How Expensive Is Solar Energy?

Shh, don't let Wall Street know but solar power is ready to compete with traditional electricity generation sources, and it's only going to get cheaper. Panel prices have fallen from nearly $7 per watt in 1985 to less than $2 per watt today, and the momentum isn't stopping. One dollar per watt prices are on the horizon, and if the Department of Energy has its way total installation costs will fall to $1 per watt by 2017.

Perception is reality
Innovation, falling silicon prices, and economies of scale have helped drive costs lower since the solar sector really started growing in the early 2000s. First Solar (Nasdaq: FSLR  ) is now making thin-film panels for $0.75 per watt, Trina Solar (NYSE: TSL  ) makes crystalline panels for $1.16 per watt, and even efficiency leader SunPower (Nasdaq: SPWRA  ) , the highest cost producer, is manufacturing at less than $1.48 per watt.

But solar power can't seem to get over the perception that it's "too expensive" for widespread use. There are certainly issues, like inconsistent energy production, but with such a small installed base, the grid can handle years of solar growth before they become major issues. So how do we get over this perception and how much does solar power really cost?

The answer: It depends
Project costs can vary widely even with the same manufacturer. SunPower sold 28 MW of projects in Italy for $64 million, just over $2 per watt, while its California Valley Solar Ranch exceeds $6 per watt, including electric substation, public viewing areas, and a transmission tie-in. Since project, regulatory, and utility requirements vary widely, it's impossible to put one number on the cost for solar installations, but $3 to $4 per watt is widely quoted as the price range for a typical solar installation today. For argument's sake, let's use that range and a capacity factor between 20% and 30% for solar installations to get a feel for what solar electricity costs.

Using National Renewable Energy Laboratory's Simple Cost of Energy Calculator (which can be found here), we input these ranges and get a cost per kW-hr of electricity. The sensitivity analysis below assumes a 20-year period, 10% discount rate, fixed operation and maintenance costs of $20/kW-yr, and does not include subsidies.

 

20% Capacity Factor

25% Capacity Factor

30% Capacity Factor

$3.00 per watt $0.212 $0.169 $0.141
$3.50 per watt $0.245 $0.196 $0.163
$4.00 per watt $0.279 $0.223 $0.186

These numbers don't include transmission lines or margin for a utility, but they show how close solar power is to reaching "grid parity." Based on these numbers, solar costs are becoming comparable to some of the more expensive electricity rates in the country. According to the EIA, in the first two months of 2011 New England states were the most expensive region, paying an average rate of 14.74 cents per kW-hr for electricity and Hawaii was nearly 28 cents per kW-hr. California, where solar energy is abundant, paid 13.01 cents per kW-hr for electricity.

These rates also include cheap and ancient coal plants, gas peakers, nuclear power, hydroelectric dams, and even a little wind mixed in. But new construction would be much more expensive than the rates people pay today. And with coal emissions and nuclear safety concerns, the cost to build traditional power plants is only rising.

Trends favor solar
As panel sale prices fall for manufacturers such as LDK Solar (NYSE: LDK  ) , JA Solar (Nasdaq: JASO  ) , and ReneSola (NYSE: SOL  ) , it puts pressure on margins but also makes solar more competitive in the marketplace. Short term, it has crushed these stocks, but in the long term, lower sale prices are good for the industry. Right now it's a matter of making it through the hard times so they can reap the rewards of grid parity.

Not every company will make it through this rough patch, and based on stock prices, investors doubt Evergreen Solar and Energy Conversion Devices (Nasdaq: ENER  ) will make it. But powerhouses such as First Solar, SunPower, and Trina Solar should emerge as winners once solar power falls below the cost of traditional energy sources.

Keep on top of solar stocks by adding them to your watchlist. It's free and if you sign up for MyFool Daily we'll send you a daily email with Foolish articles about the stocks on your watchlist.

Fool contributor Travis Hoium owns shares of First Solar and SunPower. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (7) | Recommend This Article (8)

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  • Report this Comment On June 27, 2011, at 12:07 PM, buzzltyr wrote:

    Wow someone actually has facts. Inflation is the big element of solar, it is pretty much maintenance free and requires no fuel and no envioremental upgrades. If in fact we do hit the double digit inflation as predicted, solar will be leaving fossil fuels in the dust.

    The other big factor is water usage, there is a law coming on the books now that dramatically limits the use of ocean and river wather for generation cooling. The only form not affected is solar and wind. Ck out EPA 316(b)

  • Report this Comment On June 27, 2011, at 1:06 PM, sailrick wrote:

    Add the externalized costs of fossil fuels and they would barely be competitive right now.

    Some want to go one pretending these costs are not real, arguing against any kind of price on carbon emissions. And of course carbon emissions are just part of the externalized costs.

    I believe CSP (solar thermal) will also reach grid parity, though not as soon as PV solar. It hasn't had as many years of commercial development, and progress toward economy of scale. The dispatchable base load power from CSP with heat storage will make it easier to balance out the intermittancy of PV solar and wind power, not to mention day and night power generation.

    In your article, you give average power prices in various regions. Peak demand prices are quite a bit higher. Solar performs best during the daytime when demand is high.

    For another slant on solar costs, see here

    http://www.grist.org/solar-power/2011-06-23-value-of-solar-p...

  • Report this Comment On June 27, 2011, at 7:01 PM, Eysteinh wrote:

    Thanks for a good read.

  • Report this Comment On June 28, 2011, at 10:12 AM, Brettze wrote:

    Travis, you are missing the point... there is already cheaper ways of capturing the solar energy with solar thermal technologies . You can even make some yourselves.. Any manufacturer can make them so cheaply that can heat your indoors directly without any need to convert into electricity and counting watts.. All you need to do is to reflect sunlight through windows or toward heat exchangers which in turn circulate air to be heated for indoors comfort... The biggest portion of all utility bills goes to heating not lamps or TV... Heating is the biggest cost.. So it is commonsense to just capturing the sunlght directly and concentrate it enough to heat air we need to feel warm.. This is the key to solar energy ... Wind power is preferrable for electricity generation which is fine . But for solar energy, you should measure it in BTUs not watts.. BTUs is what you measure on natural gas , heating oil, and electricity if you use electric heating systems as well. Roughly 1000 watt can be equal to 5000 BTUs. Air condiotiners are measured in BTUs as well. This is the right term to use for measuring solar energy not kilowatts because photovoltaics is not really THAT efficient in converting sunlight into electricity.. Photovoltaics are still costly even at $1 a watt.. or even 50 cents.. Reflecting sunlgiht can be just pennies to the watt .. or less. Photovolatics is just ntohing but just red herrings intended to protect exisiting obsolete jobs.. from being lostdue to compettition from even cheaper solar energy yet to come. Delaying tactics... We are already hurting for jobs yet we pay too much for energy needllessly... Everyone is competiting for jobs that is not quite efficient in hindsight.

  • Report this Comment On June 28, 2011, at 10:18 AM, Brettze wrote:

    Photovoltaics is still important as remote power sources that can charge batteries for certain instruments like you see by the highways so often or even guiding mirrors to reflect sunlight through windows with computerized tracking devices powered by photovoltaics as well. Photovoltaics is more of kinetic energy low energy that doesnt require stringing a powerline out in the open space.. even you can use photovltaics in your backyard that you dont want to dig a trench for installing powerline.. This is what photovoltaics is really for.. Until we achieve better than 50-75% efficinecy in converting sunlight into electricity with photovoltaics.., PVs shoudl be lijmited to such applications not utility scale installations or rooftop installations which is too ridiculous but we thought that they are great for jobs .. Think again, we are spending too much money to create so few jobs.. We can spend that money elsewhere and generate more jobs than with photovoltaics.. We can create far more jobs with solar themral technolgoies than photovoltaics and we will generate far more energy with solar themral than with photovltaics... If we stick with photovoltaics, we are more likely to face more oil price shocks because we will still be unable to displace as m uch demand off oil as with solar themral.. What is the matter with you all?? You cant manage , can you?

    .

  • Report this Comment On June 28, 2011, at 10:42 AM, Brettze wrote:

    Some designes of solar thermal are flawed like those solar tower with mirrors all around the towers... Because mirrors are too far from the towers that some sunlight do not hit the mark or target due to microscopically uneven surfaces inherently found on mirrors unless you grind mirrors to telescope perfection which is too cost prohibitive... Mirrors can be used at closer ranges than those tower designes which I call Ivory towers.. There is even mirrors the size of your everyday cereal bowls arranged all over the board with special high temp photovoltaics that can take in 500 X sun concentration and its efficency is boosted to 45% . Solar reflections must be in close ranges

  • Report this Comment On July 01, 2011, at 2:22 AM, AnotherOpinion wrote:

    "and does not include subsidies."

    - So Travis Holum wrote an entire article on the subject and excluded the most important part, thus making the whole read utterly pointless and offering no actionable information.

    Without subsidies from the government (ie taxpayer $ being wasted) solar hasn't a snowballs chance in heck of competing. It is and will always be a niche product, perfect for freeway call boxes, heating pools and running my mac from Yosemite.

    Nuclear is truly the only answer. Fossil fuels will last many more generations, despite the silly people claiming 'peak' whatever the scare of the week is. Hopefully our children and grandchildren will be more rational when it comes to energy planning for our future.

    Two trends will make future energy needs far greater than they are today. First is the general trend of each person using more and more power each year, decade and generation as devices proliferate around us exponentially. Second is population growth and the third world catching up to the industrialized nations in energy usage. We need ALL forms of energy. Solar and wind are the absolute worst. Hydro or geo might make sense as they are "always on" and can meet the instantaneous energy needs of the very large power users like manufacturers. Solar and wind simply will never be able to do that. Even if we blanketed every square inch of our nation with solar and turbines it would not be enough.

    Cheers!

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