Renewable energy resources as an alternative to modify the load curve in Northern Cyprus

Energy 30 (2005) 555–572 www.elsevier.com/locate/energy

Renewable energy resources as an alternative to modify the load curve in Northern Cyprus M. Ilkana,*, E. Erdilb, F. Egeliogluc a

Department of Electrical and Electronics Engineering, School of Computing and Technology, Eastern Mediterranean University, Magosa, Mersin 10, Turkey b Department of Electrical and Electronics Engineering, Eastern Mediterranean University, Magosa, Mersin 10, Turkey c Department of Mechanical Engineering, Eastern Mediterranean University, Magosa, Mersin 10, Turkey Received 26 April 2004

Abstract The average annual increase in electricity consumption and peak demand in Northern Cyprus (N. Cyprus) during the past 20 years have been 7.1 and 5.5%, respectively. In recent years, the demand for electricity has been stretched to its limits in winter. This raised the question of whether renewable energy resources could be utilized to reduce the level of peak demand. Indeed, Cyprus being a Mediterranean island, enjoys an abundance of solar energy, and preliminary studies showed that a considerable potential of wind energy is also available. Utilization of renewable energy for space heating, water heating, pumping and power generation would increase electrical reserve margins, raise system load factor, improve load following capabilities, and reduce the need for capacity expansion. Currently, solar water heating which leads to a saving of at least 72 GWh energy per annum and a significant reduction in CO2 emission has been extensively used in N. Cyprus. In N. Cyprus, despite the availability of renewable energy resources constructing renewable base-load, electrical power stations has not been found feasible. However, constructing such systems is recommended for two reasons: firstly, as a supplement to saving fuel and secondly, expanding capacity. In this context, the economic analysis for both solar and wind energy systems, has shown a reasonable internal rate of return (IRR). Although, the IRR is higher for wind energy systems, the availability of wind is limited to a few locations and therefore energy distribution is required. q 2004 Elsevier Ltd. All rights reserved.

* Corresponding author. Fax: C90-392-365-1574. E-mail address: [email protected] (M. Ilkan). 0360-5442/$ - see front matter q 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.energy.2004.04.059

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1. Introduction Cyprus, the third largest island in the Mediterranean, is located at 358N of the Equator and 338E of Greenwich. Northern Cyprus (N. Cyprus) has an area of 3354 km2 and a population of about 200,000. The typical Mediterranean climate, which is characterized by hot, dry summers and mild winters, prevails. The average temperatures during summer and winter seasons are about 28 and 11 8C, respectively. The island has no oil or gas reserves, and it is entirely dependent on imported energy, mainly in the form of oil and petroleum products. The local state-run utility company, Cyprus Turkish Electricity Authority (KIB-TEK) generates, distributes and sells power to all sectors. Total generation capacity of KIB-TEK is 175 MW. The company has 2!60 MW fuel oil fired steam power plants, and three obsolete gas turbines having poor reliability, availability and efficiency. The gas turbines use expensive diesel fuel (i.e. fuel oil no. 2) and have very low cycle efficiencies especially at low loads. N. Cyprus has no stringent rules and regulations enforcing energy systems to be designed as environment friendly. KIB-TEK has financial difficulties and thus utilizes high sulfur content (i.e. 3.5% sulfur content by weight) cheap fuel oil no. 6 to generate power. Imposing environmental restriction and forcing to burn low sulfur content, expensive fuel oil increases generation costs and may put KIB-TEK into serious financial difficulties. In recent years, during winter, the demand for electricity (e.g. the demand was above 120 MVA between 9:00 and 21:30 h on 17th January, 2002) was at its peak, and it stretched the electricity system of the N. Cyprus to its limits. A private company is called to install 2!17.5 MW capacity fuel oil fired diesel power plants to solve this problem and meet the financial requirements of the additional power demand. These plants have been generating power since September 2003 and alleviated the need to use the uneconomic old gas turbines. The mission of the KIB-TEK is simply to supply electricity for consumer demand. It does not have any ability to control the electricity consumption profile. Having control only over the supply-side management, puts an unjust pressure on KIB-TEK by customers who often call for further increase in the capacity, which is not only costly but also has a long lead-time. It is well known that rising costs, high rate load growth and low return on investment are the main factors that adversely affect electric utilities of developing countries. Even a glance at KIB-TEK statistics indicates a need for serious considerations regarding the uncertain load growth, rising cost of fuel, high cost of new capacity and environmental constraints. Cyprus enjoys an abundance of solar energy with an average global solar radiation being 5.4 kW/m2 per day, on a horizontal surface [1]. Preliminary studies point at the availability of some potential for utilizing wind energy as well [2,3]. Small islands with very big utilization of renewable energy for power generation are mainly utilizing hydropower [4]. In N. Cyprus, we do not have any streams or rivers, so hydropower generation is not suitable for N. Cyprus. On the other hand, biomass requires extensive analysis and feasibility studies. Biomass is not used extensively on small islands for power generation. There are very few small islands that use biomass for power generation such as Guadeloupe and Hawaii [4]. Solar and wind offer a variety of renewable options that can be harnessed on the island. Utilization of renewable energy for space heating, water heating, pumping and power generation can increase electrical reserve margins, raise the system load factor, improve load following capabilities, and reduce the need for capacity expansion. In addition, using renewable energy sources provide a clear

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opportunity for CO2, CO, nitrogen oxide (NOx), sulfur oxide (SOx), particulate matter and volatile organic compounds reduction in power generation. Generally, economic considerations play an important role in power generation system design and decisions. Designing a technically safe and sound system forms only a part of the designer’s task. Equally important are the economical and environmental considerations. For many small islands, expensive and environmentally problematic fossil fuels are still the only energy sources utilized for power generation. The main objective of this study is, therefore, to make economic evaluations for suitability of small size renewable energy systems in N. Cyprus. The expectation is that, utilizing such systems will not only provide incentive and encouragement for wider application of renewable energy systems but also supplement the base supply to help reduce the peak-load. In addition, the electrical energy demand, supply and consumption, and electrical energy demand projections for N. Cyprus up to year 2020 are analyzed and possibilities of using solar and wind energy systems to reshape the load curve are investigated.

2. Electricity demand and supply KIB-TEK continuously tracks the demand and supply of electrical energy in N. Cyprus. The historical annual growth rate in electricity consumption, between the years 1981 and 2001, was 7.1% [5]. Regarding the growth in the peak demand, the annual growth rate through the years 1992–2001 was 5.5% [5]. These high rates of increase may be attributed to rapid growth in the construction industry. A typical annual increase in energy demand of the industrialized countries is about 1.8%. In USA, this is about 1.7% whereas in the developing countries this figure is 3.6% [6]. N. Cyprus has a typical winter peak demand load curve, where the peak occurs at about 20:00 h. This is mainly dependent on the schedule of working hours in N. Cyprus. The peak demand during 1991– 2000 were 92- and 147-MVA, respectively [5]. Fig. 1 shows the winter peak demand for several years. Load forecasting is essential for effective and efficient planning. Both energy and demand forecasts are needed for planning future power generation requirements. Load forecasting methods are used to

Fig. 1. Typical winter load curves in Northern Cyprus.

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estimate energy consumption patterns and electricity demand. These forecasts have an important role in the demand and supply-side management such as in the process of selecting technologies that will be the most appropriate for expansion. For example, energy forecast alone does not provide enough data to decide whether the base-load or a peaking load power plant would be a more suitable choice. A demand forecast is needed in order to find out if the system has enough capacity to meet the instantaneous demand. When the future electricity demand is predicted, it is usually based on historical consumption patterns and the relationship of this consumption to other variables. The choice of load forecasting method depends on several factors such as time, money, availability of information, staff, etc. Three methods, which are widely used and accepted by administrative bodies are: simple time series, end-use and econometric methods [7]. Econometric and especially end-use methods require a lot of data that is expensive and difficult to collect. Simple time series method uses only historical patterns of demand or energy consumption to estimate the future demand or energy consumption. This method is simple and reasonably accurate. Further details of load forecasting methods can be found in Ref. [7]. For this reason, a simple regression method is used to develop linear trend models for annual electricity consumption and demand. Fig. 2 shows time plots of actual and projected annual electricity consumption between 1981 and 2002. Fig. 3 presents time plot of the actual and the projected annual peak demands. It is clear from Fig. 3 that there has been a continuous increase in the annual peak demand, with the possible exceptions in 1995 and 2001. Investigating the data for the years 1995 and 2001 revealed that in 1995 the rates increased by 220% causing consumers to use electricity more conservatively. Similarly, the decrease in annual peak demand in 2001 was due to economic crises that began at the end of 2000. Even after installation of 35 MW diesel plants, KIB-TEK will start to use the obsolete and expensive gas turbines in the year 2005 to meet the projected peak demand. It is clear from Fig. 3 that, by the year 2015, the capacity will not meet the peak demand assuming that there will be no capacity expansion and degradation in the power generation systems. During the next 12 years, it is essential that the capacity is

Fig. 2. Actual and projected annual energy consumption.

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Fig. 3. Actual and projected demand growth in N. Cyprus.

increased or incentives are created for energy savings. Atikol et al. [8] conducted surveys in residential sector and indicated that demand-side management measures (i.e. measures that can be taken on the customer’s side of the electric meter to change the amount or timing of electricity consumption) can reduce winter peak by approximately 53 MW at the expense of US$ 12 million. Peak demand is essentially formed by residential usage in N. Cyprus. Residential usage accounts for 34% of the total energy consumption. If 5% of residential sector adapt point-use (i.e. power generated and used at the same location) stand-alone renewable energy production system, this will lead to approximately 4% reduction in the peak demand (i.e. approximately 5 MW). A continuous capacity expansion at a rate of 5 MW per year will absorb the annual increase indicated in Fig. 3. Therefore, it is recommended that the capacity be increased at a rate of 5 MW per year to keep pace with the increase in the peak demand. It is obviously much preferable to have not only supply-side management but also demand-side management, such as promotion of compact fluorescent lamps, replacement of 3 kW immersion heaters by solar water heaters, etc. 2.1. Base demand and weather-sensitive demand The level of demand due to typical activities in a normal day is called the base demand. Base demand is independent of extreme weather conditions (i.e. very hot or cold) [7]. In order to calculate the base demand, a sample year is selected. Four months of the sample year in which the demand was the lowest are determined. The average base demand for the 4 months is determined by using the following equation P4 MWi (1) Average base demand Z i 4 where MWi is the ith lowest monthly demand of the sample year. The reason for choosing those particular 4 months showing the lowest demand is based on the fact that during those months, there is no space heating or cooling requirements and the demand is independent of the extreme weather

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conditions. For example, in N. Cyprus the months with lowest demand on the system are usually May, June, September and October. The base demand ratio (BDR) is determined by BDR Z

Average base demand Annual peak demand

(2)

Base demand for each year of the historical period is determined by the following equation Base demandt Z Peak demandt !BDR

(3)

where t is the time, and ‘base demandt’ and ‘peak demandt’ are the base demand and peak demand at that time, respectively. Weather-sensitive demand (WSD) is the demand that is influenced by the extreme weather conditions. WSD is the difference between the peak demand and the base demand. Extreme weather conditions exert additional demand on the system, especially in N. Cyprus where electric space heating and water heating are common. Historical base demand and WSD data are used to develop weather-sensitive and base demand models. Linear trend method is used to obtain these models. Plots in Fig. 4 show the base demand and WSD developed in this study. Further details on WSD and base demand can be found in Ref. [7]. It is clear from Fig. 4 that, in the year 2002, the current demand, consisting of the WSD component at 40 MW and the base demand component at 100 MW, already exceeds capacity of the fuel oil fired steam power plants at 120 MW and therefore, use of obsolete and inefficient gas turbines becomes inevitable. During the peak demand, the power factor was measured to be 0.96, indicating that the load was mostly resistive, e.g. lighting and electrical heating. The residential sector is responsible for the largest share of electricity consumption at about 34% of the total, where space and water heating are used extensively [5]. Promoting gas water heating and replacing electric water heaters with solar water heaters could reduce peak by 25 MW [8].

Fig. 4. Total demand, base demand and weather-sensitive demand (WSD).

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3. Solar energy systems Solar energy is abundant in N. Cyprus even during the winter season. In this section, the possibilities of utilizing solar energy are discussed. Fig. 5 shows the solar radiation and sunshine duration [9]. As a part of this study, technical and economic feasibility of using solar energy to produce electricity in N. Cyprus is also evaluated. Although, some methods of solar electricity generation are feasible, these are neither widely used today, nor the present technology is suitable for base-load power generation at a reasonable cost. Trieb et al. [10] presented specific investment costs for solar technologies. The specific investment cost of trough and central receiver type solar-thermal power plants varies between 2939– 4726 and 3458–5014 US$/kW, respectively [10]. These costs are estimated to be a few times higher than what is required to install a fossil fuel fired steam power plant of the same capacity. Since, solar radiation is not always available, storage in several thermal systems is required. The cost of energy storage is high, for example Kosugi and Pak [11] indicated a reference value for a steam accumulator at about 407 $/m3. Although, solar-thermal power generation is a promising technology and can provide an important contribution to climate protection, its high initial investment forms a financial barrier for utilization by the developing countries. Power producers approach new technologies conservatively. Today, there are several technologies for electricity generation such as 354 MW parabolic trough solar electric generating systems in California [10]. Although, solar technologies are very promising, they are quite confusing for decision-makers that are not familiar with technologies such as solar-thermal plants [10]. As a result, it is difficult to introduce a new technology into a market such as solar-thermal plants. Solar water heating is extensively used in single-family houses but solar space heating has not been utilized in N. Cyprus. Photovoltaics (PV), solar water heating and solar space heating will further be discussed in Section 3.1. 3.1. Photovoltaics PV cells are used to convert sunlight directly to electricity. A PV system may be rated more reliable as compared to solar-thermal electricity generating systems. The cells are manufactured at strict international standards that ensure a lifespan of at least 25 years [12]. In N. Cyprus, the most readily available renewable energy source for point-use is the photovoltaic conversion. This technology has

Fig. 5. (a) Sunny hours per day averaged for each month (1981–1999), (b) Daily global radiation averaged for each month (1981–1999).

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been developing rapidly in the last three decades and the total installed power of PV up to date has reached the 2 GWp level. Also, the module and system prices are reduced to more acceptable ranges as 2.5–3.5 and 4–8 V/W, respectively [13]. Presently, the role of PV is more important at a local level rather than being a major shareholder in worldwide energy supply. In the developing countries, rural areas are well adopted for generating electricity, for lighting and communication applications. On the other hand, in the developed countries, the building integration of PV (BIPV) forms the most popular application, which is heavily subsidized by some governments [13]. It is expected that the grid connected residential systems will remain, in the next 5 years, the main market sector for PV industries. While Germany, Switzerland, Netherlands, Japan and USA have already initiated and successfully run BIPV programs, the UK has just joined this group with a sum of US$ 32 million subsidy during the years 2002–2005 [14]. While the grid connected systems are mainly used in the developed countries, there are incentives to install stand-alone systems in N. Cyprus, since minimum charges for grid connection of a single dwelling is about US$ 1000. Furthermore, if erection of poles is required, the extra cost will be at the rate of US$ 150 per pole erected. The average energy production during summer, in Watt-hours per day, of a typical photovoltaic module in N. Cyprus is about eight times its rated power but drops to about two-and-half times its rated power during winter. High capital cost and low capacity factor of photovoltaic systems make them unattractive for utility applications in the developing countries where there is a lack of capital. On the other hand, grid connected or battery backed-up residential photovoltaic systems are beneficial for both the owners and the utility. Using these systems, the owner will have no electricity bills and may even profit by selling the excess energy to the utility [15]. The energy usage from the batteries of a PV system provides peak reduction and demand-side management capabilities to the utility. This is especially important at peak hours (i.e. between 18:00 and 20:00 h) and during winter, thus eliminating the need for an additional peak-load plant. Installation of 2000 units of 3-kW capacity PV systems in N. Cyprus will lead to a reduction of the peak by 6-MW, this also applies to solar-thermal electricity options but we have found these technologies unattractive for N. Cyprus. Future developments and trends are much dependent on financial support, but they may be generalized in three ways. Firstly, development in materials to improve efficiency and response to longer wavelength, e.g. low band-gap materials [16], although the well understood and reliable silicon is expected to reign for some time yet. Secondly, development in device design, which is likely to shift towards thin-film structures or even paint-on type structures, is expected to improve production rate many folds. Thirdly, the increasing BIPV applications in the developed countries will urge some companies to merge and enhance mass production leading to further decrease in the module and system prices [16]. It is expected, with these trends, that the system prices will drop to 2–3 V/Wp by 2010, and 1 V/Wp by 2020 with the total shipment reaching 207 GWp [13]. At present PV systems are not widely used in small islands. PV for power generation is used in Pellworm island that generates about 1% of the total electricity consumption [4]. 3.2. Solar water heating Cyprus and Barbados are two countries using solar water heaters on a very large-scale [4]. The forms of energy used for sanitary water heating in N. Cyprus are solar and electricity. The usage of gas, oil and wood for water heating is not popular. Israeli-type flat plate domestic solar collector consists of two flat

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plates having an absorber area of about 3 m2, a storage tank of about 180 l equipped with an auxiliary electric immersion heater at 3-kW rating, and a cold-water feed tank above. Kalogirou and Papamarcou [17] modeled and validated a similar thermosyphon system and indicated the annual useful energy collected is about 1.6 MWh. These collectors are extensively used in single-family houses and lead to a maximum saving of about 72 GWh energy per annum. Such a saving is equivalent to a reduction of 54 thousand tons of carbon dioxide emission per annum. However, the multi-family apartment complexes generally use electric heaters. Supplementing about 10,000 households with immersion water heaters at 3-kW rating, by highly efficient solar heaters, and repairing the existing malfunctioning solar collectors (due scale formation in the piping systems) and assuming 50% of electric water heaters are active during peak hours, could reduce the peak demand by as much as 15-MW. It is estimated that about 1000 new houses are built every year in N. Cyprus. An important market potential exists for the development of solar heaters in the residential and commercial sectors. The solar water heating in the commercial sector is not widely used. There is much to be done in the tourism sector and in the multifamily apartment complexes. 3.3. Solar space heating For comfortable living in N. Cyprus, space heating is not needed for a period of about 7 months per annum. Electricity is the most widely used form of energy for space heating, followed by LPG, kerosene and wood. Solar energy has not been put into use for space heating. The solar space heating does not appear to be an attractive option, mainly due to very high investment cost, long pay-back periods and the difficulty of installation in the existing buildings. However, passive solar heating and cooling combinations both utilizing the same solar collectors may be an attractive option for new houses.

4. Wind energy systems Pashardes and Christofides [2] presented statistical analysis for wind speed and direction in Cyprus. They identified very few locations in the southern part of the island, which seemed to have some limited wind potential. Based on data recently recorded at five different weather stations in N. Cyprus, it appears that N. Cyprus does not have many suitable locations for constructing wind power stations. However, Altunc [3,18] has been gathering wind data continuously since the year 2000 and measurements taken at one location called Sadrazamkoy showed some potential for a wind turbine installation. Altunc indicates that a wind turbine capacity factor (ratio of actual generation to maximum possible) located at Sadrazamkoy is expected to be above 35%. Fig. 6 shows plots of relative frequency and kinetic energy density of wind for different wind speeds measured during the months of July and September in 2000 [18] at Sadrazamkoy. Three other potential locations have been under investigation. 4.1. Water pumping by wind Water pumping, driven by the wind-rotor motion has historically been one of the best applications utilizing the wind energy. This probably is the first application of wind energy in Cyprus and was used as early as 1930s for water pumping and irrigation purposes. This application grew quickly but declined in the 1960s, when more reliable diesel pumps replaced windmills. The low oil prices were also dominant

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Fig. 6. Frequency distribution and kinetic energy density during July and September-2000 at Sadrazamkoy.

factors at the time. Electric pumps then replaced diesel pumps in the early 1980s due to low electricity rates at the time. 4.2. Wind-electric conversion systems Wind-electric conversion systems (WECs) convert wind energy into mechanical energy and then to electricity. Like solar-thermal-electric generating systems, wind energy conversion systems are not intended to be base-load units. At present, WECs application in N. Cyprus may only be considered as a supplement to base-load generating units. Jensen [4] indicated that wind power is one of the most utilized renewable resources for power generation on small islands. Samsoe, Pellworm, Marie Galante and Hawaii islands are some of the small islands utilizing WECs. Utilization of wind energy is one of the fastest growing technologies. Zervos [19] presented European experience in developing wind energy to meet the Kyoto targets in the European Union (EU). Zevros indicated that one of the cheapest option for reducing CO2 emissions from power generation is using wind turbines. Large capacity wind turbines (i.e. 50 kW and over) are getting cheaper as the technology improves and the components are manufactured more economically. At present, the cost of 1 kW installed capacity WEC is less than US$ 1000 for large capacity wind turbines [20] and as the international market continues to explode, wind turbine prices will continue to fall. This is not the case for small scale WECs, the cost generally makes small wind turbines unattractive on commercial bases [21].

5. Environmental considerations Another important benefit of using renewable energy systems relates health and safety of the society. Generating electricity from fossil fuels has certain negative impacts on the environment. Such emissions account for half of the greenhouse effect [22] in the atmosphere. CO2 emission is a major global problem and remedy for CO2 reduction is costly. Armour [23] estimated the cost of scrubbing CO2 from coal-fired units to be around $1800/kW. It has also been indicated that, reducing CO2 by improving plant efficiency appears to be the best near-term option. Several international agreements were drafted for the protection of environment and control emissions. In the industrialized countries, implementation of stringent regulatory rules required expenditure of billions of dollars by the industry to comply with the new rules and regulations such as the Kyoto protocol

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and the CO2 trading. This created a new industry in emissions control. Unfortunately, rapid growth of emissions in the developing world is having a negative effect on efforts towards reducing the global CO2 level. Rahman and De Castro [24] have concluded that many developing countries feel that imposing environmental restrictions would hamper economic growth, and the trade-offs will simply follow a different equation. Global CO2 emissions reduction in power generation strongly depends on utilizing renewable energy forms, especially in the developing countries.

6. Economic considerations An economic analysis will be presented here for photovoltaic and WEC systems. Similar to other renewable energy systems, Photovoltaic and WEC systems are characterized by high capital, low operation and maintenance cost, and zero fuel cost. The total investment cost of a photovoltaic system mainly consists of the modules, the energy storage elements and the balance-of-systems costs such as the cost of land, support structure and tracking hardware, engineering, safety and control hardware, re-conversion system (for stand-alone system), and power conditioning and interface components (for utility-interactive systems) [25]. Bakos et al. [26] used a number of different economic and financial feasibility indices for the evaluation of a building integrated photovoltaic system. In our study, we followed a similar approach but also included an uncertainty analysis in order to improve feasibility study based on PV and WEC systems. In this study, a small scale WECs is considered and the cost of construction is estimated to be US$ 3000 per kW installed capacity. The cost of energy generated by WEC systems depends mainly on technical (i.e. wind speed and nature of turbines) and financial factors such as internal rate of return (IRR) and pay-back period. The power available from wind is a function of the cube of the wind speed. The power generated from a PV system depends on the sunshine duration. Therefore, the climate and the geographic location are important in choosing the technology. The total investment cost, cost of capital, operation and maintenance costs, capacity factor, tax, inflation rate and debt/equity ratio are the factors affecting the power generation costs. There are various methods for economic evaluation of an investment project. The most commonly used methods are investment profitability analysis, annual cost method, present worth method and capitalized cost method. In this study, an investment profitability analysis method, IRR is used to evaluate the profitability of a PV and WEC systems. By definition, the IRR is the rate of discount that reduces the net present value of a project to zero n X ðCI K COÞt at Z 0

(4)

tZ0

P where ntZ0 is the summed total for the whole lifetime of the project from year ‘0’ to year ‘n’, ‘CI’ is the cash inflow, ‘CO’ is the cash outflow, respectively, ‘at’ is the discount factor in the year ‘t’ corresponding to the selected rate of discount. Most conservative investments would yield annual rates of return in the range of 6–9%; a higher percentage is sought to make PV and WEC systems investment worthy of consideration.

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Table 1 Economic and technical parameters of PV and WEC systems Economic and technical factors

PV system

WEC system

System rating (kW) Total investment (US$) Project life (years) Capacity factor (%) Operation and maintenance costs (US$/kWh) Insurance (% of capital cost/year) General inflation rate (% per year) Sales price inflation rate (% per year) Debt/equity ratio (%/%) Debt term (years) Interest rate (%)

2 9000 30 21

10 30,000 30 30 0.02 0.5 8 8 45/55 10 6

*

, Maintenance cost is limited to replacement of batteries;

* **

8 8 45/55 10 6 **

, usually too low to insure.

For illustrative purposes, assume a 2 kW grid connected residential PV system with a 10 kWh/day average energy production capacity and a WEC system rated at 10 kW. Table 1 summarizes major economic and technical factors of these two systems. Microsoft Excel is used to calculate the IRR of the investment projects. The IRR is calculated to be 7.7% for the photovoltaic system and 14.1% for the WEC. The program allows the user to make changes in any of the input parameters such as, general inflation rate, selling price of electricity, capacity factor, etc. Different scenarios can be designed by forecasting future key design parameters such as, selling prices, inflation rate, etc. This approach helps to optimize a project design and increase profitability. Certainly, some parameters such as inflation rate, capacity factor, electricity selling price are uncontrollable but, good estimates of future values of those parameters enable the project developer to experiment with a variety of system choices and design selection criteria for the range of expected economic and financial conditions. In practice, there is always uncertainty about the future. Therefore, ‘what if’ scenarios are useful for evaluating the impact of key economic decisions on the overall performance of projects. Fig. 7 shows the impact of this approach to the financial performance of the projects. The base case design parameters are presented in Table 1. It is clear in Fig. 7 that the economics of both projects favor higher capacity factor, higher sales price inflation and lower inflation rate. [Note that the jump in the curves in Fig. 7 in 2013 corresponds to the point at which the entire principle has been paid. The valleys in the photovoltaic system at every 6 years are due to the replacement of the batteries]. As shown in Fig. 7, optimizing the project design can increase the profitability of the project. 6.1. Evaluation of profitability under uncertainty Uncertainty usually arises since it is impossible to exactly predict the future values of design parameters. The first task in project evaluation is to estimate the future values of design parameters. Each parameter, could however be a source of uncertainty. The most important sources of uncertainty are: inflation, changes in technology, capacity factor, under estimated total investment, longer construction and running-in periods. Project developers need to identify the key parameters and apply uncertainty analysis in order to quantitatively describe the risk surrounding the key project variables. IRR method

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Fig. 7. Optimizing project design to maximize project return.

presented in Section 6 completely relies on single values as inputs. Uncertainty analysis is a tool to enhance the results obtained from an investment appraisal method such as IRR. Several uncertainty analysis methods can be used to verify the calculations obtained from an investment profitability evaluation. The three commonly used methods of uncertainty analysis are

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the sensitivity, probability and break-even analyses. The first two methods are employed to verify the IRR calculations. The aim of probability analysis is to eliminate the need for restricting the judgment to a single deterministic estimation of future values of each key variable. Probability analysis requires the entire expected distribution (i.e. probability density function) of the future values such as interest rates, capacity factor, etc. There are different techniques that can be used to estimate the probability density functions. The outcome of the probability analysis depends largely on the quality of the estimated probability density functions. 6.1.1. Sensitivity analysis Sensitivity analysis shows how the output (i.e. IRR) changes with variations in the numerical value of any variable. RiskMaster software [27], which was originally developed by Harvard University was used in this study for sensitivity and probability analyses. Fig. 8 shows the IRR at key variable range values for the PV and WEC systems. In the proposed PV system, if there is a 10% increase in the sale price inflation rate, IRR will increase by 12.1%. Similarly, if there is a 10% increase in the capacity factor or energy sale prices, IRR will increase by 11.75% in each case. Certainly, these results depend on the base case values. For example, if the base case sale price inflation rate is 6% instead of 8% then, a 10% increase in sale price will increase IRR by 13.6%. However, a 10% increase in the capacity factor will increase IRR by 16.8%. A similar discussion holds for the WECs. In practice, it is sufficient to analyze variations in key design parameters. Key design parameters affecting the project are expected to change considerably either below or above the expected value or they are large in value as parameters. Sensitivity analysis takes into account uncertainty in future values of key parameters and is used to identify the project’s most important highly sensitive variables. It also indicates critical areas requiring attention. In some situations, sensitivity analysis alone gives sufficient indications to encourage a decision-making. However, sensitivity analysis alone does not provide sufficient data for risk analysis. 6.1.2. Probability analysis The aim of probability analysis is to eliminate restricting the judgement to a single deterministic estimation by identifying the possible range of each variable and attaching a probability of occurrence to each possible value of the variables within this range. These judgements take the form of probability distribution. The outcome of probability analysis depends largely on the assigned probabilities of occurrence to each possible value of variables. RiskMaster uses the Monte Carlo simulation technique in order to estimate the risk on the projected result. Monte Carlo simulation is a technique by which a mathematical model is subjected to a number of simulation runs in order to built up successive scenarios by using input values selected from multi-value probability distributions. Fig. 9 shows the cumulative probability output obtained from probabilistic simulation. The probability of having an IRR value less than 0.14 is nearly 43%, while this value drops to about 13% for an IRR value less than 0.12 for the WEC system. For the PV system, the probability of having an IRR value less than 0.07 is nearly 47%, while this value drops to about 17% for an IRR value less than 0.06. It is up to the designer to decide how far to go in uncertainty analysis in order to enhance results obtained under deterministic conditions.

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Fig. 8. IRR at risk variable range values: (a) WEC system and (b) PV system.

7. Discussion and conclusions In recent years, N. Cyprus electricity system has been stretched to its limits by winter peaks in demand. Energy statistics showed that serious considerations are required regarding the uncertain load

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Fig. 9. Cumulative distribution of IRR: (a) PV system and (b) WEC system.

growth, rising cost of fuel, high cost of new capacity and environmental constraints. It is thought that, the renewable energy resources could be utilized to help reduce the level of peak demand from the grid. Presently, solar and wind energy resources available in N. Cyprus are found not conducive to constructing renewable base-load electrical power stations. However, construction of renewable electric energy systems for fuel and capacity saving are recommended. Although, simple flat plate solar collectors are used in many single-family homes, most of the newly build multi-family apartment complexes use electrical heaters. Replacing the presently used 3-kW rated immersion water heaters by highly efficient solar heaters could effectively reduce the peak demand. High performance solar water heating systems may become very competitive as the electricity rates increase continuously. Installation of solar water heaters to new buildings is essential to control the peak demand, demand growth and to reduce the electrical energy consumption in N. Cyprus. Performance data for these simple collectors, however, were not readily available and a comprehensive contribution to N. Cyprus’s electrical energy could not be estimated accurately. Water pumping seemed to be one of the biggest contributors to summer peak demand. Use of wind turbines (instead of electrical motors) for pumping irrigation water out of wells is expected to reduce the summer peak. This topic is a part of our future work. Most of the mature renewable energy technologies are used for power generation on islands. Samsoe, Aeroe, Pellworm, Gotland and Dominica are some of the small islands that have taken a decision to become a renewable energy islands (i.e. islands that are 100% self sufficient from renewable energies). The public awareness with respect to utilizing renewable resources in Crete, an island in Mediterranean, is strong. Implementation plan for large-scale development of renewable energy resources is in progress with an aim to produce 45.4% of the total annual electricity demand by 2010 [4]. Most small islands are entities in terms of power generation. Therefore, promoting renewable energy technologies in small islands is going to demonstrate globally the success of large-scale renewable energy technologies. Profitability analysis method (i.e. IRR method) is used to find the profitability of a residential 2 kW rated PV system and a 10 kW rated WEC system installed in N. Cyprus. The program developed for IRR calculations took into account such things as: capital expenditure, construction cost, equity and loan amounts, debt interest rate, operation and maintenance costs, inflation rate, capacity factor and the electricity selling price in order to evaluate the profitability of the PV and WEC systems. There are several technical and financial variables interacting with the design of PV and WEC systems. Every technical and financial parameter affects the optimal solution of any particular project. Relying on

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technical optimization only or using any single parameter for the system optimization is not an appropriate approach. In practice, there is always uncertainty about the future. Therefore, ‘what if’ scenarios are important for evaluating the impacts of key design decisions on the overall project performance. Although, the IRR of the WEC system is found much higher than that for the PV system, there are only few locations where the WEC system will be economically viable. In order to enhance the results obtained using the IRR method, sensitivity and probabilistic analyses are performed. The change in IRR depends on the base case values and the rate of change of the values in the design parameters. Although, small scale PV and WECs are considered in this study, similar approach can also be used for large-scale systems.

8. Future work Cyprus has been divided into two after the war in 1974. At present, there is a good chance to resolve the Cyprus conflict. If the two sides reach to an agreement, then Cyprus as a whole will join the EU on May 1st, 2004. It is expected that more than one hundred thousand of Greek Cypriots will return to their homes after the solution. Population of N. Cyprus is two hundred thousands, even though the energy can be supplied from the Electricity Authority of Cyprus (EAC), the transformers and the grids are not capable to transport that amount of demand increase in the energy. However, it is expected that KIB-TEK is going to have some financial aid and benefits after the solution. As KIB-TEK is a small utility, even small disturbances in the power frequency lead to blackouts. This problem will be eliminated if KIB-TEK and EAC are interconnected. KIB-TEK will become more flexible in maintenance scheduling as it can be easily backed-up by EAC. KIB-TEK has lack of technical personnel, as EAC is a bigger utility compared to KIB-TEK, KIB-TEK may get technical assistance from EAC. In this framework, it is obvious that a harmonized energy and environment policy is necessary to reduce atmospheric pollution efficiently in order to comply with the EU emission control policies. A detailed analysis of N. Cyprus energy supply system is required not only to comply with the EU regulations but also to harmonize KIB-TEK and EAC systems in order to generate and supply energy to their customers cost effectively and increased reliability.

Acknowledgements We are deeply grateful to Dr Mustafa Altunc for supplying the wind data and also to Dr Hasan Ali Bicak for his help in economic analysis and KIB-TEK for providing statistical data.

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