Decadal Review and Future Perspectives on Photovoltaic System Economics

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Abstract

Over the last one decade, prices for residential grid-connected PV systems have decreased significantly. Here, various methods to calculate PV cost including the total capital cost, levelized cost of electricity and grid parity concept. In addition to that, various aspect one needs to consider during calculating PV cost. This also includes price variation of PV, over the decades.

Introduction

Renewable energy operated technologies can help countries meet their safe, reliable and affordable energy policy goals to expand the access to electricity and promote the development.

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Renewable energy has gone mainstream, accounting for most capacity additions in electricity generation today. Tens of gigawatts of wind, hydropower and solar photovoltaic capacity are installed every year worldwide in a renewable energy market worth more than $ 100 billion annually. Photovoltaic cells covert solar energy into electrical energy. It can be ranges from single panel of 200 watts to multiple panels of thousands of Watts. Calculating economics of solar system is a key to understanding weather an investment in solar is right for your home, business or farm.

Metrics for Cost Calculation

Confusion in economics of PV arise because of the way the PV prices are perceived. Primarily, this has been done using three related metrics, namely:

The price-per-watt (peak).
Capital cost of PV modules.
The concept of ‘grid parity’.
The levelized cost of electricity (LCOE).

Price per watt, or $/W is a general way to compare the total capital costs of different forms or ways or methods of electricity generation. It specifies to the amount of money one would have to spend to buy a machine which is capable of producing one watt of electricity.

It is calculated by dividing the project capital cost by the amount of peak power or watts-peak (Wp) it can produce. For instance, in the US, photovoltaic (PV) panels will see an average of 4–5 hours per day of full sun, so the effective capacity of solar power generation is 4.5/24, or about 20%. In 2011, statistics showed that US installed solar power, PV and thermal, totaled 4.9 GW, which produced 7454 GWh of energy. If the sun were always overhead, the installed capacity of 4.9 GW would have produced 4.9 x 24 x 365=42924 GW hours, so the actual production was 18%.

Capital cost (including waste disposal and decommissioning costs for nuclear energy) – tend to be less for fossil fuel power stations whereas more for wind turbines, solar PV (photovoltaics) and very high for waste to energy, wave and tidal, solar thermal, and nuclear.

According to bottom-up methodology, considering for every system and development of the projects costs incurred during the installation of PV model the costs for residential, commercial, and utility-scale systems. Generally, attempt to model the typical installation techniques and business operations from an installed-cost perspective. Costs are represented from the perspective of the developer/installer/provider, thus, all hardware costs represent the price at which components are purchased by the developer/installer/customer, not accounting for already existing power supply agreements or other contracts. This approach owing to the vast variation in developer profits in all sectors, where project pricing is highly dependent on region and project specifics such as local retail electricity rate structures, local rebate and incentive structures, competitive environment, and overall project or deal structures.

Once one has a $/W figure for a solar system, one can easily compare its basic value to other systems, regardless of size differences. For example, imagine one is considering a 7kW solar system costing $20,300 and a 6kW solar system costing $17,400. How one can know which one offers more/less value? Because they are differently sized systems, at first glance one might think that he/she cannot meaningfully compare them by their price tags alone. But in fact, both systems cost $2.90/W – meaning that with either system offers the same value in terms of its maximum power output.

Based on our bottom-up modeling, the 2017 PV cost benchmarks are:

$2.80 per watt DC (Wdc) (or $3.22 per watt AC [Wac]) for residential systems
$1.85/Wdc (or $2.13/Wac) for commercial systems
$1.03/Wdc (or $1.34/Wac) for fixed-tilt utility-scale systems
$1.11/Wdc (or $1.44/Wac) for one-axis-tracking utility-scale systems.

LCOE Cost

LCOE cost is Levelized cost of energy (LCOE) is the average amount that one will pay for single unit of electricity that one’s solar energy system will produce over its lifetime. LCOE is usually displayed as a ‘cents per kilowatt-hour’ figure (¢/kWh). LCOE is calculated by dividing the total out-of-pocket cost of solar energy system by the estimated total amount of energy solar system will produce over a given period. It is typical to look at a 20-year spam when calculating LCOE, although a system will continue to produce power for over 30 years.

LCOE is more complicated to calculate than $/W because there are more factors involved and because it is an estimate of future production.

To calculate the LCOE of a solar system, it’s also useful to know:

The annual rate of degradation for solar panels. All solar panels gradually grow less and less efficient over time. (This is complicated to calculate without a spreadsheet program.)
Any SREC benefits one may be eligible for. SRECs payments are usually counted as a “bonus” on top of the electricity bill savings associated with going solar. However, not all states have SREC markets, so check first if there is one where one live.[6]

As an example, if one is living in Los Angeles (There is 5.26kWh of sun daily on average throughout the year) and s/he is looking at a 5kw system with a net cost of $9,000 then estimation of its LCOE goes like:

Solar energy produced over 20 years: 5kW x 5.62kWh of sun daily x 365 days x 20 years x 80% efficiency = 164,000kWh
Cost of the system divided by solar energy produced: $14,500 / 164,000kWh = 9¢/kWh

LCOE is handy because it allows to compare the cost of electricity produced by two different solar energy systems side-by-side, thus allow to see which one is likely to save more money on power bills.

For example, the LCOE of one solar system might be 5.5¢/kWh, while another may have an LCOE of 8¢/kWh.

One can use it to compare the average cost of energy produced by your solar energy system against the amount one is paying for electricity from utility. Utility rates are higher than solar rates in many states. (Hawaii, for example, has some of the highest electricity rates in the nation, at over 30¢/kWh.) Knowing the LCOE of a system therefore allows to estimate how much money it will save over its lifetime.

Grid Parity

Grid parity or socket parity occurs when an alternative energy source can produce power at a levelized cost of electricity (LCOE) that is lesser than or equal to the price of power from the electricity grid. The term is frequently used when discussing renewable energy sources, notably solar power and wind power. PV solar will become cheaper than gas and coal across most of the world’s regions within around a decade amid exponential growth all the way to 2050, according to McKinsey & Company. The latest report anticipates a far-reaching transformation of the global energy system, with the primary demand flatlining after 2035 thanks in part to a renewable boom. Solar generation, as per McKinsey predicted, will explode 60-fold between 2015 and 2050 and overtake a wind industry set to grow by a factor of 15 in the same period. By the latter years, solar should have become the leading energy source worldwide, followed by wind.

According to the analysis, the solar momentum will see the industry achieve cost parity with both gas and coal in Germany and Spain around 2020. These forerunners will be followed by India and Australia, where PV solar will also catch up with gas by 2020 but take longer – all the way to 2030, in Australia’s case – to outcompete coal.

Calculation of Cost and Profit

For the calculation, the chronological sequence of the photovoltaic applications' energy production is compared to the energy usage of the homeowner. In case of energy spillover, the battery is charged. In case the current power output of the photovoltaic system is not enough to power the household, the battery gets discharged. Subsequently, the grid is used to supply the house. If the battery is entirely charged, the excess amount of energy is fed into the grid.

The assumption was made that the losses during battery charging and discharging are the same. Together, they constitute the efficiency factor. In conclusion, the electric power consumptions of every time interval can be added up in order to get the whole power consumption and the whole feed-in. The feed-in (E+) can be converted into the financial gain by the EEG bonus (kEEG) and the electricity consumptions (Edemand, E-) multiplied by the electricity tariff (ktariff)equate to the electricity costs. The financial gain (Again) is ascertained by comparing the system with a twenty-year long purchase of electricity without any investments. In the calculation time-steps of 15 minutes are used.

The power demand is created by observing the consumer behavior. The load curve refers the consumption of electric installations in the household when they are operated. The disadvantageous case for the self-consumption, whereupon the residents work on weekdays and cook in the evening, is studied. The load curve is based on a household, consisting of two persons and spending 3514 kWh each year.

According to the BundesverbandSolarwirtschaft, the investment cost of a solar system (APV) is currently 1698 €/kWp (after adding tax). In addition, there are total annual costs of 100 € for maintenance and another 80 € for insurance and a singular replacement of the inverter in the considered twenty years. For the inverter, the following cost equation was determined by an own market research.

183 €/kWp + 678€.

Dramatic Shift in Cost

Price of PV modules used to be very high during the initial stages but reduced to a certain level by 2004.
From 2004 to Q3 2008, the price of PV modules remained approximately flat at $3.50-$4.00/W.
The 18 largest quoted solar companies followed by Bloomberg made average operating margins of 14.6%-16.3% from 2005 to Q3 2008.
By the end of 2008, the production capacity of solar power plants increased more than the demand resulting in the increase in competition in pricing.
As a result, price of the PV module fell rapidly from $4.00/W in 2008 to $2.00/W in 2009.

This reduction was possible due to the technological advancements in the previous four years such as:

Advances in wafer, cell and module manufacturing processes.
Better cell efficiencies.
Lower electrical conversion losses.
Lower installation and maintenance cost.
Falling BOS costs.

10 years ago, in 2009, the total cost of a solar panel installation was $8.50 per watt. The solar industries today look very different in addition to solar panel efficiency increasing dramatically, solar panel producers have significantly improved and increased their manufacturing processes. Solar installers, too, can deploy solar PV across the United States more efficiently now than they could ten years ago. The result, the price of solar has fallen by over 60 percent, to just $3.05/watt.

There is an evidence that solar prices are continuing to fall. From the second half of 2018 to the first half of 2019, prices featured in quotes to homeowners on the Energy Sage Solar Marketplace fell by 2.2%.[10]

Conclusion

Solar photovoltaic technology is a promising as well as environment friendly, safe, renewable energy source moving in the direction of the future. PV technology looks like the best suitable energy source for low scale power generation, such as homes, since the 'efficiency and manufacturing costs have not reached the point that photovoltaic power generation can replace conventional coal-, gas-, and nuclear-powered generating facilities.' [11] People should continue looking and seeking technological advancements and calling for government policies that will help to drive the costs of the technology to a level that makes it economically efficient to replace exhaustible and non-renewable fuel sources which are ultimately responsible for degradation of environment.