SB645 Solar Heating Systems for Swine Housing: An … · solar heating systems for swine housing: ... solar heating systems for swine housing: an economic appraisal ... technical

SOLAR HEATING SYSTEMSFOR SWINE HOUSING:

AN ECONOMIC APPRAISAL

BULLETIN 645 SEPTEMBER 1983AGRICULTURAL EXPERIMENT STATION, KANSAS STATE UNIVERSITY

JOHN O. DUNBAR, DIRECTOR

This publication from the Kansas State University Agricultural Experiment Station and Cooperative Extension Service has been archived. Current information is available from http://www.ksre.ksu.edu.

SOLAR HEATING SYSTEMS FOR SWINE HOUSING:AN ECONOMIC APPRAISAL

Jeffery R. Williams, Walter G. Heid, Jr., James P. Murphyand Francis V. Robbins*

ABSTRACTA capital budgeting simulator estimates the

annual costs and savings of four selected solarswine systems, taking into account initial invest-ment, salvage value, tax credits, the time value ofmoney, annual operating costs and estimated fuelsavings with expected life of the collectors.

The results of this study generally show thatunder reasonable fuel cost increases a well-de-signed and operated solar-heated swine confine-ment unit, similar to the Kansas State UniversitySolar Wall, should prove to be a very viable andwise farm investment.

Keywords: Solar, energy, swine, economics.

*Assistant Professor, Department of Economics; Agricultural Economist, National Economics Division, ERS, U.S.Department of Agriculture; Associate Professor, Department of Agricultural Engineering; and Instructor, Depart-ment of Agricultural Engineering, respectively, Kansas State University, Manhattan, Kansas.

1


CONTENTSPage

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..DESCRIPTION OF SOLAR COLLECTORS

Solar Heating System No. 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Solar Heating System No. 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Solar Heating System No. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Solar Heating System No. 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TECHNICAL PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ECONOMIC ANALYSIS METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .ANALYSIS

Base Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Life Expectancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Collector Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Fuel Escalation Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Investment Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .internal Rate of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .LITERATURE CITED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

555

101011

141415161617181819192122


INTRODUCTION

Swine producers, like other farmers, are inter-ested in methods of reducing their farming costs.Rising fuel costs in the past decade caused someproducers to consider solar energy for heatingand ventilating their swine houses.

The application of solar energy to swine pro-duction was recognized by public researchers bythe mid-1970’s. The Kansas Agricultural Experi-ment Station pioneered much of the early re-search, designing and testing a workable solarswine system. As a result, the Kansas State Uni-versity Solar Wall has found application in a num-ber of Midwestern states. Four of these systemsare analyzed in this report.

The KSU Solar Wall, as well as other solar col-lector systems, is ideally suited to total confine-ment swine systems. Confinement systems re-quire more intensive management than open-lotswine systems. One of the major differences inmanagement is the conditioning of air. Confinedlivestock enterprises require fresh, low-humidityair to maintain acceptable levels of moisture,odor, and toxic gases. If located in the central andnorthern regions of the United States, they alsomay require large amounts of energy (heat) tomaintain a proper temperature range, especially inbuildings housing young animals. Energy used toheat the incoming ventilation air often represents75 percent or more of the total energy used inyoung animal housing (l).

Trends in the U.S. swine industry point to-ward a continued increase in the number of totalconfinement systems and, therefore, more inten-sive energy consumption. The largest swine enter-prises in the United States are typically confine-ment-type systems. The increases in large swinefarms have been dramatic. The Census of Agricul-ture reported a total of 1,136 farms that sold 1,000or more swine in 1964 (2), compared to 7,327 farmsin 1978 (3). In other words, farms selling 1,000 ormore swine per year accounted for 3 percent of allswine sales in 1964 and for 21 percent in 1978.Kansas, ranking within the top 10 swine-produc-ing states, has experienced a similar trend.

Growing in numbers and being intensive us-ers of L.P. gas, confined swine systems and otherlivestock and poultry systems gained the atten-tion of U.S. Department of Energy (DOE) and Agri-culture (USDA) officials in the late 1970’s. Be-ginning in 1979, a nationwide on-farm demonstra-tion program was conducted to establish accepta-bility. The program, entitled “Solar Heating of On-

Farm Livestock Shelters,” was funded by the DOEand administered by the USDA’s Extension Ser-vice. This program, which was conducted by theExtension Agricultural Engineers at selected land-grant colleges, resulted in nearly 90 on-farm solardemonstration projects. A large majority involvedconfined swine buildings. Kansas was included inthe program, having nine on-farm demonstrationprojects.

The collectors chosen in this program were50 percent cost-shared by the government up to amaximum of $2,500. The collectors were con-structed during 1979 and 1980, Most were home-made.

The purpose of the on-farm demonstrationprogram was to test the performance of the fourKSU solar walls analyzed in this report and othersolar swine systems. The primary concern of theengineers who conducted the project was techni-cal feasibility. Are laboratory designed solar col-lector systems technically feasible in full-scaleuse? This economic performance study goes onestep further, by examining the payback of thedemonstration systems. How critical to economicfeasibility are such factors as initial investment,life expectancy and collector efficiency? Is the ac-ceptance of solar swine systems by farmers de-pendent on tax credits? If so, at what level? And atwhat level of conventional fuel cost increase willtheir solar collectors become economical withouttax credits?

Performance data were gathered on the Kan-sas demonstration collectors during the heatingseasons of 1980-81 and 1981-82. The Kansas FinalReport for the on-farm demonstration project wassubmitted to the Extension Service, USDA andDOE in September, 1982 (4).

Results of the demonstration project in Kan-sas suggest that solar swine systems have wide-spread application. However, it should be under-stood that the performance of these systems willvary, regionally, by the amount of incoming solarradiation, temperature, and other factors.

This economic analysis used the perfor-mance data as reported in the Kansas Final Re-port. The purpose of this study is to analyze thecosts and returns associated with four selectedsystems to determine whether or not the eco-nomic payback for these systems is short enoughand the net savings large enough that other farm-ers may want to invest in similar solar collectors.

3


DESCRIPTION OF SOLARCOLLECTORS

The KSU Solar Wall, sometimes referred to asthe “Spillman Wall” because it was designed byCharles Spillman, Agricultural Engineer, KansasState University, is basically a ventilating, air-pre-heater-type collector that tempers incoming air inwinter. Shutters in the center of the collector areused to bypass the collector and admit air directlyinto the building when the solar heat is no longerneeded to maintain the proper building tempera-ture. The building is oriented with the ridge linerunning east and west to obtain a large south wallexposure on which to construct the collector. Thiscollector is designed as an integral part of thelivestock buildings and can be constructed usinglocally available materials.

Construction of the collector begins with aconcrete foundation two feet wide and extendingdownward to below frost level.1 Reinforcing steelcan be extended horizontally from the foundationto attach a reflecting sidewalk or reflectingpanels. The overhang on the south side of thebuilding should extend at least 30 inches from theinterior wall. The collector is 24 inches in depth,which leaves a minimum of a 6-inch overhang foricicle problems and summer shading. An openingin the south interior wall is utilized for ductwork,which admits air from the collector to the build-ing.

The collector foundation is insulated with1 inch of polystyrene and covered with cement-asbestos board. Clay tile, extending from thefoundation, is utilized to pump animal waste fromthe building if under-floor manure storage is used.Solid concrete blocks, normally 16 inches long,are stacked on top of the foundation. All blocksare placed with the 16-inch dimension perpendic-ular to the foundation to produce a wall 16 inchesthick. The blocks are arranged to leave a 6-inch airspace between the building wall and the back ofthe blocks to allow airflow into the building.

Mortar or construction adhesive is used inthe horizontal joints to hold the blocks in place.No mortar is used in the vertical joints and a 3/16-inch-wide vertical crack is left between eachblock. Incoming air passes through the 3/16-inchslots so that the heat may be exchanged betweenthe block and the airflow.

The blocks then are painted with a petroleum-based flat black paint. Normally, two coats are re-quired to obtain complete coverage and high solarradiation absorption.

After the blocks are stacked, the top of theblock wall is sealed and insulated to reduce heatloss through the roof. Normal height of the block

1Construction details, reported in plan #81902, may beobtained from Extension Agricultural Engineering,Room 237 Seaton Hall, Manhattan, Kansas 66506.

wall is about 8 feet; however, some buildings mayrequire more or less.

White pine wood strips (3/4 inch by 1 1/2 inchwide) then are nailed and glued to the black face.These vertical wood strips are painted white andspaced 2 to 2 1/2 feet apart. White-painted woodstrips (1 3/4 inch x 1 1/2 inch) are mounted horizon-tally along the top and bottom of the vertical stripsto complete the mounting frame for one oftwo transparent covers. The first transparentcover is attached to the wooden framework withan adhesive. Then another 1 1/2-inch wood frameis applied directly over the inner wood frame andtransparent cover with flathead wood screws sothat a second transparent cover can be applied. Iffiberglass-reinforced panels are used, holesshould be drilled oversized to allow for thermal ex-pansion and contraction. A 2-inch slot at the bot-tom of the inner cover is used to conduct air to theblock wall. The outer cover has an air inlet at thetop. This opening is screened to prevent debrisfrom entering the collector. Wooden battens arefastened over the outer cover with wood screws tosecure it.

Outside air enters the collector through thescreened inlet slot at the top of the outer cover.This inlet is sized for a 0.05-inch water pressuredrop to distribute air along the length of the col-lector. The air then travels downward between thetwo covers to the bottom of the inner sheet. Itpasses through the inner slot and turns 180 de-grees to flow up along the black surface andthrough the vertical cracks in the concrete blockwall. The vertical flow of air between the twotransparent sheets reduces the heat loss from theconcrete blocks. The black surface warms the airand the concrete acts as a temporary storage fa-cility, releasing heat to incoming air after the sunis no longer on the collector surface. The airtravels through the block wall and into the build-ing through a shutter in the frame wall. A distribu-tion duct admits the air to the animal confinementarea.

Care must be taken during construction toinsure that all joints are as airtight as possibleto guarantee that ventilating air is conductedthrough the solar collector and concrete wallwhen desired.

The vertical, south-facing collector receiveshigh solar intensity during the winter when shad-ing by the building overhang is minimal. Snowcover or reflector panels on the ground signifi-cantly increase the the incoming solar radiation.As summer progresses, the solar intensity on thecollector decreases and the shadow from the 6-inch overhang begins to shade the vertical collec-tor. In mid-summer, solar intensity on the collec-tor is quite low, so the solar heat load on the build-ing is small. Ventilation air also can be drawn di-rectly to most buildings with ventilators, therebybypassing the collector.

4


Chimneys on the north side of the buildingenclose exhaust fans that power the ventilationsystem year round. Air is exhausted verticallyfrom the building to eliminate the strong wind in-fluence in Kansas. During normal winter opera-tion, the fans are the only moving part of the col-lector, which decreases electrical operation costsof the system.

A brief description of the four solar collectorsystems analyzed in this study follows. (The con-finement buildings and the solar collectors are de-scribed and illustrated as the size and construc-tion of both units are crucial to system perfor-mance.)

Solar Heating System No. 1The building size is 28 ft by 124 ft and houses

two 10-crate farrowing rooms, two weaning nurs-ery rooms, and two grower nursery rooms. A smallentryway and utility room separates the farrowingrooms from the nursery rooms. Manure is re-moved from the building by flushing water under aslotted floor. The main frame of the building isconstructed with 2 x 6 stud walls with 6 inchesof fiberglass insulation. The ceiling contains10 inches of cellulose insulation. The exteriorshell of the building is enameled metal and the in-terior walls and ceiling are 1/2-inch exterior gradeplywood. The building has a partially slotted floor.Supplemental heat is provided with non-ventedpropane furnaces. One 168,000 BTU/hr L.P. gasfurnace serves both farrowing rooms and a 60,000BTU/hr unit is used in each nursery room

Detailed illustrations of the building and thesolar collector are presented in Figure 1. The totalcost of the 392 ft2 solar wall for the farrowingrooms and the 472 ft2 solar wall for the nurseryrooms was $6,900 or $7.99 per ft2. The economicanalysis is conducted for the farrowing unit only.

Sidewall-mounted exhaust fans ventilate theroom. The fans create a slight vacuum in the roomthat induces airflow through the solar collector.Outside air enters between the two transparentcovers and then passes through the 3/16-inch ver-tical cracks in the concrete block wall. The solar-heated concrete tempers the ventilating air as itpasses before entering the farrowing or nurseryrooms.

Separate solar walls serve the farrowingrooms and nursery rooms. The solar wall for thetwo farrowing rooms measures 56 ft by 7 ft, andthe solar wall for the four nursery rooms is 61 ft8 inches by 7 ft 8 inches. Airflow from the solarwalls through the individual rooms is shown inFigure 1. During the heating season, the ventilat-ing air from the weaning nursery rooms is ex-hausted into the grower nursery rooms. The wean-ing rooms are kept much warmer than the growerrooms, so exhausted air from the weaning roomsprovides useful heat to the grower rooms.

Solar Heating System No. 2The building is a 51 ft by 112 ft nursery with

seven rooms. The main frame of the building isconstructed with 2 x 4 stud walls with 3 1/2 inchesof fiberglass insulation. Ten inches of celluloseinsulation are installed above the ceiling. The ex-terior shell of the building is enameled metal andthe interior walls and ceiling are 1/2-inch exteriorgrade plywood. The floor of the building is totallyslotted with fiberglass slats and a pit below tostore manure. Supplemental heat is provided bytwo non-vented, 60,000 BTU/hr L.P. gas furnacesin the ventilation distribution duct plus a 60,000BTU/hr non-vented furnace in each room.

Detailed illustrations of the building and thesolar collector are presented in Figure 2. The sizeof the collector is 7 1/2 ft by 112 ft with 840 ft 2 ex-posed to the sun. Collector cost was $10,676, or$12.71 per ft2.

Fans, which are installed in exhaust chim-neys in each room of the building, regulate the air-flow through the building. All seven rooms drawair from the full-length walkway along their southside which serves as a distribution duct (see planview). Air from the solar wall enters this walkwaythrough four adjustable inlets along its length.Therefore, any combination of the seven roomsthat need supplemental heat can utilize the solarwall. Manually adjustable shutters allow air fromthe walkway into each room. They are graduallyclosed as the pigs grow and require less supple-mental heat. This keeps total airflow through thecollector at a reasonable rate and allows more effi-cient use of the available solar energy. Additionalshutters in the north wall of each nursery room areopened to admit outside air to the room as thesolar-heated air supply is reduced. Air withdrawalfrom each room is accomplished by drawing theair through the slats into the pit area and then tothe chimney, where it is exhausted vertically. Thevertical chimney reduces wind pressure on fansand provides some natural ventilation if fans fail.

Solar Heating System No. 3The building, a 36 ft by 96 ft structure, houses

three nursery rooms. The main frame of the build-ing is constructed with 2 x 4 stud walls. The wallscontain 3 1/2 inches of fiberglass insulation. Teninches of cellulose insulation are installed abovethe ceiling. The exterior shell of the building isenameled metal and the interior walls and the ceil-ing are 1/2-inch exterior grade plywood. A slottedstainless steel floor allows for use of a manurestorage pit below. Supplemental heat is providedby a 60,000 BTU/hr non-vented L.P. gas furnace ineach room.

Detailed illustrations of the building and thesolar collector are presented in Figure 3. The sizeof the collector is 7 ft by 96 ft, or 672 ft2. The col-lector cost was $5,420, or $8.07 per ft2.

5


6


7


8



The fan system in this building is identical tothe one in System No. 2. All three nursery roomsdraw air from the full-length plenum behind theconcrete block wall. Therefore, the entire solarcollector storage unit can provide heat to anycombination of rooms that requires heat. Again,air is removed from the rooms through the slottedfloor into the pit area and out of the buildingthrough a vertical chimney.

Solar Heating System No. 4The building is a 26 ft by 88 ft wood frame

structure that includes a 46 ft by 24 ft farrowingroom with 16 crates, a 32-ft nursery, and an 8 ft by24 ft feed and utility room between the farrowingand nursery rooms. The sidewalls are 8 ft high,constructed with 2 x 4 inch studs with 3 1/2 inchesof fiberglass insulation and a polyethylene vaporbarrier. The ceiling has 8 inches of cellulose insu-lation over it. The exterior shell of the building isenameled metal and the interior walls and ceilingare 1/2-inch exterior grade plywood. The floor ofthe building is totally slotted stainless steel with apit below to store manure. Supplemental heat issupplied by a 60,000 BTU/hr non-vented L.P. gasfurnace in each room.

Detailed illustrations of the building and thesolar collector are presented in Figure 4. The solarcollector is 88 ft long and 6 ft 10 inches high with atotal area of 600 ft2. Collector cost was $5,025, or$8.38 per ft2.

Again, the airflow system is similar to the oth-ers studied. Both the farrowing room and nurseryroom draw air from the full-length plenum behindthe concrete block wall. Thus, the solar collector-storage unit can be utilized by either or bothrooms depending on their heat demand. The airexhaust system is identical to System No. 3.

TECHNICAL PERFORMANCEPerformance data were gathered for the Kan-

sas demonstration collectors during the heatingseasons of 1980-1981 and 1981-1982 to determinetheir energy-saving capability.Table 1. Proiected Typical Annual Performance

During the demonstration tests, hourly per-formance data were collected and stored. Thedata included: outside air temperature, room airtemperature, air temperature rise through the so-lar collector, and airflow rate through the solarcollector. Measuring the energy supplied to abuilding by a solar collector was not sufficient todetermine the energy saved by the collector. Thebuilding’s demand for supplemental heat also wasestablished to determine what portion of the col-lected solar energy actually saved fuel. An hourlyenergy balance, including animal heat production,was performed on each building to determine en-ergy savings. The results were accumulated to de-termine total supplemental heat demand and totalenergy saved by solar heat during each monitoredtime period.

The measured performance results wereused to determine if the collectors had operatedsatisfactorily and to discover any problems in thedesign or operation of the systems. All four sys-tems in this study operated well during the moni-tored periods. The measured data and perfor-mance results also were used to develop equa-tions to predict the supplemental heat demand ofthe buildings, as a function of inside and outsideair temperatures. Differences in design and opera-tion of the buildings produced large variationsin the amount of supplemental heat needed. Theheating season for System 1 included ninemonths per year, whereas the heating season ofSystem 3 was only five months long. The supple-mental heat demand equations were used alongwith a mathematical model of the KSU Solar Wallto project the typical, annual performance of eachdemonstration unit. Typical, annual performanceis much more useful than short-term measuredperformance for both engineering and economicevaluations of solar heating systems.

Typical, annual performance of the four sys-tems in this study is presented in Table 1. The so-lar collection efficiency was quite good for all foursystems, although the annual building heat de-mand per unit area of solar collector variedgreatly. The wide variation in heat demand pro-duced a wide range of solar heating fractions. The

Percent of EnergyCollected Collector Heat Energy Solar Saved to Solar

System Solara Efficiency Demand a Savedb Fraction c Energy Collected

BTU/ft2 Percent BTU/ft2 BTU/ft2 PercentNo. 1 182600 63 317500 154200 49 84No. 2 129500 55 582400 146700 25 113No. 3 101500 60 268200 80200 37 79No. 4 136400 53 187700 102500 58 75

aSupplementaI heat demand of building per unit area of solar collector.bHeating energy saved per unit area of solar collector, includes energy saved by reducing heat loss through south wall.cPortion of annual heating demand that is supplied by solar energy.

10


energy saved by each collector differed from thesolar energy it collected for two reasons. First, so-lar energy supplied to a building when no supple-mental heat is needed does not save energy, andsecond, the solar walls save energy by reducingheat loss through the south building wall. System2 typically will save more heating energy than thesolar energy it collects because the building heatdemand is very large and little solar energy iswasted. There is an inverse relationship betweenthe solar heating fraction and the fraction of col-lected solar energy that is utilized to save energy.A large portion of the solar energy that each ofthese systems collects is utilized to save heatingenergy, emphasizing the desirability of the con-crete heat storage.

ECONOMIC ANALYSISMETHODOLOGY

The economic analysis of the solar collectorsused a capital budgeting approach. A capitalbudgeting simulator estimated the annual costsand savings that were generated by the collectorover its expected life (5). This approach took intoaccount the initial investment required, expectedsalvage value, tax credits and deductions, thetime value of money, annual operating costs andestimated fuel savings over the expected life ofthe collector.

The after-tax, discounted, net present valuewas calculated with the use of the following equa-tion.

where:P V S SN=

C 0 =

C N =

r =T =

Present value of solar savings.The original investment requiredfor construction and installationof the solar collector.The salvage value of the solar col-lector at the end of the Nth year.This term is discounted to pres-ent value by (l + r)- N.An after-tax discount rate.The combined federal and statemarginal income tax rate.

D k =

l 1 =

S C1 =

E k =

R k =T Xk =l NK =

Depreciation in k th year. Thisterm is discounted and then mul-tiplied by the tax rate to arrive atthe effective tax deduction for de-preciation.Investment credit that can betaken the first year of ownership.This term is also discounted by( 1 + r ) - 1.Combined state and federal solarcredit that can be taken the firstyear of ownership. This term isdiscounted one year by (1 + r) –1.Energy savings in kth year. This isthe savings in fuel from usingsolar energy. This term is dis-counted and multiplied by (1 –T)to arrive at the actual after-taxsavings. Savings are similar to in-come in this case.Maintenance cost in the kth year.Property tax cost in the kth year.Insurance cost in the kth year.

R k, TXk and lNk also are discounted andmultiplied by (1 – T) to arrive at the after-tax costs.These costs are deductible expenses for farmbusiness tax purposes and, therefore, the effec-tive rate is found by multiplying the costs by(1 - T).

Cost estimates and energy savings must beadjusted to an after-tax basis to account forallowable deductions and credits associated withusing solar facilities in a farm business. Deprecia-tion, investment credit and the solar energy credititems must be considered in the analysis to adjustactual cash flows for tax purposes.

The values used in the analysis were basedon actual collected data and assumptions or fore-casts of future conditions. Because future esti-mates are uncertain, a sensitivity analysis was in-cluded to demonstrate how a change in their valuemight affect the results.

If the calculated net savings or net presentvalue was positive, when using the previously de-fined equation under the conditions outlined, in-cluding the values of the variables specified, theinvestment was judged to be acceptable.

The number of years required for payback ofthe initial investment by generated fuel savings,tax credits and deductions also was calculated.The payback estimation (years) took into accountfuel savings, maintenance costs, investment andenergy credits, salvage value and the allowabledepreciation deduction, using an after-tax dis-count rate as well as the time value of money. Tak-ing these factors into account, payback is at-tained when the cumulated net saving equals the

11


initial investment. Payback throughout this reportis based on the number of years required for thisequalization to occur. The reader should be awarethat this incremental measure is less sensitive tochange than a measure of payback reported inmonths.

Percent return on investment also was calcu-lated, using the internal rate of return method.This method determined the compound rate of in-terest that equates the present value of the futurecash earnings (savings) over the collector’s lifewith the initial investment cost. This rate can becompared with the minimum acceptable rate ofreturn or returns from other investments. The re-turn on investment was based on fuel savings lessoperating costs plus investment and solar energycredits, allowable depreciation deductions, andthe after-tax salvage value.

Base case conditions for the technical andeconomic variables are summarized in Table 2.The ranges for the sensitivity analysis of the se-lected technical and economic values are re-ported in Tables 3-12.

Initial InvestmentFarm records provided the cost of materials

(1980 $), data and construction expenses for eachcollector.

Salvage ValueSalvage value of the collector was assumed

to be $1.86/sq. foot of collector surface or $20/persq. meter after a 15 year life of operation. This esti-mate was based on the value of the concreteblocks, which should not deteriorate.

DepreciationDepreciation deductions were taken into ac-

count in the analysis on an after-tax basis. Threemethods were used to figure depreciation in theanalysis. The initial base case analysis, using asimple straight-line approach, was calculated asfollows:

D E PK =INVEST – SVN

Nwhere

DEPK = Depreciation in year k where kranged from 1 to N.

INVEST = Original investment required forthe solar collector.

S VN = Salvage value in the last year oflife(N).

The new straight-line method and the ACRSmethod instituted with the Economic RecoveryTax Act of 1981 served as a basis for further analy-sis. These methods are applicable to collectors

constructed after the 1980 calendar year. Al-though all pre-1981 items will continue to be de-preciated under the old rules, use of the new de-preciation methods shows the effect they mayhave on decision making, if one were planning toinstall a collector now. The two methods are out-lined below.

Essentially, depreciation under the newstraight-line method is figured by dividing theoriginal investment by the expected life of the in-vestment. In the first year, half of the value is al-lowed while the remaining half from the first yearmay be taken in the year afterpetted life.

D E P1 = lNVEST/N/2

D E P2 to N= lNVEST/N

D E PN + 1 = lNVEST/N/2The Accelerated Cost

the last year of ex-

Recovery System(ACRS) is based on standardized percentages fordifferent types of investments. The solar collec-tors analyzed in this report fall into the 5-yearclassification. The percent of original investmentfor depreciation in each year is indicated below.

Year % of Original Investment15%22%

3,4,5 21%Under the new straight-line and ACRS meth-

ods, salvage value is not used for determining thedepreciable base, therefore, the salvage value istaxed as ordinary income or adjusted for tax pur-poses in the last year of expected life.

Investment CreditA credit for investment in depreciable prop-

erty against federal income tax was allowed. Un-der the tax regulations that were in effect for prop-erty installed before 1981, an investment taxcredit of 10 percent would be taken the year thesolar collector was installed, if the collectorwould be used for 7 years or longer. Under ACRS,an investment tax credit of 10 percent is allowedon property constructed in 1981 or later, if it is tobe used in the business for 5 years or longer.

Solar Energy CreditA credit for investment in solar energy facili-

ties against federal and state income tax also wasincluded in the analysis. In the base case analysis,the federal tax credit was calculated as 15 percentof the initial investment. A state tax credit of30 percent of the initial cost was used. In otherwords, this study initially assumed that a total of45 percent solar investment tax credit would betaken the first year against federal and state in-come tax liability.

12


Energy SavingsEnergy savings were based on the fuel saved

by the use of the collector rather than the conven-tional fuel source that would have been used toheat the building.

Fuel saved by the solar collector was deter-mined by actual on-site monitoring in conjunctionwith computer simulation. A simple accounting ofthe energy supplied to a building by a solar collec-tor is not adequate to establish the actual fuelsaved by the solar collector. The energy flows of abuilding and its demand for supplemental heatalso must be established to determine what por-tion of the total solar energy supplied actuallysaves fuel (refer to Technical Performance sec-tion). Typical monthly temperature and solar data,collected at the closest official meteorologicaldata collection site, served as the basis for esti-mating collector efficiency and supplementalheat demand. Further details concerning the ac-tual collector monitoring and performance simula-tion can be found in Murphy, Schwartz and Rob-bins, 1982 (4).

Once an average annual fuel savings for eachcollector was estimated from the computer simu-lation technique, this information was used toproject the annual fuel savings ($) for the eco-nomic analysis. Natural gas and L.P. gas were thetwo fuels replaced by solar energy in these dem-onstration projects. The fuel prices were initiallyset at $3.40/1000 ft3 of natural gas and $.57/gallonof L.P. gas. The prices were converted to a BTUbasis for use in the program because energy sav-ings generated by the solar collector were basedon BTU’S. To do this the efficiency of the furnaceand BTU content of the fuel were taken into ac-count. It was assumed that the L.P. gas contained84,500 BTU/gal and natural gas contained 900BTU/ft3. The non-vented furnace efficiencies wereassumed to be 90 percent. With this efficiency,each gal of L.P. gas delivers approximately 75,500useful BTU/gal and natural gas delivers approxi-mately 800 useful BTU/ft3. Under these conditions,the effective prices of the fuels were $.00755/1000BTU for L.P. gas and $.00425/1000 BTU for naturalgas. The price at which each fuel increased on anannual basis was initially assumed to be 13 per-cent.

Maintenance CostsAnnual maintenance costs were assumed to

be $0.10 per square foot of collector surface. Thisfigure included an average value for labor andmaterials to repair punctures in the transparentcovers, framing or ventilation components. Nomajor replacement of the collector componentswas planned for the first 15 years of operation.

Property Taxes and InsuranceProperty taxes were included on the solar col-

lector facility and were estimated a 1.95 percent ofthe original investment value per year. The annualinsurance cost of the solar collector was esti-mated as 0.6 percent of the investment value.

Discount RateThe discount rate used in the program can be

adjusted for capital that is jointly or indepen-dently financed from owner’s equity and/or bor-rowed funds with the use of the following equa-tion.

where:r = after-tax discount rate

re = before-tax interest rate or opportu-nity cost on equity capital used tofinance the investment

rf = before-tax interest rate or opportu-nity cost on financed or borrow capi-tal used to finance the investment

pe = percent of financing from equitycapital

pf = percent of financing from borrowedcapital

T = marginal combined federal andstate income tax rate

The discount rate was adjusted for tax purposesto account for the interest deduction allowed forinterest payments on borrowed funds and the af-ter-tax rate of return on equity capital. The after- .tax rate for borrowed funds was multiplied by(1 – T) where T is the combined federal and statemarginal tax rate. The discount rate used in thisanalysis was based on the assumption that 20 per-cent of the initial investment cost was financedfrom owner’s equity and 80 percent from borrowedfunds. The before-tax opportunity rate for owner’sequity and the before-tax interest rate for bor-rowed funds was assumed to be 10 percent.

Tax RateThe combined marginal federal and state in-

come tax rate considered appropriate for this anal-ysis was 25 percent. This rate also was varied forsensitivity analysis purposes.

Expected LifeThe initial expected life of the solar collec-

tors was set at 15 years. This is a reasonableperiod of time, based on the expected life ofmaterials used in these homemade collectors.A shorter, more conservative expected life of10 years also was included to show how it af-fected the results of the analysis.

13


ANALYSISIn addition to the base run, described in the

preceding section and outlined in Table 2, nu-merous other tests were made to provide knowl-edge of economic sensitivity. Subsequent com-puter runs tested the sensitivity of the economicanalysis to changes in 1) depreciation method,2) collector life, 3) collector efficiency, 4) taxcredits, 5) initial investment costs, 6) fuel prices,7) discount rate, and 8) marginal tax rates. The fol-lowing analysis treats each of these variables.

Base RunThe initial computer run was based on the set

of variables most likely to enter a farmer’s deci-sion making process. Assumptions used in thebase run are shown in Table 2. Payback for the

four systems ranged from 6 to 14 years, Table 3.The present value of the net saving over the life ofthe collector (1980 $) ranged from $1170.83 to$8443.42. The after-tax rate of return on invest-ment ranged from 12.3 percent to 30 percent.

It is important to remember that the base runassumed the current level of tax credit—15 per-cent Federal and 30 percent State of Kansas. In alater section of the report, the effects of reducedand eliminated tax credits will be discussed.

DepreciationIn addition to the old straight-line deprecia-

tion method assumed in the base run, two othercomputer runs measured the economic effects ofnew straight-line and ACRS depreciation meth-ods. Both of these depreciation methods allowcomplete write-off of the initial investment as de-

Table 2. Study Parameter for Base Case Analysis

All SystemsYears of Life = 15 Fuel Inflation Rate = 13%a

Discount Rate Investment Tax Credit = 10%for equity capital = 10% State Solar Tax Credit = 30%for borrowed funds = 10% Federal Solar Tax Credit = 15%

Combined After-tax Discount Rate Depreciation Method = Old Straight-= 7.5% Line

Combined Fed. & State Tax Rate = 25%

Each System No. 1 No. 2 No. 3 No. 4

lnvestment b $2,874.14 $ 10,107.62 $4,965.39 $4,619.00Investment Credit Value 287.41 1,010.76 496.54 461.91Solar Credit Value 1,293.36 4,548.43 2,234.42 2,078.59Net Salvage Value 730.00 1,560.00 1,248.61 1,114.80Lifetime Net Savings 5,188.96 8,443.42 3,146.15 1,170.83BTU (usable) 60,600,600 123,228,000 55,894,400 61,500,000Fuel LP gas LP gas LP gas Nat. gasFuel Price $.57/gal. $.57/gal. $.57/gal. $3.4/1000ft 3

a This fuel inflation rate combined a discount rate of 10% and a 3% real increase in fuel prices.b These figures are less than those reported in the text because the cost of the enameled siding, which

would be required if the solar collector was not attached to the building, was deducted to arrive at the netcost. A cost of $.67 sq. ft. of enameled siding was used for the systems.

Table 3. Solar Heating Systems: Economic Parameters, Using Base RunAssumptions

Average AnnualRate of

Initial Capital Payback ReturnSystem Investments Savingsb Period b on Investment

Dollars Dollars Years PercentNo. 1 2,874.14 5,188.96 5 40No. 2 10,107.62 8,443.42 27No. 3 4,965.39 3,146.15 23No. 4 4,619.00 1,170.83 12 16a Before tax credits.b Tax credits are used to calculate the savings, payback period and return on investment.

14


preciation expense over a period of 5 years. Thesemethods apply to solar collectors constructed atthe present time. The old straight-line method fig-ured depreciation over 10 years and was used inthe base case because it was applicable whenthese collectors were constructed.

Applying the new straight-line depreciationmethod, payback was reduced by 1 or 2 years (Ta-ble 4).

As expected, using ACRS depreciationmethod yielded paybacks that were identical tothe new straight-line method. As shown in Table 5,payback ranged from 4 to 11 years. Neither of thealternative depreciation methods greatly changedthe economic performance of the solar heatingsystems. However, these methods allow for moredepreciation to be taken sooner which slightly im-proves the economic performance.

Life ExpectancyPayback also was estimated on the assump-

tion of a shorter life expectancy—10 years. A lifeexpectancy of only 10 years is recognizably con-servative, but it also reflects present uncertaintyof material durability under the stresses ofweather and high temperatures. Furthermore,since solar technology is in what might be calledthe development stage, perhaps investmentshould not be planned for longer than 10 years.Also, improvement in design and efficiency maybe forthcoming that will make present solar heat-ing systems technically and economically obso-lete.

Payback, assuming only a 10-year life, wasthe same as in the base run for all systems exceptNo. 4 (Table 6). Payback for System No. 4 was re-duced to 10 years because the salvage value re-ceived in the 10th year contributed to paybackwithin 10 years.

Table 4. Solar Heating Systems: Comparison of Old and New Straight-LineDepreciation Methods on Payback

Payback Period

Depreciation System System System SystemMethod No. 1 No. 2 No. 3 No. 4

Years

Old straight-line 5 7 9 12

New straight-line 4 6 7 11

Table 5. Solar Heating Systems: Comparison of Straight-Line and ACRSDepreciation Methods on Payback.

Payback Period

Depreciation System System System SystemMethod No. 1 No. 2 No. 3 No. 4

YearsStraight-line 5 7 9 12ACRS 4 6 7 11

Table 6. Solar Heating Systems: Effect of Assumed Physical Life on Payback

Payback Period

System System System System SystemLife No. 1 No. 2 No. 3 No. 4

Years

15 years (base run) 5 7 9 1210 years 5 7 9 1 0a

a Payback equals life expectancy because of salvage received for the collector blocks in the 10th year.

15


Collector EfficiencyAside from initial investment cost, perhaps

efficiency is the most important collector charac-teristic that research scientists struggle with asthey develop this new technology. In the case ofthe four solar swine systems analyzed in thisstudy, it is interesting to observe the variation inusable BTU output per square foot of collectorsurface, in comparison with the initial investmentcost. Some of the variation is directly attributableto management of the system.

System BTU Output/ft2-yr. Cost/ft 2

No. 1 154,200 $7.99No. 2 146,700 12.71No. 3 98,320 8.07No. 4 108,363 8.38

System No. 1, according to these factors,should yield the fastest payback which, in fact,the analysis verifies. These figures also show thatcost is not necessarily related to system effi-ciency, at least not in the case of these home-builtsolar collectors.

We also conducted sensitivity analysis by in-creasing the BTU’s saved by 10 and 25 percent, re-spectively, for each system. This analysis sug-gested that 10 and 25 percent increases in effi-ciency, assuming the energy is usable, had someeffects on payback (Table 7). Assumed incre-mental increases in usable BTU’s (efficiency) hadthe greatest effect on Systems No. 3 and 4, de-creasing payback by 2 years. These increases inefficiency had the least effect on the systems al-ready reporting a faster payback. However, pay-back was reduced by 1 year for these systems, as-suming a 25 percent increase in efficiency.

Solar collector efficiency is highly dependentupon the proper sizing of solar collectors. Opti-mum size determination is critical both to systemperformance (payback) and to the incurred invest-ment cost. Detailed procedures to use in sizing

collectors may be obtained in Solar Heating ofLivestock Structures Handbook, MWPS-23 pub-lished by Midwest Plan Service, Ames, lowa, in1983. Additional information is available fromstate extension agricultural engineers. In Kansas,for example, a computer model, which takes intoaccount building design and heat needs, is avail-able for sizing collectors (6).

Tax CreditsState and federal governments allow tax cred-

its on solar collectors to encourage the adoptionand use of alternative energy sources. Tax creditsfirst became available to homeowners, farmers,and other businessmen in the 1970’s when therewas much concern about future petroleum sup-plies. The federal tax credit law was passed in thelate 1970’s. As amended, it allows a 15 percent taxcredit on solar collectors for business purposes.State tax credits vary by state; in Kansas a 30 per-cent credit is allowable.2 The federal tax creditstatute expires on January 1, 1986, but a bill to ex-tend it is before the U.S. Congress. Under thepresent law, tax credits allowed by the State ofKansas will expire as of December 31,1985.

With no tax credits only System No. 1 had areasonable payback (Table 8). Systems No. 2 and3 approached breakeven situations. Conversely,System No. 4 would not have a favorable paybackwithin its life expectancy.

The 15 percent federal tax credit, alone,would result in paybacks ranging from 7 years up-ward. However, the payback would exceed thesystem’s life expectancy only for System No. 4.Table 8 also shows the anticipated effects on pay-back if state credits were reduced to 20, 10 and0 percent and if only state tax credits were avail-

2Both State and Federal tax credit statutes include nu-merous stipulations concerning qualifications for eli-gibility, maximum amounts allowable, and dates of ex-piration.

Table 7. Solar Heating Systems: Effect of Increases in Assumed SystemEfficiency on Paybacka

Payback PeriodEfficiency System System System System

Level No. 1 No. 2 No. 3 No. 4Years

Base run 5 7 9 1210% increase 5 7 8 1125% increase 4 6 7 10

aCollector efficiency is measured in terms of increases in usable BTU’S.

16


able. Basically, it doesn’t matter to the operatorwhether the credits are allowed by the state or thefederal government. It is the level that is impor-tant. Given the level of technology that was ap-plied to these solar swine systems, the full 45 per-cent tax credit—state and federal—may not benecessary for farmers to achieve a payback withinthe life of the system. Based on the results of thisstudy, solar swine systems currently would have afavorable payback even if total tax credits were re-duced to 30 or 35 percent. In other words, statecredits alone, assuming the Kansas level, couldresult in economically feasible systems. Highertax credits, of course, should speed adoption ofsolar technology and in the long run lead togreater conventional fuel savings.

Fuel Escalation RatesThe impacts of changes in conventional fuel

prices also were studied. The impact of naturalgas deregulation, if and when this occurs, and fu-ture prices of petroleum and other related fuelsare highly uncertain. Therefore, payback for thefour solar heating systems was estimated on theassumption of three annual fuel inflation scenar-ios. In effective terms or real dollars (fuel infla-tion less discount rate) the three annual fuel infla-tion rates were – 3, +3, and + 10 percent, respec-tively. The effect of higher fuel prices is quite ob-vious, especially for the systems with higher ini-tial investment (Table 9).

If fuel costs increase in the future, the eco-nomic performance of solar swine systems couldbe very favorable. Table 10 shows that, given a fuelinflation rate of 20 percent per year, payback wasgenerally well within the technical life of the col-lector, even without tax credits.

Table 8. Solar Heating Systems: Effects of Reduced Tax Credits on Payback,Based on a 15-Year Life Expectancy

Payback Period

Tax Credit System System System SystemAssumption No. 1 No. 2 No. 3 No. 4

Years

Base runa 5 7 9 1220% state—15% federal 6 7 10 1410% state—15% federal 6 10 11 150% state—15% federal 7 11 12 _ b

0% state—0% federal 8 12 14 _ b

30% state—0% federal 6 9 11 15

a Based on 30% state and 15% federal tax credits.b Payback exceeds assumed 15-year life expectancy.

Table 9. Solar Heating Systems: Effect of Changing Fuel Prices on Payback

Fuel Payback Period

Inflation S y s t e m S y s t e m System SystemRatea No. 1 No. 2 No. 3 No. 4

Nominal RealPercent Percent Years

13 (Base run) 3 5 7 9 127 –3 5 9 12 – b

20 10 5 6 7 10a The effective or real dollar fuel adjustment can be calculated by subtracting the assumed 10 percent

discount rate from each fuel inflation percentage.b Payback exceeds life expectancy.

17


effect. Undoubtedly, greater decreases in initialInvestment Cost cost would lower payback.

The initial investment cost used for the foursolar swine systems (Table 2) were actual con- Discount Ratestruction costs including materials and labor re- Changes in the discount rate affectedported by the owners. In the base run the payback changes in payback by about the same magnitudeat those investment levels ranged from 5 to as changes in initial investment and other factors12 years (Table 11). Those investment levels were measured (Table 12). Lower discount rates resultincreased and decreased by 10 percent to deter- in faster payback and vice versa. If lower discountmine the effect of initial investment on payback. rates, primarily caused by low interest rates on

Again this analysis shows that, when varying borrowed funds, can be maintained as fuel pricesonly one factor, the effect on payback was limited. increase, then a combination of these two factorsA change in initial cost of +10 percent could re- can significantly shorten payback. Low discountsuit in a one year longer payback. Conversely, a rates generally would be associated with low in-10 percent decrease in initial cost may have little terest rates for both investment and borrowing.

Table 10. Solar Heating Systems: Effect of Changing Fuel Prices on PaybackAssuming No Tax Credits

FuelPayback Period

Inflation System System System SystemRatea No. 1 No. 2 No. 3 No. 4

Percent Years

7 10 _ b _ b _ b

13 8 12 14 _ b

20 7 10 11 13a

The effective fuel adjustment can be calculated by subtracting the assumed 10 percent discount rate fromeach fuel inflation percentage.

b Payback exceeds life expectancy.

Table 11. Solar Heating Systems: Effect of Initial Investment Cost on Payback

Payback Period

Investment System System System SystemCost No. 1 No. 2 No. 3 No. 4

Years

Base runa 5 7 9 1210’% Increase 5 8 9 1310% Decrease 5 7 8 12

a Cost assumptions for the base run were:System No. 1 = $ 7.99/ft2

System No. 2 = $12.71/ft2

System No. 3 = $ 8.07/ft2

System No. 4 = $ 8.38/ft2

Table 12. Solar Heating Systems: Effect of Changes in Discount Rate on Payback

Payback Period

Discount System System System SystemRate No. 1 No. 2 No. 3 No. 4

Percent Years

Base runa 5 7 9 126 5 7 8 118 5 7 8 11

12 5 8 9 1414 5 8 10 15

a A 10% discount rate was assumed In the base run.

18


Tax RateThe combined federal and state marginal in-

come tax rates were varied from 20 to 50 percentto determine how they affected payback. Table 13reveals that the payback period changed very littlewith a change in the tax rate. In general, the higherthe tax rate, the higher the present value of netsavings from the investment on an after-tax basis.This is due to the fact that a higher tax rate re-sulted in a lower after-tax cost of financing the in-vestment from borrowed funds. Depreciation be-came more valuable and returns were reduced,but the overall impact was to increase net presentvalue. The percent of funds borrowed for the in-vestments was assumed to be 80 percent.

Internal Rate of ReturnThe internal rate of return (lRR) generally re-

flected rates between 12 and 30 percent3. SystemNo. 1 reflected the highest internal rate of return;System No. 4 the lowest (Figure 5).

Like payback, internal rate of return was af-fected to varying degrees by changing the pa-rameters of the study. Figure 6 illustrates the ef-fect of fuel inflation rate and solar credits on the

3The compound interest rate for the present value ofthe cash flows, or net savings, is equal to zero, over thelife of the investment. (Refer to the discussion of in-ternal rate of return in the Economic Analysis Method-ology section.)

IRR. Some of the other major changes, using thebase run as the norm, are summarized as follows:

Change to:Effect on Internal

Rate of ReturnNew straight-line

depreciationACRS10-year IifeIncrease of invest-

ment cost (10%)Decrease of invest-

ment cost (10%.)Lower fuel inflation

rate to 7%:with tax creditwithout tax credit

Raise fuel inflationrate to 20%:with tax creditwithout tax credit

Increase collectorefficiency (10%)

Increase collectorefficiency (25%)

Decrease in solartax credit (10%)

Increase in tax rate(10%)

1 to 2 percent increase1 to 2 percent increase

3 to 4 percent decrease


1 to 2 percent increase

5 to 6 percent decrease12 to 15 percent decrease

6 percent increase1 to 3 percent decrease




.2 to 2 percent decrease

Table 13. Solar Heating Systems: Effect of Change in Combined Marginal Tax Rateon Payback

Payback Period

Combined Marginal System System System SystemTax Rate No. 1 No. 2 No. 3 No. 4

Percent Years

Base run 5 7 9 12

20% 5 8 9 1330% 5 7 9 12

40% 5 7 8 11

50% 5 7 8 10

19



SUMMARY

The results of the economic analysis of fourdemonstration solar collectors illustrate that, un-der the conditions outlined, the solar collectorswould pay for themselves over their physical lifeof 15 years. Specifically, three of the four systemsstudied had payback periods of less than 10 years.All of the systems generated positive net savingsranging from $1,170.83 to $8,443.42 (1980 $), incomparison with conventional fuel sources.

Systems 1, 2 and 3 had better economic per-formance. A major factor that contributed to thiswas the fuel source. Systems 1, 2 and 3 save L.P.gas whereas System No. 4 saves natural gas. Nat-ural gas in this study is relatively cheaper thanL.P. gas on a BTU basis. The price of L.P. gas perBTU is 78 percent higher than the price of naturalgas. Therefore, the value of solar energy is greaterwhen L.P. gas is saved than when natural gas issaved. If L.P. gas had been the alternative for sys-tem No. 4 the solar collector would have had a bet-ter economic performance.

Therefore, it would appear that if natural gasprices are relatively low, a solar heating systemfor swine buildings may be much less desirable atthe current time. However, solar systems woulddeserve additional consideration if (or when) natu-ral gas prices rise.

Solar energy credits of up to 45 percent of theinitial costs were used in the analysis. The effectthat these credits had on the economic perfor-mance of these systems was substantial. Withoutthe federal and state tax credits, only one of thefour systems had a very reasonable payback andone would not pay for itself within the 15 year pe-riod specified for physical life. Without the solartax credits, payback periods of all systems werenot as good, even if the higher annual rate of en-ergy price increase (20 percent) evaluated in thisreport were applicable. In other words, the taxcredit effect was greater than the fuel inflation ef-fect.

Although the solar energy credits were im-portant, the fuel price escalation rate also was im-portant. The initial analysis used an annual infla-

tion rate of 13 percent per year which, after dis-counting at a 10 percent rate, was equivalent toapproximately a 3 percent increase per year in realdollars. However, if energy prices for the conven-tional fuels that were replaced (natural gas andL.P. gas) rose at a slower rate, 7 percent nominalincrease per year or a – 3 percent per year de-crease in real dollars, the economic performanceof the systems was altered. The payback periodincreased by 2 years for System No. 2, and by3 years for System No. 3. This analysis alsoshowed that under these conditions System No. 4would not pay for itself within 15 years. Paybacktime for System No. 1 was not affected.

Alternatively, if energy prices increased at agreater rate, 20 percent or approximately 10 per-cent in real terms, the economic performance ofthe systems was improved. The payback period re-mained the same for System No. 1 but declined by1 year for System No. 2 and by 2 years for Systems3 and 4.

Most of the other variables that entered intothe analysis had some impact on the solar collec-tors’ payback period when they were varied indi-vidually. A 10 percent increase or decrease in theinitial investment cost only affected the paybackperiod by 1 year. Changes in the discount rate andmarginal tax rates caused marginal changes(1 year) in the payback period for three of the foursystems. Increases in efficiency of the solarcollector by 25 percent resulted in a 1-year shorterpayback for two of the systems and a 2-yearshorter payback for the other two.

The results of this study generally show that,under reasonable fuel cost increases, a well-de-signed and well-operated solar heated swine con-finement unit, similar to the ones described here,should prove to be a very viable and wise farm in-vestment. However, if a farm manager is in a situa-tion where energy prices, particularly natural gas,are relatively low and are not expected to in-crease, and if solar tax credits are not available, aninvestment in solar heating for confinement build-ings may not be wise. Of course, a managershould evaluate any investment in a solar systemfor his particular operating condition as best hecan.

21


LITERATURE CITED(1) Heid, Walter G., Jr. and Warren K. Trotter. 1982.

Progress of Solar Technology and PotentialFarm Uses. AER No. 489. Economic Re-search Service, U.S. Department of Agricul-ture, Washington, D.C.

(2) U.S. Department of Commerce. Bureau of Cen-sus. 1968. Census of Agriculture, 1964. Gen-eral Report. US. Government Printing Office,Washington, D.C.

(3) . Bureau of the Census. 1981. Cen-sus of Agriculture, 1978. General Statistics.U.S. Government Printing Office, Washing-ton, D.C.

(4) Murphy, James P., Michael Schwartz and Fran-cis V. Robbins. 1982. Kansas Final Report,Solar Heating of On-Farm Livestock Shelters.KSU Project no. 60810-0810 and USDA Agree-ment no. 12-05-300-421. Department of Agri-cultural Engineering, Kansas State Univer-sity, Manhattan.

(5) Williams, Jeffery R. 1983. EASE1—A Programto Calculate Economic Analysis of Solar En-ergy Facilities. Report no. 83-1 79-D, Depart-ment of Agricultural Economics, KansasState University, Manhattan.

(6) Robbins, F.V. and C.K. Spillman. 1981. “Pre-dicted Performance of the KSU Solar Collec-tor-Storage System. ” Agricultural Engineer-ing. Vol. 1. ASAE Pub. 3-81. Am. Soc. Agr.Engrs., St. Joseph, Mich.

22



Documents

SB645 Solar Heating Systems for Swine Housing: An … · solar heating systems for swine housing: ... solar heating systems for swine housing: an economic appraisal ... technical