The Effect of Retail Electricity Price Levels on the Financial Indicators of Smart-Grid 1 Rooftop Solar Power Systems: A Case study in the Central Highlands of Vietnam

18 Background: There are many constraints on the use of fossil fuels and, many countries have, therefore, conducted research relating to alternative energy 20 resources to replace conventional fuels. On 31 January 2019, the Vietnamese 21 Ministry of Finance enacted a preferential policy relating to the installation of 22 under-50kWp rooftop solar projects. The Central Highlands of Vietnam has a high 23 potential for solar power generation due to the duration of sunshine it enjoys, and 24 the development of both rooftops solar and solar farms is appropriate for the 25 region. The study reported investigated the economic efficiency of smart-grid 26 rooftop solar electricity systems (SG rooftop PV) in the Central Highlands of 27 Vietnam in light of the different levels of retail electricity pricing in Vietnam and 28 the implementation of a feed-in-tariff system. The research reported in this paper 29 will be useful for many groups of stakeholders, including electricity consumers 30 who intend to install rooftop solar panels on their houses, companies who supply 31 SG rooftop PV, and policymakers, who can use the findings relating to SG 32 rooftop PV to adjust the retail price of electricity during different periods. 33 Method: Financial indicators were calculated based on the net present value , 34 payback period, internal rate of return, and the number of hours of sunshine in the 35 Central Highlands of Vietnam 36 Result: The study’s results show that the electricity price level affects the 37 economic efficiency of SG rooftop PV. In particular, SG rooftop PV installed to 38 satisfy higher levels of electricity consumption, which attract a higher retail 39 electricity price, result in greater benefits, especially when domestic electricity 40 consumption exceeds 400 kWh, at which level the retail electricity price is at the 41 highest level. In this case, people who install SG rooftop PV and use all the 42 electricity to satisfy domestic consumption will recoup their investment in only 4 43 years and thereafter will enjoy free electricity. 44 Conclusion: All the financial indicators derived from this research show that 45 people in the Central Highlands of Vietnam can derive benefit from installing SG 46 rooftop PV, whether they sell all the electricity output to the grid or use the power 47 output to satisfy their domestic demand. 48

. However, there are many constraints in using fossil-fuel resources. Firstly, these 55 will be exhausted in the future due to the rapidly increasing energy demand [2], and Shafiee and 56 Topal (2009) forecasted that crude oil stocks would be exhausted in around 35 years from 2005 57 with natural gas stocks being exhausted in 37 years, whereas coal stocks would be exhausted in 58 107 years. Therefore, after 2042, coal will be the only fossil fuel available up to 2112 [3].

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Moreover, the burning of fossil fuels is one of the major sources of the emissions which are 60 causing global warming and climate change [4] and also entails risks for people's health [5]. 61 Therefore, many countries have conducted research relating to alternative energy resources to 62 replace conventional fuels [6].

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Over 90 % of the electricity in Vietnam is currently generated from hydropower, coal, 64 and gas, with hydropower occupying 37.6 % of total electricity generation [7]. Hydropower 65 dams have given people many benefits, including electricity supply, control of floods, and 66 irrigation of the land. However, the construction of dams can threaten ecosystems [8,9], and 67 there are some negative effects on society and the environment. In particular, local people must 68 uproot themselves from the areas where dams are constructed [10][11][12]. In Vietnam, the 69 construction of hydropower dams has necessitated the appropriation of 133,930 hectares of land 70 and the relocation of over 200,000 people involving the evacuation of 44,557 homes [13]. The 71 generation capacity of hydropower energy also entails a loss of forests, and deforestation can 72 reduce river discharge and thus decrease the power-generating capacity [14]. 73 Moreover, the demand for power is growing rapidly and by the year 2035, energy 74 demand in a business-as-usual scenario in Vietnam will be nearly 2.5 times higher than it was in 75 2015 [15]. Therefore electricity shortages are likely to happen, particularly in the hot season, 76 especially from 2020 onwards [16].

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The government of Vietnam has therefore shown interest in solar generation, wind 78 energy, and biomass power and while there is a great potential for wind and biomass-generated 79 energy, the development of solar power generation facilities is particularly appropriate for 80 Vietnam

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The retail electricity price for residential consumption is divided into six different levels: 102 , and more than 400kWh. The 103 price increases with the level of electricity consumed, thus, consumers who use more electricity 104 have to pay a higher price than those who use less electricity. Therefore households that can 105 generate power by installing a rooftop solar power system can reduce the amount that they pay 106 every month for electricity not only by reducing the amount of power they consume from the 107 grid but also by bringing themselves into a lower consumption band attracting a lower price for 108 the electricity they purchase.

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This paper assesses the potential benefits of installing rooftop solar panels based on 110 three indicators, net present value (NPV), payback period (PBP), and internal rate of return 111 (IRR) which are important financial indicators that can help people to decide whether or not to 112 invest in a project. The conditions which render a project acceptable are an NPV greater than 113 zero or an IRR higher than the discount rate. A project with a longer PBP is usually associated 114 with a higher risk to the investors, thus a shorter PBP is preferable [23].

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The research reported in this paper will be useful for many groups of stakeholders: 116 firstly, for electricity consumers who intend to install rooftop solar panels on their house, who 117 need to understand the benefit of rooftop solar generation, and in particular over how many years 118 they will recoup their investment and whether their investment over the project lifetime would 119 match the return by way of the interest they would generate by depositing their money in a bank. 120 Secondly, companies that supply SG rooftop solar systems can use the findings of the research to 121 advise people, who are considering installing smart rooftop solar power systems to generate 122 electricity for their own consumption as well as selling any excess generated to the grid through 123 the FIT. Finally, policymakers can use the findings relating to SG rooftop solar power to adjust 124 the retail price of electricity during different periods.

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In fact, all residents are affected by the same price of electricity level 126 consumption whether they operating entirely during the day or night. However, SG 127 rooftop PV can generate electricity only in the day. Therefore, this research focus only 128 on the customers who install SG rooftop PV to sell all electricity to the grid or consume 129 all electricity during the day for specific fields such as individual business households or 130 families whose production and business activities take place mainly during the day 131

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-When the capacity generated by the system < the customer's needs, the inverter will 170 withdraw the power required from the grid -When the capacity generated by the system = customer's needs, the power generated 172 from the rooftop solar electricity system will be used to meet the customer's requirements.

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-When the capacity generated by the system > The customer's needs, the surplus power 174 will be sent to the grid 175 The process of assessing the relationship between power generation and the customer's 176 needs, and directing the flow of electricity occurs constantly and automatically without the need 177 for the user's intervention. In Vietnam, from July 1 st, 2019, the surplus electricity from domestic 178 solar power systems and the power required from the grid is measured by two-way-meter.

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The basic economics of the PV system is related both to the efficiency and the optics.

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On markets, PV system often sold by cost per square meter or a cost per watt that may be 198 generated under peak form of solar lights (cost per watt peak (Wp)), 1kWp=1000Wp. In other 199 words, Wp is used to predict the electricity generated and to evaluate the performances of the PV 200 system in an optimum sun condition [30]. For example, rooftop PV with 1kWp will generate a 201 maximum of 1kWh for one hour in an optimum sun condition. Therefore, if the optimum sun is 202 5 hours per day, then 1kWp will produce up to 5kWh power.

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The equation to change the square meter and cost per watt peak are as following: If NPV>0, the investment is acceptable because the discounted benefit is higher than the 220 discounted cost, and the project will produce a surplus over the investment.

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If NPV<0, the investment is not acceptable because the discounted benefit is lower than 222 the discounted cost, and the project will produce a loss from the investment.

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If NPV=0, the acceptance of the project will depend on the investors' decision.

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The IRR is the discount rate that renders the NPV equal to zero. Thus, an investor will 226 earn a return on investment if the IRR is exceeded when the project operates.

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The following formula is used to calculate IRR:

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If all the electricity generated is used by the consumers themselves, they will not have to 258 pay tax or other fees on the value of the electricity generated. Further, the maintenance cost will 259 be zero during the guarantee period of 12 years [32] or more. The lifetime of a rooftop solar 260 system is around 25 years, the lifetime of the inverter is around 10 years and the expected 261 maintenance cost after the guarantee period was also assumed to be zero (see detailed calculation 262 in Tables 5 and 7).

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The benefit is the electricity that is extracted from the system. If people use all the power 265 output to meet their own electricity needs, the benefit is based on the retail electricity price. If 266 they sell the electricity output to the grid, the benefit calculation is based on the FIT price of 9.35 267 US cents/per kWh.

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The hours of sunshine in the Central Highlands range from 2000 to 2600 hours per year, with the 269 sunshine duration being different among years and months.

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The cost of installing the system was based on the price quoted for high-quality 323 household SG rooftop PV, as quoted by companies who supply them in Vietnam. The lifetime of 324 an inverter is only 10 years, and the inverter would thus need to be replaced during the lifetime 325 of the SG rooftop PV. The cost of replacing the inverter was, therefore, taken into consideration.

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A breakdown of the cost of the SG rooftop PV and the inverter is shown in Table 3.

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The quoted installation cost of a rooftop solar system in Vietnam ranged between 328 USD850 and over 1200 per kWp. In this research, the cost of USD1200 per kWp was adopted.

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This high initial level of cost for the system and inverter was adopted to ensure that in 330 establishing the economic performance of SG rooftop PV, households could be expected to 331 choose high-quality equipment and also to replace the inverter every 10 years' use. Based on 332 equation (4), the monthly cost of electricity and the kWp of a SG rooftop PV appropriate for 333 each level of electricity consumption, the installation cost including the cost of replacing the 334 inverter is illustrated in Table 4 for each level of electricity consumption shown in Figure 1  When all the electricity output from a rooftop solar power system is used to satisfy 342 domestic consumption, as shown in Table 4, the kWp of the rooftop solar power system can be 343 estimated based on the level of electricity consumption, and the cost of electricity will represent 344 the benefit derived from the system. In this scenario, the consumer does not have to pay tax. 345 However, the inverter will have a maximum life of 10 years, thus the cost will be enhanced by 346 the cost of the inverter (NB there is no battery) every 10 years' use. On that basis, the cost-347 benefit analysis for the first level of electricity consumption (50kWh) is as shown in Table 5,   348 where the capacity of the system installed is 0.3kWp, with an installation cost of USD360 the 349 cost of electricity is USD 3.9 per month and the cost of replacing the inverter every 10 years is 350 111USD; the NPV, IRR, and PBP appear in Table 6.

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As mentioned above, the efficiency of a rooftop solar power system decreases over time. with the expectation that the maintenance cost both during and after the guarantee period will be 359 zero. The inverter will be replaced in year 10 and year 20 of the system).

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Based on the estimate in Table 5, the economic efficiency of a 0.3kWp rooftop solar 361 system appropriate for the first level of electricity consumption (50kWp) with a discount rate of 362 8.6 % is as follows: To determine the payback period, as can be seen from Table 5, the accumulated Bt-Ct is 365 greater than zero in the 12th year of the project, which means that the initial investment can be 366 recouped after the first 11 years of operating the system.

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The IRR was calculated using the Microsoft Excel, IRR (value, [guess]) function based 368 on the values in column Bt-Ct of Table 5 with a guess based on the option validity (since this 369 was unknown, guess was assumed to be 10 %). From that calculation, the IRR is 9.04 % per year 370 The same calculations were conducted for other levels of electricity consumption, and 371 the resulting financial indicators are shown in Table 6 and illustrated in Figures 3 a, b, and c.

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It is therefore clear that people should invest in SG rooftop PV at all six levels of 373 electricity consumption because the NPV is greater than zero and the IRR is greater than the 374 discount rate. Moreover, the higher kWp required to satisfy higher levels of electricity 375 consumption will bring more benefits than those accruing to consumers using less electricity. An 376 SG solar power system with a capacity of 3.33 kWp has a PBP of only 4 years, while that of a 377 system appropriate for the first level of electricity consumption is 11 years. The IRR increases 378 from 9.04 % to 23.66 % between levels 1 and 6, and the NPV also increases from USD9.12 to 379 USD2,618.86, respectively.

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In this scenario, in a similar way to that dealt with in the case of people using all the 391 electricity generated for domestic consumption, the lifetime of a rooftop solar system was taken 392 to be 25 years, and the maintenance cost was assumed to be zero, but in this case, people have to 393 pay both tax and an excise fee.  To determine the PBP, as shown in Table 7, the accumulated Bt-Ct exceeds zero in the 422 8th year of the project, which means that the investment in the system is recouped after the first 423 7 years of the system's operation. Further, based on Microsoft Excel's IRR function, the IRR is 424 11.60 % per year. Similar calculations for all six levels of electricity consumption are shown in 425 Table 8.

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The indicators in Table 8 show that the installation of rooftop solar power systems 427 appropriate for every level of electricity consumption, with all the electricity output being sold to 428 the grid, will produce a benefit at all levels. However, the highest level (level 6) entails the 429 lowest IRR. These indicators are compared in Figures 4 a, b, and c.

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It can be seen that there are differences in the SG rooftop solar financial indicators 431 between using the power output to satisfy domestic consumption and selling it to the grid, 432 among the six levels of electricity consumption. At levels 1 and 2, the retail price of electricity is 433 lower than that at higher levels, and therefore people who install SG rooftop solar power systems 434 and sell all the electricity generated will derive more benefit than by using the electricity for 435 their consumption. The benefit of the two scenarios is nearly the same at levels 3 and 4, but at 436 levels 5 and 6, people gain greater benefit by using all the electricity generated to satisfy their 437 consumption since this will bring much greater benefit than at lower levels of consumption. This 438 is particularly so at level 6 where the retail electricity price is highest. Households that consume 439 electricity at level 6 who install an SG rooftop solar power system will recoup their investment 440 with only a 4-year PBP with an NPV of around three times that derived from the sale of 441 electricity to EVN. Moreover, the IRR is also higher for level 6 by using all the power generated 442 for domestic consumption than for all the other levels.

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The consumption-based level of the retail price of electricity in Vietnam, therefore, benefits 444 those who install rooftop solar systems and use higher levels of electricity since they will derive 445 better economic efficiency from such a system, especially, when the system generates more than 446 400 kWh electricity per month. However, if consumers who depend on the grid for electricity 447 consumption use more electricity in the hot season, this will threaten the safety of the electricity 448 sector. According to EVN (2018)

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Finally, a survey relating to customers' intention to install SG rooftop solar systems was 470 conducted as mention in the methodology section. Out of the 300 households who responded, 471 99 (33 %) wanted to install a rooftop system, whereas 201 households (67 %) did not want to do 472 so for various reasons, for example, they could not afford the capital cost of installing such a 473 system. All 300 households consume electricity at level 2 to level 6, in which, a total of 68.7% 474 belonging to level 3 and level 4. As the analysis of this paper, people can get more benefits from 475 SG rooftop solar electricity with a high level of electricity consumption (level 3 to level 6). The 476 customer used electricity as levels 5 and 6 are also high that occupied 10.3% and 4.7% 477 respectively (Table 9). This report is meaningful if the incentive of government applied to the 478 right customer and help them used alternative energy resource, reduce power shortage in the hot 479 season and guarantee the national energy security. All of the respondents agreed that they would 480 be willing to install SG rooftop PV and would encourage other people to do so if there were 481 suitable support from the government, and recommended the forms of support set out in Table 9.

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The largest group of households (39.3%) suggested that 30 % of the initial costs should be 483 provided by the government, with 27 % of suggesting that the government should arrange 484 finance through preferential loans from commercial banks. Other methods of encouraging the 485 installation of SG rooftop PV suggested by the remainder included staggering initial payments 486 over a period of 3 to 5 years with interest being payable, supporting 50 % of the initial cost, or 487 providing better information about SG rooftop solar electricity systems.

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The authors' opinion about the Vietnamese Government subsidies would be based on the 538 opinion of people in the Central Highlands. Therefore, in the long term development of energy 539 in Vietnam, the Vietnamese government should consider those suggestions set out in Table 9 540 and adjust their policies to encourage people to install SG rooftop PV as an alternative power 541 resource to minimize the hazards to the electricity grid which result from high levels of 542 consumption in the hot season in Vietnam.

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The differential level of the retail electricity price renders higher levels of electricity 556 consumption proportionately more expensive than lower levels. However, if people install SG 557 rooftop PV to satisfy higher levels of electricity consumption, they will derive more benefit from 558 the power output of the system. In particular, when people's electricity load is at level 6 (401 to 559 500kWh), and they install an SG rooftop PV, they will enjoy free electricity after 4 years of 560 installation.