Are solar panels a sound investment? A risk analysis case study

The UK’s new coalition government has said that, as part of its ‘Green Deal’, it will encourage home energy efficiency improvements paid for by savings from energy bills. It seems likely that, in the year that energy regulator Ofgem warned of 20 percent electricity price hikes by 2020, this initiative will include solar panel technology

Currently the UK still lags behind many other countries in Europe and the rest of the world when it comes to harnessing solar power. Not only do we have less hours of sunshine than many regions, but there is a lack of clarity as to the ‘payback’ time when it comes to users seeing a return on investment.

This is where Palisade customer, the California-based Tioga Energy, makes an interesting case study. Whilst it may seem unfair to compare the UK with the west coast of America when talking about solar-related matters, the sunnier climate does not reduce the need to prove ROI for customers with solar energy agreements.

Tioga Energy provides project financing through its solar Power Purchase Agreements (PPAs), and maintains and operates solar systems on behalf of its customers. Tioga’s offering delivers predictably priced power and enables organisations to to both ‘green’ their operations and reduce energy costs. To illustrate the benefits of solar, estimating future electricity prices and making comparisons by showing the savings from a new solar system, Tioga enlisted the help of @RISK for risk analysis solutions.

To forecast possible price increases, Tioga Energy inputs California’s historical electricity rate data into a quantitative risk analysis model developed using @RISK. This generates a probability distribution for electricity rate rises over the 20-year PPA period, which shows that there is a 25 percent likelihood that price increases will be less than 4.8 percent, and a 25 percent chance that rate rises would be more than 8.7 percent.

The @RISK risk analysis model therefore helps Tioga Energy evaluate the likelihood that a customer will save money for a variety of PPA scenarios (i.e. the rate at which electricity would initially be charged and the amount by which it would then increase each year). It also calculates the magnitude of savings for the different combinations of first year costs and subsequent rises. Consumers are therefore able to better understand the pricing and make an informed decision about whether to sign up for a PPA.

Using historical data and @RISK’s risk modelling software capacity, Tioga offers consumers a robust view of the potential benefits of a solar PPA. This enables them to hedge against rising electricity rates, as well as feel confident that they are playing a part in tackling global warming.

» Read the Tioga Energy case study

Craig Ferri
EMEA Managing Director of Risk & Decision Analysis

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