Cost Benefit Of Solar Installations; Solar Makes Sense for Some But Not All

Residential solar installations are coming of age during these times of change in our country. The key reasons are; outstanding return on homeowners investment, high electrical rates that will be going higher (average inflation is around 6% per year) and government incentives.

Utility companies in California support solar (to a degree) because it allows them to level the demand during peak electrical usage. When the demand gets higher than they can deliver, they are forced to go outside their network and purchase electricity at a huge loss. Why not build more power plants? Because they are expensive to construct and operate. Ideally, power companies would like to run their plants at 100% capacity.

In some residential and commercial locations, adding solar is economically attractive. It is not uncommon to see a rate of return of 10 – 16%. If financed, the monthly loan cost is usually less than the monthly utility bill was creating a positive cash flow in the household. Installing solar also is beneficial because it adds jobs, generating revenues and contributing to the tax base of local communities.

The installation value of solar panels depends on cost Vs benefit variables, but there’s no doubt about its core value Herman Trabish reports in Green Tech Media.

When you look at cost effectiveness of solar installs, generally people think about the four different tests,” said Molly Sterkel of the California Public Utilities Commission. The first test, she said, is “Does this make sense from the user’s point of view? In California, solar installation makes sense for a lot of users, but not all users. There are 70,000 solar customers now in California, so all of them have said, ‘Yes, solar passes.’”

There is a similar test, Sterkel said, for utilities: Are they willing to buy solar? The third test is the Total Resource Test. “Sometimes people refer to this as the societal test,” Sterkel said. It essentially asks whether solar is society’s best use of its resources. The Rate Payer Impact test, she concluded, is “Would ratepayers really want this to happen?”

In each test, it is a matter of comparing costs and benefits of solar. “If you add up all the benefits and all the costs, and you come out to a net positive, what we call greater than one,” Sterkel said, then “you do it.”

The CPUC, which administers much of the very ambitious California Solar Initiative, has done extensive work on the cost effectiveness of the state’s incentive programs for PV solar. “From a cost-effectiveness perspective,” Sterkel said, “solar is well on its way.”

The one caveat Sterkel stipulated was that “cost-effectiveness always needs a context.” Variables include “future price declines, rates of solar installation, and the worldwide price curve,” as well as the cost of net energy metering, interconnection availability and costs, the energy market and the regulatory environment.

Susan Buller of PGE offered a utility perspective. It is necessarily a broad perspective because PGE has “more customers that have installed solar on their business premise or home than any other utility in the United States,” Buller said, “roughly 35 percent of the total customer installations in the United States.”

Therefore, from the utility point of view, “the costs of distributed solar generation and the benefits of distributed generation will differ depending on who you are and what role you play.” California’s investment in solar incentives is a benefit, she said, to solar purchasers but a cost to ratepayers. “When you’re looking from a levelized cost of electricity perspective, you’re not going to see solar get to be cost effective with the other choices in the near future.”

To this conclusion, Buller added that there are “things that we need to know about how solar energy is going to integrate with the rest of our package.” These include, she said, impacts on the grid and the economics of climate change.

William Conlon of solar power plant builder AREVA Solar pointed out that the costs and benefits of concentrating solar technologies, though he did not quantify them, are starkly different than those of solar photovoltaic installations. The thermal solar technologies, he said, have solved many of the challenges solar faces with variability because it can incorporate energy storage. “We have a technology,” Conlon said “that can be deployed in a renewable fashion while retaining the ability to be dispatchable.”

In contrast to Conlon, Richard Perez, a research scientist at the State University of NY at Albany, was very specific. He even assigned per-kilowatt-hour values to solar photovoltaic s many unique value propositions. As a distributed generation that protects against blackouts, it is worth between two and six cents per kilowatt-hour. The 2003 blackout, Perez said, could have been avoided “with as little as 500 megawatts of dispersed solar throughout New England.”

The effect of solar energy generation in countering the advance of global climate change, Perez said, could be worth at least two cents per kilowatt-hour with a price on greenhouse gas emissions of $40 per metric ton. He said solar energy’s value fulfillment as a hedge against the volatile price of oil could eventually be as high as 25 cents per kilowatt-hour. By adding jobs, generating revenues and contributing to the tax base, solar energy adds at least two to three cents per kilowatt-hour in value.

“I could argue for much much higher numbers, “Perez said, “But just using the low, agreeable numbers that I have today, it’s about 20 cents to 45 cents [per kilowatt-hour]. So we are beyond grid parity, as far as value.”

Perez objected to the differentiation of the ratepayer and the taxpayer. “When the Public Service Commission,” he said, “looks out for the interest of the ratepayers, they could care less about the taxpayer. But this is exactly the same person,” he said. “And when someone puts solar on the grid somewhere, someone gets value for it, either the ratepayer or the taxpayer. And it’s you, in the end, that’s getting the value.”

Tom Hoff of Clean Power Research emphasized that ultimately the only way to accurately value solar energy is to consider a portfolio of solar resources. His essential point, though he offered no specific numbers, was that a single solar system may be intermittent, but a portfolio of dispersed solar investments can be predictably variable and efficiently incorporated into a distribution system.

The precise value of solar installation is not definitively established because so many questions, from technology to policy, remain in flux. Nevertheless, as the CPUC’s Sterkel said, “Solar doesn’t currently pass the resource cost test of ‘one,’ but yet the CPUC authorized the nation’s largest solar program.” That says it all.