Who Says Solar is Too Expensive?

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Who says solar is too expensive? In fact, in many places it is cheaper than the fossil fueled alternative. How do we know? Well, one place to start is to look at actual contracts for projects.

Attached here (Excel file) is a chart of California Renewable Portfolio Standard contracts downloaded (and modified to show just solar contracts) from the CPUC website, here.

As of June 2011, California investor-owned utilities have signed and submitted for approval from the regulators 8,631 MW of contracts with solar companies. The exact contract price is kept confidential. However, we do know whether the contract is above or below the Market Price Referent, or MPR. The ‘market price referent‘ is an annual calculation of the anticipated 20-year levelized cost of energy of a new combined-cycle gas turbine in California, and serves as a proxy for the cost of building new non-renewable power.

Of that 8.6 GW of signed contracts, 4,408 MW is below the MPR. So there we have it. Massive amounts of solar, for less than the cost of the fossil fuel alternative.

But wait! There’s more. This calculation does not include the utility DG PV programs or current feed-in tariffs, nor does it cover procurement from Sacramento Municipal Utility Department or the Los Angeles Department of Water and Power. SMUD has its own success story: it is buying 100 MW of PV at a price set on its cost of fossil power—calculated out to be the equivalent of 14 cents/kWh.

And in January, Southern California Edison released the results of an auction for mid-sized renewable projects (systems up to 20 MW in size)…and the results were stunning. 250 megawatts of PV, all below the cost of a combined-cycle gas turbine.

And with recent low PV prices, there’s new market activity for even smaller installations. California’s AB 1969 feed-in tariff law required utilities to offer standard 20 year contracts for renewable generation to systems up to 1.5 MW, priced at the MPR (note that the contracts also receive a time-of-delivery adder, which on a levelized basis modeled for PV production, using PV WATTS and assuming Sacramento as a proxy for statewide insolation, comes out as follows: PG&E – 1.13, SDG&E – 1.24, SCE – 1.35) . In the past, that level was too low to stimulate much, if any, market activity (generally speaking, larger installations, with greater economies of scale, have resulted in lower prices). Now, there are over 420 MW of systems that have applied for interconnection with SCE, and PG+E has signed over 42 MW of contracts with PV generators under this program. With the caveat that getting into the SCE interconnection queue does not require significant development security so there is no way of assessing the ultimate viability of these projects, the high degree of market activity is strong evidence that the reductions in PV module costs are resulting in previously unachievable solar rates.

And behind the meter distributed generation is also delivering. California has an market-responsive incentive structure that declines in response to market activity. Incentives for residential solar systems have dropped from $4.50/W to $0.35/W — yes, that’s right, 35 cents — and August set a record for the highest number of applications since the program’s inception. With nearly 1 GW of self-generation installed and nearly 100,000 customers, grid parity — where solar can be generated for less than retail utility rates– is just around the corner.

Not all of the wholesale projects are going to come to fruition. But many are already breaking ground, and with an increased focus on project viability requirements and development security, many of them will. We’ve passed a major inflection point. Solar, once viewed as too expensive to play a meaningful role in our energy future, is now scaling at prices less than the fossil fuel alternative.

Vote Solar is a non-profit grassroots organization working to fight climate change and foster economic opportunity by bringing solar energy into the mainstream.

About Author

Walter’s contributions to CleanTechies over the past 4 years have been instrumental in growing the publications social media channels via his ongoing editorial and data driven strategies. He is the founder and managing director of Sunflower Tax, a renewable energy tax and finance consultancy based in San Diego, California. Active in the San Diego clean technology community, participating in events sponsored by CleanTech San Diego, EcoTopics, and Cleantech Open San Diego, Walter has also been a presenter at numerous California Center for Sustainability (CCSE) programs. He currently serves as an adjunct professor at the University of San Diego School of Law where he teaches a course on energy taxation and policy.

4 Comments

  1. The man (and woman) on the street thinks that solar is so expensive because of the initial outlay. Everything is short-termism now, and you can’t blame people looking beyond the next week (day or hour)

    And this ‘conservatism’ has spread to suppliers too, who are obviously worried that they won’t be able to sell their wares.

    Fully understandable on all sides.

  2. Great Article – I think this is exactly the right thought process to have – we need to focus on cheaper energy as that is when the benefit is delivered to the customer.

    When you buy just cheaper systems (predominantly the focus has been cheaper panels) the evidence has been there are too many factors that cause them to under perform. In that case, the customer just threw away their money.

  3. It’s about to get a bunch cheaper again. My group is finally ready to kick off the field test of our Home CSP system that will drop prices by another factor of 2-3. It produces power, heat and chilling, both night and day… and for much less that an equivalent daytime-only PV system. Since it has full storage and backup, you can either skip the grid connection costs or time your excess to maximize your TOU returns. Either way, there’s no comparisons to other systems.

    It couldn’t be simpler. Roof mirrors to chimney target to hot stuff to Stirling generator.

    If this is something you want to see, help us reach our goal!

    http://www.indiegogo.com/MirrorSolar

  4. I’m sorry, but as much as I’d like to see Solar work, this is a bogus analysis. The huge cost of tax incentives, rebates, discounts, and set-asides that we all pay to allow a few people install Solar is missing. Dozens, if not hundreds of Federal, State and Local costs are passed to me the taxpayer, mitigating the high cost of Solar for contractors and builders. Here’s a brief index of California alone:

    http://www.solar-estimate.org/index.php

    Hurray for Solar, keep it up. But don’t pretend it’s standing on it’s own in the market. We’re not idiots, just over-burdened citizens.

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