Economics of Solar

ABSTRACT

Solar energy is readily available just about everywhere. It's free, uninterruptible and will be available as long as it is required. To use solar energy, however, the equipment required for capturing and converting it to useful heat or power must be purchased and installed. Essentially, with solar systems, you are prepaying for energy at a fixed rate over the solar system's lifetime. This requirement to pre-pay energy presents a difficulty in comparing the economics or effective cost and/or savings of energy delivered by a solar system to the cost of conventional energy sources.

The purchase and installation of a solar system to heat water or generate electric power essentially locks in the cost of the energy at a fixed price over the life of the solar equipment. Once a solar system is installed, the price of the energy delivered is locked in at a levelized or life-cycle cost rate based on the cost of the solar system installation, and its operating and maintenance costs over the life of the system which is between 10 and 25 years depending upon the type of system.

This article illustrates a simplified approach for developing the effective cost of solar applications to the cost of conventional alternatives. The effective cost of solar water heating and photovoltaic (stand-alone and grid-connected) systems are determined to illustrate the methodology.

Given the present uncertainty of the cost of fuel oil, natural gas and electric power, locking in the price of energy delivered by a solar system for heating water at two to five cents per kWh or $5.00 to $15.00 per million Btu is a good investment with or without the available tax credits, State and local incentives and/or environmental benefits. The economics of the photovoltaic systems varies significantly with the system type (stand-alone or grid connected) and utility rates and rate structure and is not as clear-cut as the solar thermal systems.

It is something that should be given serious consideration. At the present time, the price of solar energy applications can be locked in at a 30% discount using the federal solar tax credit that is part of the Energy Policy Act of 2005. Additionally there may be other state and local incentives that may be available for solar. The environmental benefits that range from reduction in particulate emissions and CO₂, that can earn Green Tags yielding income, to the positive image for marketing of being environmentally friendly, i.e. green hotels, encouraging ecotourism etc., also provide an intangible financial benefits for some businesses.

The information that follows in this article is intended to provide a methodology for evaluating the cost of solar energy options available to facility and energy managers to enable them to be better able to evaluate and compare solar to other alternative energy applications.