The Germans have proposed significant revisions to their landmark renewable energy policy, the feed-in tariff, and the proposed prices should make Americans wonder why solar still costs so much on this side of the Atlantic. After a significant step-down in March, German utilities will be buying rooftop solar on long-term contracts from projects 10 kilowatts… Continue reading
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Updated 2/1/12 because I underestimated how the tiered pricing worked. Thanks to bkarney at Renewable Energy World for the comment. Last week I wrote about the time-of-use pricing scheme that PG&E offers in San Francisco, and how solar power is worth 14% more compared to a standard flat-rate electricity plan. In reality, it’s 36% or… Continue reading
Solar grid parity is considered the tipping point for solar power, when installing solar power will cost less than buying electricity from the grid. It’s also a tipping point in the electricity system, when millions of Americans can choose energy production and self-reliance over dependence on their electric utility. But this simple concept conceals a… Continue reading
Where does solar grid parity strike first? How fast does it spread? Click “animate” on the map below to see which major metropolitan areas can beat grid prices with local solar first, and how quickly unsubsidized solar could take over America’s major metropolitan areas.
In January, I plotted the size of state solar markets against their average installed cost and found surprisingly little correlation. When Lawrence Berkeley Labs put out their 2011 version of Tracking the Sun (IV), it was possible to update the chart, which I did in two stages. The first chart simply overlays the 2010 average… Continue reading
Americans seem unable to resist big things, and solar power plants are no exception. There may be no reasoning with an affinity for all things “super sized,” but the economics of large scale solar projects (and the unwelcome public scrutiny) should bury the notion that bigger is better for solar. In fact, smaller scale solar… Continue reading
Nobel economist Paul Krugman made waves today when his column “Here Comes the Sun” noted that the rapidly falling cost of solar electricity – “prices adjusted for inflation falling around 7 percent a year” – meant that “solar is now cost-effective.”
It’s close. But it depends on what’s meant by “cost-effective.”
The first step is translating solar prices into electricity prices. Installed costs for solar have dropped dramatically, from $8 to $10 per Watt just a few years ago to as low as $3.50 per Watt for utility-scale systems as just over $4 per Watt for residential systems. But electricity isn’t sold in Watts, but in kilowatt-hours (kWh). So, solar installed at $3.50 per Watt in Minneapolis, MN, will produce electricity for about 23 cents per kWh. In sunny Los Angeles, the same solar PV array would produce power at 19 cents per kWh, because the more abundant and direct sunshine would make 20% more solar electricity over the same time period.
In either place, such prices don’t compare favorably to average residential retail electricity prices of 8 and 12 cents, respectively. In fact, none of the top 40 metropolitan areas in the country have average prices for electricity as high as 19 cents.
But there are several caveats:
- Grid electricity prices are not fixed, but changing. Over the past decade, electricity prices have risen, on average across the United States, 3 percent per year. The solar electricity price is locked in once the panels are operating.
- Some utilities have time-of-use rates that charge more for electricity during peak times (hot, summer afternoons) that rise as high as 30 cents per kWh. Solar competes favorably against these rates.
- There are federal, state and utility incentives for solar that reduce the cost. The 30% federal tax credit, for example, is in statute until the end of 2016.
How much do these issues matter?
Electricity Price Inflation Makes Solar Competitive Now
If electricity price inflation continues apace, by the time their solar PV systems are halfway to their expected life of 25 years, 45 million Americans (roughly 1 in 6) would have cheaper electricity from solar if they installed right now at $3.50 per Watt.
Time-of-Use Pricing Makes Solar Competitive Now
Time-of-use pricing lets utilities charge different prices for electricity at different times of day, based on the actual cost of delivering power at those times. In many places, the higher prices coincide with hot, sunny summer afternoons and effectively increase the cost of electricity by 30% during the time a solar panel produces power. Already 22 million Americans in Southern California can install solar at $3.50 per Watt and beat time-of-use pricing for grid electricity.
Incentives for Solar Accelerate Cost-Effectiveness
Solar power is crossing a cost-effectiveness threshold against grid prices that are rising and reflect the true cost of electricity. But incentives that capture the environmental and economic benefits of solar help finance projects outside of the sunny Southwest.
While only 3 million Americans can beat grid prices with $3.50 per Watt solar and no incentives, 41 million Americans can beat grid prices using the 30% federal tax credit. And the market expansion enabled by tax incentives is driving down the cost to install solar (labor and materials) as well as the cost of modules.
Time Makes Solar a Winner
As Krugman notes, the falling costs of solar make time its greatest ally. The following chart illustrates the number of Americans in the top 40 metropolitan areas for whom solar (at $3.50 per Watt in 2011) beats grid electricity prices (average residential retail rates) over the next 10 years. The base assumptions are that the price of solar declines by 7% per year and grid electricity prices rise by 3% per year. The chart examines solar with no incentives and with the 30% tax credit, and with and without utility time-of-use pricing (expected to boost the retail rate during solar producing hours by 30%). The no incentive and tax credit lines merge after the 2016 expiration of the 30% tax credit.
Even without the federal tax incentives or favorable time-of-use pricing, nearly 50 million Americans can beat their utility’s electricity price with solar by 2016. With time-of-use prices, it’s over 90 million by 2016. And with the tax credit factored in, it’s nearly half the country. Of course, the chart will tend to underestimate over time, as the greatest population growth tends to be in the largest metropolitan areas (with the highest electricity prices).
Here comes the sun, indeed.
Back for a second round, the Open Neighborhoods organization in Los Angeles has organized another group purchase of residential and commercial solar PV, bringing the cost of solar incredibly close to the cost of grid power. With grid prices constantly rising, the lifetime savings of going solar have never looked better.
The savings from the group purchase are enormous. With prices are around $4.40 per Watt installed for solar, Open Neighborhoods gets residential solar for $2.00 cheaper than the average prices reported by the Solar Energy Industries Association for the second quarter of 2011. That equates to a 6 cents per kilowatt-hour savings on solar over 25 years. Even with solar typically being cheaper in California, the group advertises savings of as much as 33% on a residential solar array.
The low group purchase price means that those who go solar will have cheaper electricity from their rooftop panels than average grid electricity by 2015. If the solar user is on a time-of-use pricing plan, they’ll already have cheaper electricity from solar than from their utility.
The following chart illustrates the comparison between the cost of power from a rooftop solar array purchased as part of this group buy versus grid electricity at a flat rate.
The results are promising and show that economies of scale can be achieved even with residential solar, if folks work together.
This is a presentation given to the Minnesota Renewable Energy Society in October 2011. With costs dropping rapidly and value rising, solar can make enormous contributions to Minnesota’s electricity system and economy. That’s the spirit of this presentation ILSR Senior Researcher John Farrell gave last week to the Minnesota Renewable Energy Society on the potential… Continue reading
The low risk and transparency of CLEAN Contract Programs can provide states with more solar at a lower cost than solar renewable energy certificate (SREC) programs, says a new report released last week. Produced by the Institute for Local Self-Reliance (ILSR), CLEAN v. SREC: Finding the More Cost-Effective Solar Policy finds that an otherwise identical… Continue reading