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Article filed under Energy, Energy Self-Reliant States | Written by John Farrell | No Comments | Updated on Nov 7, 2011

Nuance on Krugman’s “Solar is now cost-effective”

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/nuance-krugmans-solar-now-cost-effective/

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:

  1. 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.
  2. 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.
  3. 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.

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Article, ILSR Press Room filed under Energy, Energy Self-Reliant States | Written by ILSR Admin | No Comments | Updated on Oct 27, 2011

John Farrell Talks Solar Powered America in 2026 on the David Sirota Show

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/john-farrell-talks-solar-powered-america-2026-david-sirota-show/

On Tuesday, ILSR Senior Researcher John Farrell was invited on the David Sirota Show on AM760 in Denver to talk about his article on Local Solar Could Power America in 2026. Click here to find the podcast from iTunes (Sirota Tuesday 10-25-11, Hour 3), the segment starts at 16:24. Continue reading

Article filed under Energy, Energy Self-Reliant States | Written by John Farrell | 3 Comments | Updated on Oct 26, 2011

Group Purchase Gets Residential Solar to Grid Parity in Los Angeles

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/group-purchase-gets-residential-solar-grid-parity-los-angeles/

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.

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Article, Resource filed under Energy, Energy Self-Reliant States | Written by John Farrell | No Comments | Updated on Oct 19, 2011

Sun Power Minnesota

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/sun-power-minnesota/

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

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Article, ILSR Press Room filed under Energy, Energy Self-Reliant States | Written by John Farrell | No Comments | Updated on Oct 18, 2011

More Cost-Effective Solar from CLEAN Contracts than Solar REC Markets

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/more-cost-effective-solar-clean-contracts-solar-rec-markets/

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

Article filed under Energy, Energy Self-Reliant States | Written by John Farrell | No Comments | Updated on Sep 28, 2011

Keeping Energy Dollars in Minnesota

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/keeping-energy-dollars-minnesota/

I gave a presentation last night to a public forum hosted by Think Again MN on maximizing the economic returns from the state’s clean energy resources.  I was joined by Lynn Hinkle of the Minnesota Solar Energy Industries Association (and former union labor representative) and George Crocker from the North American Water Office (and passionate community organizer).  The whole video is below, with my presentation starting around 24:00.

To view just the slide show of my presentation, click below:

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Article filed under Energy, Energy Self-Reliant States | Written by John Farrell | No Comments | Updated on Sep 26, 2011

The Value and Power of Distributed Solar in Arizona

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/value-and-power-distributed-solar-arizona/

A presentation I gave last Friday to the Arizona Corporation Commission.

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Article filed under Energy, Energy Self-Reliant States | Written by John Farrell | No Comments | Updated on Sep 23, 2011

California Saves Money for Classrooms with Solar for Schools

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/california-saves-money-classrooms-solar-schools/

We previously examined how some schools are going solar, with a particular focus on the federal tax incentives. Click here for our December 2010 analysis. Continue reading

Article filed under Energy, Energy Self-Reliant States | Written by John Farrell | 2 Comments | Updated on Sep 15, 2011

Solar PV Economies of Scale Improve in 2010

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/solar-pv-economies-scale-improve-2010/

Installed costs for solar PV have dropped and economies of scale improved significantly in 2010, opening the door for much more cost-competitive distributed solar power. 

The data comes from the 4th edition of the excellent report from the Lawrence Berkeley Labs’, Tracking the Sun (pdf) and shows the installed costs for behind-the-meter solar PV projects in 2010.  The following merely copies Figure 11 from that report, showing the average installed cost of “behind-the-meter” solar projects in the U.S. in 2010, by project size.

This is useful and shows the significant economies of scale for solar PV in 2010, but the history is important.  For context, the following chart shows the 2010 data along with the 2009 data from Lawrence Berkeley Labs, with the grey shaded area indicating the cost decreases.  The 2010 installed cost data from the California Solar Initiative (red) is also shown, helping validate the LBNL data.  The last data point from the CSI is an outlier likely due to having too few projects in that dataset.

Two things are clear from the new data.  First, installed costs have dropped significantly, by $1 per Watt for residential-scale solar PV and by nearly $2 per Watt for megawatt-scale projects.  We can also see more clearly how the economies of scale of solar have improved, as well.

The unit cost savings between the smallest and largest solar projects (1 MW and under) jumped from $2.80 to $4.60 per Watt, a change in relative savings from 30 percent to 47 percent.  Economies of scale were also much greater for mid-size solar (30-100 kW), with the percentage savings over the smallest projects rising from 21 to 35 percent.   The following chart illustrates the change in economies of scale, showing installed costs as a percentage of the cost of a 2 kW system.

Instead of having relatively little economies of scale for solar PV projects larger than 2 kW, the 2010 data confirms that the unit cost of solar does continue to fall significantly as solar projects grow up to 1 megwatt (MW) in size.

Unfortunately, LBNL did not have sufficient data to provide context for economies of scale for larger distributed solar projects (1 to 20 MW), with only about 20 datapoints.  However, their finding was that these larger crystalline solar projects cost between $4 and $5 per Watt, showing small but significant scale economies.

The lesson is that solar economies of scale seem to be improving as the U.S. market matures, good news for distributed solar to compete with peak electricity prices on the grid.

[note: for more context, see the previous post on 2009 solar economies of scale]

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Article filed under Energy, Energy Self-Reliant States | Written by John Farrell | No Comments | Updated on Sep 8, 2011

Severe Volatility Illustrates the Risks of Using Solar RECs

The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/severe-volatility-illustrates-risks-using-solar-recs/

This is a little taste of a project I’m doing comparing solar renewable energy credits (SRECs) with a state solar mandate to Clean Contracts (a.k.a. feed-in tariffs).  One metric for comparison is the risk created by market uncertainty, and there’s no better illustration of the risk and uncertainty in SREC markets that this chart.  In the past 9 months, SREC prices have tumbled in nearly every market in the U.S. 

Chart of Solar Renewable Energy Credits in Seven U.S. States August 2009 to 2011

The cause is the same everywhere – the solar industry met the state mandate, cratering demand for SRECs.  Prices won’t recover until the market slows down. 

From an Econ 101 standpoint, SRECs beautifully price market demand and are a powerful indicator of when the state-created market is saturated.  From an industry standpoint, however, they represent a real roller coaster.  It’s hard to be a solar installer when your entire market dries up for 9 months waiting for next year’s quota to roll in (in NJ and PA, legislation is being considered to accelerate the state mandate to solve the problem). 

Clean contracts (if uncapped) solve the problem, because the market doesn’t bust (of course, a solar mandate that can keep ahead of supply would also work). 

But rather than pricing market demand (as SRECs do), Clean contracts attempt to price the cost of solar.  It’s one reason why they tend to deliver lower cost solar to market than SREC markets or mandates.  And as you can see in this chart from a previous post, even Germany’s Clean contract (feed-in tariff) program more closely approximates the cost of solar in New Jersey that New Jersey’s SREC price.

It’s a serious question for policy makers to consider when creating a market for solar.  Is an SREC market that depends on a state solar mandate any more “market-based” than Clean contracts that simply provide a standard offer to solar developers?  And if the latter means cheaper solar for ratepayers, then shouldn’t that trump considerations of “markets”?

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