The economics and usefulness of domestic rooftop solar PV installations
03May. 09
Today I thought I might take a skeptical look at an issue which is perhaps a bit different to the issues you normally see skeptics talking about. Hopefully you find it interesting none the less.
As most of you are aware, there are heaps of companies out there lining up to install 1 kilowatt (kW) kW solar photovoltaic (PV) grid-connected systems on your house, and the government rebate of $8 per watt of installed capacity for such installations seems pretty attractive.
The out-of-pocket costs for installation of these systems range from about $3000 to $5000, although some companies offer such systems for essentially nothing 1, only costing you $500 or so for the meter upgrade, after the $8000 government rebate is repaid. These guys 2 sell their basic 1 kW system for $5000 out-of-pocket after the subsidies and rebates, and these guys 3 sell their system for $3000 after the rebate.* For most of these systems, the average cost advertised, the out-of-pocket final cost after the subsidies have been taken off, is about $3000 depending on the quality of the system.
Personally, in the case of the systems advertised for zero overall cost, I’d be a little bit worried about the quality of the system, since they’d have to be honing the price down quite a bit to get it down to the point where they can pay for it, pay for installation, and still make a profit, just from the $9000 or so available in the $8000 government subsidy plus the value of the system in terms of Renewable Energy Credits (RECs). You wouldn’t want a shonky system that burns down your house, would you?
According to the BOM’s empirical satellite date, in southeastern Australia, including Melbourne, Adelaide, Sydney and everything in between, the average daily solar exposure is 15 megajoules per square meter per day 4. In other words, the total amount of solar energy received on the Earth’s surface, here, is about 15 megajoules per square meter, on average, in one day.
As most of you probably know, power is the rate of change of energy with respect to time; that is, the rate at which energy flows, measured in joules per second, or watts. Since we receive 15 MJ per square meter per day in the form of solar radiation, that’s an average power density of 174 watts per square meter, on average over the whole day. During the daytime it’s approximately twice that, approximately 350 W of power per square meter, but you get nothing at night.
Now, if you buy a solar PV module that is rated at 180 W, or whatever power figure it is, you get that advertised amount of power only if there is 1000 W per square meter of solar radiation incident onto the panel. If you’re close to the equator, close to the summer equinox, on a perfect cloudless, sunny day, with your starsigns in your favour, you might get 1000 W per square meter of power in the form of incident solar radiation if you’re lucky. On average, in the real world, you don’t get close to that at all for the majority of the time.
So, a “1000 W” PV array, in the real world with an average of 174 W/m^2 worth of incident radiation flux, will generate 174 W of power, on average.
(Averaged over the full 24 hours in a day.)
Therefore, you get about 1500 kilowatt-hours (kWh) of total energy generation per year. If you’re paying, say, 13 c/kWh for electricity, you save about $200 per year on the electricity bills. If you pay about $3000 out-of-pocket for such a system, then, it will take 15 years to pay for itself.
However, after about 10 years, it’s entirely plausible that the grid-connect inverter will die, and there won’t be a subsidy paying for that, so that’s probably another $2000 or so you’ll need to shell out. (The inverter is the box full of power electronics that converts the low-voltage DC electricity from the photovoltaics into an AC sine wave at the higher grid voltage, and keeps that AC sine wave in phase with the AC waveform on the electricity grid. These inverters typically have a warranty of only five years.) So, that adds another 10 years to the payback time. You probably won’t even be able to pay it off before that second inverter reaches the end of its life.
There are installers that offer higher quality inverters with longer warranties, but they are the higher end of the price brackets for the systems — this is the catch with the extremely cheap systems.
So you’re looking at a payback time of 25 years, for a system where the silicon photovoltaic cells are unlikely to last more than 20 – 25 years. Such systems, in all likelihood, are never going to pay themselves off, even with the large government subsidies. All these businesses that are doing the installations are literally leeching off the large government subsidies that exist for these installations; if you took away the subsidies they would all disappear straight away.
With a saving of close to $200 per annum off your electricity bill, if the customers had to pay the $8000 which is subsidized by the government, just that $8000 portion alone would take 40 years to pay off, and you would never, ever even come remotely close to paying it off. This scheme is seemingly just a huge money sink for the government; it’s completely unsustainable, and it doesn’t seem to accomplish anything meaningful.
Customers love it, since they’re effectively getting this huge investment mostly given to them by the government. It’s just like the Rudd government’s economic stimulus handouts — people are getting a generous free handout, so they think that’s fantastic, and people will very rarely stop and question whether this actually makes sense as a worthwhile thing for the good of the country. Nobody truly wants to be skeptical when they’re getting a free handout, but as always, skepticism is really important.
One of these systems generates about 1500 kilowatt-hours per year, as we’ve discussed above. In 2006, the electricity output sent to the grid from the Loy Yang A coal-fired generator in Victoria, just as a typical example, was 15,995 gigawatt-hours. (That is, 15,995,000,000 kilowatt hours.)
Therefore, if you wanted to generate the same amount of energy from 1 kW rooftop solar PV installations as just one coal-fired power station, you’d need 10.7 million of these installations. There are approximately 8.5 million households in Australia [5].
If you installed a 1 kW solar array on the roof of every household in this country, you would have an amount of energy output from those installations that is quantitatively considerably less than one single coal-fired power station. I hope that puts things in perspective.
Even if you could roll out 10.7 million solar installations, or increase the size of the systems we’re considering and to about 1.3 kW, and deploy 1.3 kW systems on 8.5 million Australian household roofs, that still doesn’t give you the means to replace the single coal-fired power station, because it isn’t high capacity factor baseload generation, where the energy is constantly assured to be available at all times. You still need that high capacity factor, reliable baseload generation to back you up when the photovoltaics are delivering less energy, or no energy at all.
If the government paid out the $8000 subsidies for 10.7 million 1 kW solar panel installations (or, equivalently, 8.5 million 1.3 kW systems at a rate of $8/W) — which aren’t capable of replacing even one coal-fired station — it would cost 86 billion dollars.
That’s an enormous, incredible amount of money to think about. It’s far, far more expensive than just about any kind of energy generation I can think of. It’s far more expensive than nuclear energy, more expensive than wind energy, more expensive than hydroelectricity, more expensive than solar thermal or geothermal generation, more expensive than natural gas, and even far more expensive than centralised solar-photovoltaic power stations, which are themselves very expensive.
This is an incredibly expensive little enterprise which makes the governments give the appearance that they are promoting clean energy systems to replace coal-fired generation, in a way that makes customers happy by basically giving them heavily discounted infrastructure. However, in actuality, it does nothing, for all practical intents and purposes, to actually replace coal-fired power stations. There are multiple ways that the coal-fired generators could actually be replaced with clean generators, delivering very real cuts in Australian anthropogenic carbon dioxide emissions, for the same amount of money that is being spent on this program.
[1]: http://www.nuenergy.com.au/pvsolar.php
[2]: http://www.solarpanelrebate.com.au/home-solar-power-systems.html
[3]: http://jlelectrics.com.au/main/page_solar_power.html
[4]: http://www.bom.gov.au/cgi-bin/climate/cgi_bin_scripts/solar-radiation.cgi
[Select “average” to generate the map.]
[5]: http://www.abs.gov.au/ausstats/abs@.nsf/0/D5181CC73561D701CA256F7200832FD9?opendocument
* I have absolutely nothing against, or for, these particular companies. They’re just the first examples I happened to find on a Google query.
October 23rd, 2009 at 10:43 pm
There would be no nuclear power plants if not for large amounts of government subsidies. Governments also provide large amounts of subsidies to Oil & Coal producing companies for R&D, even during record earning quarters. The argument can not work only one way, if subsidies are accepted as driving R&D for Coal, Oil and Nuclear then the same applies to PV.
Note, when delivering electricity, line loss (resistive loss) can be as much as 30%. PVs on rooftops produces electricity at the point of use!
May 24th, 2010 at 7:58 pm
Just from another slant; How much energy does it take to produce one of these photo cells ? Will it save that energy in its 20 — 25 year lifetime ? I guess only the smoke signals from China will know.
I do agree with your statistics (which is how I came across your article) doing research on the subject for an intended installation
Thanks for your co-operation.
Regards,
Greg
November 17th, 2010 at 3:46 pm
Interesting article but it’s full of half-truths.
I stumbled upon your article by “installation cost rooftop pv” I have no idea why it came up third.
My observations:
–You don’t have to get too much involved with solar radiation maps from BOM etc. because it’s very easy to access the peak sun hours for any area. In my case it’s 4.5.
It means that 1 kW solar panel generates an average 4.5kWh a day or 1643.6 kWh annually (your 4.2 kWh per day looks fine)
–The current price of PV is around $5 – 6 per kW without any subsidy, with subsidy it can be half of that.
–The prices of PV falls rapidly because of exponentially the increasing demand fueled by mostly German and Spanish demand. The market is currently supply constrained, but as with any open markets it won’t last for long.
–First Solar (German company) is the market leader, they are very proud of their low and continuously decreasing $/W panel costs. See their 2009 annual report. They are already well under a $1 and their projected cost is $0.52-$0.63 by 2014. This only the cost of PV, but they have a projection for the total system cost which is $0.91-$0.98.
The current retail price of PV is between $2-$4, so I anticipate that the residential cost of a complete PV installation will be around 50 – 60% less by 2015 than today, let say $2/W, while the electricity will cost 40 – 50% more.
–Price of electricity: I don’t know where you got $0.13/kWh because the current REGULATED electricity price is $0.19085 in NSW. That is 39% more than 13 cents.
If you want you can signed up for a Energy Australia’s PowerSmart Home Rates where peak is 40.26, shoulder 14.96 cent and off-peak 8.8 cent/kWh. Since the sun only shines in Peak and Shoulder you are looking into something around 24 cents when your PV generates electricity.
Also the REGULATED electricity prices are going to increase significantly (Already approved) in the next few years at least 30%, mainly because of the increasing peak demand.
Inverter: What makes you think that an inverter would fail in 10 years? Because it has 5 year warranty? As electronics engineer I can tell you that every inverter is fully solid state i.e. there is no moving part to fail, similarly to a solar cell!! It has some high power transistors which could last for decades, in fact a solar cell is only an oversized photodiode as well. I have a 5 year old car, it had only three year warranty, do you suggest that it is likely to fail in a year? I doubt it and it’s full of moving parts.
–Economic model:
According to MY calculations
+$5000/kW PV ($0 subsidy)
+4.5 peak sun hour region (Sydney)
+Energy Australia PowerSmart Home plan (24 cent/kWh average peak/shoulder and No feed-in tariff)
Gives you 11.4 payback period and with RECs it’s about 6 years.
If you factor in the price drop of PVs (to $3.5/kWh) and the already approved regulated rate increases we are looking into 6 years by 2013.
Not too bad after all.
I think the main problem we are facing is how the grid will be able handle the high penetration of grid connected PVs when it becomes no brainer for everyone to install one (probably in 5 years).
November 18th, 2010 at 11:08 am
On pv life expectancy:
one thing Tibor (my dad and sons name!) and luke left out/didnt mention. Many of the PV installed inthe seventies are now seeing their 40th year of service. Yeah the glass is a bit more dingy, and in some cases the elastomer seals have failed, but the 40 year old technology, can last 40 years. What can the 1 year old technology do with all the design, manufacturing and materials improvements that have been gained over the last few decades?
with a payback of 7 – 15 years depending…its really a no brainer. except for that startup capital cost. Getting a loan for a PV installation pretty much ruins the entire financial advantage.
December 4th, 2011 at 8:36 pm
I know this thread is old, but I think other factors have intervened to enhance the economics of domestic PV, notably upward spiralling prices of electricity. I would like to point out that empirical evidence shows that our solar customers who have good siting do receive on average 1600kWh per year, and some receive more. Could it be the difference in incident angle to sun of a 23 degree roof versus 0 degrees for the earths surface? A flat surface receives around 87% of the sun’s energy compared to something between 24 and 40 degrees (Australian Solar Energy Society Data). Also, it is not uncommon for SE Australia to receive over 1000W/m2 during noon hours, summer six months– empirical data from home weather station observations (http://forums.energymatters.com.au/wind-solar-misc/topic531-20.html)
Its true its not the ‘majority’ of the time, but it is consistently regular.
Thanks for your thought provoking article.
March 3rd, 2012 at 5:38 pm
Well we’re three years down the track from when you couldn’t see what could be achieved so why don’t we have another look at some of the numbers today.
These days 1kw systems are rare as costs have fallen so much that such a small system is barely worth it. There are several installers offering 1.5kw systems, for example http://www.solarpoweraustralia.com.au/grid-feed-solar-power-for-your-home.html.
They offer 1.5kw system for $5,900 outright with a current REC rebate of $2,914 giving you an out of pocket of $2,994. Personally I feel your production numbers are low end of normal but for the sake of simplicity and to avoid looking to be favoring solar lets use your numbers, which would give a 1.5kw system an annual output of 2250kwh. Electricity prices have risen since your original article, with the average tariff around 25c/kwh, giving you an annual value and saving from electricity produced of about $550. This gives you a payback period of a little over 5 years at present. Now we’re paying off the system inside our warranty period for inverters we don’t need to worry about your blown inverter theory. So in three years we’ve gone from 25 year payback to 5 years. Don’t forget that electricity prices are rising by upwards of 10% per year and that will continue to occur which only makes these numbers more attractive over time.
As you point out if the consumer had to pay for the whole system without rebates the payback would be longer, you have calculated 40 years in 2009. Now with the rebate down to $2,914 buying the whole system without rebate would take about 10 years and 6 months. Not a bad improvement in 3 years, And again the payback will drop over time with increasing electricity costs. Now of course we’re well within the 20 – 25 year lifespan of the components so they will almost certainly pay itself off, both for consumer and government.
The second part of your article covers solar ability to offset a coal fired power station. Lets use Hazelwood as an example, the OECD’s most carbon intensive power station at 1.58 tonnes Co2/Mwh power prduced. Hazelwood produces about 25% of Victoria’s electricity, or around 12,000 Gwh per year. To offset that production from solar would require 5.33 million homes to install a 1.5kw solar system. With the government rebate of $2914 the government subsidy if they were all bought at once would be 15.5 billion dollars down from 86 Billion in 2009. 15.5 Billion compares very favorably with the cost of most new centralised power stations and is cheaper than the cost of new nuclear power by a large margin. I think its worth pointing out that the smaller systems enjoy a proportionally larger rebate, for example a 3.1kw system receives a $3,906 subsidy, double the system but only 40% more subsidy. If 2.65 million homes installed a 3kw system you would produce the same amount of power but at a total government rebate cost of $10.35 Billion.
So basically since 2009 solar has come down over 80% in costs, the out of pocket costs have remained close to the same and the rebate has been scaled back accordingly. At the same time electricity has more than doubled in price. Now inevitably these trends are going to continue, and with increasing realisation of many of the externalities of fossil fuel power none of which are accounted for here, in all likelihood they are going to accelerate with carbon pricing coming on board.
Solar is now economical both for individual households and at the utility and government level. The reality is that were not going to get solar panels on 5.3 million rooftops overnight and by the time were getting towards that number costs will probably have halved again and electricity rates increased further. The benefits of solar were on the cusp in 2009, are obvious now and will be completely unarguable in a year or two. If the purpose of subsidies is to encourage a fledgling industry with potential grow to overcome cost and technological barriers until they are ready for entry into the mainstream without subsidy then I’d say the system accomplished something meaningful.