Economics of solar PV in the United States

Report
What is “socket” parity and is
rooftop solar PV there yet without
subsidies?
Shelly Hagerman
Advisors:
Granger Morgan and Paulina Jaramillo
May 20, 2014
1
Background
• Growing need for renewables
– Focus on wind and solar
• Federally subsidized by the Investment Tax
Credit (ITC)
– 30% of upfront capital costs
– Set to expire at end of December 2016
• State and local subsidies
– Tax incentives, rebates, loans, etc.
2
Research Questions
• Is residential solar at “socket” parity?
– Technology breaks even when paid retail
electricity price.
• If not, how to get there?
– Cost reductions
3
How to assess socket parity?
Method
Scope
Shortcomings
Literature
Levelized cost of
electricity (LCOE)
Capital cost, capital
recovery factor,
average capacity
factor
Omits electricity
prices (revenues).
Time value of
money not explicit
Fairley 2013,
Darling et al. 2009
Payback period
Capital cost,
average annual
production,
average electricity
price
Average values for
the entire project
lifetime. Does not
account for time
value of money
Hay 2013, Richter
2009
Net present value
(NPV)
Capital cost,
More complex
annual production, than LCOE or
electricity prices,
payback period
financing details,
discount rates
4
Hay 2013, Richter
2009, Banoni et al.
2012
Calculating the NPV
Capital Cost (Installation Cost)
Residential Electricity Price
Solar Insolation
5
Required Inputs
Financing (rate, term)
Discount Rate (DR)
Module Characteristics
System Size (4 kW)
Operation and Maintenance
Parameters
Output
Electricity Price Escalation Rate (ER)
Net Present Value (NPV)
Parameters Used
• Retail Price of Electricity
– State average residential prices [EIA]
• Escalation Rate of Electricity Prices (2-5%)
• Discount Rate (7%)
• System Details
– 4 kW, 25 year lifetime, 0.5% degradation rate after
initial 3% loss in first year1
• Financing
– 15-25 years, 5-8% interest rate
1
6
S. Roe, “Solar Efficiency Losses Over Time.”
Installation Costs ($/W)
Region
7
20th Percentile
Median
Northeast
4.3
5.1
Mid-Atlantic
4.4
4.7
Southeast
4.6
5.6
Midwest
4.6
5.8
Southwest
3.9
4.6
Northwest
4.5
5.1
Texas
3.5
3.9
California
4.8
5.7
Hawaii*
4.6
5.6
Alaska*
4.6
5.6
Values based on NREL PV Pricing Trends 2013
* Information not available. Applied average range for 2-5kW systems.
Residential Electricity Price
(Sept 2013 State Averages)
8
Based on EIA Electric Power Monthly
Energy Produced by System
• Using Sandia PV Performance Model
– Sun-Earth geometry
– Solar insolation
– Module performance characteristics
• U.S. weather data from 1011 stations
– Typical meteorological year (TMY)
– Locations across all 50 states
9
Energy Produced by 4 kW System
10
Scenarios for Evaluating NPV
Variable
Pessimistic
Estimate
Best Estimate
Optimistic
Estimate
Median Values
20th Percentile
20th Percentile
Loan Interest Rate
8%
7%
5%
Loan Term (years)
15
20
25
Electricity Price
Escalation Rate
2%
3%
5%
Installation Cost ($/W)
11
NPV Pessimistic Estimate
Features:
Median installation costs
Electricity Price ER = 2%
Loan Interest Rate = 8%
Loan Term = 15 years
12
NPV Best Estimate
Features:
20th Percentile installation
costs
Electricity Price ER = 3%
Loan Interest Rate = 7%
Loan Term = 20 years
13
NPV Optimistic Estimate
Features:
20th Percentile installation
costs
Electricity Price ER = 5%
Loan Interest Rate = 5%
Loan Term = 25 years
14
Socket Parity Summary
15
Scenario
Number of states at socket
parity
Pessimistic Estimate
0
Best Estimate
1 (Hawaii)
Optimistic Estimate
1 (Hawaii)
Break-even Analysis
Pessimistic Estimate
Optimistic Estimate
Best Estimate
16
Sensitivity Analysis
Variable
Median
80% of 20th
Percentile
Loan Interest Rate
8%
0%
Loan Term (years)
5
30
Electricity Price
Escalation Rate
2%
7%
Discount Rate
0%
10%
Wholesale
2013 Retail
Installation Cost ($/W)
Starting Electricity Price
17
Pessimistic Limit Optimistic Limit
Conclusions
• These results suggest that residential solar PV
is still not at “socket” parity in most of the U.S.
• Mean break-even cost of $1.5-$2/W for
“socket” parity without subsidies
18
Future Work
• Cost of variability
– Regional variation of cost to grid and technology
performance
– Use of empirical data to evaluate solar output
aggregation effects
• Optimizing subsidy allocation
19
Acknowledgements
• ClIMA Research Group
• This work was supported by academic funds from
the Department of Engineering and Public Policy,
by the program for Graduate Assistance in Areas
of National Need (GAANN) of the U.S.
Department of Education, by the Department of
Energy under Awards DE-OE0000300 and DEOE0000204, and by the NSF center for Climate
and Energy Decision Making Center (CEDM) (SES0949710).
20

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