Rooftop Solar: Too Expensive to Meter
- Jan 16, 2017 10:00 pm GMT
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Ernie Moniz, US Department of Energy, and the solar industry proclaim inexpensive dollar-a-watt solar panels. Let’s look at society’s cost for providing energy this way. Society’s cost is the total cash outlay, whether paid by power producers, ratepayers, taxpayers, or investors. Before starting the math, remember power, measured in watts, is the rate of flow of electric energy, measured in watt-hours; energy = power x time.
Average cost for rooftop solar panel generation systems installed in 2016 = $3.17 per watt of power generation capacity, reports EnergySage. Thus a typical rooftop solar system capable of producing 5,000 watts costs 5,000 x $3.17 = $18,350, complete.
That’s for 5 kW of DC power, which must be converted to AC to be useful. The converter efficiency is about 80%, so the system AC power capacity is 4 kW, delivered only during times of peak sunshine.
But night and clouds reduce the 24-hour, 365-day average production to just 15% of peak capacity here in New England. So average power production is 15% x 4 kW, or 600 watts. That’s $18,350 / 600 = ~ $30 per watt of average installed AC power, hardly dollar-a-watt proclamation-worthy.
The solar panels might last 20 years, during which they will generate 20 x 365 x 24 x 600 = 105,120,000 watt-hours = 105,120 kWh of electric energy.
Dividing the cost by the energy produced gives $18,350 / 105,120 kWh = 17 cents per kWh.
But money’s not free; if you took out a 20-year, $18,350 home equity loan at 5% the interest cost would be $12,000. Dividing $12,000 of interest costs by the 105,120 kWh of electricity adds another 11 cents/kWh.
Thus the capital cost is 17 + 11 = 28 cents/kWh for rooftop solar power, ignoring any maintenance costs over the 20 years,
But 28 cents/kWh is expensive! Most homeowners pay under 14 cents/kWh for electricity delivered from their power company. The power company normally buys its electricity for about 5 cents/kWh from nuclear, hydro, and coal power plants — and even cheaper from natural gas turbine plants. As a naked business proposition, producing electricity with rooftop solar panels is uncompetitive. It’s too expensive to meter and sell.
How can rooftop solar power be profitable? The answer is complex. A rats’ nest of federal and state subsidies, laws, and mandates distributes the costs to other taxpayers and other electricity consumers. The capital cost of the installation is defrayed by federal and sometimes state income tax credits. Production tax credits pay the owner a few cents/kWh produced. The power utility is forced to buy all the power produced at the full retail rate of ~14 cents/kWh from rooftop solar panels, rather than the normal 5 cents/kWh from commercial suppliers. Besides selling kilowatt-hours, solar power owners also get one REC (renewable energy credit) for each kWh generated. Many states mandate that x% of utilities’ power generation come from solar. Utilities meet this fiat by buying the RECs, which trade at 20-40 cents/kWh.
Utilities buy both power at about 14 cents/kWh and RECs at 20-40 cents/kWh from rooftop solar generators, who thus have an income stream of 34-54 cents/kWh generated. Utilities recover these high costs by increasing rates charged to all customers.
Much of the federal subsidies are hidden costs, in the form of income tax credits, which are significantly valuable to those in higher tax brackets. Ever see a mobile home with rooftop solar panels? Lawmakers like dolling out largess to their supporters with such tax preferences, because they don’t show up as budget appropriations. However by paying higher electric rates the mobile home owner is subsidizing the owner of the McMansion with the rooftop solar panels.
Problem: Rooftop solar is too expensive to meter. Answer: Don’t run the money through the meter. Run it through tax credits, subsidies, and renewable energy credits.