Posted by: conservativecritic | February 22, 2012

IS SOLAR ENERGY COST-EFFECTIVE? (continues to be one of our most popular blogs…)

NOTE: large energy companies are now striking back at home owners who put solar systems on  their properties – by claiming that now fewer people are able to support the in-place energy delivery systems(power lines, etc)….therefore, those who put in solar systems will not only be saddled with higher energy costs due to regional solar farms…but also added charges to cover the energy company losses being incurred as noted above…you are screwed two ways from Sunday…

ADDED NOTE:  A September 22, 2012 article in the Los Angeles Times let slip a few secrets about the upcoming cost debacle to be borne by consumers once solar systems being constructed in the desert areas of California are tied into local power grids.  Confidential agreements between solar developers and utilities(who will set new and higher costs for electricity) appear to be two to four times the already high cost of electrical power for homes and industry.  

This will make California’s increasing “green” power the most expensive in the country.  

Government loans and  guarantees are the basis upon which these new power sources are being built….but once again, public discussions of future rates and how to cope with high power requirements during non-sun hours seem to be be pushed under the rug – leaving the state still dependent on conventional energy sources during non-sun hours.  This is the slight of hand being played by the Obama administration and utilities who are anxious to demonstrate that they are “technologically advanced” while quietly saddling consumers with rates that will come down hard on industry(making them move out of the state) and lower and middle class  homeowners who cannot afford life in California as it is.

NOTE:  READ THIS CAREFULLY BEFORE BEING SUCKERED INTO BUYING OR RENTING A SOLAR SYSTEM FOR YOUR HOME OR BUSINESS.  

SECONDLY – A LOT OF RESPONDERS TO THIS BLOG SEEM TO THINK THEY HAVE SOME SORT OF “INSIDE INFORMATION ” ON WHAT  SOLAR SYSTEMS COST COMPARED TO CONVENTIONAL, LESS-EXPENSIVE ENERGY TECHNOLOGIES……WE FIND THEIR COMMENTS AMATEURISH AND WITHOUT MERIT…BY THE TIME YOU ADD UP ALL OF THE LIFE CYCLE COSTS OF PERMITTING, INSTALLING, EQUIPMENT, MONITORING AND OTHER “GADGET” COSTS – YOU WILL BE PRETTY CLOSE TO THE NUMBERS WE SHOW BELOW.

total-cost-electricity-production-per-kwh

ALSO, IF YOU QUALIFY FOR FEDERAL TAX DEDUCTIONS FOR INSTALLING A SOLAR SYSTEM, BE PREPARED TO WAIT UP TO 16 MONTHS(THIS IS AS STATED BY THE SOLAR PANEL FOLKS THEMSELVES) FOR A REBATE.

THERE IS AN INCREDIBLE AMOUNT OF INFORMATION OUT THERE BADLY UNDERESTIMATING THE TRUE COSTS OF OWNING OR TYING INTO A SOLAR SYSTEM…

DON’T BE FOOLED…COMMUNITIES(READ LOWER AND MIDDLE INCOME CLASS) WILL PAY THROUGH THE NOSE AS THESE EXPENSIVE NEW SOLAR POWER SYSTEMS TIE INTO THE LOCAL POWER GRIDS – AND CRANK UP THE COST OF ELECTRICAL POWER TO THESE MIDDLE AND LOWER INCOME FAMILIES…

MIDDLE AND LOWER INCOME FAMILIES TYPICALLY CANNOT AFFORD A  HOME-BASED SOLAR SYSTEM – AND WILL BE THE ONES TO SUFFER HUGE ELECTRICAL COST INCREASES IF LARGE SOLAR ARRAYS ARE BUILT NEXT TO THEIR CITY AND TIE INTO THE POWER GRID…IT DOES NOT TAKE A MATHEMATICIAN OR ROCKET SCIENTIST TO FIGURE THIS OUT.

SOLAR POWER MAY BE THE “POLITICALLY CORRECT” APPROACH BEING PROMOTED BY FEDERAL, STATE AND LOCAL GOVERNMENTS – BUT THE NUMBER OF JOBS CREATED BY SUCH AN APPROACH IS TRULY DISMAL, IF NOT COMPLETELY UNDETECTABLE ON THE JOBS  CHARTS – WHILE A SMALL NUMBER OF “POLITICALLY  CONNECTED” COMPANIES OBTAINING GOVERNMENT GRANTS TO KEEP THEMSELVES ABOVE WATER…WILL BE THE ONLY WINNERS IN THIS DEAL…AT LEAST FOR A WHILE…UNTIL THEY TOO GO BROKE!!

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FIRST SOLAR – RECIPIENT OF HUNDREDS OF MILLIONS OF DOLLARS IN OBAMA ADMINISTRATION GRANTS AND LOAN GUARANTEES IS DOWN 86% FROM ITS 52 WEEK HIGH….ANOTHER INDICATION THAT  THE ALTERNATIVE ENERGY BUSINESS IS NOT READY FOR PRIME TIME..

FIRST SOLAR IS TRADING AT ABOUT $50 PER SHARE, VERSUS A HIGH ONLY A YEAR AGO AT $80.  LOOKS LIKE A TERRIFIC INVESTMENT!!

INVESTORS FOR GOOD REASON ARE AVOIDING THESE “GOVERNMENT PROPPED UP” INDUSTRIES – A SURE  SIGN THAT ANOTHER “FACEBOOK” TYPE STOCK OPERATION IS IN PROGRESS…

INVESTORS ARE VERY MUCH AWARE OF THE TYPE OF DATA I PRESENT BELOW ON COST-EFFECTIVENESS – AND HOW HOMEOWNERS AND BUSINESS VIEW INVESTMENTS IN SOLAR.

First Solar – going bankrupt bit by bit – using your tax dollars – and under Obama’s watchful eye…

GOOGLE “FIRST SOLAR” AND SEE FOR YOURSELF WHAT IS HAPPENING TO YOUR TAX DOLLARS BEING THROWN AROUND BY DR. CHU AT THE DEPARTMENT OF ENERGY AND BY PRESIDENT OBAMA.

In comparison to conventional hydrocarbon fuels such as coal or oil in generating electricity, the cost of solar energy is significantly higher. To compare energy cost, a common equivalent is required. We can develop a framework to measure energy costs by converting costs to kilowatt-hours (KWH).

For example, a ton of coal on the average produces approximately 6,182 KWH of electric at a cost of about $36 per short ton (2,000 pounds). Under this measure, coal cost about $0.01 per KWH. In comparison, a barrel of oil at $70/barrel produces 1,700 KWH at a cost approximately $0.05 per KWH. Today, at $105 per barrel, the cost per KWH is approximately 0.75 cents. Let’s provide some measures to understand energy costs.

Energy Comparison

1 ton of coal = 6,182 KWH

1 barrel of oil = 1,699 KWH

1 cubic foot of gas = 0.3 KWH

Energy Costs

1 ton of coal costs $36 = $0.006 per KWH

1 barrel of oil costs $105 = $0.075 per KWH

1 cubic foot of gas $0.008 = $0.03 per KWH

Now, how about solar energy systems?

NOTE: In the following discussion, it is important to understand that to accurately assess comparative costs, one must build a solar system from scratch, and determine lifetime benefits and costs on that basis…Many seem to forget that important fact….compared to existing, fully-capitalized coal, natural gas or oil-based solutions…..It is really surprising how many proponents of alternative energy systems either conveniently forget these facts – or are simply unaware of existing(versus “built from scratch”) energy systems…..Don’t make the mistake that many who write and cannot understand(or accept) the following analysis….thanks for reading…

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In comparison to solar energy, the hydrocarbon fuel costs are significantly lower without rebates, tax benefits or the cost of carbon emissions. A five–Kilowatt (KW) home-based solar energy system costs about $45,000 and covers roughly half of a typical American household’s energy needs. At $45,000, a solar energy system equates to $9,000 a kilowatt. The $9,000 per KW for solar is not very helpful in comparing electric generation costs to other fuels like coal or gas. Since coal, oil, and gas can be measured on a cost per KWH, we should measure solar costs on a KWH basis.

Some of the considerations for a home-based solar energy system include the 20-to-30 year lifespan of the system and the hours of available sunlight. The hours of available sunlight depends on latitude, climate, unblocked exposure to the sun, ability to tilt panels towards the sun, seasonality, and temperature. On the average, approximately 3.6 peak sunlight hours per day serves as a reasonable proxy to calculate the average annual output of electric from solar energy panels.

We now Calculate Solar Energy Costs

Average system costs = $95 per square foot

Average solar panel output = 10.6 watts per square foot

Average solar energy system costs = $8.95 per watt

In order to compare the solar energy costs to conventional hydrocarbon fuels, we must covert the $8.95 per into KWH. Let’s make two calculations to measure the total electric energy output over the lifespan of the solar energy system. The first adjustment is to convert solar direct-current (DC) power to alternating current (AC) power that can be used for household appliances. The conversion of DC to AC power results in an energy loss of about 10 percent for a solar energy system. The second calculation is to approximate total electric output by multiplying the average peak hours of sunlight (about 3.63 hours per day) times 365 days times 20 years (the product lifespan).

For our 5-KW solar energy system costing $45,000, the conversion to KWH is as follows:

5 KW times 90% = 4.5 KW – (Conversion of DC to AC power)

4.5 KW times 3.63 hours = 16 KWH per Day

16 KWH x 365 = 5,962 KWH – (Average Annual Output)

5,962 KWH x 20 years = 119,246 KWH – (Total output over 20 year lifespan)

So a $45,000 5KW solar energy system produces about 119,246 KWH of electric over its lifespan, meaning the average cost equals $0.38 per KWH. ($45,000 divided by 119,246 KWH)

The relatively high solar energy costs in comparison to conventional fuels will only improve with substantial utility rebates and extensive government tax incentives. In addition, solar panel prices may decline as volume production increases. Solar cell manufacturers employ similar production methods as semiconductor suppliers and benefit from economies of scale.  China is currently the world’s major supplier of solar panels – US solar projects purchase most of their panels from China – while they complain of unfair competition due to Chinese subsidizing of these industries.

Actually, US union scale labor and overhead costs of retirement and pension programs are a major reason that the US cannot currently, and likely in the future, will not be able to compete with Chinese  solar panels.

The chart above may improve(with respect to oil, gas and coal) as Chinese prices come down, providing the Obama administration does not slap high duty taxes on such imports to “level the playing field”.  This is unlikely since Obama does not have the guts to get into  trade war with China – even though he touts US based solar energy.

FIGURING BREAK-EVEN POINT FOR HOME-BASED SOLAR SYSTEMS

Remember, in the following example, this is the BREAK-EVEN point – not the point where you are saving money by having a solar system installed on your home.

You or someone you know might be wondering whether to invest in solar panels.  It’s fun to watch the electric meter run backwards and sell unused electricity back to the power company; however, it’s also important to determine how long it will take for your energy savings to offset the initial installation cost.

Here are some important factors to consider.  Of course, there are many other criteria to consider, but we’ll focus on the main points for this simple example.

>> What is the average cost for energy/electricity in your area?

>> Is there a government subsidy on your solar panel investment?

>> How much power will each square foot of panel produce each year?

>> What is the installation cost, per square foot, of these solar panels?

>> How many square feet of roof space do you have available?  Will this generate sufficient power?

>> What is your estimated interest rate?  This may take into consideration things such as inflation, market rates, etc.

Here is a relatively simple (and hypothetical) example to consider …

The average cost for energy in your area is $0.15/kWh.  The government subsidizes 60% of your initial investment.  Each square foot of solar panel produces 20 kWh every year.  The cost of installation per square foot of solar panel is $100.  The building has 400 square feet of available roof space.  Assume that your rate of interest is 7% per year.  This is only a sample case – use actual numbers for your specific case in the calculations below.

Ok, now we’re going to determine the breakeven point.

Let’s calculate what your initial investment would be:  400 square feet of roof space * $100 per square foot = $40,000.

With a 60% government subsidy, you would only pay 40% of the initial investment:  0.4($40,000) = $16,000

To find the breakeven point in years (N), we set the initial investment equal to the annual energy savings as follows …

$16,000 = (400 square feet)(20 kWh/sq ft-yr)($0.15/kWh)(P/A, 7%, N)

40/3 = (P/A, 7%, N)

Note that P/A means to find the present equivalent worth given an annual worth.  Since you’re dealing with annual savings, you have to convert it to the present, just as the initial $16,000 investment is in terms of present worth.

The formula for P/A at 7% for N years is as follows:  [(1+0.07)^N - 1]/[0.07(1+0.07)^N]

Simply set this formula equal to 40/3 above, and solve for N to find the breakeven point in years (you can solve this with a computer, graphing calculator, etc.).  For this example, solving for N yields approximately 40.025 years to break even!

As mentioned before, this is a relatively simple example.  There may be many other factors to consider in real life.  Nevertheless, this is a good model to play around with.  Experiment with varying interest rates, installation costs, square footage, goverment subsidies, power production, average cost of electricity, and more.

Just remember – the push to go “green” with solar, whether on your rooftop or on the desert floor somewhere in Southern California or Nevada is not cost effective at current system costs…So, unless you have a lot of extra money burning a hole in your pocket during this continuing recession, or get suckered into one of those “zero cost” solar systems, we suggest you stay away from Obama’s program to bankrupt the medium income family by way of “green” energy programs, $50 dollar light bulbs, windmills which eventually will kill all the songbirds in your garden and electric cars constructed out of discarded cereal boxes—built around lithium-ion batteries which either  don’t work(ala the VOLT) or simply explode when you hit something  solid with your cereal-box-built car…

Even the VOLT was taken off the market after mediocre response from the public – which found that each VOLT was in fact being underwritten by about $250,000 each by the Obama Administration and most of the few thousand cars purchased were bought by the Federal Government….In the real world, we call that being a SHILL…

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Responses

  1. Where is the discussion of the cost of the plant and equipment for fossil fuel generation? Solar may be more expensive, but if you compared apples to apples on the bar chart, solar would have zero cost as sunlight is free – and much cheaper than fossil fuels which have a price.

    • Non-recurring costs of fossil fuel systems are already included in these numbers. Unfortunately, the comment made by the observer(Barry Monette) is one which is commonly in error in discussions of energy comparisons…Systems producing coal, for example, were built years ago and the only costs associated with them today are recurring…as one can see by driving through my home state of North Dakota where large steam shovels(purchased years ago and already written down on taxes) pull lignite coal from the ground and use it only a few miles away in one of the largest coal fired plants in the Midwest. The “price” that is noted in Monette’s comment is simply the recurring cost noted…that of pulling the coal from the ground and transporting it to market a few miles away…again, a common mistake made by promoters of alternative energy programs.

      • Systems producing coal, for example, were built years ago and the only costs associated with them today are recurring.

        Yes, they were built years ago and heavily subsidized then and if valued at fair value would cost many many times more. The real estate costs back then were considered to be zero, as well as the environmental costs, and workers dies building this stuff because there were no safety standards. Governments subsidized capital costs but accounting for the costs through general revenues and expenses. For decades now major utilities have been adjusting these costs, and have ignored decommissioning costs and so forth.

        But solar is getting cheaper, and in addition to not needing fuel does not need transmission lines and all that line loss, or need a truck or boat to bring the fuel when it is available.

        But solar is NOT the cheapest clean tech and was never claimed to be so.

      • Barry – thanks for your well-informed comment – yours is far more “on the bubble” than some of the other “expert” opinions I get from die hard tree-huggers who think they have a handle on current or future costs of production and conveyance of energy…Australia/Tasmania engineers have developed a method for capturing the carbon from power plants and turning it into production items such as car tires and batteries…for some reason, our esteemed Department of Energy has ignored such developments because they are ideologically driven. We will continue to throw good money after bad since the public has been conditioned to believe the media crap about global warming, ethanol, algae and switchgrass-based fuels…as long as the administration had a media lapdog who parrots the ideological bent, we will continue to subsidize all types of projects which will not move us out of the dependency problem we are in…and Obama will continue to be given solid gold pendants by the King of Saudi Arabia as long as we continue to send them money for oil and pretend to solve our energy dependency by alternative means… I come from West Central North Dakota where oil and coal are king(next to durum)…without the energy that the coal systems a few miles from our ranch produce, our electrical energy prices there would rival California or Hawaii…

  2. I believe your numbers are a little skewed to make your point. A typical system capable of producing 10,000 kWh per year is now running in the neighborhood of $30,000. (33% less than your quote, yet twice the capacity). This is a system that is performance qauranteed to produce the 10K kWh and I don’t believe that you are using an AVERAGE COST of .15/kWh! My absolute lowest tier rate is .13/kWh which I blow through in the first week. Tiers 2, 3, 4, 5 go astronomically higher from there at .16, .25, .28, and finally .32/kWh.

    The 10K kWh system is only 19 panels so it DOES NOT take up all of the claimed 400sq/ft of roof space.

    Solar stock trading at 25% of its high trading point, um have you bothered to look at some of the biggest blue chip companies lately? Not much better, if at all.

    Non-recurring costs of fossil fuel systems is already figures into the example? Come on- maintenance, attrition, labor, insurance, operating costs, pollution and green house gas production. At the least, you could acknowledge that the crap spewed into the air by the production of your fossil fuel based energies is considerably more harmful that the one-time production of a solar panel. Yes, the production of a solar panel does involve the generation of pollutants, but it is a one and done scheme, where as the fossil fuels process is ongoing and getting worse as your “purchased years ago and written down on taxes” equipment becomes even more absolete and even less environmentally friendly than its best day when it rolled off of the production facility line.

    There is a place for fossil fuels but it is not the optimum energy source for sustained operation. Homes are perfect hosts for solar energy consumption and the prices have dropped considerably, while the efficiency and reliablity have increased tremendously. Let’s not discount the rebates available from Federal, State and Local governments as well as the tax incentive implications. At around 30%, the tax benefit just dropped the actual cost of the $30,000 solar system to $21,000.

    The cost of solar generation will not increase over the life of the system, but I will bet my next years salary that the utility companies will raise my rates EVERY YEAR by no less than 3% (6% has been the average). So my .13/kWh Tier 1 price with Edison will be more than tripled in 20 years to more than .35/kWh, which is the time frame you have provided in your examples. That’s just Tier 1!

    We need to marry the fossil fuels and solar production entities to use the correct system where applicable and available.

    • These are interesting comments – but unfortunately, even solar manufacturers and installers state otherwise.


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