Annual Electricity Cost of PV by Operational Year (2010)

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Does This Shape Motivate Us To Install More Solar PV?

Ken ZweibelExecutive Director, GW Solar Institute

The George Washington Universityzweibel@gwu.edu

http://solar.gwu.edu/ http://thesolarreview.org/

Society Is Investing to Cut CO2 and Gain Energy Price Stability

• This means local sources of energy that minimize CO2– Wind– PV– Nuclear– CCS (carbon sequestration)– CSP– Others (and energy efficiency)

• The question is: What is affordable?

To First Order, Current PV Can Look Unaffordable

• Big systems (a few MW, ground and roof)– 15 c/kWh in the best sunlight

– 20-25 c/kWh or more, most places in US

– 30 c/kWh in a few places

• Residential (small systems, a few kW)– About 50% more

The History of PV Has Been Cost Reduction

• Thus there is a sense that PV is worth investing in at some level because the costs have fallen consistently with such investment

What about that shape?

• PV runs without fuel for an indefinitely long period – almost no operating cost once paid off

• Can have no moving parts or on-site labor• Now: 25-30 year warrantees at under 1% degradation per year• Discussion of 40 year warrantees• Conceivably could be designed to last 100 years at 0.5% annual degradation

– 50% of original output in 100 years– If electricity escalation > 0.5%, revenue would rise for a century– Or could design to include enough annual replacement to keep output

steady• No known PV system has modules that are uniformly dead, no matter how old it is (older than 40 years, now)• To do: Gather more reliability data PV O&M is

Boring even to the Maytag Man™

Annual Electricity Cost of PV by Operational Year (2010)

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$3/W large, fixed flat-plate PV system in US Southwest sunlight (a third better than US average).Includes 0.5% replacement per year (at 75% of today’s high prices) to offset expected system degradation (a conservative assumption since not everything will be replaced and efficiency will improve and costsdrop).

End of Loan Repayment

Operating costs only

Does Long, Low Cost Operation Provide an Opportunity?

• Does it mean PV is already cost-effective?– That we don’t have to wait for cost reductions to rapidly

deploy PV?• Does it mean that PV anywhere is almost as good as

in the sunniest places– Since operating costs only rise from 1.5 c/kWh to 2.5

c/kWh – so what?• Like Germany

• Structured as an annuity or real-estate investment trust, with all capital paid in, PV could be a “nearly perpetual” and dependable source of income to the owner

A Work in Progress

• We must evaluate the real comparative cost and values of the non-CO2, local sources of energy– And this includes their role (daytime electricity versus

night?)– And their limits (variability and the cost of compensating

for them)– And smart grid, plug in hybrids and EVs are changing this

continuously– And the way we define future value (e.g., those years at

low cost) driven by discount rate assumptions– Discount rates totally change such valuations

• 2% for government funded projects like infrastructure• 5% for private business choices

Infrastructure (Lasts a Long Time, Costs a Lot at First, and Is Worth It)

• Hoover Dam, Fluorescents, and LEDs (clean; eventually cheap)

• Haiti – building codes, public health (insurance against unacceptable risk (climate and supply))

• Replacing Lead pipes, asbestos (stop poisoning ourselves; rip them out even tho they ‘work’)

• EV (imported oil, dependable sources, without hidden expenses and potential catastrophes, like war)

• Water use reduction

What Discount Rate?Private Discount Rate• At a discount rate of 2.2% or higher, coal

(no CCS) with 2% fuel escalation (above core inflation) is a better investment than PV despite fuel inflation

• Yet society is exposed to unknown fuel price escalation, and owners to potential losses from lower electricity price competitors

Infrastructure Discount Rate• But at a very low discount rate (under

2.2%), PV is a better buy than coal

• And under 5.4%, PV is a better buy than CCS (same fuel escalation)

OMB uses 2%;The private sector, 5% or more

Annual Electricity Cost by Operational Year (2010)

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Is there some ‘devil take thehindmost’ in the high discountrates? (financial crisis)

Solar Annuity or Real-Estate Investment Trust

• Long lived, safe investment, valid for retirement accounts and individuals

– Perpetual PV with 0.5%/yr additions

– Safer than commercial real-estate

• Barrier

– Today’s PV Initial Costs don’t support adequate returns

• Existing investment tax credit (ITC) cannot be used, since initial taxes are less than the tax credit

– Tax credit is bad because about a third of ITC goes to bank fees for the deal

• Solution

– Rebating ITC-equivalent to raise return to ~5%

• Rebate is a defensible exception for Treasury since it

– Goes to individuals through regulated entities (REITs and Insurance)

– Safer than equivalent investments

• Result: more investment in PV and broader value for citizens

Possible Societal Algorithm• Recognize this is an infrastructure and insurance issue, like roads and building

codes

• Decide how much of the value (clean, cheap, here) provided by non-CO2 sources is desirable

• Set aside appropriate annual Federal investment for this value

– $1B/yr? $10B/y? $100B/yr??• Buy these sources to meet this

societal need

– Government-owned, like Hoover Dam or TVA

– Or incentivized, with private ownership

• REITs and Annuities

• Enjoy a better, more responsible future

Thanks

Case Loan Duration (years)

Interest Rate

Capacity Factor

Fuel Escalation

Time to 75% Replacement

Fuel Cost ($/kWh)

OM per kWh

OM per kW

Capital ($/kW)

PV 20 6% 22% 0% 200 0 0 15 3000

Nuclear 20 6% 85% 0% 40 0.005 0.02 30 6000

Coal 20 6% 85% 0% 40 0.02 0.02 20 3000

Natural Gas

20 6% 85% 0% 40 0.04 0.01 20 1000

CCS 20 6% 85% 0% 30 0.03 0.03 30 5000

CSP + 25% nat gas

20 6% 37% 0% 40 0.01 0.03 80 4600

Wind 20 6% 30% 0% 20 0 0 40 1800

2010 Assumptions

Only Society Can Make This Choice

• Alvin Weinberg has posed this question previously in an Energy Policy article: “If the [power] plants produce electricity from one of the inexhaustibles…then the cost of electricity can be expected to become very low, perhaps around 1 c/kWh. Ordinary economics discounts the future at a rate that reflects our uncertainty about the future, as well as the realities of today’s money markets. Should we discover that these gadgets last “forever,” economic doctrine would still forbid our investing in them rather than in more immediate gadgets whose lifetime, and payoff, is much shorter. Large, “immortal” energy systems might acquire much the same status as roads or bridges – part of society’s infrastructure, for which society is willing to pay more than strict economic accounting would dictate. Thus a political decision, one dictated by the broad concern for the future, may be the only way to switch to the low cost “immortal” energy system.”

• A. M. Weinberg, 1985, “Immortal energy systems and intergenerational justice.” Energy Policy 13(1):51-59.

15 c/kWh

• 1 W of PV in US SW produces about 1.8 kWh/yr

• Big systems going in for $3/W

• A 6% 20 yr loan on $3 is $0.26/yr in principal and interest

• $0.26/1.8 kWh = $0.144/kWh

• Assume added 1 c/kWh O&M

• ~15 c/kWh cost for large systems, sunny climates