Solar Economics
Solar technologies can provide a cost-effective means of controlling your electricity bill, especially if utility rates continue to rise. Installing solar technologies can reduce or eliminate your exposure to rising electricity rates. Government incentives combined with decreases in solar equipment prices can make the investment in solar a good financial decision for homeowners, businesses and public agencies. Since the 1998, installations of PV cells and modules around the world have been growing at an average annual rate of more than 35% (EPIA 2007). According to the Solar Energy Industry Association, 2007 was a record year with over 314 MW of new solar capacity installed in the U.S., adding $2 billion into the U.S. economy and creating 6,000 new jobs.
What is the payback period on a renewable energy investment?
The costs of solar PV systems have decreased significantly over the past 10 years. Over the same period, many states have developed financial incentives to help consumers of PV technologies better able to afford the up-front costs, sometimes providing incentives to cover up to 50% of the costs. As a result, the payback period can vary widely depending on the costs of the PV system, the performance of the PV system and the availability of grants and tax incentives. It also depends on the stability of utility energy prices. The Emergency Economic Stablization Act of 2008 established an 8-year extension of the commercial and residential solar investment tax credit, and completely eliminates the monetary cap for residential solar electric installations, and allows utilities and alternative minimum tax (AMT) filers to take the credit. Using a 5% annual utility inflation rate, a residential solar PV system that qualifies for a state grant and the federal tax credit, could pay for itself in approximately 10-15 years. A commercial solar PV system could have a much faster payback period because the 30% federal tax credit is not capped, and MACRS accelerated depreciation can be applied to the capital investment. This can result in a payback for some commercial solar PV systems in fewer than 7 years!
For solar thermal, domestic hot water systems cost approximately $2,000 – $6,000 depending on the size and type of system. They could take 6-10 years to pay back, depending on geographic location, system design, collector orientation, and collector size. The shortest pay backs occur when using solar thermal technology to heat a swimming pool which can pay for itself in as little as 2-3 years. Residential solar water heating systems are subject to the $2,000 cap for the solar investment tax credit.
Several studies have shown that the average re-sale value is increased for properties with renewable energy systems. There can be as much as a $20 increase in property value for every $1 of annual energy cost reduction realized frm renewable energy systems. (See “Planning for PV: The Value and Cost of Solar Electricty,” by US DOE EERE.)
In all cases, a renewable energy system provides the owner the advantage of locking in the cost of some portion of their energy usage, and essentially free energy from the system once the cost of the initial investment has been recovered.
FAQs for Solar Photovoltaics
How much should I expect to pay?
US DOE EERE’s ”A Homebuilder’s Guide to Going Solar (December 2008)” brochure includes the following table on the Cost of Installed 3-kW Solar Systems after Rebates and Incentives:
General cost break down (before any rebates or tax credits factored in):
• Complete systems installed: $8-$10/watt
• 1 kW System: $11-12,000
• 2 kW System: $16-20,000
• 3 kW System: $24-30,000 (Avg. system size for family of 3-4 in a 2,500 sq. ft. house)
• 4 kW System: $31-35,000
• Solar modules: $4-7/watt, approximately 50% of total cost
• Installation: $1-3/watt, 10-20% of total cost
• Inverter & Balance of System: $2-5/watt, 30-40% of total cost
Also, see the DOE EERE brochure, “Making ¢ents Out of Solar: Putting More Power into Your Building Plans.”
FindSolar.com is an excellent website that can help you estimate how much installing PV and solar hot water technologies could cost you and what financial incentives may be available to you. FindSolar.com’s mission is to serve as a convenient, user-friendly means for home and their website offers Online “quick calculators” to help you determine the costs and benefits of solar energy systems for your particular location and building needs, a means to review and access solar energy contractor and professional services, and links and resources to current information about solar energy data, programs and other helpful information.
PV cost trends are being monitored by Lawrence Berkeley National Lab. Their most recent report from February 2008, “Tracking the Sun: The Installed Cost of Photovoltaics in the U.S. from 1998-2007,” offers an analysis of installed cost data from nearly 37,000 residential and non-residential PV systems, totaling 363 MW of capacity and representing 76% of all grid-connected PV capacity in the U.S. through 2007. The Executuive Summary from this report offers the key finding of the analysis, usch as
- Average installed costs have declined since 1998 for systems <100 kW, with systems <5 kW exhibiting the largest absolute reduction, from $11.8/W in 1998 to $8.3/W in 2007. Cost reductions for systems >100 kW are less apparent, although the paucity of data for earlier years in the study period may limit the significance of this finding.
- The overall decline in installed costs over time is primarily attributable to a reduction in non-module costs, calculated as the total installed cost of each system minus a global annual average module price index. From 1998-2007, average non-module costs fell from $5.7/W to $3.6/W, representing 73% of the average decline in total installed costs over this period. This suggests that state and local PV deployment programs – which likely have a greater impact on non-module costs than on module prices – have been at least somewhat successful in spurring cost reductions.
How efficient are the PV panels?
The performance of a photovoltaic array is dependent upon sunlight. Climate conditions (e.g., clouds, fog) have an effect on the amount of solar energy received by a PV array and, in turn, its performance. Most current technology crystalline photovoltaic modules are about 12 to 13 percent efficient in converting sunlight into electricity. Some modules provide as much as 20 to 21 percent efficiency. Further research is being conducted to raise this efficiency to 23+ percent.
Thin film solar PV products generally are less efficient. They range from 6% to 10%. However, their retail cost per watt is comparable to crystalline modules.
Economic Impacts of the PV Industry and Manufacturing
The solar energy industry, which includes technology, research, manufacturing, installation, training and marketing, has a direct impact on many facets of U.S. GDP. Since the 1970s, when the solar energy market was just starting, business of solar energy has seen a 100-fold price decrease. This has led to an explosion of millions of kW of solar energy being generated and a national market worth about $2 billion. Jobs associated with the solar energy industry are in engineering, science, management, architecture, construction, planning, education, sales, skilled labor, finance and design.
The following information is taken from the Energy Information Administration’s “Solar Thermal and Photovoltaics Collector Manufacturing Report.” The link PDF of this October 2007 report can be found by clicking here.
- Photovoltaic (PV) cell and module domestic shipments continued their rapid expansion in 2006, in part caused by the new Federal incentive providing tax credits to homes and businesses that install solar systems. The tax credit went into effect in January 2006 as part of the Energy Policy Act of 2005. The Federal tax credit will reduce taxes for qualifying taxpayers by the full amount of the per kWh credit and is not based on income. Also affecting PV cell and module domestic shipments were the same factors that impacted growth in solar thermal panel shipments.
- According to the EIA, during 2006, domestic shipments reached 206,511 peak kilowatts, up dramatically from the 2005 domestic shipments of 134,465 peak kilowatts. Total shipments of PV cells and modules reached a new high of 337,268 peak kilowatts, nearly a 50 percent increase from 226,916 peak kilowatts in 2005. Module shipments increased 56 percent to 320,208 peak kilowatts in 2006, while cell shipments decreased to 17,060 peak kilowatts from 21,920 peak kilowatts.
- The number of active companies shipping PV cells and modules jumped to 41 in 2006 from 29 in 2005, an increase of 41 percent.
- PV installers replaced wholesale distributors as the largest business category for PV modules/cells shipped in 2006. Shipments to installers rose approximately 118 percent to 146,948 peak kilowatts, and represented 44 percent of total shipments in 2006 versus 30 percent in 2005.
- Total revenue from photovoltaic module and cell shipments was $1.16 billion in 2006, nearly a 65-percent increase over the 2005 revenue of $0.70 billion in 2005 [1]. The average price for PV modules (dollars per peak watt) increased nearly 10 percent, from $3.19 in 2005 to $3.50 in 2006. For photovoltaic cells, the average price decreased 6 percent, from $2.17 in 2005 to $2.03 in 2006.
The commercial sector was the largest market for PV modules and cells in 2006, followed by the residential and industrial sectors. Commercial sector shipments totaled 180,852 peak kilowatts and jumped at a rate of 102 percent from 2005 to 2006. The residential sector totaled 95,815 peak kilowatts in 2006, about 28 percent over the previous year. Electricity generation, which consists of both grid-interactive (those connected to the electric power grid)[2] and remote applications (those not connected), continues to be the predominant end use for PV cells and modules.
Export shipments totaled 130,757 peak kilowatts in 2006, an increase of 41 percent from the 2005 level. The export market previously dominated by crystalline silicon modules/cells has been surpassed by thin-film modules/cells. Thin-film exports increased sharply to 69,718 peak kilowatts in 2006 from 32,000 peak kilowatts in 2005. The export market split was about 47 percent crystalline silicon and 53 percent thin-film modules/cells. Shipments to Europe represented 83.5 percent of total U.S. exports, with Germany remaining the predominant importer of cells and modules, taking 80,583 peak kilowatts, or 62 percent of U.S. export shipments in 2006. Spain has replaced the Netherlands as the second-largest recipient of U.S. PV cells and modules, accounting for 15,241 peak kilowatts, or close to 12 percent of U.S. export shipments in 2006. Strong government financial support programs for renewable energy in these countries, especially Germany, are largely responsible for increased U.S. exports.
Shipments of complete PV systems increased nearly 81 percent from 37,115 systems in 2005 to 67,172 systems in 2005. (The increase was heavily influenced by the innovative flexible, foldable, portable thin-film system. The total revenue of completed systems surged to $192.9 million, and total peak kilowatts jumped from 6,583 in 2005 to 28,099 in 2005.
Employment in the PV-related activities totaled 4,028 person-years in 2006, an increase of about 26 percent from 2005 (Table 2.27). However, the average employment per company was 98 person-years in 2006, compared with 110 person-years in 2005, as a number of new companies reported shipping PV cells and modules during 2006.
[1]The total revenue includes charges for advertising and warranties, but does not include excise taxes and the cost of freight or transportation for the shipments.
[2] See EIA glossary that defines electric power grid as a system of synchronized power providers and consumers connected by transmission and distribution lines and operated by one or more control centers.