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The Misconception of Price

 

Solar energy has suffered a long and painful misconception of being too expensive to be considered seriously by state and federal legislators as a power producer. So much so in fact, that in a very public manner, legislators which misguidedly stand in the way of solar energy have attempted to codify the expense as being too great through statements associated with proposed legislation. Not only is the type of legislation proposed damaging to the solar market, but it ensures the perpetuation of both the perception of being too expensive and the increased cost associated with an underdeveloped solar industry. Legislation such as the example below is the type that weakens the industry and tips the RPS further in the favor of utility companies that view solar energy as a threat to the centralized power generation model.

House Bill 1102, sponsored by Virginia Del. Jackson H. Miller, R-Manassas, would allow any investor-owned electric utility company participating in the renewable energy portfolio standard program to meet certain program requirements through renewable and alternative energy research and development.

Miller said the legislation would encourage electric utilities to partner with either private-sector companies or Virginia colleges and universities to meet the requirements.

“I think it’s a great opportunity for our universities to get more research dollars coming through their doors as well as a great opportunity for some of the renewable energy systems that are not quite where they need to be for affordable energy,” Miller said.

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My first reaction upon reading this was probably the same as yours. “WHAT THE…!? REALLY?!” then I read it again, twice. And again my response, “REALLY?!”.

One of two possibilities exists. Either the utility companies are responsible for writing the legislation that governs them, or delegates in states like Virginia are actively enabling the weakening, cheapening, and abuse of the RPS because they really BELIEVE that solar and other renewables are still too expensive. My suspicion is that the education on renewable energy provided to legislators is largely provided by utility companies.

Therefore, both possibilities must exist simultaneously. So as part of an attempt to educate both the reader and any potential lawmakers that may happen upon this, here is a quick rundown on the cost of solar energy.

Let’s be honest for a moment… Solar technology and other renewable energy sources are already cheaper than coal, oil, or methane gas. And the industries responsible for making strides have done a great job in improving the respective technologies through market forces in the existence of viable markets (see my speech titled Moore’s Law http://www.abakus-solar.us/blog/moores-law from the 2011 Virginia Governor’s Energy Conference).

In a direct comparison with solar energy, the price of traditional energy increases over time, where solar energy decreases exponentially. On a simple graph taking the current retail price (10 cents) for traditional energy and indexing (escalating) at a very conservative rate of 3% annually, then comparing the cost of a standard 5kWp solar installation in Virginia ($3.80/Watt) minus the 30% federal tax credit divided by the cumulative energy produced annually (1300kWh/kWp/a in Virginia). The reason for taking the tax credit into account initially is that it isn’t possible to remove the subsidies provided to traditional energy sources, so solar is calculated with subsidies in place. The result is the graph below.

 

Basically, the absence of fuel costs allows solar energy to decrease in price over time from the first day of installation. Not to mention, 30 years of solar energy is paid for up front. The standard warranty for solar modules stands at 25 years, which translates into a 30 year useful life for the product.

In summary, solar energy is cheaper than traditional fuel based energy sources. With the right policy to spur investment in renewable energy infrastructure (solar in particular), energy prices can be stabilized with only short term energy price increases to facilitate the initial investment and ramp up phase. Over time, the increases become negative, dropping consumer energy prices.
The misconception that solar is still too expensive is the biggest obstacle facing the solar industry. As long as that type of miss-education persists, we can expect more of the destructive legislation that weakens one of the brightest hopes for 21st century economic development in the USA.

  • Gail

    In our family it isn’t the overall cost of solar that is prohibitive, it is the initial investment. To get set up and running is far to expensive for ” the average guy.” We would love to go solar, but with a family to raise and the economy in the pits we would never choose to make such an expensive purchase. Is there no way the industry can make it less expensive to get started?

    • James Huff

      To Gail,
      I am glad that you raised this point from the homeowner perspective, and as a result, I will write an additional article describing the methods for obtaining solar without the out of pocket pain. To give a short preview, there are already a lot of different mechanisms out there that allow homeowners to get solar using traditional lending sources and home equity lines. Often times, the homeowner will experience a monthly decrease in expenses due to the fact that the solar asset on their roof is generating a greater degree of cash flow than the amount by which the mortgage increases – placing the homeowner in a cash positive situation from day one. The only prick that is felt is from closing costs. Give us a call at (804) 562-6402. Part of our services include pairing homeowners with lenders that help them in the transition as painlessly as possible.
      Yours,
      James Huff