Three economic metrics were calculated for PEMFC systems using the above data: the payback period, the Internal Rate of Return (IRR), and the cost per tonne of mitigating CO2 emissions (the carbon cost).
In order to calculate these metrics, the total cost of ownership had to be calculated. This was not a straightforward process of subtracting the annual savings from the upfront price, as multiple sources of expenditure and revenue must be considered, as in Figure 8.1:
The initial (and significant) price paid for the fuel cell micro-CHP system, including all auxiliary components and installation costs;
Additional periodic costs, such as the replacement of short-lived components (notably the stack), annual maintenance and repairs;
Avoided costs from purchasing the fuel cell system, i.e. the purchase and maintenance of the reference heating system;
Revenue in the form of savings on energy bills, which will change over the lifetime of the system due to changes in energy prices and the time-value of money.
Figure 8.1: Example of the income and expenses from operating a fuel cell micro-CHP system over its total lifetime.
8.2.2.1. Economic Lifetime
The lifetimes of fuel cell stacks are currently lower than those of the other components of a micro-CHP system. Manufacturers are therefore expected to replace the stack (in addition to filters and other minor components) periodically during the 10-15 year lifetime of the system, as this is obviously more economical than retiring the entire system after just 5 years. The economic lifetime was taken to be that of the complete system, and so the cost of purchasing these replacement stacks had to be considered.
-£16,000 -£14,000 -£12,000 -£10,000 -£8,000 -£6,000 -£4,000 -£2,000 £0 £2,000 £4,000 0 1 2 3 4 5 6 7 8 9 10 11 12 A nn ua l i nc om e a nd e xpe nd it ur e (und is cou nt e d) Year
Revenue from energy generation Avoided costs from purchase Other system costs
The stack was assumed to contribute 15% of the total installed system costs based on the manufacturers’ cost estimate given in Figure 7.1.121 Using the example given in Figure 8.1 of a 4 year stack life and 12 year system life, the overall cost to the customer would be 30% higher than the initial system price, assuming that two replacement stacks were initially purchased together with the main system.
A more realistic situation would be to consider that replacement stacks are bought at a later time than the initial purchase, as and when they are required. This complicates the calculation, as these future costs will be lower in real terms due to the additional experience gained by manufacturers, and then must be discounted to reflect the time-value of money.122
From the data presented in Section 7.4, overall system prices are projected to decrease by an average of 9-10% per year over the next decade. Assuming that stack prices fall at the same rate as was estimated for whole systems, the first stack replacement in year 4 would cost 65-70% of the initial stack price, and the second replacement in year 8 would cost 42-49%. Discounting at a 6% nominal rate would lower the amount of money initially required to fund these two replacements by a further 13% and 24% respectively; meaning that the present value of these stack replacements would be 14% that of the whole system – as opposed to 30% if they were purchased initially.
More generally, the cost of additional stacks was calculated as the present value of a growing annuity as in Equation 8.1.[321] The total investment could therefore be calculated by adding the present value (PV) of stack replacements to the initial price of the CHP system.
(8.1) Where:
R = the periodic payment to be made – the initial price of the fuel cell stack
i = discount rate over the period between stack replacements . The nominal discount rate was taken as 6%, and 90.5% was the relative cost of the stack after one year of experience gained.
121 This gave an estimated stack cost of €2,400, equal to 17% of the main generator costs. This share falls slightly when the cost of a boiler, tank and installation are included.
122 The money for purchasing replacement stacks will not be needed immediately, and so interest (e.g. for a loan, or lost earnings on savings) will not have to be paid during the earlier years of operation.
n = number of stack replacements, calculated from the relative lifetimes of the fuel cell stack
and the system as One is subtracted as the initial stack has already
been paid for.
g = growth rate in prices between stack replacements , where 2.5% is the assumed annual rate of inflation.
***
Sellers in Japan have recognised that current prices are out of the reach of most consumers, and the prospect of regular and expensive component replacements would further dissuade them from making a purchase. Tokyo Gas therefore offers ENE-FARM systems on a fixed price lease of ~£135 per month over a period of ten years.[80, 322] This price allows customers to “use the system without any limits on generation hours or cycles”, and covers the cost of any maintenance and stack replacements required during the ten years.
It is not clear whether the upfront sale price also includes the cost of these replacements. The following analysis of PEMFC therefore considered this cost selectively, presenting results both with and without stack replacement costs. In both cases, it was assumed that the stack and system would have no salvage value at the end of their lifetime.123
8.2.2.2. Marginal Price
By purchasing a complete micro-CHP system with auxiliary boiler and heat store there would be no need for a traditional heating system, and so the cost of purchasing and installing the reference heating system (a condensing boiler) would be avoided. The value of this displaced purchase was therefore subtracted from the upfront price of the fuel cell system to give the marginal, or incremental price.
The installed cost of this boiler was assumed to be £1,500±250 for a new-build house.[19, 324] Regulations from both government and boiler manufacturers require that upgrades are made to the gas, electricity and heat distribution systems in older houses, increasing the fully installed cost by around £750. It is fair to assume that if these older properties fall short of the standards required by a condensing boiler, the same upgrades would have to be made when installing fuel
123 It could be argued that these systems will have a scrap value due to their precious metal content; however one can only speculate whether this would be paid to the owner on disposing of their fuel cell system.[323]
cell micro-CHP. It was assumed that this would increase the cost of installing a fuel cell by the same amount, leaving the marginal cost unchanged.
The lifetime of the condensing boiler was taken to be 10-15 years, the same as that of the non- stack components of the micro-CHP system.[19] Operation of the micro-CHP system over its economic lifetime was therefore assumed to displace the entire utility gained from the condensing boiler, and so depreciation over its lifetime did not need to be considered.
The marginal price of a PEMFC system is shown in Figure 8.2, calculated with the current and projected sale prices given in Table 8.1. The reference year given with the projected costs is purely indicative of when such prices can be expected, and the same reference system was considered in each case.
Figure 8.2: Marginal prices of a 1kW PEMFC micro-CHP system installed in place of a condensing boiler. The unmodified upfront cost of the fuel cell system was used in the left hand figure, while the present value of stack replacements
(assuming current lifetimes of 2.5 years) were factored into the right hand figure.
The incremental cost of installing a fuel cell is currently very high; however this could halve over the next five years if no changes to the incumbent heating technology are realised in that time. Accounting for future stack replacements increases this incremental cost slightly, adding 10- 20% to the overall price with 5 year lifetimes (as in the example given in the previous section), or by 20-40% with current lifetimes (as in Figure 8.2).
8.2.2.3. Factors Affecting the Revenue Stream
Revenue from operating the fuel cell was taken to be the savings made on energy bills relative to the reference scenario, including subsidies and payments for electricity generation and export.
£0 £2,000 £4,000 £6,000 £8,000 £10,000 £12,000 £14,000 £16,000 £18,000 £20,000 2009 2015 2020 2025 M ar gi na l pr ic e of t he f ue l c e ll ov e r e conom ic l if e ti m e Reference year 85-95% 75-85% 65-75% 55-65% 45-55% 35-45% 25-35% 15-25% 5-15% £14,132 £7,129 £4,475 £2,899
Average marginal price
£0 £2,000 £4,000 £6,000 £8,000 £10,000 £12,000 £14,000 £16,000 £18,000 £20,000 2009 2015 2020 2025 M ar gi na l pr ic e of t he f ue l c e ll ov e r e conom ic l if e ti m e Reference year £18,204 £9,378 £5,877 £4,082
There is the possibility that other costs incurred by the reference system could be avoided, particularly those for servicing and maintenance. ENE-FARM systems require servicing every two years,[81] and it was assumed that an annual gas safety check would also be recommended. This would give a maintenance regime similar to that for a condensing gas boiler in the UK, and as no firm estimates could be made for the cost of such maintenance on emerging fuel cell technologies, it was assumed that they would be equal to the cost of maintaining the reference heating system, giving no net change.
Changing energy prices and the effect of discounting would both impact on the value of the savings made over the fuel cell’s operating life. The choices and assumptions made in these areas tend to dominate the results of economic assessments made over long time-scales. These impacts were not as decisive as in other studies of microgeneration due to the relatively short economic lifetime considered (10-15 years cf. 30+ years for solar PV).
A discount rate of 6% was used in the central analysis to reflect the cost of borrowing to social investors such as the government. Other potential investors such as energy supply companies (ESCOs) and individual households would assess the economic viability of fuel cells with higher discount rates due to their preference for higher returns and aversion to large capital expenditure.[25] It is too early to predict what business model will take hold in the UK and whether private, social or corporate investors will drive sales of microgeneration, so it is impossible to speculate on a specific discount rate that is appropriate for this type of analysis. The choice of 6% was a conservative one that would give the best-case scenario, as government are ideally placed to make long-term investment decisions because of their access to low cost capital. The impact of using higher discount rates was investigated as part of the IRR calculation in Section 8.3.2.
Energy prices were assumed to rise in line with inflation (2.5% per annum), and the feed-in tariff was assumed to remain constant over time. Energy prices in the UK have shown high volatility over the past decade, highlighting the difficulty in accurately projecting prices forwards over the next 10-15 years. Future projections by different organisations provide conflicting views of future prices (e.g. [325, 326]), and so no solid conclusions could be drawn. Growth rates in energy prices were varied by 10% around this central value to assess their impact, however for the majority of the analysis the value of the feed-in tariff was varied to show the impact that different levels of government support would have for fuel cell micro-CHP.