Solar Power and Center Pivots - Part 2: Economic Modeling

Solar Power and Center Pivots - Part 2: Economic Modeling

Summary

Solar electric generation, often called photovoltaic (PV) and center pivot irrigation appear to be good partners. Yet the seasonality of irrigation compared to annual production of solar PV can be detrimental to the economics of the system. Certain combinations of policy and electric rate schedule show much better returns than others. The difference is predominately caused by electric rate schedules (electricity cost) and net metering policy. Solar PV for irrigation systems not on load control rate schedules and with net metering have greatest economic return with shorter payback times and higher net present value. Conversely solar PV for irrigation systems on load control rates and without net metering have poorer economic returns.

Center Pivot Scenarios

To study the economic feasibility of solar connected irrigation systems, scenarios were created and modeled using the National Renewable Energy Labs System Advisor Model (SAM). The System Advisor Model is a free modeling tool which can be used for solar PV system design as well as economic analysis. If you are interested in SAM it can be downloaded for free. For a tutorial on how to use SAM and how to analyze solar PV for a farm operation visit UNL Cropwatch: Bioenergy on YouTube. Using SAM allows for detailed analysis using hourly load data and hourly solar PV production estimates. The model also allows for individualized economic inputs such as tax rate, insurance, loan amount, loan rate, depreciation, incentives, and discount rate. This study focused on discovering the influence of rate schedules (load control vs no load control) and policy (net metering vs no net metering). Individual economic inputs were kept standard across all scenarios.

A total of 48 simulations were run for the combinations of model scenarios below.

  • Farm Location Scenarios: Eastern (6 inches per year on average) Western (13 inches per year on average)
  • Well Capacity Scenarios: (300 gpm), (800 gpm)
  • Load Scenarios: No load control, Load control anytime, 2-day load control
    • Hourly load data was created (mock data) to represent each of these scenarios. Mock data are used to represent an “average” year of irrigation. Actual load data was acquired and modeled to ground truth the mock data and results were consistent across mock and actual load data.
  • Distributed generation Policy: Net metering, No net metering
  • Solar System Size: Sized to produce energy equal to 100% of annual load, sized to produce 50% of annual load (smaller systems minimize net excess generation)
  • Rate Schedules: Actual irrigation electrical rate schedules from three Nebraska utilities with and without load control
  • Financial Assumptions: Consistent across all system scenarios (loan rate, discount rate, system cost/W, depreciation, insurance, incentives, operation and maintenance, tax rates, and inflation)

Results

Results are reported for simple payback (years), and net present value ($). These results should not be interpreted as an accurate assessment of the payback for a specific solar PV system installed at a farm today. Rather these provide calculated estimates used for comparison of payback values and net present value compared to load control and net metering.

Net Metering

Economic metrics of payback is used to compare modeled systems. When comparing net metered vs no net metering payback is significantly shorter for net metered systems vs not net metered (alpha=0.05)(P=0.024). Net metered systems have 2.35 years shorter payback than not net metered systems. Solar PV installations were modeled using a 25 year lifespan for economic analysis, yet can last 30 plus years.

The model simulations show that solar PV arrays with interconnection agreements which include net metering have shorter paybacks than interconnection agreements without net metering. This is because with net metering, some of the solar kilowatt hours flowing to the grid (excess generation) are valued at the retail rate of electricity. Conversely, without net metering all excess generation is valued at the avoided cost rate.

Load Control

When comparing load control verses no load control using four load control rates from three different Nebraska utilities the payback is significantly shorter for non-load control rate schedules compared to load control rate schedules by an average of 3.78 years (alpha=0.05)(P=0.001).

Solar PV generates electricity during the daylight hours peaking in early afternoon. If the irrigation system is running throughout the day the solar electricity will be used by the load. On load control days the pivot is limited from running during the day and mostly runs overnight. Net metering policies allow for daytime generated solar to offset nighttime use. Load control is used by utilities to reduce daytime peak electrical use. A pivot on a load control rate may have to limit daytime pumping on high electrical use days. In return for this limitation farmers receive a reduction in the cost of electricity.

The model simulations show that solar PV arrays attached to center pivot irrigation systems with non load control rate schedules have the fastest payback and highest net present value. Conversely solar arrays on center pivots which can utilize a load control rate have longer payback periods and lower net present value. Results for eastern and western center pivots had similar trends and results are summarized in Figure 4.

Electricity produced by a solar PV system is either used by the load, offsetting grid purchases, or flows to the grid where it has value either as a credit with net metering or payment of avoided cost. Since the product of the system is electricity, there is greater benefit when electricity prices are higher.

Behind the meter systems can be sized to produce up to 100% of annual load, yet generally systems sized to produce 50% to 75% have better economics than larger systems. This is because smaller systems have less net excess generation during the irrigation season. Additionally, Nebraska’s net metering law calculates excess generation at the end of each month, so during months with no electric load all solar PV generation is net excess generation and is compensated at the avoided cost rate. The economic impact of system size was observed in the modeling results of and not detailed in this article. Results presented in figure 4 represent system sized to provide 50% of annual load maximizing economic return.

120 Acre 800 GPM Center Pivot (Eastern Nebraska) – 7 kW Solar array, Net present value ($) Payback period (years)
Load Control -$2,219
21.2 years
-$2,955
24.9 years
No Load Control -$633
16.0 years
-$2,678
23.3 years
Net Metering No Net Metering
120 Acre 300 GPM Center Pivot (Eastern Nebraska) – 7 kW solar array, Net present value ($) Payback period (years)
Load Control -$2,356
21.8 years
-$2,891
24.5 years
No Load Control -$757
16.3 years
-$1,980
20.2 years
Net Metering No Net Metering
120 Acre 800 GPM Center Pivot (Western Nebraska) – 25 kW solar array, Net present value ($) Payback period (years)
Load Control -$6,801
19.9 years
-$9,551
23.3 years
No Load Control -$314
14.8 years
-$6,684
19.8 years
Net Metering No Net Metering
120 Acre 300 GPM Center Pivot (Western Nebraska) – 25 kW solar array, Net present value ($) Payback period (years)
Load Control NA* NA*
No Load Control $1,356
13.9 years
-$1,282
15.4 years
Net Metering No Net Metering
Figure 4. Payback is significantly shorter for non-load control rate schedules compared to load control rate schedules by an average of 3.78 years. (P=0.001). Payback is significantly shorter for net metered systems vs not net metered (P=0.024). Net metered systems have 2.35 years shorter payback than not net metered systems. *Western NE 300 GPM Pivot was only modeled without load control since the pivot capacity was insuffient to irrigate 13 inches of water if load control reduced pumping hours. 

Net present value is by far the best financial metric to determine if an investment is worth pursuing. Yet the net present value is determined using a discount rate to discount future cash flows. The discount rate used by an investor is specific to them and will differ depending on the type of investment and length of investment.

The economic return on investment for a specific situation should be independently modeled and include values based on a farm’s individual situation. Assumptions will differ for each individual farm such as insurance, loan rate, discount rate, tax liability, inflation, depreciation, incentives, and correct electric rate schedule.

Conclusion

Behind the meter solar PV have the best chance of economic return for center pivots on farms without load control and with net metering. Farmers interested in solar investment should take the time to study their individual situation with regard to rate schedule, energy use, net metering and load control before investment.

Although the trend for better economics with no load control and with net metering is clear this does not mean other systems may not have good economic performance. For example, in some areas additional incentives in the form of grants, rate contract, loans, or renewable energy credit sales can make solar installations economically feasible regardless of load control or net metering.

These results do not suggest load control is bad. A farm has cost saving advantages from load control rates and should take advantage of them if their pivot system allows. Rather the lower cost of electricity when on a load control rate is a disadvantage for grid connected solar which may make pivots with load control less attractive for solar installations.

The decision whether or not to invest in solar is an individual decision. The conclusion here is not whether to invest or not, but rather which center pivot scenarios are better suited for better return on investment and which pivots a farmer may want to target first if considering solar installations.

Ways to Improve Economic Return of Solar PV System

  • Seek and claim all possible grants and subsidies (USDA REAP grant is an example of a grant which if received can greatly improve solar PV economics)
  • Properly value electricity by correctly applying the net metering policy in your location. This article focused on Nebraska net metering policy and policy in other states can change the analysis results valuing credits differently. Check your state's policy at https://www.dsireusa.org/
  • Size the system appropriately
  • Use the solar generated electricity on site. Electricity used on site usually has higher value than electricity sent to the grid. (Matching solar production to load can help minimize excess generation) For center pivots this might mean combining electrical meters with other farm loads if possible.
  • Maximize the value of depreciation by working with your tax preparer
  • For farms with direct marketing, site solar for maximum marketing value
  • Proper installation and regular monitoring will ensure long lasting system performance needed to maintain energy production.

For questions or comments please contact F. John Hay.
F. John Hay
402-472-0408
Jhay2@unl.edu
https://bioenergy.unl.edu

Modeling Assumptions

System cost $2.25/kW (total installed cost)
Operation and maintenance costs $16/kW per year
Loan 4% for 10 years
Analysis period 25 years
Inflation 2.50%
Discount rate 6%
Fed income tax rate 21%
State income tax rate 7%
Insurance 0.5% of total installed cost annually
Personal property tax (for solar PV system) 0%
Depreciation Straight line 10 years
Incentives Federal tax credit 26% in 2020
Electricity bill escalation 1%
System tilt 35 degrees
System azimuth 180 degrees (due south)
Mounting Ground mount

Additional Resources