Micro-economic assessment of residential PV and battery systems: The underrated role of financial and fiscal aspects

Abstract

The German Federal Government, in order to achieve its renewable energy targets, has promoted the deployment of solar PV. Small residential PV installations coupled with battery energy storage systems are gaining momentum, as the appeal of self-consumption has grown. We conducted an economic analysis to assess the profitability and optimal configuration of these technologies from the perspective of heterogeneous households that are subject to the current German regulatory framework. In this regard, we consider heterogeneous potential for the self-consumption of electricity (e.g. household size, energy efficiency), as well as heterogeneous financial (i.e. metrics, parameters, sources of financing) and fiscal (i.e. tax treatment, tax rate) aspects. We find that the use of alternative financial metrics (i.e. payback period, real internal rate of return and net present value) as criteria for evaluating profitability has a significant impact on the rankings of system configurations. Furthermore, fiscal aspects are crucial to assessing profitability and marginally relevant for optimal system configuration, while financial aspects are of great importance for both. Our results on optimal battery coupling (as opposed to stand-alone PV) show that rates of adoption range between 0% and 94% of the analyzed load profiles, following the variation of such finance-related dimensions (e.g. discount rates, inflation, debt versus equity financing). We conclude that such findings on the impact of such factors are highly relevant in terms of designing cost-efficient and effective policies that aim to foster energy transitions, both in Germany and elsewhere, especially at a time of very low interest rates.