Separating Reality from Myth in Mass-Market PV

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.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

2 replies
  1. Tausend
    Tausend says:

    Dear Richard,I read through your article with increasing curiousity on who the author could be.Eventually I came to the button to find out about your position at the Cleveland Foundation and NextWave Energy Inc.I trust your knowledge and judgement on the issues you are talking about. Therefore I have no explanation at this point as to how you could possibly miss some major issue when you are talking about coal and nuclear energy as being less costly compared to PV.No one has to be knowledgeable in economics to find out the truth. Just figure in to the cost of nuclear energy the cost for installation of a nuclear plant (the procedure to get all required approvals, the provision of security against terrorist threats, the studies necessary to identify a suitable location that is nowhere near earthquake zones, etc. etc.) Then the cost for dismantling a nuclear plant after 20-30 years that is humongous. Then the cost of accidents that no insurance company will be as insane to cover the risk. And if this were not enough: Do you know the cost of handling nuclear waste? Have you figured it into the cost of nuclear energy?Compared to the true cost of nuclear energy PV is a real bargain!Richard you are a knowledgeable and educated man. Please do not intentionally mislead your readers!We all have responsibility. Each single one of us. Each one of us depending on what we know.You do know! (better)Best regardsPanos Munich, Germany

  2. Richard T. Stuebi
    Richard T. Stuebi says:

    Panos,Thank you for your comment. I do have an appreciation of the full costs and risks of nuclear energy — many of which do not get reflected in the prices of electricity that consumers face, which is highly unfortunate. However, even if you take a reasonable approximation of those costs, amortize them, and include them in electricity prices, PV would still be uncompetitive today. Furthermore, in the US and most other countries, most electricity is not produced by nuclear. (I don't see any reference to nuclear energy in my original post.) In the US and many other countries, coal is the major electricity source. Unless and until carbon emissions have a significant economic penalty, and unless and until PV becomes much cheaper, PV will not be competitive with coal. The high cost of PV is yet another inconvenient truth in the very challenging energy and environmental dilemmas we face today. Quite to the contrary of misleading readers, I'm trying to open the eyes of those who are incompletely informed.

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