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What Does Regular Electricity Cost?

US Electricity Prices - 2013
 Residential  12.1¢/Kwh
 Commercial 10.3¢/Kwh
 Industrial 6.8¢/Kwh

The chart at the left shows the average cost of electricity for 2013 by consumer per the EIA (the US Energy Information Administration). For 2014 the average residential cost is expected to be 12.5 cents per kilo-watt hour up 3.3% from 2013. Commercial is expected to be 10.7 cents and industrial 7.1 cents. Overall residential electricity prices in the US have risen by 3.2% over the past 10 years.

The pie chart, below left, shows the make up of the overall US electricity price.

Cost Make Up Regular Electricity

Electricity prices vary by location due to type of power plants, cost of fuels, fuel transportation costs and state pricing regulations. The states with the highest average price of electricity in 2013 were:

Those with the lowest average prices in 2013 were:

2013 residential electricity prices were highest in Hawaii, 37.04¢ per kilo-watt hour (kWh), because most of their electricity is generated using crude oil, the cost of which has been rising. The lowest price was in the state of Washington with 8.82¢ per kWh.

The average residential household uses about 1,000 kWh yearly and the average monthly electricity bill is about $121 before taxes and fees. Prices are higher for residential and commercial customers than industrial customers because it costs more to distribute the electricity and step the voltages down. Industrial customers use more and can take their electricity at higher voltages so it does not need to be stepped down. These factors make the price of power to industrial customers close to the wholesale price of electricity (the price from one utility to another).  Top

 

What Does Solar Electricity Cost?

Solar Prices

As can be seen from the chart at the left, solar cell prices have come down by a factor of 100 over the last 35 years. (The reason for the small increase between 2005 and 2008 was because of a polysilicon shortage.) The 2013 average price was $.74. The sharp drop in 2009 and 2010 was because of too much capacity, especially in China, which has caused prices to collapse. (See the Overcapacity Issues section.)

Since follow on costs after installation are minimal for solar electricity, the relevant costs are for the purchase and installation of the system including land (capital costs). In the southwest, installed residential solar prices are competitive with residential electricity prices after incentives. (See cost example of a southwest house below.) Cost components that make up a residential solar system are: system design, solar nodules, and the balance of system (BOS) which consists of an inverter, bi-directional billing meter, connection devices, and installation labor.


 Installed Capital  Costs -  Q1 2013 (SEIA) Cost Per   Watt (DC)  
 Residential Rooftop $4.93
 Large Commercial $3.92
 Utility Scale $2.14

The average residential household in the southwest installs a 5 kWh system and during Q1 2013, it cost about $4.93 per DC watt or $24,650 (5000 times $4.93) before incentives. Utilities on the other hand typically install systems in the 100 mega-watt or greater range. The installed utility system cost during Q1 2013 was $2.14 per watt (average) and is expected to drop below $2.00 in 2014.   Top

 

When Will PV Solar Reach Grid Parity?

Sundance Peaker Plant

There is no one cost number that defines utility grid parity. There are different levels of parity depending on what the generation system is. Solar has already penetrated the most expensive generator - the "peaking plant", also known as a "peaker". Peakers are rather small plants, ranging from 50 MW to 500 MW in size, normally about 100 MW. Peakers are mainly used in the summertime during "peak" electrical use for air conditioning late in the afternoon. They are normally single-cycle natural gas generators, meaning no boiling water; the burning natural gas directly fuels the turbine. Peakers have to be able to come up to speed on 10 to 15 minutes notice. They are very inefficient and expensive to run, but are great sources of electricity when utilities are on the verge of rolling blackouts. At that point, operating expenses are down the list of priorities. Shown at the left is a photo of APS's Sundance peaker plant near Coolidge, AZ. The site consists of ten generators, and all ten can be on the grid within 10 minutes generating 450 MW of power. Each generator consists of a converted GE Boeing 747 jet engine powered with natural gas which can be turned on with a click of a mouse and will generate 45 MW of power.

The next level of power plant available are the "load following" plants. These are intermediate size plants that are normally turned off at night but follow the increasing electrical load as the day progresses. These are generally combined cycle natural gas plants that are expensive but easy to turn on and off. Finally you have the huge "base load" plants that are operated continuously day and night except for maintenance down time. These are nuclear and coal type plants that are very efficient but can take many hours or even days, in the case of nuclear, to come up to speed and to shut down. They are the backbone of the electrical industry and will remain so for the foreseeable future.

So how big is the Peaker electricity market? The total US electricity market in 2013 was 4,058 billion kilo-watt hours (b-kWh) according to the US EIA. The peaker portion is generally accepted to be 5% of the total market. So 5% of the total is 203 b-kWh. The total amount of PV generated electricity in the US in 2013 was 8.3 b-kWh. This is only 4.1% of just the peaker market. So there is plenty of peaker market available to solar in the US in addition to some of the load following plant market.

In 2009 the California Energy Commission (CEC) rejected a contract for a new peaker in San Diego in favor of a PV solar system. Unless there are unusual circumstances, there probably will be no more peakers approved in California.   Top

PV Solar Parity Has Begun

LCOE Parity

Levelized Cost Of Energy (LCOE)

Above is a chart showing the Levelized Cost Of Energy for various sources of electricity. The LCOE is a fair method of comparing the cost of different energy technologies. It is the total life cycle cost of electricity for a given technology divided by the total life cycle electricity production. LCOE is explained in more detail in the Utility Section below. The LCOE for peakers is $.180 per kilowatt hour per the California Energy Commission. Nuclear power is at $.100 per kilowatt hour, coal is $.080, and combined cycle natural gas is $.064.

In 2010 the LCOE for PV solar was $.150 as calculated by cost expert Ken Zweibel of George Washington University (point $.150 on the red LCOE curve above). Shown on the chart is the projection that PV costs (red line) will be reduced by 10% per year as forecast by analysts and will catch up to combined cycle natural gas by the year 2018. An aggressive reduction forecast of 15% per year would have PV solar catching up by 2015. A pessimistic forecast of a 7% yearly decrease would have PV catching up to natural gas by the year 2022.

How Much Solar Power Is Reasonable?

When we say that PV will be at parity with natural gas and coal, that does not mean there will not be any coal or natural gas generators thereafter. Because the sun shines only during daylight hours, and wind is most prevalent at night, and both are variable, we can not be totally dependent on renewables in the foreseeable future. A target of 20% solar and 20% wind by 2030 seems reasonable and is endorsed by quite a few organizations. 20% of US electricity is the equivalent of the energy now used by all the cars and light trucks in the US. The 20% figures could be larger if there were some "dramatic cost improvements" in grid storage, notably large battery systems. However at the moment, battery storage at the grid level looks a long ways off.

In addition, more than 20% of either solar or wind would require significant investments in transmission lines. Not only are transmission lines expensive, but they are hard to permit because of the NIMBY (not-in-my-back-yard) factor. Transmission lines also require three to four years to build, versus solar or wind plants which can be easily built in two years. If  by 2030, 40% of our electricity came from solar and wind renewables, almost everyone would be happy with the situation.   Top

 

 Why did PV Prices Come Down So Rapidly?

Module Prices

As can be seen from the graph at the left, recent solar module prices have experienced a dramatic price reduction. From 2006 to 2012, a six year span, worldwide average module prices have dropped about 75% from $3.25 per watt to about $.80 per watt, an incredible drop.

The main reason crystalline silicon module prices dropped so much was because the price of the raw material polysilicon, which makes up a very significant part of the total cost, dropped so tremendously. Back in 2007 there was a world wide polysilicon shortage and prices increased to about $400/kg. Polysilicon suppliers made a lot of money and added tons of capacity so that there was a huge polysilicon capacity oversupply by 2010. Over a three year period from 2008 to 2011, polysilicon prices dropped from about $400 per kilogram to $25/kg. There continues to be a major overhang of polysilicon supply which is expected to continue for several more years.

In addition to the polysilicon issue, the decline is also being driven by a) the increasing efficiency of solar cells (ratio of electrical energy produced to sunshine energy) b) dramatic manufacturing technology improvements, c) economies of scale and d) intense competition which lead to module oversupply. The incredible solar growth rate of 55% per year over the last 5 years allowed manufacturing efficiencies that are unheard of in other industries. In addition, there are way too many competitors jousting for major contracts, which is also driving prices down precipitously.   Top

 

Long Run Solar Cost

Long Run Cost Of PV

The graph on the left is very interesting. Most cost analyses are run over a 20 year period. Ken Zweibel of George Washington University says that is not the correct way to evaluate long life assets like PV systems, nuclear plants, or other large long lasting utilities. PV systems can last maybe up to a 100 years! There is only a small degradation of performance - about a half of one percent per year. So a PV system after 50 years will still produce electricity at 75% of its original performance. 50 years is perhaps a better time frame over which to evaluate the cost of this type of asset.

Once installed PV systems need very little maintenance so that the total lifetime cost is mostly just the initial price of the equipment and land. This is conceptually how we think of an investment in bridges or roads. The chart at the left uses a weighted average (weighted by annual output performance) for the cost for the current year plus all previous years for each data point. Once the initial cost of the system is paid for (assumed to be 20 years) the cost of running a PV system is almost zero, whereas for coal and other fossil fuels there is the cost of fuel each and every year. In addition, costs for fossil fuels may creep up due to raw material costs, shipping costs, and possibly carbon dioxide taxes.

At an installed price of $1.25 per watt, the cost of PV solar is always cheaper. At $2 per watt, it is cheaper after year 40. At $3.00 per watt, it is cheaper about year 80. As mentioned above (grid parity), an aggressive cost estimate (-15% per year) would have PV solar at parity with coal by 2014, a less aggressive forecast (-10%) would reach coal parity by 2017. As a result, very few "new" coal plants are expected to be initiated, although current coal plants will likely be upgraded.   Top

 

Solar Learning Curves

Bloonberg Learning Curves

 

As shown in the learning curve chart above, cadmium telluride thin film panels are inherently cheaper to make than crystalline panels. These classical learning curves plot "module cost" on the Y axis vs. "cumulative quantity" produced on the X axis. Both axes are logarithmic scales. The chart illustrates that the two technologies are on distinctly different curves, not dependent on time but on volume. Although crystalline silicone is inherently more expensive, its learning curve is steeper and its volume is much, much higher than cadmium telluride. At the end of 2012 crystalline silicone was at $.80 per watt while cadmium telluride was at $.70. Just looking at the curves, one would expect crystalline silicone to catch up in the near future.

However, the extreme polysilicone price decline is most likely behind us and future price reductions will probably be more modest. Silicone suppliers have almost universally been losing money and that can not be sustained. Cadmium telluride's slope is more modest and most analysts believe First Solar will continue to drive costs down. First Solar's stated goals are to be under $.55 in 2014 and to be about $.40 by 2017. However, those goals are not going to be easy to achieve, especially with a slow down in cadmium telluride volume growth. Most likely First Solar will recoup some of its price advantage in the near term. In the long run, this will continue to be a critical cost reduction race as crystalline silicone's volume is roughly 14 to 1 over cadmium telluride. (As a reference, there were roughly 98,000 mega-watts of all types of PV solar installed world wide at the end of 2012.)  Top

Residential Cost Example - Typical Southwest House

A roof top solar system has no moving parts, so it has a long expected lifetime exceeding 25 years (used in this example). However inverters (which convert the panel DC current into AC) have an expected lifetime of 10 to 15 years. In our example we add the cost of a replacement inverter to the system after 12 years. We assume no other maintenance costs as the panels are usually warranted for 25 years with a degradation clause. So let us calculate a south facing roof top residential cost example in the southwest United States in Q3 2014:

Note: The above calculations are approximate and for illustration purposes only. Actual costs will depend on the exact location of the home, the angle to the sun (north-south vs. east-west), the amount of shade if any, the type and angle of roof, electrical connections, additional options, etc. For an accurate estimate, please contact a local solar installation contractor and your tax accountant.

Monthly Savings Calculation: A south facing roof top solar system with no shading, and with a normal yearly dessert sunlight radiance of 2,400 per square meter would produce 1,840 kWh of electricity per year per nameplate kW capacity (assuming 23.3% losses for DC to AC conversion and other system losses). With a 5 kW system installed, the first year production would be 9,200 kWh (5 x 1,840). Assuming a system degradation of 0.5% per year times 25 years yields a net 8,050 kWh yearly average electricity savings (9,200 x .875). Assuming an average 2014 residential electricity price in AZ of $.125 per kWh (excluding taxes and fees) yields a yearly savings of $1,006.25 (8,050 x $.125 not counting future inflation). The monthly savings would then be $83.85 ($1,006.25 divided by 12). This was rounded to $84.00 even.  Top

 

Utility Cost Of Electricity

The cost calculations for a utility installation are quite complex. In principle they are simple:

 

 

Where: LCOE is the Levelized Cost Of Electricity. The LCOE approach allows different technologies to be compared, not only solar approaches, but fossil fuels and nuclear as well. The Total Life Cycle Cost is the present value of all the components of cost over the useful life of the installation minus the depreciation tax benefit and residual value. The Total Lifetime Energy Production is all the useful energy produced by the installation over its total life.

 

The table below lists the estimated cost of electricity (LCOE) for several different energy sources. No subsidies are included in the calculations. The table is from a paper by noted energy cost expert Ken Zweibel of George Washington University (GWU) in Energy Policy, July, 2010.

 

 

 Energy Plant Type Lifetime Cost  ¢ per Kwh
 Natural Gas 6.4
 Wind Turbine 7.5
 Conventional Coal 8.0
 Advanced Nuclear 10.0
 Solar PV 15.0
 Solar Thermal 16.0

 

Total Life Cycle Cost Components For Solar Electricity

Total Lifetime Solar Energy Production

 

The value of the electricity produced over the total life cycle of the system is calculated by estimating the initial annual production, called Peak Capacity, and then discounting it for future years based on previously observed annual degradation rates for the particular technology of the site. A typical degradation rate is 0.5% per year, although some rates are as high as 1.0% and as low as 0.25%. The first-year energy production of the system is expressed in kilowatt hours generated per kilowatt of peak capacity.

 

Factors Affecting Peak Capacity:

 

The LCOE is highly sensitive to small changes in input variables and underpinning assumptions. For this reason, it is important to carefully assess and validate the assumptions used for different technologies when comparing LCOEs.

 

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