Solar Makes Financial Sense in Austin, if You Are Subsidized…

Michael Giberson

Geoff Styles (“Can Solar Compete?“) observes two reports from MIT’s Technology Review: one from August 2009 that says cost reductions achieved in the solar power industry “have made solar power cheaper than the natural-gas-powered plants used to produce extra electricity to meet demand on hot summer days,” and another from the September/October 2009 issue saying “power produced by silicon-based photovoltaics is about five times as costly as that generated from fossil fuels.”

Note that, strictly speaking, there is not an inherent conflict. The August claim compares solar to peaking units – naturally the most expensive (per MWh) generators used to make power – while the September/October claim could be seen as comparing solar to baseload or an overall average for fossil fuel generation.

After running through some numbers, Styles writes:

In this simple comparison, at least, it appears that today’s best solar technology is still somewhat more expensive than the fossil-based power it’s likely to be displacing in a typical power grid, … I’m skeptical that simple economies of scale beyond those already achieved could deliver that kind of improvement any time soon. That might explain the necessity for a 30% federal tax credit or grant on solar installations, along with generous state-level incentives and renewable portfolio standards–mandates on utilities for a targeted level of renewable power. Absent these, much of today’s solar activity would probably grind to a halt.

A story in the Austin American Statesman explains the role played by subsidies:

Zabreznik smiled and described how he thinks solar power finally makes sense — not environmentally, but financially.”I’d like to say I’m one of those people who put in solar because it’s good for the environment,” said Zabreznik, 36, a marketing manager turned stay-at-home dad who lives in a new, environmentally-friendly development being built at the former Mueller airport site in Austin. “But I didn’t do it for the environment; I did it because it’s a good deal now.”

… But they acknowledge that their efforts make financial sense only because the federal and city governments will cover most of their costs, meaning that other people’s tax dollars and utility fees are making their solar ambitions possible.

A little later in the story, some details on just how much those subsidies matter:

[Aman] Jain, a financial analyst, created a financial model and discovered that at today’s prices and technology, a solar array would cost a homeowner $4,000 to $7,500. An array would pay for itself in about seven years, he calculated, a finding that he said surprised him.

Those numbers persuaded Zabreznik to make the investment….

Zabreznik says he will pay $5,500 to $7,000 out of pocket, depending on what he and his contractor can negotiate. But the total cost of his array is actually $47,250, according to his contractor, Texas Solar Power Co. Rebates from Austin Energy and federal tax credits cover about 80 percent of the bill.

“Without the subsidies, it’s not remotely worth it,” Jain said.

[NOTE: Another solar subsidy story from Arizona, HT to Scott Gustafson/Arizona Economics]

7 thoughts on “Solar Makes Financial Sense in Austin, if You Are Subsidized…

  1. “Spain’s Solar-Power Collapse Dims Subsidy Model” by Angel Gonzalez And Keith Johnson in the Wall Street Journal on September 3, 2009 at page A10:

    “Solar power “was a financial product, not an energy solution,” says Ignacio Sánchez Galán, chairman of Iberdrola, the world’s biggest renewable-energy company. Iberdrola has largely shunned solar because wind power is cheaper and requires less land.

    That’s especially true of the new wave of large-scale solar power, known as solar thermal power, which uses the sun to heat water into steam which runs turbines. That technology offers the potential for much bigger clean-energy projects than silicon-coated photovoltaic panels, and has attracted interest from utilities in Spain and the U.S., especially. But solar thermal power is far from being cost-competitive with traditional power sources, and it requires large swathes of empty land, such as those found in parts of Spain and the U.S. Southwest.”

  2. “have made solar power cheaper than the natural-gas-powered plants used to produce extra electricity to meet demand on hot summer days,”

    “The August claim compares solar to peaking units – naturally the most expensive (per MWh) generators used to make power”

    Graph of 24 hr electricity consumption in California.

    If you look at the graph linked above, you will see that peak power consumption is the period from 3 p.m. to 6 p.m. By 3, solar production has already begun to drop, and by 6 it is just about through for the day. The only way to use solar as peak power is to have thermal storage. But, storage adds to expense. Until, that expense is accounted for, we cannot know how much solar electricity costs.

  3. You can’t use solar for peaking power, anyway, because it isn’t deployable. So you will need that gas peaker available, to deal with fluctuations in power demand AND solar output. You should compare solar to gas, because that is what solar would be crowding out, but using plants that run full-time, not peakers. Peakers are expensive when you consider depreciation on capital costs (which the equal price number must be doing, because solar is all capital costs), but full-time gas plants are a lot cheaper.

    Of course, comparing to “fossil fuels” isn’t appropriate, either. That would include coal, and no one this side of the Sierra Club would contemplate closing a coal plant instead of a gas plant, right now.

    Covering 1.7% of the country with Solar? OK, that is less than half of National Parks land, but that includes some rather massive “National Parks” in Alaska. Solar isn’t going to be a big tech up there. Different comparison – roads cover approximately 0.5% of the US land surface. So we’d need to cover space enough for 3x as much roadway than we have now.

    I also would like to see the estimate on the cost of the transmission network needed to get that solar power from sunny Arizona to New England, the upper Midwest, Seattle, etc.

  4. Why make it so negative? Encouraging homeowners to install solar panels will help a lot with peak power. Solar panels produce the most electricity when it is most needing, during the hottest part of the day. In addition, they protect homeowners from blackouts and contribute energy to the overall grid. Sure, a massive amount of photovoltaic solar panels need to be installed to provide enough electricity, but there are other means of producing electricity (wind, tidal, geothermal, biofuels) too. Through a combination, we will someday be able to power our nation.

  5. The negative tone in the post emerges from the resource waste implied by the high cost of the solar panels. (If PV panels didn’t use up so many high value resources to produce power, they wouldn’t cost so much and would be economical without the subsidy.) Of course PV does make sense in many off-grid uses, and small research-type grid connected PV would also be useful. I’m just not a fan of subsidizing other peoples electric power consumption with U.S. tax dollars.

    I do believe that costs of PV will fall, and the market for them will grow. When that happens, massive 80 percent subsidies will not be needed.

  6. “I do believe that costs of PV will fall, and the market for them will grow. When that happens, massive 80 percent subsidies will not be needed.”

    Sadly, that economic reality does not mean that the subsidies will disappear, and that distortionary redistribution is another source of the inefficiency of the subsidies. Government programs have a way of sticking around beyond their purported necessity, and create entrenched interests in their perpetuation.

Comments are closed.