Just over a year ago, ILSR released a report questioning whether bigger was better in renewable energy. We examined the relative costs of big, remote wind and solar compared to near, distributed renewable power. The conclusion was that renewable energy is competitive at all sizes. But our solar comparison was lacking a key element: what do grid customers actually pay for distributed solar, when taking into account the cost of delivery and the portion of energy that solar owners use for themselves? What is the value of local spending on distributed solar projects?
It’s a result that may surprise many in the energy industry.
Comparing Traditional Economies of Scale
For comparison, here’s the original chart comparing levelized costs (the cost of a solar project averaged over 20 years), showing that the conventional wisdom that bigger is better. But because it doesn’t include delivery costs nor the value of power used on-site, it’s not a very accurate comparison. We’ll call this the apples-to-bananas comparison.
This next chart incorporates delivery costs, and large-scale solar loses much of its cost advantage. Delivery costs were taken from a recent study by Crossborder, comparing actual transmission costs for utility-scale solar projects in California and Arizona. This is a more accurate comparison, but is still lacking all the appropriate pieces, so we’ll call it the apples-to-oranges comparison.
The final iteration of this chart incorporate a key element, the amount of power utility customers actually have to buy. On average, about half of electricity produced by a rooftop solar array is consumed by the home or business that hosts it. The other half is exported to neighbors. It’s only the second half that is “purchased” by the grid and other customers, which means an apples-to-apples comparison of purchasing costs must accurately only bill the grid’s other customers for half that power. The following chart illustrates, replacing the cost of producing energy for distributed solar (which isn’t reflected in the cost to buy exported power) with the estimated price for the grid to buy that power. It uses the U.S. average retail price for electricity of 12 cents per kilowatt-hour for residential customers and 10 cents per kilowatt-hour for commercial customers. Since the grid operator gets a load reduction equivalent to the full amount of power produced, but only has to pay for half of it, we’ve adjusted the prices to reflect the average price per kilowatt-hour (kWh) exported from those systems (e.g. 12 cents * 100 kWh + 0 cents * 100 kWh -> 6 cents per kWh).
More Than Price
There’s a final element often ignored by energy wonks or utility regulators but of much concern to communities: the economic impact. In the study by Crossborder, researchers noted that about one-quarter of residential solar project costs—for customer acquisition, installation labor, permitting and interconnection, and permit fees—are spent locally. Large commercial projects spend about 6% of their costs locally. The following chart illustrates the financial value of distributed solar projects to the community that hosts them:
Two Takeaways
If you’re a Public Utilities Commission eyeing the least cost solar energy, it’s clear that electric customers benefit regardless of the scale of the solar build, but there’s definitely not a benefit to building bigger than about 10 to 20 megawatts. In other words, you may need to consider different factors, such as who earns the return on investment from the solar project. If solar projects are comparable cost, a Public Utilities Commission ought to favor project development with maximum public economic benefit, as opposed to utility shareholder benefit.
If you’re a city or community looking to maximize the value of your solar investment, smaller is best. There’s every reason to favor distributed solar because the economic multipliers far outweigh any benefit from building solar bigger. The final chart shows the combination of purchase price less local spending value:
Small is beautiful, wrote E. F. Schumacher, but when it comes to solar, it’s also an economic smash-hit.
For more on renewable energy economies of scale, see our 2016 report, Is Bigger Best?
To hear more on how smaller solar installers offer better prices, listen to our podcast with EnergySage CEO Vikram Aggarwal.
This article originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter or get ILSR’s Energy Democracy weekly update.
Photo credit: Skeeze via Pixabay
