by Richard T. Stuebi
Rarely have I encountered a subject so widely misunderstood as the retail application of solar photovoltaics (PV).
So many people are terribly excited about PV, and are dying to install it on their house or building as a way to cut their ever-rising energy bills (not to mention the eco-friendly statement a PV system makes). I guess people tend to think that solar energy should be very inexpensive, just because we don’t pay anything to be hit by the sun’s rays every day.
It’s true that, once installed, PV systems cost virtually nothing to operate or maintain. And, it’s true that, once installed, PV systems will reduce energy bills. But it’s the cost of acquiring and installing the PV system that people somehow don’t compute.
In fact, the costs of the equipment to convert solar radiation to electricity are quite high. On top of this, the conversion process is not particularly efficient (less than 20% of the sun’s energy comes out as electricity), and the amount of energy in a given footprint of sunlight is not that great. As a result of all these factors, on a per-kilowatt-hour basis, without any form of subsidy, PV is just about the most expensive way presently available to generate electricity.
Exhibit 1 in a recent paper entitled “The Economics of Solar Power” by the management consulting firm McKinsey & Company neatly frames the interrelationship between installed cost of PV ($/watt), annual solar energy yield (in other words, how sunny it is at your location), and the implied cost of electricity from the PV system.
For a place like Cleveland — where we get about 1000 kWh per peak kW of PV installed, and where we are likely to face grid electricity prices of less than $0.20/kWh for the foreseeable future (due to our region’s reliance on already-installed coal and nuclear power) — PV economics only become compelling when the installed cost of a PV system (net of any subsidies) is on the order of $2.50/watt. Absent subsidies (and they are not plentiful here or in most other areas of the country), current PV economics of about $8-10/watt installed are simply not attractive, with investment paybacks of typically more than 20 years.
True, in places like Hawaii (with high grid prices and great solar exposure), PV is pretty attractive. But, for the teeming masses here in the Midwest and Northeast U.S., we need about a 60-80% reduction in installed cost for PV systems to become widely cost-effective (without subsidies) relative to the grid.
Clearly, the PV industry will benefit as grid electricity prices rise with increasing fuel prices and the eventual addition of carbon constraints. Moreover, PV innovators are driving hard for major cost reductions in PV modules, where 75% reductions (from $4/watt to $1/watt) can be foreseen in the next decade or so.
But, the balance of plant — the inverters, the mounting, the wiring harnesses — and the various labor costs — system engineering, distribution, installation — also require similar cost reductions, and are not receiving the same degree of attention. While economies of volume will help, the path to reducing the non-module costs of a PV system is less obvious, and is more a “leap of faith” at present.
Putting aside economics, if not marketed properly, PV systems can set up customers for disappointment in other ways, too. Relative to the size of most buildings, a rooftop PV system will only a small portion of the building’s electricity requirement. Furthermore, unless the system also includes an automatic transfer switch, it will not produce power for the building when the utility grid is down. And, unless the system includes a transfer switch and a battery bank, it won’t be of any help to power your house at night. Many people — even highly educated ones — are unpleasantly surprised when confronted with these facts.
In the long-run, solar energy is likely to be the major player in the energy market. It is, after all, the fundamental source of all the energy on the planet. The improvement of PV over the past few decades is impressive, its future potential is limitless. I just don’t like to see PV misportrayed, today.
With the run-up in energy prices, people are increasingly energy conscious (about time!) — and, worryingly to me, marketers are emerging to exploit widespread customer ignorance about PV.
Just recently, I saw on TV a “K-Tel” caliber advertisement sponsored by a firm called Power-Save Energy. I have to admit, I like their tag-line: “We make renewable doable”. But, I am troubled that their marketing pitches play to some of the fallacies that the mass-market seems to hold about PV. I don’t think this approach best serves the long-term interests of those who endorse a true long-term movement to solar energy.