(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Feb 22 Roof-top solar power is
increasingly cost-competitive with retail power prices, with
far-reaching implications for solar manufacturers, utilities and
rival generation technologies.
Data gathered from U.S. installations by the Department of
Energy suggests it is cheaper to generate electricity from
roof-top solar panels than to purchase power from electric
utilities, if applied to European retail power prices.
The economics of unsubsidised solar depends on the balance
of self-generated solar power which is used at home, displacing
more expensive purchased electricity, compared with the surplus
which has to be exported back to the grid at much lower
Retail power prices are higher than wholesale because of a
mark-up by utilities, plus state levies and charges to cover the
cost of grid transmission and renewable energy.
A report titled "The unsubsidised solar revolution" by UBS
analysts last month estimated that households in southern
Germany installing unsubsidised solar power could already make a
net saving over the 20-year lifetime of the panels.
The analysts estimated a positive rate of return on
investment of 2 percent already, rising to more than 6 percent
The economics of solar will continue to improve as the
installed cost continues to fall, retail power prices rise and
residential battery storage becomes increasingly competitive,
allowing households to displace more purchased electricity.
FALLING INSTALLED COST
Prices of solar panels, or modules, have more than halved in
the past three years, because of a global glut after
manufacturing ramped up in China.
The remaining installation costs, chiefly labour, are often
referred to as "balance of system" and vary according to the
maturity of the supply chain.
The U.S. Department of Energy's National Renewable Energy
Laboratory (NREL) has developed an open project database
detailing the combined full installation cost, excluding
incentives, of projects based in the United States.
The NREL database can be found here:
Utilities, installers and the public volunteer the data,
which NREL monitors to ensure quality.
"Data validation occurs on each record in the database on a
regular basis. The database is continually analysed for corrupt
records, bad or invalid data, and outliers such as an abnormal
cost to watt ratio. Records found to contain questionable data
are flagged and are dealt with on a case by case basis."
As expected, full installed costs have fallen less
precipitously than modules, given the labour component.
Median calculations are more meaningful than averages given
the non-symmetrical data which includes a minority of
The NREL data show median, full installed costs fell 17
percent between 2010 and 2012, and are now around $4 (3 euros)
That is higher than some analyst estimates.
For example, UBS last month assumed current full installed
costs at 1.9 euros ($2.5) per watt, perhaps reflecting a more
developed supply chain and lower costs in parts of Europe and
especially Germany, compared with the United States.
According to the NREL data, costs fell to a median $3.6 per
watt in 2013 to date (sample size of just 7 records), from $4.9
in the last three months (99 records); $5.5 in calendar year
2012 (9,747 records); $6.3 in 2011 (31,388 records); and $6.6 in
2010 (35,906 records).
Regarding size, projects are the equivalent of large
residential roof-top installations, with a median size of 4
kilowatts in the 2013 year to date; 7 kW in the last three
months; 5.2 kW in 2012; 5.4 kW in 2011; and 5.5 kW in 2010.
Assuming the full cost of a new roof-top installation is $4
per watt, it is straightforward to calculate a levelised cost of
electricity (LCOE) using various assumptions.
An LCOE measure estimates cost per unit of power output, in
dollars per kilowatt hour, and can be compared with rival energy
technologies and actual retail and wholesale power prices.
In the LCOE calculation, lifetime cost includes the initial
investment plus financing and operating costs, after accounting
for a certain discount rate and tax savings on depreciation and
Lifetime power output is calculated according to the initial
output of the installation, depending on local annual sunlight,
discounted according to the cost of capital and an estimated
annual degradation of the solar modules.
A simpler model can ignore the benefit of tax savings and
assume the present value of future loan payments equals the
actual initial investment.
Such an approach generates an LCOE of $0.24 per kilowatt
hour (kWh), or 0.18 euros.
Assumptions include: $4 per watt installed cost; about 2,500
hours sunlight annually for a 20 percent capacity factor; cost
of capital of 8 percent; annual degradation of solar module
output of 0.5 percent; a lifetime of 20 years; and an operating
cost of 2 cents per kWh.
In a useful reality check, NREL has its own simplified
calculator which calculates the LCOE for a comparable
installation at $0.25 per kWh.
The link to the NREL viewer can be found here:
Chart 1: www.energy.eu/
Chart 2: goo.gl/ve3Ob
In the European Union, an LCOE of 0.18 euros per kWh is
below the retail power price in 11 European countries. (Chart 1)
Countries exceeding 2,500 hours sunlight annually include
southern Germany (retail power price 0.26 euros); Cyprus (0.23
euros); Italy (0.22 euros); Spain (0.19 euros); and Portugal
(0.19 euros). (Chart 2)
Many of these countries face severe capital constraints and
austerity in the near term, which will limit household outlays.
The economics of unsubsidised solar are still only at
break-even, but the evidence suggests that utilities would do
well to prepare for a new wave of unsubsidised projects.
They have suffered enormously in Germany from the impact of
subsidised installations, which have driven down wholesale power
prices and fossil fuel power plant load factors.
($1 = 0.7563 euros)
(Editing by Anthony Barker)