Economic sustainability of ground mounted photovoltaic systems: an Italian case study

Abstract

Purpose – The purpose of this paper is to evaluate the expected cost of a large-sized photovoltaic (PV) system (= 1 MW) in reaching grid parity, not taking into account any type of government incentives (now quite uncommon in industrialized countries). A PV system located in Southern Italy will be the subject of this assessment. Design/methodology/approach – The paper presents the case of a 1 MW ground-mounted PV system. The data regarding solar radiation on the surface of the modules and the relative solar diagrams were simulated and reported using PVSYST® 5.21 software. To evaluate the profitability and solvency of the project, a number of factors were taken into consideration: profitability indicators of net present value and internal rate of return, the debt service coverage indicators of debt service cover ratio and loan life cover ratio and their mean annual values (annual debt service cover ratio and annual loan life cover ratio, respectively). A sensitivity analysis with respect to the most critical element (weighted average cost of capital) gave strength to the results. Findings – The achievement of grid parity for 200 kW PV systems is happening globally in areas with higher irradiation, but it clearly refers to residential utilities and is not applicable to large systems. The case study considers a power plant (= 1 MW) to assess the total cost that it would need to have to be economically advantageous. Research limitations/implications – This is an assessment made using a case which, given an average irradiance value in the area and the energy produced, can be used in all countries lying in the temperate zone. For other areas, a scaling coefficient would be needed. Practical implications – The paper is useful for understanding the order of cost, which must catch up to PV technology to make investments in power plants profitable in the absence of government incentives. It is also helpful for those who make government policies so that these may propose possible incentives commensurate with the actual difference between the value of the technology and the value of the investment. The study is also useful for a possible comparison with a system sharing the same characteristics (size, energy production) for off-grid use and customers. Originality/value – The study can be a valuable support for government policies to incentivate PV systems that contribute to a reduction of greenhouse gases and that help contain climate change. The case study represents a real case taken directly from a real project. This case study and its sustainable features have not been previously presented in a scientific journal.