# Evaluating the Effect of Financing Costs on PV Grid Parity by Applying a Probabilistic Methodology
## 1 Introduction  
When grid parity for photovoltaic (PV) installations is achieved, all the generated electrical energy can be sold at the same cost at which it is purchased from the grid [1]. To study properly how grid parity can be achieved, several aspects need to be taken into account, such as the possible subsidies or special economic regimes of the PV generators and the financing costs of this type of installation. With regard to possible special economic subsidies or economic regimes of PV plants, as part of the ongoing challenge to achieve targeted carbon emission reductions set by European countries, governments in Europe introduced in some cases a mechanism for incentivising renewable energy production via the use of the feed-in tariff (FiT) [2]. From its introduction until now, the FiT has endured modifications with respect to political, economic, social and technological (PEST) matters. Due to the lucrative and stable nature of the FiT, private investors have deployed vast interest and investments [3]. The pricing structure that the FiT offers is vital in determining the growth rate of the PV industry and the investments made by private investors and the government, and therein lies the future of the industry [4]. It is important to note that PV is placed firmly as one the most encouraged sources of energy generation [5], where profitability ratios, financial conditions, and the quantification of risks are all clearly defined [6]. This is most advantageous compared to the current fluctuating economy [7]. In addition, the inclusion of batteries can improve the profitability of grid-connected PV installations if the tariff policy allows optimising revenues by managing the charge and discharge of the batteries [8; 9; 10; 11]. In the case of Spain, since the introduction of the FiT in 2007 [12], rising financial matters and the ever-changing energy policies have caused unreliability within the sector, hence causing Spain to revoke its FiT in 2012 [4]. Following the decision to revoke the FiT, energy consumption in Spain declined, leading to a significant electricity cost increase,so that independent power generation became an attractive concept due to its financial savings and stability [1]. With regard to financing the costs of PV plants, the levelised cost of energy (LCOE) can be used to calculate the required system and finance expenses necessary to achieve grid parity [13; 14]. It is important to keep in mind that financial costs have a significant influence on the LCOE calculation. To take into account the effect of financing costs, the risk of the investment [6] would have to be built into the interest rate [15]. The LCOE is not the same as the electricity cost, but it is used as a proxy for the total price paid by consumers while considering as many realistic costs as possible. When assessing LCOE against grid parity, all system and project costs should be taken into account. These costs include PV modules, structures, inverters, cables and installation. In this paper, PV grid parity in Spain is studied, calculating the floor of the LCOE (worst-case scenario) for different cases and obtaining conclusions about the cost of the PV system and evaluating the effect of the financing costs [13] on PV grid parity. In addition, the LCOE and internal rate of return (IRR) are calculated by using the Monte Carlo method [16], giving probabilistic ranges to all of the variables. This methodology allows us to obtain the probability of the possible scenarios. Other authors have used the Monte Carlo method to study a wide variety of realistic problems. The Monte Carlo method has been applied in several previous works in the field of renewable energy generation [17; 18; 19], where LCOE and IRR have been used as common economic evaluation tools. Therefore, the tools used in the work presented in this paper are appropriate because they are used routinely in previous work carried out by other authors, obtaining excellent results.