Solar Photovoltaics (PV) is Cost-Competitive Now

I hear that PV really costs about 40 c/kWh, at least that’s what so many people who have their 2 cents to add to the energy debate have to say about it. And then all of Chicago cringes, and with them, the Obama administration.

I would quit if PV cost 40 c/kWh. After 30 years of working in PV, I would quit.

It’s true that it’s hard to understand what PV costs, since we don’t know what dollars per watt means in cents per kWh, and we don’t know what it means in different locations.

Put simply, there are some locations where PV costs 40 c/kWh; and there are some where it costs a third of that. There is no one price for PV, because sunlight varies, and system costs vary with size and design. Large systems are cheaper than small ones.

So some nudnik from the oil or coal industries can stand up and say, PV is 40 c/kWh and not be lying. And I can say it is 13 c/kWh and not be lying, and all without a cent of incentives, not even traditional depreciation.

But I want to prove this to you, because it is important that we get this straight. The debate must move another notch. Simply put, there are places and PV systems today that can sell electricity at 13 c/kWh, or even 10 c/kWh, and make an adequate return. They are cost-effective at those prices without a cent of incentives, no carbon price, and not even traditional depreciation. And there is a potential for billions of watts of these systems and, as the years go by, a diffusion of their locations from the sunniest to less sunny places.

Assuming the simplest system, a flat-plate CdTe system like First Solar makes, we can expect about the following properties:

• Cost less than $3/W installed (stated publicly by First Solar VP, Maja Wessels, at our GW Solar Institute annual symposium in April)
• Annual AC output in the US SW of about 1.9 kWh/W (DC) installed (including all losses)
• O&M about $15/kW-yr, including insurance and inverter replacement
• Thus one can calculate annual revenue  per watt, at
  • 13 c/kWh as 24.7 c/W-yr (multiply 1.9 kWh/W-yr times 13 c/kWh)
  • 10 c/kWh as 19 c/W-yr
  • Calculate annual gross profit (revenue after subtracting operating costs of $0.015/W) of
    • 24.7 minus 1.5 c/W-yr = 23.2 c/W-yr (at 13 c/kWh)
    • 17.5 c/W-yr (at 10 c/kWh)
    • And calculate first-year return on investment as annual gross profit divided by initial investment (300 c/W)
      • 23.2 c/300 c = 7.73% (at 13 c/kWh)
      • 17.5/300 = 5.83% (at 10 c/kWh)

Present PV systems have warranties for 25-30 years at under 1% per year degradation, so worst case, this cash flow drops 1% per year.  Most PV systems are actually expected to do better, and lose less than 0.5% per year. One could argue for a power purchase agreement to sell the electricity for 10 c/kWh and a 0.5% per year inflation clause and get the 5.83% return indefinitely, like a perpetual bond or an annuity with no end date. Right now, I can’t get 5.83% without selling my soul to Goldman Sachs. How about you?

This picture of PV deployment (large systems in the desert) may not be your or Barbara Boxer’s cup of tea if you want a PV system on your roof. But for the US and world it is great news, because it means that PV is cost-effective in the best sunlight. We now have two sturdy, cost-effective weapons (PV and wind in the best resources) against climate change and for energy self-sufficiency. And over the years, the price of PV will probably follow its 20% reduction for every doubling in volume (as it has for 40 years) and get to be cost-effective everywhere, not just in Arizona. But that’s icing on the cake. There are enough sunny places to do the trick now, if we want to use them.

Ken Zweibel