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Photovoltaic self-consumption regulation in Spain: profitability analysis and alternative regulation schemes

Javier Lopez Prol and Karl Steininger ()

No 2015-07, Graz Economics Papers from University of Graz, Department of Economics

Abstract: After three years of discussion, the regulation of photovoltaic self-consumption in Spain has been finally passed on October 9th, 2015. We assess the impact of this regulation on the profitability (reflected by Internal Rate of Return) of potential investors in three different segments: residential and small and medium-size enterprises of the commercial and industrial sectors, paying special attention to the effect of the backup charge and the effect of financing cost. We then analyse three alternative regulation schemes focusing on the price at which the surplus electricity of the PV system is sold to the grid: mere self-consumption, net metering and net billing. For each of the investing segments and regulation schemes, we consider alternative configurations: with and without backup charge, and with own capital versus 80% externally financed capital at market interest rates. The results show that the current regulation will hinder the diffusion of self-consumption PV installations by making them economically infeasible across all segments. We further identify that this regulation creates incentivizes for inefficient behaviour, such as disconnection from the grid. According to our results and to the recommendations of the European Commission, we find that a net billing scheme would be more suitable for promoting PV diffusion at minimum cost for the system.

Keywords: Net Metering; Net Billing; Internal Rate of Return; Royal Decree 900/2015, PV (search for similar items in EconPapers)
JEL-codes: N74 O13 Q42 Q48 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-ene, nep-eur and nep-reg
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Journal Article: Photovoltaic self-consumption regulation in Spain: Profitability analysis and alternative regulation schemes (2017) Downloads
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