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(Draft version)
This is a discussion of "cost effectiveness"
of PV (or any renewables technology).
In any particular locale, there is an average amount of sunlight
that falls each year. Sometimes it is more, sometimes less. In
Austin, TX., for example, there is the equivalent of 5.3 hours of
full sunlight falling on a south facing surface, tilted at the latitude,
each day. Of course, this is just an average through the whole year.
You will receive more in summer and less in winter.
Suppose you have a system that is rated at W watts. This means it
delivers that many watts in full sunlight. So, for an entire year,
the energy that the system delivers will be W watts, times the equivalent
number of full sun hours per day, times the number of days. For Austin, for
example, a 2000 watt system will deliver 2000 * 5.3 * 365 = 3,869,000
watt-hours each year, or 3,869 kilowatt hours (kWh). Now, supposing you
produce electricity for 25 years: Over that period, you will have produced
96,725 kilowatt hours of electricity in the lifetime of the system.
What is that electricity worth? Making the simplifying assumptions
that there is no discount rate, and no change in electricity rates,
you can simply divide the cost of the system by the number of kilowatt
hours, and get a cost per kilowatt hour. These days, it is possible
to install a grid-attached system for under $8 per peak watt. A
2000 watt system would cost $16,000.
For the electricity that is produced over the lifetime of the system,
you effectively pay $16,000 / 96,725, or 0.165 per kilowatt hour. This
is close to twice what you pay the electric company per kilowatt hour.
Of course, this is an oversimplified analysis. For one thing, there is
this thing called the discount rate. A dollar today can be stuck in
the bank, and will bear interest at a particular rate. So, a capital
expense to buy a PV system must be compared to a time series of payments
to the electric company, over 25 years. Assuming your PV system produces
3,869 kWh per year, this cost $310 a year at $0.08 per kWh. The present
value of this future time series, at a discount rate of 5 percent, is
$4369. By this analysis, the PV is actually 3.7 times as expensive as the
grid-based electricity.
On the other hand, what about increasing electric prices? Their effect
is similar to the effect of the discount rate, but pushing in the opposite
direction. If electric rates increase really quickly, this can make PV
look better financially.
There are some other factors that bear consideration:
- Cost of the technology is declining. Should you wait?
- A PV system may well last longer than 25 years.
- If you are grid-attached, and have net metering, you can
use the electric utility as a nearly perfect, infinite battery,
meaning that you can effectively utilize all of the juice that
the PV system produces. If you have a standalone, you may have
situations in which your batteries are fully charged, and cannot
take more. Whatever surplus you generate during this time is
simply wasted, and adds to your cost per kilowatt hour.
- If you have a standalone system, a certain amount of the energy
that you use has been stored in batteries (at night, for example).
Batteries are only 60 to 70 percent efficient, meaning that you
have to buy a bigger system. This fact harms cost effectiveness
of the PV system.
- Of course, a standalone system has the added cost of batteries, so
it will be more expensive overall than a grid-attached system.
You can see that it is a complicated situation. Analysis is partly
based on factors that we cannot know, such as future discount rate and the
rate of utility price increase. With the present situation, about the
best one can assume is that PV generated electricity is about twice expensive
as that from the electric company.
On the other hand, it is not so expensive that it is irrational to
consider doing it. People do many things that are not strictly
"cost effective", and monetary analysis does not tell the whole
story.
Here are some things that could change to improve the picture in
the future:
- PV could (and certainly will) become cheaper.
- The tax structure could change: just as utilities can
write off their investment in a power plant, the homeowner
might be allowed to do this, possibly at a favorable rate
equivalent to what the utilities are allowed.
- Environmental costs of electric generation from nuclear
and fossil fuels could be added into the cost of electricity.
The depletion of fossil fuels could be taxed, instead of
given favorable tax treatment.
- Incentives for installation of PV could be put in place.
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