IEEE TRANSACTIONS ON INDUSTRY APPLICATIONS, VOL. 37, NO.

1, JANUARY/FEBRUARY 2001 171

Economic Analysis for Demand-Side Hybrid

Photovoltaic and Battery Energy Storage System
Wei-Fu Su, Shyh-Jier Huang, Member, IEEE, and Chin-E. Lin, Senior Member, IEEE

Abstract—This paper examines the cost analysis of a hybrid

photovoltaic and battery energy storage system (PV-BESS) for de-
mand-side applications in southern Taiwan, R.O.C. The forms of
input data and output data for three different investment plans
are proposed and discussed. A sensitivity analysis to understand
those affecting parameters to the investment is also investigated.
The analysis results can support the users with a tradeoff among
economic, operational and environmental factors. This paper es-
tablishes a potential and practical tool for cost analysis of most en-
ergy conversion applications.
Index Terms—Battery energy storage system, demand-side man-
agement, economic and sensitivity analysis, photovoltaic system.

I. INTRODUCTION

B ECAUSE of global environmental concerns and in-

creasing energy demands, more attention is being
concentrated on the renewable energy technologies. Compared
Fig. 1. Proposed PV-BESS configuration.

mand from daily peaks to daily lows. In addition, a BESS is

to the traditional energy resources, the photovoltaic (PV)
system, which converts sunlight into electric power, releases
no pollutants for environmental concern. Because there is no
negative impact to the global environment, the PV system
becomes an emerging technology that gives promise as a future
energy resource in tropical areas [1]–[4].
Recently, due to the rapid demand growth, the difference be-
tween daily peaks and daily lows in Taiwan’s power system has
increased drastically. Nevertheless, the development of power
plants is being deferred because of the environmental protection
concerns and the right of land use. Power shortages resulting
in interruptions became nightmares which occurred year after
year. Taiwan is located on the north tropical area and is rich in
solar energy for all seasons; the utilization of PV power should
be helpful to release the pressure arising from the summer daily
peaks. However, major disadvantages in using PV still exist, in-
cluding high installation cost and low energy conversion effi-
ciency. In order to enhance the cost effectiveness, the improve-
ment to the PV energy conversion is deemed precious.
With the advent of the battery energy storage system (BESS),
its usefulness has been demonstrated in energy conversion ap-
plications [5]–[8]. A BESS is capable of shifting system de-
Paper ICPSD 99–40, presented at the 1999 Industry Applications Society An-
nual Meeting, Phoenix, AZ, October 3–7, and approved for publication in the
IEEE TRANSACTIONS ON INDUSTRY APPLICATIONS by the Energy Systems Com-
mittee of the IEEE Industry Applications Society. Manuscript submitted for re-
view October 15, 1999 and released for publication September 19, 2000. This
work was supported by the National Science Council, Taiwan, R.O.C., under
Research Project NSC86-2213-E-006-021.
The authors are with the Department of Electrical Engineering, Na-
tional Cheng Kung University, Tainan, Taiwan 701, R.O.C. (e-mail:
chinelin@mail.ncku.edu.tw).
Publisher Item Identifier S 0093-9994(01)00888-X.
0093–9994/01$10.00 © 2001 IEEE
especially adequate for all fast-response requirements for power
system dynamics. For a demand-side application, a BESS can
be operated under real and reactive power control and harmonic
compensation [9], [10]. From an overall evaluation of energy
benefit, the BESS application will be effective to ease the elec-
tricity demand growth and daily peaks. Due to the aforemen-
tioned advantages, a hybrid of a PV and a BESS system has
been designed and installed in southern Taiwan [11] for demon-
stration and study. The user’s response shows that the system
operational performance is satisfactory. Therefore, a research
project is supported by Taiwan Power Company to further study
the economical value of the broader investment of such a hybrid
system. This project motivated the cost analysis of the hybrid
PV-BESS.
In the paper, a low-cost simplified controlled utility inter-
face for demand-side PV-BESS is introduced, including the cost
analysis of three investment plans. A sensitivity analysis is used
to investigate the effects of some key parameters. Analysis re-
sults conclude that the proposed hybrid system can achieve the
cost effectiveness requirements. In comparing the energy sup-
plied by a stand-alone system with that supplied by a utility grid
extension, the critical factors, including power quality, protec-
tion, reliability, and security, should be all included in the cost
evaluation. However, these issues are beyond the scope of this
paper.
II. SYSTEM DESCRIPTION
Fig. 1 shows the circuit configuration of the proposed hybrid
energy system of PV and battery. This configuration consists of
a PV array, boost chopper with maximum power point tracking,
battery bank, and bilateral ac/dc converter. In the photovoltaic

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 172 IEEE TRANSACTIONS ON INDUSTRY APPLICATIONS, VOL. 37, NO. 1, JANUARY/FEBRUARY 2001

system, a solar cell array is used to collect solar energy during

the daily solar-favorable period, and a battery bank is used for
energy storage to shift midnight excessive power to compen-
sate for daily peaks. The operational procedures of this hybrid
system are as follows.
1) The BESS is charged at midnight.
2) Both PV and BESS are operated in full real-power control
around the daily peak demand (near noon),
3) The PV operates from about 9:00 a.m. to 4:00 p.m.,
4) During off-peak daytime, the PV-BESS system can play a
backup power as an uninterruptible power supply (UPS),
an active filter, or a voltage stabilizer to improve system
performance. Meanwhile, the PV can charge the BESS
during this period.
The magnitude of the difference between the actual PV array (a)
power and the rated PV array power determines the efficiency
of the generation facility. A mismatch between these two terms
may be attributed to the lower insolation level and higher cell
temperatures. Several methods for tracking maximum power
point have been proposed [1]–[4], [12]–[14]. One useful ap-
proach first gets the related array temperature and insolation
level by measuring the array open-circuit voltage. The reference
voltage is then tuned to be a fixed fraction of the open-circuit
voltage.
By this design, the tracking of the maximum power point over
insolation and temperature variations was reported to achieve
the performance. Another feasible scheme is used to sample the
array voltage and array current alternately. Meanwhile, the duty
cycle is varied linearly so that the array voltage can be steered
toward the maximum power point.
In this paper, we calculate the actual maximum power point
rather than estimate from measurements of other quantities. By (b)
this method, it needs to measure the array output power; how- Fig. 2. Experimental results of the chopper.
ever, the information on array characteristics is not a prerequi-
site. Control operations can, thus, be employed, even without
testing the array beforehand. To complete this system, the Intel array output voltage . These results help solidify the feasi-
8751 chip is implemented and the assembly language is installed bility of the proposed system.
to activate this microprocessor. In Fig. 3, the experimental results of inverter output are also
Concerning harmonic correction in the proposed system, an plotted. From the figure, the line current is sinusoidal and in
output filter is also installed in the system as shown in Fig. 1. phase with the utility voltage. The overall system is completely
The RLC filter, containing , , and , is designed in this implemented and tested in our laboratory. The experiment re-
system. From this figure, the current-mode control is applied in sults are referred to in [11].
the inverter to work as an equivalent current source. Hence, the
current source can feed power into utility. and represent
III. COST ANALYSIS
utility resistors and inductors, respectively. Note that inductor
and capacitor can be deemed as a typical resonant circuit The cost analysis is employed to investigate the economic
for certain frequencies depending upon the source impedance value of the PV-BESS system. For customers with power in-
and filter characteristics. In other words, a higher magnitude re- terruption concerns, the UPS option can be extended from the
sponse at certain frequencies may take place in this circuit. The proposed PV-BESS with attraction. In the paper, an evaluation
larger inductor value has a serious inclination to cause low-fre- method is formulated to ensure all economic factors are con-
quency oscillation. Special attention should, therefore, be paid sidered. To study the economic benefits, three plans regarding
to this circuit design. the PV and/or BESS investment are examined. Plan-A operates
Fig. 2 shows the experimental results of the boost chopper. the BESS alone; Plan-B emulates the PV coupled with a battery
Fig. 2(a) shows the dynamic performance of PV array output bank for emergency power; Plan-C evaluates the complete pro-
power with respect to the array voltage under various con- posal of PV-BESS. The data input and the data output for the
ditions. Fig. 2(b) shows the relationships between the PV array cost analysis of the proposed PV-BESS are discussed, and case
output power , the PV array output current , and the PV studies to assess different investments are discussed.

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 SU et al.: DEMAND-SIDE HYBRID PHOTOVOLTAIC AND BATTERY ENERGY STORAGE SYSTEM
Fig. 3. Experimental results of inverter output.
A. Data Input
Table I shows the input data for the cost analysis of the
PV-BESS. In the table, the input data are separated into five
categories, including load data, utility data, PV array data
and battery data, specific cost, and escalation factor. The load
data, utility data, and escalation factor can be supplied from
the utility or the customer; while the PV array data, battery
data and the specific cost data are acquired from commercial
equipment supplier [9].
For the load data of Table I, the charge–discharge cycles are
given for PV operation per month, and its monthly peak shaved
reduction is given in kilowatts. The energy per discharge is
termed as electric energy in kilowatthours by battery bank,
which varies monthly to account for seasonal changes. In
addition to the above terms, the actual discharge duration in
the table is given for the elapsed time in hours between the
beginning and the end of an average discharge cycle. The
initial and final power factors are also listed individually by
power-factor compensation.
For the utility data of Table I, the on/off peak demand charges
and on/half/off peak energy charges are all summarized. To an-
alyze the system cost, customers can first specify their on-peak
and off-peak demand charge rate and energy charge rate. Since
the difference in utility bills arising mainly from the use of a
load-shifting battery in the system, the customer’s load profile
and his utility’s tariff structure must be studied carefully in order
to obtain the correct values of demand charge and energy charge.
Now, the PV array and battery bank data of Table I are used to
represent physical characteristics of the PV-BESS. The max-
imum peak shaved stands for the largest demand reduction per
month. The PV array capacity is the ratio of the PV maximum
output to the largest PV efficiency. In our study, the largest PV
efficiency of 0.63 is observed from one-year’s operating experi-
ence. In the table, the PV average output power is 0.43 p.u. This
is followed by the data of battery capacity that is also the ratio of
the largest energy discharge per month to the one-way converter
efficiency. The remaining parameters are followed. The min-
imum discharge duration is the smallest discharge duration per
month. The salvage value is a battery salvage value expressed
as a fraction of battery replacement costs. The round trip energy
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173
efficiency is the product of the battery efficiency and the square
of the one-way converter efficiency.
Similar to the PV array and battery data, some of the capital
and operating cost data can easily be acquired while the rest of
them must be calculated. For the capital and operating cost data
set of Table I, the inputs are the specific operating and mainte-
nance (O&M) costs and auxiliary power requirements per cycle.
The specific O&M costs are annual costs of labor and supplies
in dollars per kilowatthour, and the auxiliary power is for venti-
lation and lighting during one charge–discharge cycle.
The last category of Table I includes the escalation factors
to be supplied by utilities or customers. Among these factors,
the demand charge and energy charge escalation rates can be
obtained from utilities, while the capital and O&M escalation
rates are provided from customers.
B. Data Output
The output results are obtained and summarized in Table II in
order to forecast the savings and costs of the PV-BESS. The sav-
ings generated by a PV-BESS include four terms. The demand
charge saving (DCS), also the most important savings compo-
nent, is calculated from the following equation:
Peak shaved
On-peak demand charge
Off-peak demand charge
Escalation factor
Capacity factor (1)
where the escalation factor stands for the compound growth
factor at the demand charge, the capacity factor the adjusted
saving of a partial year’s operation in the first year, and the
index of each month. The annual energy charge saving (ECS)
can be also computed based on monthly load and tariff data
Energy per discharge
Cycles per month
On-peak energy charge
Off-peak energy charge
Round-trip efficiency
Escalation factor
Capacity factor (2)
where the escalation factor represents the compound growth
factor at the energy charge. The energy charge is expressed
in dollars per kilowatthour. Note that when the utility comes
without the time-of-day energy price, the energy charge savings
will be negative. In the equation, small positive savings result
in under time-of-day rates when off-peak energy charges are
low enough to offset losses that may be caused by the battery’s
round-trip energy efficiency.
In Table II, the power-factor refunds are calculated based
on the monthly energy fare that is determined when the
 174 IEEE TRANSACTIONS ON INDUSTRY APPLICATIONS, VOL. 37, NO. 1, JANUARY/FEBRUARY 2001

TABLE I
PV-BESS EVALUATION DATA

TABLE II
OUTPUT DATA FORMS
demand/charge saving, and regulation factor are not included.
The battery salvage savings is the net value when each battery
is replaced. In addition to these savings, Table II also tabulates
the expense categories that consists of the O&M costs and
auxiliary power costs. The O&M costs are the product of the
first-to-seventh-year specific O&M cost and the battery system
capacity, and then escalated through the year of expenditure at
the O&M escalation rate. Similarly, the auxiliary power costs
are the product of the auxiliary power requirement, the battery
system capacity, the number of cycles per year, and the off-peak
energy charge in the first year. This multiplication result is then
escalated through the year of expenditure at the energy charge
escalation rate.
By the above calculations for savings and expenses, the net
income can easily be obtained. Starting from the net income, the
annual net cash flow is then evaluated by subtracting from the
capital costs (the sum of PV array costs, battery costs, converter
costs, and balance-of-plant costs). Note that each capital invest-
ment is the product of the individual first-year specific cost and
battery capacity value. The cumulative net cash flow is hence
the cumulative sum of net cash flow values. This value is bene-
ficial for estimating the PV-BESS payback period, where each
period is the time required for the cumulative cash flow to be-
come positive.
In Table II, at the bottom, are the net present values of
two different interest rates and the internal rate of return. The
year-by-year internal rate of return is the discount rate that
yields a zero net present value for the net cash flow for a year.
The return of investment for the last operating year is the battery
system’s overall internal rate of return. The year-by-year rate
of return and the net present value are useful for assessing the
inherent risks in BESS. By these values, we can understand

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 SU et al.: DEMAND-SIDE HYBRID PHOTOVOLTAIC AND BATTERY ENERGY STORAGE SYSTEM
Fig. 4. One-line diagram of case study system.
what would happen if the system is abandoned with no residual
value at the end of the year, either a shutdown or a significant
utility rate changes. The annual present value results can also
be applied to estimate the BESS discounted payback period.
Conclusively, features of the cost analysis are threefold:
1) to study of utility rate structures in order to determine the
billing method, the effects of time-of-day and/or seasonal
rates, and the appropriate rate category for the customer;
2) the postulation of an operating scenario for the PV-BESS
for demand side based on an available profile and the
utility rate structures;
3) the study of PV-BESS sizes to determine other system
parameters based on available profile, including peak
shaving, discharge duration, and the expected monthly
cycles.
C. Case Studies
Three cases are studied using the proposed cost analysis
method. Data input for this model is prepared individually
according to the above procedure. The test is performed for
each case and a cash flow report is generated.
In the case studies, the cost analysis is used to evaluate a
PV-BESS installed at a company located in southern Taiwan.
At this site, the installed capacity is 555.5 kVA, with 200 kVA
for lights, 225 kVA for air conditioners, and 130.5 kVA for mo-
tors. In addition, the emergency generators are 150 kVA plus a
50-kVA UPS. The contract capacity is 400 kW. Fig. 4 depicts a
one-line diagram of this test site, where various types of loads
are marked. Fig. 5 is an average daily demand profile, which
is recorded for a week. The total utility charge in one year is
about NT$1 800 000 (35 NT$ 1 US$). For reliability reason,
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175
Fig. 5. Customer demand profile.
TABLE III
RESULTS OF THE ECONOMIC ANALYSIS
a 50-kW UPS to backup the load for 15 min with a 30-kWh bat-
tery is deemed necessary for this customer, even if the BESS is
not installed. The 50-kVA UPS is estimated at NT$800 000.
Now, from the available profile of Fig. 5, a 50-kW
(ac)/100-kWh (dc) BESS in Plan-A is considered. Analysis
results indicate that the before-tax internal rate of return (IRR)
is 6.7% and the payback period is 14.3 years.] If the minimum
attractive rate of return (MARR) is set at 10%, this investment
will not be deemed economical.
In Plan-B, a 50-kW (ac)/80-kW(dc) PV and battery banks are
taken into account. Analysis results indicate that the before-tax
internal rate of return is 0.5% and the payback period is infi-
nite.
For Plan-C, a 100-kW(ac)/100-kWh (dc)/80-kW (dc)
PV-BESS is considered. Analysis results revealed that the
before-tax internal rate of return is 1.3% and the payback
period is 22 years. Table III summarizes the above results
obtained from three plans.
IV. SENSITIVITY ANALYSIS
The above assessment can further be employed for per-
forming the sensitivity analysis to understand the effects of
varying parameters to the investment return. Table IV lists
those key parameters used in the economic sensitivity analysis
based on the battery with 2000 life cycles. The parameters
are divided into three areas: power system, financial factor,
and PV-BESS system. The sensitivity variation studied in this
paper presents the change in the base IRR and PV array life
cycle without including other credits.
The sensitivity analysis can help to understand the impact of
power system parameter variations on the investment decisions.
It is also worthy of noting that the economy of a PV-BESS may
 176 IEEE TRANSACTIONS ON INDUSTRY APPLICATIONS, VOL. 37, NO. 1, JANUARY/FEBRUARY 2001
TABLE IV
SUMMARY OF THE SENSITIVITY ANALYSIS RESULTS
also be affected by influences from world economy or energy
politics, but these not considered in the scope of this paper.
Results from the sensitivity analysis show that the major crit-
ical equipment costs are PV array cost and battery cost, and the
key nonequipment factors are utility demand charge and O&M
cost escalation.
V. CONCLUSIONS
In this paper, the cost analysis for demand-side hybrid
PV-BESS systems was proposed. By the method, it examined
the economical value of the proposed system and, thus, high-
lights the capability and performance regarding the investment
for a PV-BESS. From the analysis results, some conclusions
can be drawn.
1) The economic viability is very site specific, which
depends upon a favorable combination of profile shape,
utility rate, system size, and application option.
2) The major equipment costs are found to be PV array and
battery. The key nonequipment factors are utility demand
charge and O&M cost escalation.
3) For a customer who would need a UPS in their operation,
the option of expanding the UPS into a PV-BESS seems
attractive.
4) Based on discussions with utility engineers and wholesale
customers, the PV array cost may need to be further re-
duced down to around US$800/kW for economic attrac-
tiveness.
ACKNOWLEDGMENT
The authors are grateful for the technical suggestions from
Taiwan Power Company.
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 SU et al.: DEMAND-SIDE HYBRID PHOTOVOLTAIC AND BATTERY ENERGY STORAGE SYSTEM 177

Wei-Fu Su was born in Yun-Lin, Taiwan, R.O.C., Chin-E Lin (S’82–M’83–SM’89) is a Professor in
in 1965. He received the B.S.E.E. degree in 1990 the Department of Aeronautics and Astronautics,
from National Taiwan Institute of Technology, National Cheng Kung University, Tainan, Taiwan,
Taipei, Taiwan, R.O.C., and the M.S.E.E. degree R.O.C.
in 1992 from National Cheng Kung University,
Tainan, Taiwan, R.O.C., where he is currently
working toward the Ph.D. degree in the Department
of Electrical Engineering.
His major interests are power systems, power elec-
tronics, and harmonics analysis.

Shyh-Jier Huang (M’95) was born in Tainan,

Taiwan, R.O.C., in 1963. He received the B.S.E.E.
and M.S.E.E. degrees from National Cheng Kung
University, Tainan, Taiwan, R.O.C., and the Ph.D.
degree from the University of Washington, Seattle,
in 1987, 1989, and 1994, respectively.
He is currently with the Electrical Engineering De-
partment, National Cheng Kung University. His main
areas of interests are industry control, energy conver-
sion, and neural network applications.
Dr. Huang is a member of the IEEE PES, IEEE
PELS, and IEEE IES.

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