Solar

Utility-scale PV

Customer-sited PV

PV cost factors

Solar resources

Grid-connected PV

PV technologies

PV information

Large-scale central generation plants are great ways to deploy large amounts of solar equipment and gain installation experience, supply energy for green power programs and score high marks with customers. But the electricity coming from them is expensive. A 100-kW system would cost between $600,000 and $800,000. For utilities interested in PV power, yet unable to justify such costs, an alternative is to encourage the market development of residential and commercial customer-sited systems (also called solar distributed generation). These PV systems are typically a few hundred watts to tens of kilowatts or as much as 100 kilowatts for systems on commercial buildings, owned by the customer and installed at the customer's home or business to supply part or all of the customer's power needs. There are several drivers for utility interest in customer-sited PV systems:

• Residential and commercial customers have access to financial incentives for installing PV that can make it more economical than utility-owned generation, such as rebates, tax credits and net metering;
  
  
• Utilities can maximize their dedicated solar energy funds to meet internal goals for PV generation because customers bear a portion of the cost burden in distributed generation PV systems;
  
  
• Whether motivated by the desire for "energy independence," to freeze a portion of the electric costs over the long-term, or to support clean energy, some customers are willing to invest on these technologies despite paybacks of 10 years or more;
  
  
• Compared to wind or geothermal resources, the solar resource is far less site-specific and is basically available anywhere the sun shines;
  
  
• PV systems are modular and can be expanded incrementally;
  
  
• Distributed generation PV applications can use existing built spaces, such as customers' rooftops.
  

Utility Business Models for customer-sited PV

A few business models exist for assisting in the commercialization of customer-sited PV systems. A common method that utilities use to support customer-sited PV is through direct subsidization of customer's systems. Utilities use systems benefit funds specifically for renewable energy projects, some of which is dedicated as system "buy-downs" on the installation of residential and commercial PV systems. There are two distinct business models here: using utility funds to subsidize systems provided by an independent retailer or distributor, and using these funds to support systems installed or sold directly by the utility.

Utility PV system retail program

In its PV Pioneers program, the Sacramento Municipal Utility District offers standardized PV system packages of various sizes to residential and commercial customers through a utility retail program.These packages are a turnkey product, that is the utility provides all the necessary system components and services (inspection, system design and installation) required to get the system operating. SMUD offers buy-downs only on systems purchased though its retail program.

SMUD has implemented a multi-year multi-megawatt commitment to expanding production and bringing down PV costs through a program of sustained orderly development and commercialization. The utility has entered into long-term volume purchase agreement with PV module and inverter manufacturers to bring down the near-term costs. This lowers the system retail price for customers and enables SMUD to maximize the funds it has earmarked to subsidize customer systems. For more information on SODC or for aggregated purchasing opportunities, contact SMUD's Jon Bertilino.

Utility PV rebate program for all systems

The Los Angeles Department of Water and Power, following a more common utility approach, does not sell PV systems directly to its end-use customers. It does, however, offer "buy-downs" to customers in its territory who purchase systems that meet its performance qualifications (these are industry standards). The buy-down incentive increases if a customer purchases a system using equipment manufactured within the city of Los Angeles or from Siemens Solar Industries. While SMUD's subsidies are only available on the pre-packaged, standardized PV packages it sells, LADWP provides buy-downs on any system through a qualified third party contractor, of any size from a minimum of 300 watts to a maximum of 100 percent of the customers' electricity consumption. LADWP does not, however, provide inspection, design or installation services; the customer is responsible for finding the contractors to complete these steps. LADWP's program has been so successful that it's 2003 to 2004 budgeted is fully allocated and it is no longer accepting applications. Other municipal utilities that use this model are Anaheim Public Utilities and Pasadena Water and Power.

For more information on Austin Energy's very aggressive solar energy goals see the utility's public Strategic Plan.

Loans for Solar Electric Systems

In Austin Energy's Solar Loans program, the utility offers low-cost loans to purchase and install solar electric power systems.

Partnership opportunities

When municipal utilities have goals for PV installation and the rebates to encourage them—but no retail program to market them directly to customers—utilities can collaborate with local stakeholders who have an interest in PV to develop local markets.

• Solar system retailer: PV technology has progressed to the point where manufacturers and mass-market hardware retailers are selling "PV in a box" – integrated systems that are relatively easy to install and are widely available. Home Depot, for example, now sells integrated and complete PV systems directly to customers. They also include access to financing and installation support. And in areas with good solar resources, there are often independent photovoltaic system retailers and turnkey service suppliers providing small-scale residential and commercial solar electric products and services. As a result, it's no longer necessary for utilities to get heavily involved in the technology – they can instead market or subsidize these systems that are already on the market. For example, a utility could work with a retailer to publicize these systems through bill stuffers, open houses, advertising, and other similar methods.
  
  
• Working with home builders: As part of its aggressive goals to install 100 MW of PV by 2020, Austin Energy is committed to the first "zero-energy affordable home" development, which will include pre-installed PV systems. Customers buying a new home with a pre-installed PV system are able to reduce transaction times and costs of hiring retailers and installers, acquiring permits and securing financing. For more information see the utility's public Strategic Plan.
  
  
• Working with Local Governments: Local governments have access to low cost financing, have large rooftops, and are inclined to show public support of renewable energy through the installation of PV system. The California Local Government Commission, using a consumer education grant for the California Energy Commission, instituted the SPIRE program – Stimulating Public-sector Implementation of Renewable Energy, which educates local governments on the procurement options, including state-level aggregation for public purchases. Although the grant has expired and the program discontinued, information related to procuring and installing photovoltaic is still updated and available on the SPIRE Web site. Or contact LGC's Alison Pernell for more information. Many local governments also have policies to facilitate small-scale installations by reducing the time and cost of the application process for siting small-scale photovoltaic (and wind) systems, including waiving applicaiton fees, streamlining paperwork and shortening waiting periods.
  
  

Costs for Customer-sited PV systems

Much like the costs for all renewable energies, the costs—and prices—for solar electricity have fallen dramatically over past decades because of technological improvements and increases in production and distribution economies. One sees widely varying cost estimates for PV-sourced electricity and because of the large number of factors that at play for a given system it is not uncommon to see the prices customers are paying for PV systems falling anywhere between 25¢ and 50¢ per kilowatt-hour. Despite these high costs, some residential and commercial customers are willing to pay extra costs and accept long pay-back periods in exchange for the various benefits they derive, including: energy independence and reliability, the ability to freeze a portion of their energy costs and a desite to make a statement in support clean energy.

The greatest value for PV is in off-grid applications. In these cases, the avoided cost of extending power lines to the end-user very often makes on-site PV generation the most cost-effective electricity option.

Installed Capital Costs: This cost measure includes all the equipment and services required in the preparation of a PV system. When cited, this figure is typically given in dollars per watt or kilowatt, and doesn't include the debt service but may include the deduction of any available rebates. Currently the ICC for grid-connected PV distributed generation systems is about $6 to $10 per watt before rebates, depending on the cost factors.

Life-cycle Cost of Energy: This cost measure is typically used to determine the levelized cost of a kilowatt-hour generated by a given system, and is in effect the price a customer pays for this electricity. It is determined by spreading the assumed total costs (capital, debt service, and O&M minus any rebates or tax incentives) over the total expected output, in kilowatt-hours, during the lifetime of the system (about 25 years for most systems installed today). The price is mostly impacted by the ICC, financing and the solar resource, and can range broadly from 20 to 40¢ per kWh.

Payback period: While the levelized cost is probably the more frequently cited figure, because it is the price a customer pays for this electricity over the lifetime of the system, it may not be the best determinant of a system's value from the owner's point of view. Instead, the pay-back period estimates how long it will take a customer to recover the investment in the system. It is influenced by all the factors considered in the levelized price but includes utility retail electricity rates. The payback period is estimated by dividing the total system costs by the total value of the electricity produced each year, that is by the annual solar electricity production in kWh times the utility retail price for electricity. Clearly, the payback rate will be shorter in areas of high or rising retail rates as installed PV system costs are fixed while electricity prices are certain to rise.

Capital Costs

Like other renewable energy technologies that don't have added fuel costs, the costs for solar power consist mostly as capital outlay followed by predictable payments debt service and operations and maintenance. Capital costs vary depending on the chosen PV technology (e.g. crystalline silicon or thin-film), installation specifics such as the type of roof and contractor costs, the size of the system and the supplier's retail mark-up. The PV modules are the fundamental components of a PV system, and constitute roughly half of the installed capital costs. Other capital costs include: the balance-of-system which includes the mounting equipment, the ac-to-dc power inverter, and the electrical wiring and connection equipment; and site evaluation, permitting, and design and installation services, (although these services are sometimes included as "BOS" as well).

Installed cost breakdown for 3kW grid-tied system

Operations and Maintenance

O&M costs for PV systems are proportionately insignificant at less than $.01 per kilowatt-hour. Fuel costs are of course zero, and scheduled maintenance consists mostly of washing the modules to remove dirt and dust. Technical failures of the modules themselves are very rare. Inverters have historically been problematic, but are showing improved reliability.

Utility retail rate and rate structures

Whether it comes from solar power or an on-site wind turbine, grid-connected customer-sited generation is intended to offset some or all of a customer's utility electricity purchases. In determining the payback periods for the system investment, the value of the electricity generated by the PV system is equal to the dollar amount of the kilowatt-hours not purchased from the grid. Therefore, higher utility rates increases the value of the solar kilowatts and decreases the time required to pay off the investment.

Some utilities have implemented rate "tiers" in which the charges a customer pays for electricity increases with consumption. In these areas, PV system owners can have shorter payback rates than those in areas without price tiers, because they are generating a portion of their own electricity and paying for fewer kilowatthours in the more expensive tiers.

Also, in California net metering has been extended to Time-of-Use commercial (and in some places, residential) customers. This adds value to the kilowatthours in those areas where peak PV output matches the highest TOU rates.

Solar Resource

Although PVs will work anywhere, the more sunlight hitting a PV system, the fewer kilowatthours a customer must buy from the utility and the more kilowatthours over which to spread its fixed costs, and the better the overall system economics. To estimate the number of kilowatthours that a system can produce in specific geographical locations, check the National Renewable Energy Laboratory PV Watts website.

System size

In general, the larger the system, the lower the per-kilowatt and per-kilowatt-hour cost. This is because some costs such as site inspection and permitting are fixed across all system sizes while retail markup, installation and the costs of some components, like the inverter, do not increase in direct proportion to the number of modules in a system. Utility-scale systems of 100 kW or more are less expensive, per unit of output, than residential or off-grid systems, largely because of installation economies.

Installation

Installation costs are influenced by the local contractor market, which is, in turn, affected by the local cost of living. Also, some roof types can complicate the installation of PV arrays, adding extra time and cost to the installation process. For example, it is easiest to install an array on composite shingles; while the Spanish tiles – found on many rooftops in California are the most difficult.

In PV Installations, a Progress Report, a paper available from the Sandia National Laboratory, the authors claim that almost half of all customer-sited PV installations are done incorrectly, impeding optimal energy production.

To minimize the potential for inefficient or faulty installations there is a national movement to certify solra practitioners and installers. The North American Board of Certified Energy Practitioners Board was formed to address the need for qualified installers. The Interstate Renewable Energy Council Web site contains information on the activities and progress of the Board's Certification Project.

Financing

How a buyer finances a system greatly impactS its economics. Homeowners most often choose a mortgage or home equity loan, or a conventional bank loan. For commercial PV owners, a company's existing sources of capital financing are often the best option. The California Energy Commission provides information on financing options for residential and commercial customers for installing PV systems.

Favorable incentives and policies

It's a simple fact that solar electricity needs financial incentives to make it economically attractive to customers, no matter how otherwise strong their motivations to purchase. Governments and many utilities have implemented a number of financial incentives and rules intended to bring down customer costs and facilitate the commercialization of customer-sited PV markets, including net metering, tax credits and rebates. Very often these incentives have minimum and maximum size eligibility requirements. For more information on any of these incentives, and their availability by state, see the Database of State Incentives for Renewable Energy.

To see current solar power activities in the California legislature, see the California Solar Center's Legislation site.