Determination of the optimal solar investment decision criterion

Abstract

This paper deals with the validity of the solar investment decision criteria employed in various studies. We begin by examining the life-cycle cost criterion (or positive net present value criterion) commonly used by solar analysts, and subsequently show that, given the theoretical hypotheses of dynamic investment planning and decision making, this criterion is suboptimal for evaluating the economic viability of fuel saver solar systems. The optimal “present cost competitive” criterion is then established and analyzed. The effect of uncertainty is introduced into the analysis by an examination of the payback period criterion. To highlight the differences between these criteria, a comparison of the timing of and net benefits derived from investments in a residential solar space and water heating system made under each criterion is presented.