So far I’ve shown a basic iso-IRR curve (in the earlier post “Low-efficiency penalty”) to get a sense for the penalty that low-efficiency modules have to pay. (The quick overview: this is a way of showing the tradeoff between efficiency and price, for the developer. Solar modules on the curve would provide the same financial returns for the project. Lower-efficient panels require more racking and labor, so they have to lower their price to be equally competitive.)
However, not all applications are the same. Specifically, it is a commonly-accepted claim that crystalline silicon is better suited to residential installations, while thin-film products are better for larger projects. I am going to prove that quantitatively, using the IRR curves.
The initial assumptions I used (for the curve above) were closer to a ground-mounted, utility-scale project. Smaller, residential projects have different economics. Specifically, they have higher fixed costs (the trouble of getting an installation team on the roof is larger, proportionally, than having a team show up at an open-field site). Also, the labor and racking costs are higher (higher-skilled labor, and more expensive racking to protect the roof). By changing these assumptions, we can see how it changes the shape of the curve. See below*:
The constraints of the residential system make it less forgiving to the lower-efficiency modules. One way to look at it: in my previous ground-mounted example, a 10% module paid a penalty of $0.30/watt versus a 15% module. In a residential equivalent, the penalty grows to $0.67. In other words, residential projects are more willing to pay for higher efficiency, as a way of minimizing the more expensive labor/racking, and covering the larger fixed costs.
So, ground-mounted systems value cheaper price over good efficiency, and residential systems are more willing to pay more for high efficiency.
As a final step, let’s overlay the market prices of current technologies. Again, a big caveat: all of these numbers are very rough, and prices will always change quickly. These are just directional values.
Plotting these values on our graph, you can see the cost-performance horizon:
Theoretically, customers are always looking for something that is up and to the right on this graph (high efficiency and low cost). A ground-mount (large scale) customer is looking to optimize a curve that is shaped like the blue graph – and so you can see they will be more interested in using thin-film technologies. On the other hand, a residential customer, optimizing the pink curve, will be more interested in going with crystalline.
Finally: I’ve posted this model (you should see it on the box.net sidebar, “PV IRR Model II”). Feel free to download and play with it. Let me know what you think.
Note on the precision of the numbers*: The numbers here are only for directional takeaways. I have not gotten exact quotes on anything, and I am dramatically simplifying the cost model. I am accounting for only six line items (the largest ones), while a real system will have hundreds of components. Also, the fact that the curves cross at 10% efficiency is not relevant. 10% is not a magical number – in fact as I was fine-tuning the assumptions, I tried to keep the 10% efficiency & $2.05 point at the same IRR. But the real takeaway is that these curves will cross somewhere, wherever that point is.