Something strange has happened to the price of photovoltaic (PV) systems in the last year. PV has gotten dirt cheap.
Honestly, it’s gotten cheaper faster than our office has realized, and we try to stay up on these things. Worse, we’ve realized we haven’t been making proper recommendations to our clients because of it.
It’s also shifting some of the underpinnings of our typical design analysis in strange ways, and it looks like there are some unexpected consequences we haven’t yet figured out.
In April 2010, a PV system cost $8 a watt
Here are the numbers. I have a note from April 2010 listing installed residential photovoltaic systems as costing $8,000 per kW capacity before state and federal tax credits, currently 30% off retail. In our area, a one-kilowatt PV system (about 4 – 5 solar modules) generates about 1,300 kWH per year. If you bought 1,300 kWH of electricity from our local utility (burning natural gas, fuel oil, hydro and coal), they would charge you $0.16 / kWH, or $208 / year.
If we’re conservative in our expectations, the PV array you bought would last you 25 years, and make you $5,200 of electricity over its working lifetime, assuming electricity prices never increase. No one believes costs will stay where they are, but it makes the math easier, and we’re being conservative, right? Isn’t that’s what us green builders and designers do?
So there’s the issue: we paid $8,000 for a system that only makes us $5,200 of electricity over its lifetime, and we have to start piling on tax credits and inflation assumptions and lots of other complicated financial math to make those panels “worth it” to our clients. It’s been a stretch.
Now, the cost of a PV system has dropped to $4.50 a watt
Now for 2011: the latest prices we’ve been getting for PV are $4,500 per kW before tax credits. It’s dropped 45% since last year. A colleague who posts here, John Semmelhack, recently got a quote for a ground mounted 9 kW system of $4,100 per kW!
So now our system that makes us $5,200 of electricity costs us $4,500. See where we’re going? PV is now cheaper than dirty electricity in our area. Why aren’t we all crying this from the rooftops? This is a really big deal!
Let’s try the math a different way: 1,300 kWH * 25 years = 32,500 kWH generated over the life of the panels. At $8,000 / kW, that’s $8,000 / 32,500 kWH = $0.25 / kWH, 53% more expensive than dirty electricity, but good for the planet.
That’s been our sales pitch: virtuous, but not for everyone. But $4,500 / 32,500 kWH = $0.14 / kWH, which is 15% cheaper than dirty electricity. PV is the cheapest electricity you can buy in our area — before you take tax credits into account!
So that’s Maine. Let’s take those same panels to New York City, where electricity can cost $0.25 / kWH, pile on the generous NYC tax credits and federal tax credits, and the final figure is $0.10 / kWH. You’ll end up 60% cheaper than utility electric. It boggles the mind.
We are rapidly approaching grid parity
So, what does this all mean?
• It means we’re not far off from PV being the cheapest source of electricity you can buy everywhere in the whole country, even in the parts of the country with access to cheap and toxic coal electricity. Is that time five years away? Ten years away? It doesn’t really matter; either one is a very short length of time, and we should get ready for that and pay attention.
• We have a financing problem, not a PV cost problem. Add a 5% loan at 25 years onto that $0.14 / kWH system, and the price rises to $0.24 / kWH. If you and I had access to the 1% loans the federal government is giving Goldman Sachs, we’d be all set, but we don’t. So let’s start considering the tax credits a financing rebate instead of a solar system rebate, because if you take your tax credit and pay down your principal you’ll end up right around $0.17 / kWH in our area, and that’s close to what our utility charges right now. This is where policy can help: to advocate for solutions to this financing issue.
• Our design sequence might change. Roof size will be a big design limitation for net (plus)-zero single-family housing design, and we might be using this to decide on our optimal insulation packages instead of kBTU / SF / year, and this comes from a certified Passive House consultant who has spent years in the efficiency trenches.
• The tax credits worked and should be celebrated. Let’s claim success on this one. Government encouragement did kick-start the industry and allow it to gain enough strength to compete head-to-head against dirty fuels. This is good thing, it worked exactly like it was supposed to. Let’s not forget this in our discussions: PV didn’t get cheaper all by itself, but it sure did it faster and cheaper than nuclear, fossil or bio-fuels did in their history. Take a look at this graphic for some context.
• All of us in the green building community need to start talking about this more to our clients and friends. We didn’t believe the math when we first saw it, but our local solar installer backed me up and says his biggest problem is getting the word out, not proving it works. This change has happened fast, it’s not common knowledge yet.
Anticipating the naysayers
And to speak to the quick and easy responses:
• Yes, I know net-zero doesn’t mean you make enough electricity in the winter to power your own house, and something else has to power up to fill the gap. But please, this is a problem we would love to face. Personally I think that Spain, who just made 30% of their entire electricity production from renewables, will figure this out nicely for us before we face this issue.
• As well, I know that net-zero is not enough, and we need to be working on restorative design and surplus renewables production to make up for the last century of fossil fuel damage. But please, anyone who uses this as an excuse not to do the right thing needs to be spending their free time at their state capital arguing for feed-in tariffs to allow homeowners to be allowed to sell a surplus. Right now, any surplus our clients make gets a nice thank-you note from CMP, they don’t get to earn a cent for helping out their neighbors’ electricity supply.
• Insulation is tougher than PV. Sure! Don’t stop building high-quality houses; the need for better buildings isn’t going to change. A building built to Passive House standards will be a tougher, more resilient and durable house than one built to a lesser standard. I would build to that standard myself if it was my new house, but let’s not use greenhouse gas destroying insulation methods to do it. That’s just absurd at this point.
• Stop talking about payback. Please. I haven’t seen a client yet get excited about payback. It’s almost always used instead as an excuse for inaction. Cheaper electricity than the electricity they are buying from their utility right now? That is something that gets our clients excited…
If you don’t believe me, do the math yourself
Lastly, don’t believe me; I’m just an architect, and we’re famous for not being that good at math. At our office, we’ve developed a PV cost calculation spreadsheet to speed these calculations.
Everyone needs to add their own recent experience, and back check this analysis to make sure we’re not just blowing smoke.
But, other smart people are saying the same thing. I didn’t pull it out of thin air.
Perhaps a better future is actually possible?
Jesse Thompson is an architect at Kaplan Thompson Architects in Portland, Maine.