convention, it is usually assumed at the end of the study

period that there is no residual value remaining for the BIPV system and no disposal

costs. Again, however, this convention may not best fit the particular circumstances, and

residual value and disposal costs can be explicitly estimated and included in the analysis.

For example, an exception might arise if the BIPV power system is composed of

hazardous materials (associated with some thin-film PV technologies), which would

require removal and generate significant disposal costs. Also, if batteries must be

disposed, there may be a salvage value or disposal cost depending on possible reuse value

or cost of disposal.
29

Section 4 ñ Measurement and Verification

for Building-Integrated Photovoltaics

Introduction

This section specifies measurement and verification (M&V) for BIPV power

systems. Prescribing an internationally accepted guideline for M&V can help to ensure

that generation and savings requirements in BIPV power systems will be consistently and

accurately achieved.

Protocol Background

The International Performance Measurement & Verification Protocol (IPMVP)

was created in 1997 to increase reliability and savings, cut investment costs, and provide

standardization required to secure lower-cost financing in energy and water efficiency

projects. The Renewables Subcommittee, composed of leading experts from around the

world that share a goal of strengthening and fostering the rapid growth of renewable

energy technologies, have laid the groundwork for extending the success of the IPMVP to

include renewable energy technologies. The Renewables Chapter provides an

industry-consensus framework to measure project benefits that are important to realizing

the promise of renewable energy.

Objectives

M&V may have several objectives from the earliest stage of renewable energy

project development through the operation of the completed system.

• M&V can provide load profiles and information needed to establish project

feasibility.

• M&V can serve as a commissioning tool to confirm that systems were installed and

are operating as intended.

• M&V results may serve as the basis for payments to a financier over the term of a

performance contractóan alternative financing mechanism in which an energy

service company guarantees that after energy measures are installed at a facility,

energy cost will be reduced. In many respects, the success of a performance contract

project hinges on verifying that the energy cost savings closely match those that were

guaranteed in the solicitation.

• Data gathered from an M&V protocol can provide ongoing diagnostics and help

sustain system performance and benefits over time.

• During financing contract development, a defined, accepted, and proven M&V

protocol helps increase customer comfort and reduce transaction costs by facilitating

negotiations.

• Finally, an M&V protocol is helpful to secure the full financial benefits of emissions

reductions, such as emissions trading. In order to establish compliance with

Emissions Reduction Targets, a regulating body will need to adopt a protocol for

measuring emissions reductions.
30

M&V should be scaled to the value of the project. The value of the information

provided by a projectís M&V procedures should be proportional to the value of the

project. The objective is to minimize the combined total cost of the M&V program plus

the cost of uncertainty in the savings. The cost of uncertainty would most often be a

higher interest rate. In general, the allowable relative error in an M&V program will be

negotiated between parties, with all parties trying to minimize total cost. As a rule of

thumb, M&V costs should fall within 3%ñ10% of typical project cost savings.

Options

An M&V program should be designed to measure and verify the specific performance

claims of the deal or what the supplier is claiming to deliver. The M&V options may be

classified into four general categories. They can be used individually or in combination,

as complexity of performance and cost factors dictate. These options are not necessarily

listed in increasing order of complexity or cost. For example, inspection can be more or

less costly than metering, depending on the application. The options follow.

Option A: Measured Capacity, Stipulated Performanceóengineering estimates based

on system specifications are used to stipulate savings, and the system is initially inspected

to ensure that equipment was installed according to those specifications. The system is

then periodically inspected to ensure the system is operating properly.

Option B: Measured Production/Consumptionólong-term measurement of energy

delivery over the term of a performance contract by directly metering building output, or

indirectly by determining savings based on analysis of end-use electric or gas meters.

Option C: Utility Bill Analysisóinferring savings by the statistical analysis of wholefacility energy consumption without end-use metering of the system.

Option D: Calibrated Modelsópredicting the long-term performance of a system by

calibrating (renormalizing) a computer model based on data from a short-term test.
31

M&V Example: Thoreau Center for Sustainability (Option D, Calibrated Models)

The BIPV power system at the Presidio in San Francisco, California, illustrates one M&V

approach. ìThe Greening of the Presidioî demonstrates the impact of successful partnerships

between the private and public sector.

The Thoreau Center for Sustainability is a historic building located in the National Historic

Landmark District of the Presidio. The BIPV power system is an extremely visible sustainablebuilding feature. The demonstration of this power system by the Federal Energy Management

Program (FEMP), NREL, and numerous private sector partners is meant to illustrate how

BIPV is a technically and economically valuable architectural element for designers.

The entry area of the Thoreau Center is a rectangular space with a roof that slopes slightly to

the east and west. The roof is constructed entirely of overhead glazing, similar to a large

skylight. PV cells are laminated into the 200 square feet of available overhead glazing to

produce approximately 1.25 kW of electricity under standard operating conditions. The direct

current produced by the array is converted to high-quality alternating current by a powerconditioning unit (inverter). After being converted, it enters the building to be consumed by the

building electrical loads (Walker et al. 1997).

The abstract from Azerbegi and Barkerís paper, Technique for Monitoring and Predicting

Annual Performance of a Building Integrated Photovoltaic System, is included below.

ìThe U.S. Department of Energyís Federal Energy Management Program

evaluated the energy and daylighting performance of a 1250-watt BIPV power

system at the Thoreau Center for Sustainability located at the Presidio of San

Francisco, California. System performance parameters (dc output, ac power

output, interior light level, and array temperature) were measured along with

environmental conditions (ambient temperature, wind speed and direction,

relative humidity, solar insolation). A computer model of the system was then

renormalized to provide the best match with the measured performance. To

estimate energy delivery, the calibrated model was fed TMY [typical

meteorological year] weather data, which takes into account array orientation,

shading and reflection off the building, and the actual in-situ performance

characteristics of the array and inverter.

This paper describes the instrumentation and data acquisition system,

development of the form of the performance models, and the procedure used to

renormalize the model coefficients. These results can be compared to other

results generated using the same methodology, rather than just reporting the

performance of the system over a certain monitoring period.î
32

Importance of Measurement and Verification

Actual M&V results of existing projects based on the IPMVP can prove

successful and provide developers, investors, lenders, and consumers with more

confidence in the value of future projects. It is the intention of the IPMVP Renewables

Subcommittee that the new chapter of the IPMVP provides the renewable energy

community with a valuable tool for the implementation of more renewable energy

projects. As innovative renewable energy financing increases worldwide, so will the

need for the IPMVP and its internationally standardized framework.

To Obtain the IPMVP

The IPMVP is available in a variety of formats. To receive the document, call the

Efficiency and Renewable Energy Clearinghouse (EREC) at (800) DOE-EREC, send a

fax to (703) 893-0400, or an e-mail request to doe.erec@nciinc.com. Include your name,

address, telephone number, and request for the IPMVP. This document is also available

on the World Wide Web at http://www.ipmvp.org/.
33

References

Byrne, J.; Letendre, S.; Wang, Y.D.; Nigro, R.; Ferguson, W. (1997). ìBuilding Load

Analysis of Dispatchable Peak-Shaving Photovoltaic Systems: A Regional Analysis of

Technical and Economic Potential.î Proceedings of the American Solar Energy Society

Conference, April. NREL/CP-520-23314. Boulder, CO: American Solar Energy Society.

Coles, L.; Packey, D.; Rau, N., Wang, Y.H. (1995). Analysis of PV Benefit Case Studies:

Results and Methods. Draft. Golden, CO: National Renewable Energy Laboratory.

Currin Corporation. (September 1995). Title I, Phase I: Survey and Research, Addition of

a Photovoltaic Energy Source to the Windigo Ranger Station Power System, Isle Royale

National Park, Midland, MI. Midland, MI: Currin Corporation.

óóó. (September 1995). Title I, Phase I: Survey and Research, Addition of a

Photovoltaic Energy Source for South Manitou Island, Sleeping Bear Dunes, Midland,

MI. Midland, MI: Currin Corporation.

Duncan, T. (4 March 1997). Meeting minutes. BLM Utah State Office, Denver, CO.

Eiffert, P. (September 1998). The Borrowerís Guide to Financing Solar Energy Systems.

NREL/BK-710-25104. Golden, CO: National Renewable Energy Laboratory.

Freedman, M. et al. (18 April 1995). Renewable Energy Sourcebook: A Primer for

Action. Washington, DC: Public Citizen.

Green, H.J. Wan, Y. (1998). ìCurrent Experience with Net Metering Programs.î

Proceedings of Windpower í98 27 Aprilñ1 May, 1998. Washington, DC: American Wind

Energy Association.

International Energy Agency (May 1996). ìPhotovoltaic Power Systems in the Built

Environment.î Prepared for ENEL.

Kalin, T.J. (1994). ìPV as (a) New Architectural Element.î Proceedings of the 12th

European Photovoltaic Solar Energy Conference, 11ñ15 April. Bedford, United

Kingdom: H.S. Stephens and Associates; pp. 1847ñ1853.

Kiss, G.; Kinkead, J. (1993). ìBuilding-Integrated Photovoltaics.î Proceedings of the 3rd

European Conference on Architecture 17ñ21 May 1993. Felmersham, United Kingdom:

H.S. Stephens and Associates; pp. 288ñ291.

Lepley, T.; Nath, P. (1997). ìPhotovoltaic Covered-Parking Systems Using Lightweight,

Thin-Film PV.î Prepared for the 26th Photovoltaic Specialists Conference,

30 Septemberñ3 October 1997. Piscataway, NJ: Institute of Electrical and Electronics

Engineers; pp. 1305ñ1308.
34

National Institute of Standards and Technology. (1995). LCC Program Version 4.21,

Users Guide and Reference Manual. Gaithersburg, MD: National Institute of Standards

and Technology.

óóó. (October 1995). Energy Price Indices and Discount Factors for Life-Cycle Cost

Analysis 1996. NISTIR 85-3273-10. Gaithersburg, MD: National Institute of Standards

and Technology.

Renewable Energy Working Group. (1996). BLCC Preliminary Costing Guidelines for

Renewable and Conventional Technologies. Draft. Washington, DC: Federal Energy

Management Program.

Ruegg, R.T.; Marshall, H.E. (1990). Building Economics: Theory and Practice.

New York: Van Nostrand Reinhold.

Starrs, T. (1994). ìNet Metering of Customer-Owned, Utility-Integrated Rooftop

Photovoltaic Systems.î Proceedings of the 1994 Annual Conference of the American

Solar Energy Society, 27ñ30 June. Boulder, CO: American Solar Energy Society;

pp. 459ñ465.

óóó. (19 March 1999). ìPlugging into the Grid: Interconnection of Net Metered

Systems.î Electric Revolution: New Electrical Technologies and What They Mean to

You. Presentation. Portland, OR.

Starrs, T.; Wenger, H. (May/June 1998). ìNet Metering and Small-Scale Renewables.î

Solar Today (12 : 3); pp. 32ñ35.

Swezey, B.; Sinclair, K. (December 1992). Status Report on Renewable Energy in the

States. TP-462-5175. Golden, CO: National Renewable Energy Laboratory.

Urban Consortium Energy Task Force. (December 1995). PV Purchasing Guidebook for

Local and State Government. Washington, DC: Public Technologies, Inc.; p. 4.

Walker, H.A.; Eiffert Taylor, P.; Hayter, S.J.; Maytum, M.; Christensen, J.; Coonen, S.;

Rever, W.B. III; Vanderhoff, S. (1997.) Building Integrated Photovoltaic System: The

Thoreau Center For Sustainability. Boulder, CO: American Solar Energy Society.

Wan, Y. (December 1996). Net Metering Programs. SP-460-21651. Golden, CO:

National Renewable Energy Laboratory.

West, R.E.; Kerith, F. (1988). Economic Analysis of Solar Thermal Energy Systems.

Cambridge, MA: Massachusetts Institute of Technology Press; 435 pp.

Wohlgemuth, J. (10 May 1996). Interview with author. Solarex, Frederick, Maryland.
35

óóó. (1997). Cast Polycrystalline Silicon Photovoltaic Module Manufacturing

Technology Improvements. Semiannual Technical Report. NREL/SR-520-22503.

Golden, CO: National Renewable Energy Laboratory.
36

Appendix

Methods of Assessing Capital Budget Decisions
37

Method of Analysis General Formulas

(All dollar amounts expressed

at present value)

Selection Criteria Benefits 

Discounted Payback Period(DPB)Minimum time it takes torecover an investment.

DPB = Find Y,such that Y  (EJ ñ MJ ñ RJ + SJ) = P

j = 1Y = summation from years 1 to YE = reduction in electricity costs in year jM = differential maintenance and repair  costs in year jR = differential replacement costs in year jS = differential salvage value in year jP = differential purchase and installation costs

Payback period isless than the projectlife.

a) Simple payback is a quick 

screening tool

b) Useful when system life is 

uncertain.

Net Benefit (NB) Analysis(B ñ C)Benefits net of costsexpressed as an initiallump-sum amount.

(B ñ C) = E ñ (P ñ S + M + R)E = reduction in electricity costsP = differential purchase and installation costsS = differential salvage valueM = differential maintenance and repair costsR = differential replacement costs

NB > 0 a) Useful when there are

multiple kinds of benefitsand not just cost avoidance

b) Provides long-term

evaluation of systemperformance

c) Good for design and sizing

systems.

Savings-to-InvestmentRatio (SIR)Numerical ratio thatrepresents how many timessavings exceed costs, overand above compensating forthe time value of money.

SIR = (E ñ M)

 (P ñ S + R)E = reduction in electricity costsM = differential maintenance and repair costsP = differential purchase and installation costsS = differential salvage valueR = differential replacement costs

SIR > 1 a) Can be used to determine

the cost effectiveness of aproject

b) Can be used to rank

projects when there is alimited budget.

a

b
38

Method of Analysis General Formulas

(All dollar amounts expressed

at present value)

Selection Criteria Benefits 

Adjusted Internal Rate ofReturn (AIRR)Measures annual yield from aproject assumingreinvestment of interimproceeds at the MARR.

AIRR = Find the nth root of the ratio of

the terminal value of all cash flows(except investment costs) to the presentvalue of investment costs andsubtract 1AIRR = (TV/PVI)1/n ñ 1

TV = terminal value of all cash flows except investment costsPVI = present value of investment costs1/n = nth root of the ratio of TV/PVI

AIRR must be equalto or greater than theinvestorís minimumrate of return.

a) Measure of cost

effectiveness

b) Ability to rank nonmutually exclusive projects

when there is a limitedbudget.

Life-Cycle Cost (LCC)Present value sum of costsover life of a system.

LCC = P ñ S + M + R + EP = purchase and installation costsS = salvage valueM = maintenance and repair costsR = replacement costsE = electricity costs

Compare LCCamong mutuallyexclusivealternatives.Minimum LCCLCC1 < LCC2

a) Cost effectiveness measureb) Can be used to design or

size a system where costspredominate

c) Best for cost-focused

decisions

d) Can be used for qualitative

trade-off analysis (e.g., is increasing LCC by acertain amount worthgaining a certain quantityof avoided emissions

e) Comparison of two

alternative LCCs yieldsnet savings of the lowrelative to the high.

N

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3. REPORT TYPE AND DATES COVERED

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4. TITLE AND SUBTITLE

U.S. Guidelines for the Economic Analysis of Building-Integrated Photovoltaic Power

Systems

6. AUTHOR(S)

 P. Eiffert and A. Thompson

5. FUNDING NUMBERS

TA: FE00.6020

7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES)

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8. PERFORMING ORGANIZATION

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13. ABSTRACT (Maximum 200 words)

Traditionally, electrical service for buildings has been provided by one pre-determined supplier-the utility company. An

unexpected side effect of the privatization and deregulation of the electricity industry, initiated during the late 1980s and early

1990s, is the opportunity for consumers to purchase electricity from a variety of energy service companies or to generate

electricity themselves. Concurrently, the U.S. Department of Energy, national energy laboratories, universities, and

photovoltaic (PV) manufacturers have technically evaluated, tested, and demonstrated building-integrated photovoltaics

(BIPV) to be a viable technology. 

Electricity industry restructuring and successful PV research and development raise a dilemma for building owners: is

it worth the investment and effort to engage in the process of generating electricity with photovoltaics for individual buildings?

A BIPV power system operates as a multifunctional building construction material; it generates energy as well as

serves as part of the building envelope. The objective of the U.S. Guidelines for the Economic Assessment of BuildingIntegrated Photovoltaic Power Systems is to identify the economic parameters of BIPV systems. Identifying these parameters

will enable the decision-makers to appraise the economic feasibility and implications of investments in such building systems.

14. SUBJECT TERMS 15. NUMBER OF PAGES

building-integrated photovoltaic, power systems, BIPV, FEMP, Federal Energy

Management Program, National Center for Photovoltaics, NCPV, economic guidelines 16. PRICE CODE

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