Cost Benefit Analysis of Renewable Energy

Presented by:

Malik SameeullahM.Tech,RES (3137501)

SCHOOL OF RENEWABLE ENERGY AND EFFICIENCYNATIONAL INSTITUTE OF TECHNOLOGY, KURUKSHETRA

ContentsIntroductionCost Benefit Analysis (CBA)Method of Cost Benefit AnalysisBenefit Cost(B/C) RatioRenewable Energy Technology ParameterCBA parameters for Renewable EnergyImplement of CBA for wind EnergyConclusionReferences

IntroductionConcern over global warming has led policy

makers to accept the importance of reducing green house gas emissions

Renewable Energy system become quite favorable now a day because of national and international policies

Still renewable energy technology is in early stage of implementation and unit cost of energy is higher than conventional plant

But government provide incentive and cost based tariff to support renewable energy

Cost Benefit Analysis give a idea about the acceptability of any renewable energy plant

Cost Benefit AnalysisCost-Benefit Analysis applied to energy is the

appraisal of all the costs and all the benefits of an energy project taking account of present and future work

Cost Benefit Analysis (CBA) is little bit difference than Social Cost Benefit Analysis

Cost Benefit Analysis taking account of both financial benefit analysis and social cost benefit Analysis Cost Benefit

Analysis

Social Cost Benefit Analysis

Financial Benefit Analysis

Choice of Cost Benefit AnalysisDecision Making is about choiceFor an Individual: It takes CBA for own benefit and

future prospective. i.e project for employee to make there future bright.

For a Company: Being Concerned with the profit earning capacity and income flow, they take cash flow analysis.

For the government: Decision making for the government is always a tough work, as it account for profit and at the same time working to provide social benefit. This is the reason because of that government project fail to become financial viable.

Method of Cost Benefit AnalysisIn financial term, there is mainly four way of

evaluating cost-benefit:1. Benefits/Cost Ratio2. Net Present Value (NPV)3. Internal Rate of Return (IRR)

Benefits/Cost RatioAs the name suggest, Benefit-cost ration method of analysis is

based on the ratio of the benefits to cost associated with a particular project

The basic need to calculate all the cost and benefit separately.B-C ratio method has frequently used by government agencies

whose benefit are reaped by the public and cost are incurred by government

Let B= Present Value of cash inflows (benefits)

C=Present Value of cash outflows (costs)

Where i is the interest rate and j is the part of time period

The equivalent present value cost C may consist two part:1. The initial capital expenditure 2. The annual cost accrued in each successive period

Let for any project, there is initial m period for installation and ones the plant is ready to operate, there is fixed maintenance cost per year from m+1 period to life cycle of project (n).

And

Example: let there is a 5 kW PV power plant and time taken to install plant is 2 year with yearly investment of Rs 20 lakhs. After installation there will be a yearly fixed charge of Rs 10,000 for maintenance. Calculate equivalent present value C? use interest rate of 10%. Life of plant is 10 year.Solution:

= Rs 11,1719C= Rs (3818181+11,1719) = Rs 3929900

Type of Benefit-cost ratio1. Aggregate B-C Ratio: it is the ratio of the present value of total

benefits to total costs

For project acceptance ration must be greater than 1

2. Net B-C Ratio: in this only initial capital expenditure is considered as a cash outlay

For project acceptance ration must be greater than 1

3. Saving to Investment Ratio:

= For project acceptance, ratio must me greater than 0

Renewable Energy Parameters for C/B Analysis

The type of parameter for C/B analysis is depend upon the type of renewable technology

Here the list which affect the analysis of RET1. Location of plant

2. Type of renewable energy

3. Technology status

4. Government involvement

5. Availability of technical staff

6. Economical consideration of society

7. Overall objective of installation

8. Climate condition

9. Risk of natural disaster

CBA parameters for Renewable Energy

CBA parameter can be categories on the basis of cost inflow and outflow

Cost Outflow Cost Inflow

1. Capital cost of plant2. Annual maintenance cost3. Unwanted investment due to

technology failure4. Extra investment due to change in

incentive policy of govt.

1. Benefit by selling energy2. Social benefit by supplying

electricity in rural area3. Carbon credit4. Commitment to ward green

development5. High rate of return to support

renewable energy (incentive from govt)

Implementation of CBA for wind Energy

Cost of the system:1. Land lease cost2. Turbine installation cost3. Electrical network up gradation cost4. Cost of additional reserve requirement5. Component life maintaining cost6. Operating cost

Benefits of the system1. Capacity benefit2. Carbon credit benefit3. Fuel saving benefit4. Social empowerment benefit in remote area 5. With proper design, multi function land utilization

ConclusionMost of the renewable energy project are less

economical viable, because of high investment and risk associated with the project

But still most of the government interested to increase the share of renewable energy.

Overall Cost Benefit analysis of renewable energy show that they are acceptable.

Main benefit of renewable energy is that it is clean form of energy and also socially acceptable and help government to make a dream true to provide electricity to village.

References1. Ea Energy Analyses, “Costs And Benefits Of

Implementing Renewable Energy Policy In South Africa”, August 2011

2. IRENA working paper,“Renewable Energy Technologies: Cost Analysis Series”, June 2012

3. Eleanor Denny B.A., M.B.S, “A Cost Benefit Analysis of Wind Power”, thesis report, University college Doublin, Ireland, 2007

4. Paul Samuelson,“Economics”, McGraw-Hill, 21stEdition