Chapter 5. Policy Implications
5. Improving Market Conditions
It is necessary to improve market conditions with respect to the major variables that affect the feasibility of household PV installations. Our analysis in Chapter 3 shows that, of these variables, the operating rate of PV installations is the key factor influencing feasibility. Our sensitivity analysis demonstrates that among the variables of discount rate, investment cost, and operating rate (changed by 20 percent each), the operating rate is the most important factor in increasing the NPV (the aforementioned variables increased the NPV by 39 percent, 73 percent, and 81 percent, respectively). In other words, the feasibility of the same PV model varies dramatically depending on the extent of use. As operating rates vary significantly from location to location, mostly due to natural conditions, the key to maximizing the feasibility of PV installations is to find the optimal location that allows for maximum operation instead of trying to improve the operating conditions of a given location. By providing households with information on the potential operating rate of their PV installations, they can make a better, more well-informed decision about whether or not to invest in a household PV system.
The KEA is currently conducting research, in partnership with the Korea Institute of Energy Research (KIER), to estimate the real-life financial and market potentials of new and renewable energy, going beyond the theoretical, geographical, and technical potentials explored in existing literature. Through this research, the grid is also being subdivided, which has been the main unit of estimation in new and renewable energy research.18 The findings of KEA and KIER’s joint study are scheduled for publication in early 2018. Once these findings are published, researchers and policymakers will be able to utilize estimates not only of solar radiation amounts, but also financial estimates, such as the LCOE to analyze and determine the optimal locations for household PV installations. The availability of this type of additional information, coupled with existing measured observations, can allow for the more accurate and precise analyses of the feasibility of new and renewable energy installations. Such analyses, in turn, can be used to develop a new and renewable energy database, giving the public access to necessary information and collecting fragmented data together into one place.
Discount rates, which are an important part of feasibility analyses, ultimately represent the costs of capital or financing.
Our sensitivity analyses nonetheless demonstrated that discount rates exert a comparatively lesser effect on the feasibility of new and renewable energy installations than the cost of investment. Policy support measures should therefore focus on reducing the cost of investment in order to improve market conditions to support PV installations. PV rental businesses should also be fostered as part of efforts to reduce the high initial investment cost of PV installations and further expand the household PV market.
The importance of obtaining precise information through feasibility analyses cannot be overemphasized. For example, the commonly accepted operating rate of household PV installations is 13.75 percent; this number is not just used in this study, but is also the operating rate typically cited by industry insiders. However, using this single number is way too deterministic. The operating rates of actual PV installations vary widely by location. We therefore must obtain stochastic information on operating rates as well as the distribution of PV installations in order to conduct more realistic analyses.
The operating rate of 13.75 percent, however, is an oft-cited average for which neither raw distribution data nor information on variances and standard deviations is available. In the future, it is absolutely critical to collect and save data on these variables. Creating a database of this type of information is key to ensuring the appropriate management and operation of household PV installations and facilitating accurate analyses by researchers.
References 1. Domestic literature
Kang, Y., forthcoming, Updating the New and Renewable Energy Map: Market Potential Analysis, KIER.
Kim, M., J. Ju, G. Seo, G. Lee, and J. Choi, 2007, Estimating the Periods of Generating Returns on Household PV Energy Generating Systems, Proceedings of the Korean Solar Energy Society Conference, Vol. 27, No. 2, pp. 87-93.
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