ABSTRACT
This chapter describes steps involved in conducting a cost–benefit analysis. It also provides several examples of problems where it could be used. A detailed cost–benefit analysis problem of determining economic feasibility of installing solar photovoltaic electric power generation systems in average-sized homes in Detroit and Phoenix is presented. Two spreadsheets were constructed, one for each city, to compute costs and benefits associated with the solar photovoltaic system over a 25-year period. The costs involved (a) annual payments to cover purchase and installation of a 12 kW solar photovoltaic system financed over 25 years, (b) operating and maintenance costs, and (c) insurance costs. The benefits involved (a) avoided cost of electricity, (b) credits received for excess generated electricity sold to the utility company, and (c) rebates and tax benefits (e.g., Solar Renewable Energy Credits). The present values of total annual costs and revenues were computed for each year. The present values of costs and benefits were summed over the 25 years, and benefits-minus-costs and benefit-to-cost ratios were calculated. The analysis showed that installation and use of the 12 kW solar photovoltaic system were not profitable for Detroit, but it was profitable for Phoenix. Additional considerations such as risk and uncertainties involved in conducting the cost–benefit analysis are also discussed.
